(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01316A000900050002-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 25
• Document Creation Date: December 12, 2016
• Document Release Date: January 15, 2002
• Sequence Number: 2
• Publication Date: February 3, 1978
• Content Type: CABLE

25X1A Approved For Release 2002/01/30 : CIA-RDP79TO1316A000900050002-5
Approved For Release 2002/01/30 : CIA-RDP79TO1316A000900050002-5
 1A
25X1A ONE ARTICLE FROM DE.R"S ECONOMIC INTELLIGENCE WEEKLY REVIEW
_ENDING 2 FEBRUARY 1978, REQUEST ARTICLE BE PASSED TO AMBASSADOR,
25X1
.
DCMr-ECONOMIC SECTION AND-OTHER WORKING IFVFL STATE OFFICERS.
OPEC COUNTRIES: CURRENT. SURPLUS TO DROP-IN 1978&.
(&THIS ARTICLE SUMMARIZES THE FINDINGS OF A
FORTHCOMING PUBLICATION, OPEC COUNTRIES: FINANCIAL STATUS
IN 1978, BY THE OFFICE OF ECONOMIC RESEARCH.)
1. THE 1978,CURRENT ACCOUNT SURPLUS&& (&i8ALANCE ON GOODS,
SERVICES, AND PRIVATE TRANSFERS,) OF OPEC COUNTRIES
WILL PROBABLY DECLINE TO $36 BILLION FROM $45 BILLION IN
1977, GIVEN THE RECENT FREEZING OF THEIR OIL PRICES AND
THE CONTINUED RISE IN THEIR IMPORT PRICES. SAUDI ARABIA
AND THE UNITED ARAB EMIRATES (UAE), TWO OF THE WEALTHIEST
..OIL PRODUCERS, WILL ABSORB ALMOST THREE-QUARTERS OF THE
DECLINE. THE IMPACT OF THE FREEZE ON THE FINANCIAL POSITIONS
OF INDIVIDUAL MEMBER COUNTRIES DEPENDS ON THEIR OIL
PRODUCTION, ASSET HOLDINGS, PATTERNS OF FOREIGN TRADE,
AND DEVELOPMENT AMBITIONS. IF OIL PRICES SHOULD RISE
MODERATELY IN JUNE, LITTLE FINANCIAL IMPACT WILL BE FELT
WITHIN OPEC COUNTRIES BEFORE 1979,
2. PROJECTIONS OF OPEC OIL EARNINGS FOR 1978 WERE
BASED ON EXPORT ESTIMATES OF 29.9 MILLION B/D VALUED AT
YEAREND 1977 PRICES. THE PRICES OF OPEC IMPORTS WERE
ASSUMED TO BE 6 PERCENT HIGHER THAN IN 1977, A FIGURE:
B A A RE SE
MA J O R E S t~ ,A%A~I~A'T-E S 4 -110)gfbT1%'46AI6 0b050002-5
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SURPLUS COUNTRIES.
3. KUWAIT, QATAR, SAUDI ARABIA, AND THE UAE WILL
RUN MASSIVE CURRENT ACCOUNT SURPLUSES IN 1978 RELATIVE TO
THE SIZE OF THEIR ECONOMIES, AS THEY HAVE FOR THE PAST
FOUR YEARS. THEY WILL RECEIVE 40 PERCENT OF TOTAL OPEC
OIL REVENUES THIS YEAR, DESPITE PRODUCTION CUTBACKS BY
SAUDI ARABIA AND THE UAE. SAUDI ARABIAN OIL PRODUCTION
IS EXPECTED TO FALL BY 890,000 B/D IN 1978 TO MEET A
GOVERNMENT-IMPOSED PRODUCTION CEILING OF 8.5 MILLION B/D.
. 4, THIS YEAR THE FOUR COUNTRIES WILL INVEST ABOUT
$20 BILLION IN WESTERN--FINANCIAL MARKETS, ALREADY AWASH
WITH EXCESS LIQUIDITY, ON THE ADVICE OF WESTERN INVESTMENT
COUNSELORS, THEY HAVE BEEN EXPANDING THE LONG-TERM PORTION
"0`F"THEIR FOREIGN ASSET HOLDINGS TO INCREASE THE RATE OF
RETURN ON THEIR PORTFOLIOS. THE BENEFITS OF'A LONGER .
MATURITY STRUCTURE OF ASSET HOLDINGS WERE PARTIALLY OFFSET
BY. THE DECLINE IN LONG-TERM INTEREST RATES IN 1976; IN
GERMANY, JAPAN, AND.THE UNITED. KINGDOM,. THE DECLINE
CONTINUED IN 1977.
.5, THE FOUR NATIONS ARE ESPECIALLY INTERESTED IN
MAXIMIZING INVESTMENT. INCOME BECAUSE THEY WILL HAVE TO
RELY HEAVILY ON THIS INCOME TO PAY FOR IMPORTS AS-OIL
RES.OU_RCES ARE DEPLETED. THEY RECOGNIZE THE LIMITED
POTENTIAL OF THEIR DOMESTIC ECONOMIES TO DEVELOP
ALTERNATIVE EXPORTS TO REPLACE OIL.
6. DESPITE A 10-PERCENT DECLINE IN 1978, THE LIBYAN
CURRENT ACCOUNT SURPLUS WILL REMAIN LARGE RELATIVE TO THE
SIZE OF.ITS ECONOMY. LIBYA SPENDS A LARGER SHARE OF ITS
OIL EARNINGS ON IMPORTS THAN KUWAIT OR THE UAE, COUNTRIES
THAT EXPORT A SIMILAR AMOUNT OF OIL AND ALSO HAVE SMALL
POPULATIONS. ALTHOUGH LIBYA CANNOT EXPAND OIL PRODUCTION,
THE MAGNITUDE OF ITS OIL EARNINGS--A PROJECTED $11 BILLION
IN 1978--WILL PERMIT IT NOT ONLY TO INCREASE IMPORT
EXPENDITURES BUT ALSO TO CONTINUE LENDING FUNDS TO THIRD
WORLD COUNTRIES.
7, IN 1978 IRAN AND IRAQ WILL RUN LARGE CURRENT
ACCOUNT SURPLUSES FOR THEIR SIZE BUT WILL NOT BE FLOODED
WITH EXCESS FUNDS LIKE KUWAIT, SAUDI ARABIA, AND THE UAE.
IRAN AND IRAQ HAVE FAR MORE POTENTIAL TO DEVELOP VIGOROUS
NON-OIL SECTORS AND HAVE EXTENSIVE ECONOMIC DEVELOPMENT
PROGRAMS. BOTH COUNTRIES RELY ON OIL EXPORT EARNINGS TO
FINANCE T H ~bpr e~ (aTseE O2fo 1 34 .16AtkdF~)4Tv'I36QU0908050002-5
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RAISE IMPORT EXPENDITURES WITHOUT REDUCING ITS CURRENT
ACCOUNT SURPLUS BECAUSE OIL PRODUCTION WILL INCREASE 290,000
B/D IN 1978 DUE TO A RESURGENCE IN DEMAND FOR IRANIAN
CRUDE. THE IRANIAN IMPORT VOLUME GROWTH RATE WILL BE ONLY
ONE-FIFTH OF THE IRAQI RATE OF 17 PERCENT BECAUSE TEHRAN
IS TRYING TO COPE' WITH RAMPANT DOMESTIC INFLATION AND
MANPOWER AND INFRASTRUCTURE CONSTRAINTS.
BORDERLINE AND DEFICIT COUNTRIES.
8. THE SIX RORDEREINE AND DEFICIT COUNTRIES WILL
HAVE CURRENT ACCOUNTS THAT RANGE FROM A $700 MILLION
SURPLUS TO A $1.4 BILLION DEFICIT IN 1978. THE ESTIMATED
CURRENT ACCOUNT SURPLUS IN INDONESIA AND DEFICITS IN
NIGERIA AND VENEZUELA WILL BE RELATIVELY SMALL, COMPARED
WITH THE SIZE OF THEIR DOMESTIC ECONOMIES. ALGERIA,
ECUADOR, AND ESPECIALLY GABON WILL RUN LARGE CURRENT ACCOUNT
DEFICITS FOR THEIR SIZE IN 1978. SINCE NONE OF THE SIX
COUNTRIES CAN EXPAND OIL OUTPUT SIGNIFICANTLY, THEY RELY
ON 'HI-GHER OIL -PRI-CES_ T.O EASE THEIR FINANCIAL DIFFICULTIES.
EVEN IF THE OPEC MEETING LAST'DECE'4BER HAD RAISED OIL
PRICES BY 25 PERCENT, ALGERIA, ECUADOR, AND GABON WOULD
STILL HAVE BEEN IN DEFICIT IN 1978.
9, ALTHOUGH ALL SIX COUNTRIES HAVE DRAWN DOWN
RE~SE-RVES IN THE PAST AS NEEDED, MOST STILL HAVE ADEQUATE
RESERVE HOLDINGS, TO SUPPLEMENT OIL EARNINGS, THEY WILL
BORROW ON INTERNATIONAL MARKETS AND USE THE PROCEEDS TO
FINANCE SPECIFIC INDUSTRIALIZATION PROGRAMS AND EASE
CASH-FLOW PROBLEMS,
'10, 'ECUADOR AND GABON DA._NOT HAVE AS MANY OPTIONS
OPEN TO THEM AS THEY TRY TO COPE WITH ECONOMIC DIFFICULTIES.
POLITICAL CONSIDERATIONS LIMIT FOREIGN BORROWING IN
ECUADOR, GABON HAS DRAVvN DOWN RESERVES TO SUCH A LOW
LEVEL THAT ASSET HOLDINGS ARE NOW INADEQUATE TO COVER
THE DEBT-SERVICE BURDEN. (CONFIDENTIAL NOFORN) E1,2,3 IMPDET
WNINTEL.>
ORIG RUTH: NFAC/ASA/D/OER REL. CH, CS/NFAC
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 25X1A ONE ARTICLE FROM OER'S ECONOMIC INTELLIGENCE WEEKLY REVIEW
ENDING 2 FEBRUARY 1978. REQUEST ARTICLE BE PASSED TO AMBASSADOR,
DCM, ECONOMIC SECTION AND OTHER WORKING LEVEL STATE OFFICERS.
WORLD GRAIN OUTLOOK FAVORABLE.(ASTERISK)
:-1,- ALT-HOUGH THE.--19-77/78:.WORLD. GRAIN SITUATION HAS
TIGHTENED DURING THE LAST QUARTER--WI- HAVE DROPPED OUR
PRODUCTION ESTIMATE BY 25 MILLION TONS AND SLIGHTLY RAISED OUR
ESTIMATE OF IMPORT DEMAND--SUPPLIES ARE LARGE ENOUGH TO ENSURE
A HIGH DEGREE OF PRICE STABILITY, TOTAL GRAIN STOCKS WILL
STILL GO UP, WITH INCREASES IN COARSE GRAINS MORE THAN OFFSETTING
REDUCTIONS IN WHEAT. WORLD AND US EXPORTS OF WHEAT AND CORN
WILL PROBABLY SET RECORDS IN THE MARKETING YEAR ENDING 30 JUNE
.1978 (MY 1.978) 91
GRAIN AS. USED IN THIS ARTICLE EXCLUDES RICE.
`2. WORLD GRAIN PRODUCTION IN 1977/78 IS'CURRENTLY
FORECAST AT 1,070'MILLION TONS, DOWN ABOUT 45 MILLION TONS FROM
LAST YEAR'S RECORD, BUT STILL THE SECOND HIGHEST. THE DECLINE
IS LARGELY IN WHEAT PRODUCTION. IT REFLECTS A 20-MILLION-TON
CUT IN THE SOVIET CROP AND THE RED.UCTION IN SOUTHERN HEMISPHERE
PROSPECTS CAUSED BY DROUGHT IN FOURTH QUARTER 1977. WE
ESTIMATE THAT PRODUCTION AND CONSUMPTION WILL BE IN BALANCE
DURING 1977/78, ADDITIONS TO FREE WORLD STOCKS OF
COARSE GRAINS, ALL IN THE UNITED STATES, ARE EXPECTED. FOR
THE USSR AND EASTERN EUROPE A STOCK DRAW DOWN IS LIKELY. EXPORTER
STOCKS OF WHEAT ON 30 JUNE 1978 SHOULD BE 9 MILLION TONS SMALLER
THAN A YEAR AGO, WITH THE US SHARE RISING FROM 41 TO 48 PERCENT.
3. 'A,045003QJ a .e BQJWAPY30 OrIa,RIDPIW9TO11316AVOCMOoso.Q.02-5
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SET A NEW HIGH OF 152 MILLION TONS, A 10-MILLION-TON INCREASE
OVER LAST YEAR; A JUMP IN WHEAT EXPORTS OFFSETTING A SMALL
DECLINE IN COARSE GRAINS, DECREASED IMPORT DEMAND ELY THE EC
WILL BE MORE THAN,OFFSET BY INCREASED PURCHASES BY OTHER
REGIONS AROUND THE WORLD, WITH COMPETITORS' SUPPLIES LARGELY
COMMITTED, THE UNITED STATES STANDS TO GAIN! FROM ANY UNFORESEEN
LARGE GRAIN PURCHASES FOR DELIVERY BY 1 JULY 1978.
4, OUR TENTATIVE PROJECTION OF 1978/79 PRODUCTION,
UTILIZATION, AND IMPORT DEMAND FOR GRAIN, ASSUMING AVERAGE
WEATHER CONDITIONP, SHOWS THE FOLLOWING;
DEMAND FOR US WHEAT AND CORN WILL REMAIN STRONG
THROUGHOUT MY 1979.
SOUTHERN HEMISPHERE EXPORTERS WILL OFFER LESS,
COMPETITION FOR U$ GRAIN EXPORTS, ESPECIALLY CORN, DURING
MY 1979.
SOVIET IMPORTS AR~..FORECA.ST.AT 20 MILLION TO 25
MILLION -TONS.-OR-.S MILAR-. LO MY 1978, ,EVENLY DIVIDED BETWEEN
WHEAT AND COARSE GRAINS. THIS ESTIMATE-IS BASED ON PROJECTED
-TREND LINE PRODUCTION OF 205 MILLION TONS,
COARSE GRAIN STOCKS OF EXPORTERS WILL BE REDUCED IN
MY 1-979, MOSTLY IN THE UNITED STATES, BECAUSE OF LOWER PRODUCTION
AND-CONTINUED GROWTH IN BOTH DOMESTIC AND FOREIGN DEMAND, ENDI-NG
WHEAT STOCKS WILL ALSO DROP IF WORLD TRADE EXCEEDS 70 MILLION
TONS,
WHEAT: RECORD CONSUMPTION AND TRADE IN 1977/78.
5, WE HAVE REDUCED OUR OCTOBER-WORLD WHEAT PRODUCTION
ESTIMATE FOR 1977/78 BY 16 MILLION TONS, TO 384 MILLION TONS.
THIS ESTIMATE IS WITHIN 1 MILLION TONS OF THOSE RECENTLY
RELEASED BY THE USDA, FAO, AND THE INTERNATIONAL WHEAT COUNCIL
(IWC), THE REDUCTION REFLECTS THE .LARGE DROP (10 MILLION TONS)
IN THE SOVIET CROP AND ADDITIONAL DROUGHT-INDUCED CUS IN THE
ARGENTINE, AUSTRALIAN, AND BRAZILIAN HARVESTS, WHICH WERE NOT
OFFSET BY UPWARD ADJUSTMENTS IN CANADIAN AND INDIAN CROP
ESTIMATES. FOR THE FIRST TIME IN MANY YEARS, WHEAT PRODUCTION
IS DOWN IN EVERY MAJOR EXPORTING COUNTRY,
6. WHEAT CONSUMPTION IN 1977/78 IS ESTIMATED AT A NEW
HIGH OF 390 MILLION TONS, A 4--PERCENT INCREASE OVER LAST YEAR.
WE FORECASTA roe IIFbiMeIeTa eVb Z~M/?0R'M-d 1F0fl ~ 16Ji~(tF00F968OYO0bz-
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SINCE 1974/75. WHEAT FED TO LIVESTOCK a.IL_L RISE SHARPLY
BECAUSE OF LOW WHEAT PRICES AND PLENTIFUL SUPPLIES OF FEED-QUALITY
WHEAT IN CANADA, WESTERN EUROPE, AND THE USSR, EXCEPT FOR
MINOR INCREASES IN THE MIDDLE EAST, WHEAT CONSUMPTION IN MOST
LDCS WILL SHOW LITTLE CHANGE AS A RESULT OF GOOD RICE CROPS
AND SLOii-GROWTH IN PERSONAL INCOMES.
7. WE ARE, NOW FORECASTING WORLD TRADE IN WHEAT AND
WHEAT FLOUR IN MY'1978 AT 72,4 MILLION TONS, UP 2.4 MILLION
TONS FROM OUR OCTOBER REPORT AND 20 PERCENT LARGER THAN LAST
YEAR. THIS UPWARb ADJUSTMENT REFLECTS A MILLION-TON BOOST IN
BRAZIL'S IMPORT NEEDS, WITH THE BALANCE SCATTERED AMONG A
NUMBER OF OTHER COUNTRIES. USDA AND THE IWC ALSO HAVE
RAISED THEIR EST1tATES'SINCE LAST OCTOBER BY 3 MILLION TONS,
TO 70 MILLION TONS, WHEAT IMPORTS.WILL BE UP FOR EVERY REGION
AR.QUND THE WORLD. WE ARE HOLDING TO A 6-MILLION-TON BOOST IN
CHINESE IMPORTS OVER MY 1977, TO 9,2 MILLION TONS, ALL NON-UNITED
STATES, ANY ADDITIONAL WHEAT PURCHASED BY CHINA IN MY 1978
WILL PROBABLY BE CANADIAN AND AUSTRALIAN WHEAT FOR DELIVERY
AFTER I JULY 1978,.DIRECT, SOVIET WHEAT IMPORTS ARE ESTIMATED
AT 8 MIL-LION-TONS; UP_ 4,Z MILL=ION TONS FROM MY 1977; ANOTHER
ESTIMATED 2 MILLION TONS OF WHEAT AND FLOUR PURCHASED FROM
-CANADA, AUSTRALIA, AND INDIA WILL BE DELIVERED TO THIRD
COUNTRIES ON SOVIET ACCOUNT.
8, WORLD EXPORTABLE SUPPLIES FROM THE 1977/78 HARVEST
PLUS CARRYOVER STOCKS ARE MORE THAN ADEQUATE TO MEET A GLOBAL-
IMPORT DEMAND OF 72 MILLION TO 73 MILLION TONS. WHEAT STOCKS
ON I JULY .1977 FOR THE..F.IVE MAJOR EXPORTERS WERE AT A
SEVEN-YEAR HIGH OF 64 MILLION TONS, UP 20 MILLION TONS OVER
A YEAR EARLIER, PART OF THE EXPORT DEMAND WILL BE MET BY A
STOCK DRAWDOWN OF ABOUT 9 MILLION TONS, EACH OF THE MAJOR
EXPORTERS WILL DRAW DOWN STOCKS- EXCEPT POSSIBLY THE UNITED
STATES, PROJECTED US STOCKS ON 1 JULY 1978 WILL REPRESENT 48
PERCENT OF TOTAL EXPORTER STOCKS, THE LARGEST SHARE SINCE THE
19605. TWO YEARS EARLIER IT WAS ONLY 34 PERCENT,
9, US WHEAT EXPORTS IN MY 1978 COULD SET A NEW HIGH, WE
ARE NOW FORECASTING EXPORT DEMAND AT 32.4 MILLION TONS (1.2
BILLION BUSHELS), 26 PERCENT LARGER THAN A YEAR AGO AND 3
MILLION TONS MORE'ThIAN OUR OCTOBER ESTIMATE. PRIVATE TRADERS
ALSO ARE ESTIMATING A 1,2?BILLION-BUSHEL EXPORT LEVEL; THE
USDA EXPECTS 1.1 BILLION BUSHELS, OR 29.9 MILLION TONS. TO
REACH OUR ESTIMATED EXPORT VOLUME, SHIPMENTS MUST ACCELERATE
IN SECOND HALF MY 1978.
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10. A LARGE SHARE OF THE INCREASE IN US EXPORT DEMAND
RESULTS FROM THE SHORTFALL IN ARGENTINE AND AUSTRALIAN
SUPPLIES, IN ADDITION, DEMAND FOR US WHEAT HAS BEEN HELPED
BY (A) A CANADIAN SHORTAGE OF DURUM AND HIGH MILLING QUALITY
WHEATS, (B) A BOOST IN CCC AND PL-480 PROGRAMS, AND (C) THE
LESSENED VALUE OF THE DOLLAR, COMPARED WITH MY 1977, US
,EXPORTS WILL BE UP FOR EVERY MAJOR REGION EXCEPT. ASIA,
ESTIMATED DELIVERIES'TO THE SOVIET UNION AND WESTERN EUROPE
WILL RISE BY 1,5 MILLION TONS EACH AND TO LATIN AMERICA BY
2,4 MILLION TONS, THE UNITED STATES REMAINS THE ONLY MAJOR
EXPORTER WITH SUFFICIENT WHEAT AND LOGISTIC CAPABILITY TO
EXPAND SHIPMENTS BEYOND OUR CURRENT FORECAST FOR DELIVERY BY
1 JULY 1978,
.COARSj GRAINS: (ASTERISK) LOWER WORLD PRODUCTION
-AND HIGHER IMPORT., DEMAND
IN 1977/78,
11. WE ESTIMATE THAT WORLD PRODUCTION OF COARSE
GRAINS IN 1977/78 WILL BE. ABOUT 683 MILLION TONS. SLIGHTLY
LESS T`HA1J TH~P USDA FO-R?'CA-ST AND 9 MILLION TONS BELOW
LAST YEAR, ONLY THE UNITED STATES AND WESTERN EUROPE ARE
LIKELY TO REGISTER APPRECIABLE INCREASES OVER 1976/77.
THE PRODUCTION OF CORN--THE MOST IMPORTANT COARSE GRAIN--IN
1977/78 IS PROJECTED AT 341 MILLION TONS, 4 MILLION TONS
ABOVE 1976/77. THE MAIN SOUTHERN HEMISPHERE CORN
EXP'ORTERS--ARGENTINA, BRAZIL, AND SOUTH AFRICA--WILL HAVE
SMALLER CORN HARVESTS THIS COMING SPRING BECAUSE OF LESS
FAVORABLE-WEATHER, THAILAND'S CORN HARVEST LAST SUMMER
WAS ALSO CUT BY DROUGHT. WESTERN EUROPE'S TOTAL COARSE
GRAIN PRODUCTION IS UP 32 PERCENT OVER THE 1976/77
DROUGHT-STRICKEN HARVEST, INCLUDING A 38-PERCENT INCREASE
IN-"CORN PRODUCTION IN 'THE EC. THE INCREASE IN EASTERN I
EUROPE'S TOTAL GRAIN PRODUCTION IS SOLELY A RESULT OF
HIGHER OUTPUT OF COARSE GRAINS, WHILE IN THE SOVIET UNION
PRODUCTION IS DOWN BY AN ESTIMATED 10 MILLION TONS.
12. (ASTERISK) INCLUDING CORN, SORGHUM,
BARLEY, OATS, MILLET,
RYE, AND MISCELLANEOUS GRAINS.
13. WE AGREE WITH THE USDA THAT WORLD CONSUMPTION
OF COARSE GRAINS IN 1977/78 COULD REACH A RECORD 677
MILLION TONS (12 MILLION TONS ABOVE LAST YEAR) BECAUSE OF
HIGHER LIVESTOCK FEED REQUIREMENTS IN DEVELOPED COUNTRIES.
EUROPEAN FE; Qed o R~l~ e ~ 611/ (~: ~ '-~2~ 7~Ta~31 ~~08 050002-5
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BY ABOUT 2 PERCENT IN 1977/78, WHILE SOVIET USE OF COARSE
GRAINS IS LIKELY To HE DOWN IN 1977/78, THE DECLINE WILL
BE MORE THAN OFFSET BY INCREASED FEEDING OF WHEAT. ASIAN
FEED USE IS UP, LED BY A 6-PERCENT INCREASE IN JAPAN AND
SOUTH KOREA. THE USDA PROJECTS US FEED USE OF COARSE
GRAINS IN 1977/78 AT 119 MILLION TONS, 7.5 MILLION TONS
ABOVE A YEAR AGO,
14, WE FORECAST WORLD IMPORT DEMAND FOR COARSE GRAINS
IN MY 1978 AT 79,6 MILLION TONS, 2.7 MILLION TONS BE(-OW
LAST YEAR AND VERY CLOSE TO THE USDA FORECAST OF 80,6
MILLION TONS, FOR CORN, WE ESTIMATE WORLD IMPORT DEMAND
IN MY 1978 AT 55.4 MILLION TONS, OR 1,0 MILLION TONS LARGER
THAN IN MY 1977,
15. WESTERN EUROPE'S CORN IMPORTS WILL BE DOWN
SHARPLY IN MY 1978 BECAUSE OF IMPROVED DOMESTIC PRODUCTION
IN EC COUNTRIES, EC IMPORTS OF CORN ARE EXPECTED TO
DECLINE BY NEARLY 27 PERCENT FROM MY 1977, EASTERN EUROPE'S
CORN.IMPORTS WILL CONTINUE TO GROW, LARGELY A RESULT OF
THE 1..5r-MILLLON.TO 2,0-MILLION-TON INCREASE IN POLISH
NEEDS. THE USSR IS EXPECTED TO TAKE 9.5 MILLION TONS OF
-CORN IN MY 1978, 4,6 MILLION TONS MORE THAN LAST YEAR,
MEXICO'S INCREASED NEEDS ARE RESPONSIBLE FOR THE-EXPECTED
RISE IN WESTERN HEMISPHERE IMPORTS. JAPAN, SOUTH KOREA,
AND-TAIWAN WILL LEAD THE GROWTH IN ASIAN DEMAND.
16. WORLD EXPORTABLE SUPPLIES OF COARSE GRAINS,,
ESPECIALLY, CORN, ARE MORE THAN SUFFICIENT TO , COVER. IMPORT.
DEMAND IN MY 1978~BECAUSE OF-LARGE SUPPLIES IN NORTH
AMERICA. THE THREE MAIN SOUTHERN HEMISPHERE CORN EXPORTERS
WILL INCREASE SHIPMENTS IN MY 1978, WHILE LOWER PRODUCTION
IN--EACH OF- THESE COUNTRIES THI-S--SPRING WILL CUT CORN
SHIPMENTS DURING THE LAST QUARTER OF MY 1978, IT WILL
HAVE THE GREATEST IMPACT ON EXPORTS DURING MY 1979,
ARGENTINA'S EXPORTS OF CORN IN MY 1978 WILL INCREASE
SLIGHTLY; BRAZILIAN SHIPMENTS WILL, BE UNCHANGED. SOUTH
AFRICA'S CORN EXPORTS DURING MY 1978 ARE EXPECTED TO BE
UP BY 87 PERCENT, OR 1.3 MILLION TONS, THAILAND'S CORN
EXPORTS, ESTIMATED AT ONLY 900,000 TONS, ARE BEING
SEVERELY CURTAILED BECAUSE OF A POOR CROP, WHILE THE EC
WILL CONTINUE TO CONSUME MOST OF ITS OWN CORN, EXTERNAL
SHIPMENTS WILL GO UP SLIGHTLY. IN EASTERN EUROPE, HUNGARY
AND ROMANIA ARE EXPECTED TO BOOST CORN EXPORTS,
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MILLION TONS IN MY 1978, DOWN 300,000 TONS FROM MY 1977.
AUSTRALIAN SORGHUM EXPORTS WILL BE NEGLIGIBLE., AND BARLEY
SHIPMENTS, 1.6 MILLION TONS, WILL BE DOWN 500,000 TONS.
ALTHOUGH CANADIAN' BAR LEY SUPPLIES ARE UP, EXPORT SALES
HAVE BEEN SLOW, AND STOCKS DURING MY 1978 COULD INCREASE
BY MORE THAN ONE-THIRD.
18. WE ESTIMATE THAT FREE WORLD COARSE GRAIN STOCKS
DURING 1977/78 WILL REACH A RECORD 87.2 MILLION TONS, UP
16.6 MILLION TONS FROM THE PREVIOUS YEAR. THE ADDITION TO
US STOCKS, MOSTLY CORN, ACCOUNTS FOR 90 PERCENT OF THIS
INCREASE.
19. FOREIGN DEt4ND FOR US CORN IN MY 1978 COULD
REACH A RECORD 43,2 MILLION TONS, 900,000 TONS ABOVE MY
1937, TO ACHIEVE THIS EXPORT LEVEL, US SHIPMENTS OF CORN
WILL HAVE TO INCREASE 29 PERCENT IN THE SECOND HALF OF
MY 1978. THIS CAN BE DONE, SCHEDULES CALL FOR LARGER
SHIPMENTS TO THE USSR DURING THE BALANCE OF MY 1978, AND
LESS COMPETITION FROM SOUTHERN HEMISPHERE EXPORTERS DURING
THE P&RI-OD AFRI-L-JUNEL_.$HQULD BQOST_ SHIPMENTS SUBSTANTIALLY.
20. OUR ESTIMATE OF US CORN EXPORTS FOR THE OFFICIAL
US CROP YEAR ENDING 30 SEPTEMBER 1978 IS IN LINE WITH
THE USDA MIDPOINT FORECAST OF 44,5 MILLION TONS, US CORN
STOC-KS ON 30 SEPTEMBER 1978 THUS WILL TOTAL 30 MILLION
TON-S,-7.7 MILLION TONS LARGER THAN A YEAR EARLIER AND
ALMOST THREE TIMES THE STOCKS OF TWO YEARS EARLIER.
OUTLOOK GOOD FOR US WHEAT AND CORN EXPORTS IN MY 1979.
21. PROSPECTS LOOK GOOD FOR THE UNITED STATES TO
MAINTAIN A'HIGH LEVEL OF WHEAT-EXPORTS IN MY 1979, IN THE
RANGE OF 30 MILLION TO 32 MILLION TONS, ALTHOUGH WE
ESTIMATE WORLD IMPORT DEMAND TO BE DOWN 3 MILLION TO 4
MILLION TONS. THE DEMAND FOR US WHEAT WILL REMAIN STRONG
BECAUSE OF REDUCED EXPORT AVAILABI.LITIES FROM OTHER
SUPPLIERS, COMPARED WITH MY 1978, INDIA AND TURKEY ARE
EXPECTED TO HAVE 2 MILLION TONS LESS FOR EXPORT; ARGENTINA
ABOUT THE SAME; AUSTRALIA 0.5 MILLION TONS LESS; AND
CANADA 1 MILLION TO 2 MILLION TONS LESS OF GOOD MILLING
QUALITY WHEAT, ALSO, BECAUSE OF THE SMALLER 1977/78
HARVESTS AND A STOCK DRAWDOWN TO COVER MY 1978 EXPORTS,
ARGENTINA AND AUSTRALIA WILL BE LARGELY OUT OF THE EXPORT
MARKET UNTIL EARLY IN 1979.
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22. THE ESTIMATED CUTBACK IN WORLD IMPORT DEMAND IS
BASED ON SLIGHTLY HIGHER PRICES, LOWER PRODUCTION OF
FEED-QUALITY WHEAT, AND AVERAGE GROWING CONDITIONS FOR
ALL FOODGRAINS. SOVIET WEEAT IMPORTS ARE EXPECTED TO REMAIN AT
ABOUT 8 MILLION TONS IN MY 1979, BASED ON A TREND VALUE
CALCULATION OF A 205-MILLION-TON (PLUS OR MINUS 10 MILLION)
GRAIN HARVEST, INCLUDING ABOUT 95 MILLION TONS OF VV HEAT,
CHINA'S IMPORTS MAY BE DOWN AS MUCH AS 3 MILLION TONS
UNLESS PRICES WEAKEN OR 1978 DOMESTIC GRAIN PRODUCTION
FAILS TO INCREASE. INDIA, A NET EXPORTER THIS YEAR, COULD
BECOME A NET IMPORTER OF 2 MILLION TO 3 MILLION TONS IN
MY 1979. THE ODDS DO NOT FAVOR INDIA HAVING FOUR SUCCESSIVE
GOOD HARVESTS, AND STOCKS ARE UNLIKELY TO COVER A LARGE
PRODUCTION SHORTFALL.
23, THE UNITED STATES COULD EXPORT 30 MILLION TO 32
MILLION TONS-OF WHEAT WITH ONLY A i-MILLION-TON REDUCTION
IN ENDING STOCK LEVELS ON 30 JUNE 1979, PROVIDED THAT
1978 PRODUCTION IS DOWN NQ MORE THAN 10 PERCENT, CANADIAN
STOCKS WOULD DROP BY MORE THAN A MILLION TONS IF EXPORTS
REMAIN A-T THE 1-6-MILLIO(J-TON LEVEL. THUS, THE TOTAL STOCKS
OF WHEAT HELD BY THE FIVE MAJOR EXPORTERS WOULD BE
-REDUCED BY ONLY ABOUT 2 MILLION TONS FROM THE 55 MILLION
TONS NOW FORECAST FOR 30 JUNE 1978,
24, A NUMBER OF UNCERTAINTIES, OTHER THAN CHANGES
IN PRODUCTION, SURROUND ANY PROJECTION OF MY 1979 WORLD
IMPORT DEMAND FOR WHEAT, THESE INCLUDE (A) IMPORTER
DECISIONS.TO BUILD STOCKS, (B.) FOREIGN EXCHANGE SHORTAGES,
(C) SIZE OF FOOD AID PROGRAMS, AND (D) OUTPUT OF RICES
25. PROSPECTS FOR THE NORTHERN HEMISPHERE WINTER
I
WHEAT-CROP--PLANTED LA-ST FALL FOR HARVEST THIS SUMMER--ARE
GENERALLY BETTER THAN A YEAR AGO, SOWN ACREAGE IS UP
THROUGHOUT THE HEMISPHERE WITH THE EXCEPTION OF THE
UNITED STATES, LITTLE IS KNOWN YET ABOUT PLANTING INTENTIONS
FOR THE SPRING WHEAT CROP OUTSIDE.OF THE UNITED STATES;
WE ARE CURRENTLY PROJECTING LITTLE CHANGE IN AREA FOR
CANADA OR THE SOVIET UNION FROM LAST YEAR. EXCESSIVE
WINTERKILL OF FALL SOWN WHEAT IN THE USSR WOULD BOOST
SOVIET ACREAGE OF SPRING GRAINS. SOME EXPANSION IN
ACREAGE IS PROJECTED FOR BRAZIL AND ARGENTINA BASED ON THE
ASSUMPTION OF MORE FAVORABLE PLANTING CONDITIONS THIS
SPRING. AUSTRALIAN WHEAT BOARD POLICY ALSO CALLS FOR A.
SMALL INCREASE IN SOWN ACREAGE.
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26, FOR COARSE GRAINS, WE ARE PROJECTING 1978/79
PRODUCTION AT 655-MILLION TO 685 MILLION TONS. THE
MIDPOINT--670 MILLION TONS--IS 2 PERCENT OR 13 MILLION
TONS, BELOW 1977/78 OUTPUT. UNLIKE 1977/78, CONSUMPTION
WILL EXCEED PRODUCTION IF EXPANSION OF LIVESTOCK PRODUCTION
STAYS ON TREND, LOW PRICES FOR GRAIN AND PROTEIN SUPPLEMENTS
? DURING MY 1978 HAVE BEEN ENCOURAGING LARGER LIVESTOCK
HERDS AND A HIGHER RATE OF FEEDING. OUR ESTIMATE ASSUMES
THE USSR MAINTAINS ITS POLICY OF ENCOURAGING LIVESTOCK
PRODUCTION.
27. PRODUCTION IN SOUTHERN HEMISPHERE COUNTRIES--AUSTRALIA,
ARGENTINA, BRAZIL, AND SOUTH AFRICA--AND THAILAND SHOULD REBOUND
FROM THE DROUGHT-REDUCED LEVELS OF 1977/78. SOVIET PRODUCTION
COULD ALSO INCREASE ROUGHLY BY 5 MILLION TONS BASED ON THE
__MI.OPC.INT OF A PROJECTED TREND VALUE RANGE OF 95 MILLION TO 105
MILLION TONS,. INCREASES, Hf)WEVER, WILL BE INADEQUATE. TO COMPENSATE
FOR A 9-MILLION-TO'N REDUCTION PROJECTED FOR US OUTPUT. US
COARSE GRAIN PRODUCTION OF 180-MILLION TO 205 MILLION TONS
ASSUMES A SMALLER'HARVESTED ACREAGE AND YIELDS LOWER THAN
THE RE-CO-RD TILELDS -'OF, 1 77/78,
28. WE, PROJECT WORLD IMPORT DEMAND FOR CORN AT 55
MILLION TONS IN MY, 1979, ONLY ONE-HALF MILLION TONS LESS
THAN IN MY 1978. THE EXPECTED REDUCTION IN THE CROPS OF
SOUT-HERN HEMISPHERE EXPORTERS THIS SPRING WILL INCREASE
DEMAND FOR US CORN IN MY 1979 TO A NEW HIGH OF 44.8 MILLION
TONS, 1.6 MILLION TONS ABOVE OUR ESTIMATE FOR THE CURRENT
MARKETING,YEAR,
29, EUROPEAN IMPORT DEMAND FOR CORN IN MY 1979 IS
EXPECTED TO REMAIN UNCHANGED, WITH INCREASED EC IMPORTS
OFFSET BY DECREASES ELSEWHERE -IN'WESTERN AND EASTERN
EUROPE. WESTERN HEMISPHERE CORN IMPORTS ARE EXPECTED TO
DROP SLIGHTLY BECAUSE OF HIGHER DOMESTIC OUTPUT. SOVIET
CORN IMPORTS ARE NOT EXPECTED TO DROP BELOW 10 MILLION
TONS EVEN IF TOTAL GRAIN PRODUCTION FALLS BETWEEN 195
MILLION TO 215 MILLION TONS. ASIAN IMPORTS ARE FORECAST
TO CONTINUE TO GROW IN MY 1979.
30, STOCKS'OF COARSE GRAINS WILL BE REDUCED DURING
1978/79 BECAUSE OF THE IMBALANCE BETWEEN PRODUCTION AND
CONSUMPTION. THE BRUNT OF ANY REDUCTION WOULD BE BORNE
BY THE UNITED STATES IF,PROJECTIONS OF LOWER PRODUCTION
AND CONTINUED GROWTH IN DOMESTIC AND FOREIGN DEMAND HOLD
UP, SOVIET STOCKS ALS COULD FALL UNLESS IMPORTS WERE TO
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25X1A
25X1A EXCEED 25 MILLION, TONS OR LIVESTOCK FEEDING WERE TO BE
SHARPLY CUT, (CONFIDENTIAL NOFORN) E1-2 3 IMPDET WNINTEL,>
25X1A H A DOER/NFAC REL CH, NFAC/CS
CL BY 015319.<
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END OF MESSAGE CONFIDENTIAL
 25X1A ONE ARTICLE PROM-OERIS ECONOMIC INTELLIGENCE WEEKLY REVIEW
ENDING 2 FEBRUARY 1978. REQUEST ARTICLE BE PASSED TO AMBASSADOR,
DCM, ECONOMIC SECTION AND OTHER WORKING LEVEL STATE OFFICERS.
FRANCE: BRIGHTER TRADE AND CURRENT ACCOUNT PICTURE.
1. GO=SLOW ECONOMIC POLICIES ENABLED FRANCE TO CHOP
ITS CURRENT ACCOUNT DEFICIT FROM $6 BILLION IN 1976 TO $2,9
BILLION IN 1977. THREE-FIFTHS OF THE IMPROVEMENT WAS
ACHIEVED IN TRADE, ALTHOUGH THE TRADE ACCOUNT STILL
REGISTERED A DEFICIT OF $2.4 BILLION. IF THE PRESENT
GOVERNMENT REMAINS IN POWER AFTER THE MARCH PARLIAMENTARY
ELECTIONS, SOME FURTHER IMPROVEMENT IN TRADE AND CURRENT
ACCOUNTS IS LIKELY IN 1978, THE COMING TO POWER OF A
LEFTIST GOVERNMENT WOULD ALMOST SURELY MOVE THE ACCOUNTS
IN THE OTHER DIRECTION THROUGH INCREASED PUBLIC SPENDING
AND HIGHER MONEY WAGES, WHICH WOULD SPUR IMPORTS, DAMPEN
EXP-0"RTS, AND ACCELERATE INFLAT-ION IN GENERAL.
BACKGROUND.
2. FRENCH TRADE AND CURRENT ACCOUNT BALANCES HAVE
FLUCTUATED SHARPLY SINCE THE QUADRUPLING OF OIL PRICES IN
1973/74. A MAJOR FACTOR HAS BEEN SHIFTS BY THE GOVERNMENT
BETWEEN POLICIES AIMED AT (A) ENCOURAGING PRODUCTION AND
EMPLOYMENT AND (B) CURBING INFLATION AND PAYMENTS DEFICITS.
THE OIL PRICE HIKE B00STED NET OIL IMPORTS FROM $2.8
BILLION IN 1973 TO $8,8 BILLION IN 1974, MOVING THE TRADE
BALANCE FROM A SURPLUS OF $780"MILLION TO A DEFICIT OF
$3,9 BILLION, THE CURRENT ACCOUNT PLUNGED FROM $690 MILLION
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3. PARIS APPLIED THE ECONOMIC BRAKES IN 1975,
SWINGING THE TRADE BALANCE BACK INTO SURPLUS AND RETURNING
THE CURRENT ACCOUNT TO EQUILIBRIUM. THE COST WAS HIGH:
REAL GDP STAGNATED, AND UNEMPLOYMENT SOARED. IN 1976, MORE
EXPANSIONARY POLICIES HELPED REAL GDP TO RISE BY 5 PERCENT
.AND STABILIZED UNEMPLOYMENT. BUT THE CURRENT ACCOUNT
.RECORDED A THUMPING $6 BILLION DEFICIT AND THE T.RADE ACCOUNT,
A $4.3 BILLION DEFICIT.
RECENT DEVELOPMENTS.
4. THE FRENCH GOVERNMENT RETURNED TO RESTRICTIVE
MONETARY AND FISCAL POLICIES IN SEPTEMBER 1976. PRIME
MINISTER BARRE HAS COMMITTED HIMSELF TO REDUCING THE
TRADE DEFICIT BY FOSTERING SLOW, STEADY GROWTH OF PRODUCTION,
--BARRE BELIEVES THAT EXCHANGE RATE MOVEMENTS CORRECT IMBALANCES
IN INTERNATIONAL TRADE AND PAYMENTS TOO SLOWLY. IN HIS
OPINION, A FRANC DEPRECIATION ACCOMPANYING A PERSISTENT CURRENT
ACCOUNT DEFICIT WOULD ENGENDER DOMESTIC INFLATION AND FURTHER
DEPRECIATION OF TNE.FRANC BEFORE TRADE WAS BROUGHT TO EQUILIBRIUM.
UNDER-THE INFLUENCE OF-'THE BARRE STABILIZATION MEASURES,
THE CURRENT ACCOUNT DEFICIT FELL.BY MORE THAN ONE-HALF,
TO $2.9 BILLION IN 1977. LARGE GAINS WERE ACHIEVED IN BOTH
THE TRADE ACCOUNT'AND IN THE SERVICES ACCOUNT. REAL GDP
GROWTH SLOWED TO 3 PERCENT, AND UNEMPLOYMENT AGAIN MOVED
UP.
5, THE TRADE DEFICIT FELL TO $2.4 BILLION IN 1977.
IN CURRENT DOLLARS, EXPORTS ROSE 18 PERCENT WHILE IMPORTS
WERE UP 13 PERCENT, IN CONSTANT PRICES, EXPORTS INCREASED
BY 6 PERCENT AND IMPORTS BY 2 PERCENT. THE SMALL RISE IN
IMPORT VOLUME COMPARED FAVORABLY. WITH A 20-PERCENT JUMP IN
THE PREVIOUS YEAR,
6. TRADE GAINS WERE EVIDENT IN SEVERAL BROAD PRODUCT
CATEGORIES IN 1977:
NET OIL IMPORTS FELL TO $9.7 BILLION FROM $10.1
BILLION THE PRECEDING YEAR, (OIL IMPORTS DROPPED FROM 19
PERCENT OF TOTAL IMPORTS IN 1976 TO 16 PERCENT IN 1977,
OR FROM 2.4 MILLION TO 2,3 MILLION B/D,) CONSERVATION
EFFORTS AND SLOW GROWTH OF ECONOMIC ACTIVITY WERE FACTORS
IN THE DECLINE,
THE TRADE DEFICIT IN OTHER RAW MATERIALS FELL
FROM $3.2 WILLION N J976 T20 $BILLION IN 1977. A
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SLOWDOWN IN STUCK BUILDING AFTER THE SURGE IN LATE 1976
AIDED THE RAW MATERIALS BALANCE,
NET AGRICULTURAL EXPORTS (ABOUT 15 PERCENT OF
TOTAL EXPORTS) INCREASED BY $240 MILLION IN SECOND HALF
1977 AND MOVED INTO SURPLUS AFTER A DEFICIT-PLAGUED FIRST
-HALF, THE IMPROVEMENT IN AGRICULTURAL TRADE WAS-HELPED
BY RECOVERY IN FARM PRODUCTION FOLLOWING THE 1976 DROUGHT,
EXPORTS OF CAPITA,. GOODS (ABOUT 25 PERCENT OF ALL
EXPORTS) ROSE FROM $14 BILLION IN 1976 TO $17 BILLION IN
1977, RAISING THE SURPLUS IN CAPITAL GOODS TRADE $500 MILLION,
TO $4 BILLION,
7, IMPROVEMENT IN THE BALANCE OF TRADE WAS WIDELY
-DISTRIBUTED ON A GEOGRAPHICAL BASIS AS WELL, EXPORTS TO
OTHER EC COUNTRIES ROSE FROM $28 BILLION IN 1976 TO $33
BILLION IN 1977, THE DEFICIT IN TRADE WITH EC PARTNERS,
WHICH CONSTITUTES, ABOUT HALF OF TOTAL FRENCH TRADE, FELL
FROM $2,1 BILLION.IN 1976 TO $1,2 BILLION IN 1977,
RECOVERY IN-AGRICULTURAL--PRODUCTION MADE A STRONG CONTRIBUTION,
FRENCH EXPORTS TO, THE UNITED STATES AND OTHER DEVELOPED
COUNTRIES OUTSIDE THE COMMUNITY ROSE FROM $11 BILLION IN
1976 TO $13 BILLION IN 1977, THE TRADE DEFICIT WITH THESE
COUNTRIES FELL FROM $815 MILLION TO $450 MILLION, THE
CONTINUATION OF RELATIVELY STRONG RECOVERY IN THE US
ECONOMY PLAYED A MAJOR PART, FRENCH EXPORTS TO ALL REMAINING
`COUNTRIES ROSE FROM $18 BILLION IN 1976 TO $21 BILLION IN
1977, THE DEFICIT IN TRADE WITH THIS GROUP, COMPRISING.
MAINLY LDCS AND OPEC MEMBERS, FELL FROM $1.4 BILLION TO
$759 MILLION,
8, THE DEFICIT ON SERVICES AND TRANSFERS FELL FROM
$1.7 BILLION IN 1976 TO $540 MILLION IN 1977, LED BY
INCREASED EARNINGS FROM ENGINEERING PROJECTS IN THE
MIDDLE EAST AND AFRICA, SERVICES WERE IN SURPLUS IN EVERY
QUARTER OF 1977 AND ENDED THE YEAR' AT A NET $1.8 BILLION,
UP FROM $500 MILLION. THE DEFICIT ON TRANSFERS INCREASED
SLIGHTLY TO 52,3 BILLION AS THE OUTFLOW OF WORKER
REMITTANCES SLOWED.
OUTLOOK.
9. IF THE LEFT FAILS AT THE POLLS IN MARCH, THE
FRENCH CURRA,fdr46&V4~ke144C2b62/6hAU4-GIDIA4WMW09*%'' 9ddb50002-5
1978, PERHAPS TO $1,7 BILLION, THE BIG GAINS OF LAST YEAR
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WILL NOT BE REPEATED.
10, DOMESTIC DEMAND WILL CONTINUE SLUGGISH, HOLDING
DOWN IMPORTS. REAL GDP GROWTH SHOULD BE 3 TO U PERCENT,
ROUGHLY THE RATE EXPECTED FOR OECD COUNTRIES AS A GROUP.
AT AN ESTIMATED 8,5 PERCENT, CONSUMER PRICE INFLATION ALSO
-SHOULD BE NEAR THE AVERAGE, FOR MAJOR COMPETITOR$ AND .
TRADING PARTNEPS.'THE FRENCH COUNT ON FURTHER RECOVERY IN
AGRICULTURE AND MOMENTUM IN CERTAIN EXPORT LINES--FOR
EXAMPLE, AUTOMOBILES--TO BRING ABOUT A. LARGER INCREASE IN
EXPORTS THAN IN IMPORTS. PROTECTIONIST MEASURES, NOTABLY
THOSE AFFECTING STEEL AND TEXTILES, WILL MAKE THE TASK
EASIER, FRENCH EXPORT-VOLUME SHOULD INCREASE PERHAPS BY
5 PERCENT, ROUGHLY KEEPING PACE WITH EXPORTS BY OTHER
INDUSTRIALIZED COUNTRIES. THE FAVORABLE TREND IN THE
SERVICES ACCOUNT SHOULD CONTINUE,
11. A VICTORY BY THE LEFT IN MARCH COULD LEAD TO AN
INCREASE IN THE CURRENT ACCOUNT DEFICIT WITHIN SIX TO EIGHT
MONTHS, THE SOCIALISTS AND COMMUNISTS HAVE PROMISED HIGHER
WAGES-AND INCREASED GOV-ERNMENT SPENDING, PARTICULARLY
SOCIAL WELFARE PAYMENTS. MEASURES OF THIS SORT WOULD
ACCELERATE INFLATION, BOOST IMPORTS, AND REDUCE THE COMPETITIVENESS
OF FRENCH EXPORTS'. (CONFIDENTIAL E1 2,3 IMPDET WNINTEL,>
ORIG & AUTH: ASA/D/OCR/NFAC REL: CH, NFAC/CS
CL BY 015319.'
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25X1A
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-&ND OF MESSAGE CONFIDENTIAL
 25X1A ONE ARTICLE FROM OER'S ECONOMIC INTELLIGENCE WEEKLY REVIEW
ENDING 2 FEBRUARY 1978_, REQUEST ARTICLE BE PASSED TO AMBASSADOR,
DCi, ECONOMIC SECTION AND OTHER WORKING LEVEL STATE OFFICERS,
WEST BANK ECONOMIC PROSPERITY CONTINUES.
1, THE WEST BANK ECONOMY HAS BEEN BOOMING IN THE PAST
FEW YEARS--IN- SHARP C..ONTR-AST TO THE ISRAELI ECONOMY, WHICH IS
STILL SLOWLY EMERGING FROM A PROLONGED RECESSION,* (*ALL WEST BANK
DATA IN THIS ARTICLE EXCLUDE JERUSALEM.) FUELED BY
REMITTANCES FROM EMIGRANT WORKERS, REAL WEST BANK GNP ROSE
AT AN ANNUAL AVERAGE RATE OF ABOUT 14 PERCENT IN 1973-76,
DESPITE A DOWNTURN IN 1975 CAUSED BY SEVERE DROUGHT,
GROWTH LAST YEAR MAY HAVE BEEN ON THE ORDER OF
10 PERCENT, BOOSTING PER CAPITA GNP 70 ABOUT $1,000.
2. THIS IMPRESSIVE RATE OF GROWTH HAS DONE LITTLE
TO CHANGE THE BASIC NATURE OF THE WEST BANK ECONOMY, STILL
DOMINATED BY AGRICULTURE AND CONSTRAINED BY A SMALL MARKET
AND LACK OP INDUSTRIAL RESOURCES, THE'ECONOMY PROVIDES
EMPLOYMENT FOR ONLY 140.,000 PERSONS. THE BALANCE OF THE WORKERS
HOLD JOBS IN ISRAEL, JORDAN, AND OTHER ARAB COUNTRIES. ASIDE FROM
JOB OPPOPTUNITIES AND TECHNICAL ASSISTANCE IN AGRICULTURE, ISRAEL
PROVIDES LITTLE IN THE WAY OF FINANCIAL SUPPORT TO THE WEST BANK.
3. WE ESTIMATE THAT REMITTANCES FROM NEST BANK WORKERS
IN ARAB COUNTRIES,HAVE INCREASED TENFOLD SINCE 1973
TO A LEVEL OF ABOUT $250 MILLION IN 1977, THANKS BOTH TO
INCREASED MIGRATION AND SHARPLY HIGHER LEVELS OF PAY. EARNINGS
FROM THESE WORKERS HAVE MORE THAN OFFSET THE DECLINE IN
%O 0jQQ2-5
RECEIPTS FR8PP TYRO EFL?C Re eI?,~~ /EOQ/I30RE ~ R3?~TP~3Afy?4WQ
 Approved For.Release 2002/01/30 : CIA-RDP79TO1316A000900050002-5
25X1A
AT LEAST 10,000 WEST BANK MIGRANT LABORERS BACK TO THE WEST
BANK OR ON To OTHER ARAB COUNTRIES.
4, THE BOOM IN -REMITTANCES HAS MADE THE WEST BANK A
SUBSTANTIAL NET EARNER OF FOREIGN EXCHANGE. BECAUSE OF THE
LACK OF DOMESTIC BANKING FACILITIES,, A LARGE PART OF THESE
:EARNINGS ARE HELD OUTSIDE, PRIMARILY IN AMMAN, -ARAB BANKS
IN THE WEST BANK HAVE BEEN, CLOSED SINCE 1967, AND MOST DAY-TO-DAY
FINANCIAL TRANSACTIONS ARE HANDLED BY A NETWORK OF MONEY
CHANGERS. THERE ARE SEVERAL BRANCHES OF ISRAELI BANKS ON THE
WEST BANK, BUT THESE DO BUSINESS MAINLY FOR ISRAELIS.
5. ONLY ROUGH ESTIMATES ARE AVAILABLE ON THE BALANCE OF
PAYMENTS OF THE WEST BANK. THESE ARE SUBJECT TO WIDE ERROR
BECAUSE ALMOST ALL TRANSACTIONS ARE IN CASH. MOREOVER,
'-ISRAELI MERCHANTS GENERALLY UNDERSTATE SALES TO THE WEST
BANK TO AVOID TAXES. BASED ON THE SPOTTY DATA AVAILABLE,, WE
ESTIMATE THAT THE'WEST BANK CURRENT ACCOUNT WAS ROUGHLY IN
BALANCE IN 1973, WAS ABOUT $125 MILLION IN THE BLACK IN 1976,
AND IMPROVED FURTHER IN. 1.977. -
HOUSING BOOM.
6. THE INFLOW OF REMITTANCES HAS TRIGGERED A. SHARP
RISE-IN CONSTRUCTION ACTIVITY, PRIMARILY IN PRIVATE HOUSING.
WHILE-CONSTRUCTION HAS SLUMPED IN ISRAEL,, WEST BANK HOUSING
STARTS HAVE RISEN BY 70 PERCENT SINCE 1973, AND THE NUMBER OF
BUILDINGS COMPLETED HAS MORE THAN DOUBLED. ROOM ADDITIONS AND
OTHER HOME' IMPROVEMENTS HAVE INCREASED EVEN FASTER. AS A
RESULT, THE CONTRIBUTION OF CONSTRUCTION TO GDP HAS RISEN FROM
ABOUT 10 PERCENT IN 1973 TO 15 PERCENT CURRENTLY.
7. OTHER FORMS OF PRIVATE CONSUMPTION--INCLUDING LUXURIES
SUCH AS REFRIGERATORS AND TELEVISION SETS--HAVE ALSO SOARED.
THE BOOM IN CONSTRUCTION AND CONSUMPTION HAS NOT IN ITSELF
BEEN A PRIME FACTOR IN PUSHING UP THE COST OF LIVING. ALMOST
ALL CONSUMER GOODS AND BUILDING MATERIALS ARE IMPORTED FROM
ISRAEL, AND THE WEST BANK INFLATION RATE--28 PERCENT IN
1976--LARGELY REFLECTS THE PASSTHROUGH OF ISRAELI INFLATION.
.RISING LOCAL WAGE'RATES HAVE ALSO BEEN A CONTRIBUTING FACTOR.
GAINS IN AGRICULTURE.
8, AG-RICULTURAL OUTPUT HAS EXPANDED BY SO TO 60 PERCENT
SINCE 1973. PRODUCTION OF VEGETABLES AND CITRUS FRUITS OVER
THE PAST D EA ovgd $oF KBk%Bg t20O2'/0'P/50 : tULVCPTISTb tf obi k0t0002-5
Ili" CONFIDENTIAL
 Approved For Release 2002/01/30 : CIA-RDP79TO1316A000900050002-5
COMBINATION OF INCREASED WEST BANK INVESTMENT IN AGRICULTURE
AND ISRAELI TECHNICAL ASSISTANCE. AS A RESULT OF THESE GAINS,
THE WEST BANK IS SELF-SUFFICIENT EXCEPT FOR FOODGRAINS.
9. DESPITE FAVORARLE PRICE AND OUTPUT TRENDS,
FARMERS HAVE BEEN CAUGHT IN A PROFIT SQUEEZE IN THE PAST FEW
YEARS. ISRAELI TAXES AND FUEL PRICES PUSHED UP-COSTS OF FUEL,
PACKAGING, FERTILIZER, AND MACHINERY TO NEARLY 20 PERCENT OF THE
VALUE OF OUTPUT, DOUBLE THE LEVEL IN THE 1973/74 CROP YEAR.
THE SQUEEZE, HOWEVER, HAS NOT YET MADE NEW INVESTMENTS
UNPROFITABLE.
LIMITS ON INDUSTRY,
10. THE SMALL WEST BANK INDUSTRIAL SECTOR HAS SLIPPED
--FROM-ABOUT 8 PERCENT OF GDP IN 1973 TO 7 PERCENT IN 1976,
PRODUCTION--CONSISTING MAINLY OF HANDICRAFTS, FOOD PROCESSING,
SOAP, MATCHES, AND PLASTIC PRODUCTS--HAS LANGUISHED SINCE
1973, INDUSTRIAL OUTPUT AND INVESTMENT ARE SUFFERING FROM
INCREASES IN LABOR COSTS AND ISRAELI ECONOMIC POLICIES, INCLUDING
HIGH PRODUCTION TAXES- AND- DUTIES ON 'RAW. MATERIALS, AS WELL AS
BUREAUCRATIC ROADBLOCKS DESIGNED TO IMPEDE WEST BANK COMPETITION
WITH ISRAELI PRODUCTS.
11. THE MARKET FOR MOST WEST BANK INDUSTRIAL FIRMS
ESSENTIALLY IS CONFINED TO THE OCCUPIED TERRITORIES. ONLY
FIRMS ESTABLISHED BEFORE 1967 AND LICENSED BY THE JORDANIAN
GOVERNMENT HAVE AN OUTLET TO THE ARAB WORLD. INDUSTRIAL
EXPORTS, EXCEPT FOR PROCESSED AGRICULTURAL GOODS ARE VERY
SMALL IN ANY CASE, THESE LIMITATIONS, TOGETHER WITH POLITICAL
UNCERTAINTY, HAVE FROZEN NEW INVESTMENT. NO MAJOR INDUSTRIAL
..FIRMS,, AND-VERY FEW SMALL ONES1,HAVE BEEN SET UP IN THE LAST
FEW YEARS.
THE ROLE OF JERUSALEM,
12. PRIOR TO 1967, JERUSALEM'WAS THE COMMERCIAL HUB OF
THE WEST BANK AND ALSO ITS MAIN SOURCE OF TOURIST EARNINGS AND
GOVERNMENTAL SERVICES, THE CITY WAS INDISPENSABLE AS A TRADING
AND MARKETING OUTLET FOR THE WEST BANK.
13, ALTHOUGH JERUSALEM REMAINS A MAJOR SOURCE OF EMPLOYMENT,
ITS ROLE AS A MARKET FOR WEST BANK PRODUCTS HAS BEEN TRIMMED
BY ISRAELI ECONOMIC CONTROLS. MOREOVER, SINCE THE OPENING OF
THE I S R A E L IAqr i~~ FbV RR1 le 2bd.6/0 '1 bq 0A-R ~b4fftA 0?0(~d b6 -5
FOR NORTHERN ST BANK TRADE HAS DIMINISHED.
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OUTLOOK,
14, WE EXPECT THE ECONOMY TO TAPER OFF TO A 5- TO 8-PERCFNT
GROWTH RATE FOR THE NEXT SEVERAL YEARS AS THE BOOM IN REMITTANCES
AND CONSTRUCTION SLACKS OFF AND GNP AGAIN BECOMES MORE HEAVILY
INFLUENCED BY AGRICULTURAL DEVELOPMENTS. THE BASIC CONSTRAINTS
TO WEST BANK ECONOMIC PERFOPMANCE WILL REMAIN. OPPORTUNITIES
FOR NONAGRICULTURAL INVESTMENT APE EXTREMELY LIMITED, AND
EVEN AGRICULTURE IS BECOMING LESS ATTRACTIVE. FINALLY, AND
PERHAPS MOST IMPORTANT, EMIGRATION TO OTHER ARAB COUNTRIES IS
DRAINING THE AREA, OF ITS SKILLED WORKERS.
15.. FOR NOW, WEST BANKERS CAN LOOK FORWARD TO CONTINUED
GAINS IN THEIR STANDARD OF LIVING. MOST ECONOMIC GROWTH WILL
BE IN RETAIL TRADE, SERVICES, AND OTHER CONSUMER-RELATED
__ACTIVITIES. INVESTMENT AND DEVELOPMENT PROJECTS--PUBLIC
AND PRIVATE--WILL REMAIN MINIMAL.
16. A SETTLEMENT OF THE POLITICAL STATUS OF THE WEST
BANK COULD BRING A.RENEWED SPURT IN ECONOMIC ACTIVITY. WEST
BANKERS, NOW-HOLDING.-L.APGE FUNDS OUTSIDE THE AREA, COUimD BE
EXPECTED TO INVEST HEAVILY IN LOCAL INDUSTRY. IF THESE FUNDS
WERE BACKED UP BY FOREIGN ASSISTANCE IN IMPROVING INFRASTRUCTURE
AND BY THE RETURN OF SKILLED MANPOWER, THE WEST BANK COULD BE
PUT ONTO A FAIRLY STEADY AND SUSTAINABLE GROWTH PATH. IN ANY CASE,
THE MINIMUM REQUIREMENT FOR ECONOMIC PROGRESS IS A CONTINUED
25X1A SECURE LINK TO PORT FACILITIES AND TO ARAB MARKETS.
(CONFIDENTIAL) E1,2,3 IMPDET WNINTEL,>
ORIG & AUTH: ASA/D/OER/NFAC REL: CH, NFAC/CS
CL BY 015319,
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'LEND OF MESSAGE -CONFIDENTIAL
 25X1A
25X1A ' ONE ARTICLE FROM OER'S ECONOMIC INTELLIGENCE WEEKLY REVIEW
ENDING 2 FEBRUARY 1978 REQUEST ARTICLE BE PASSED TO AMBASSADOR,
DCMr ECONOMIC SECTION AND OTHER WORKING LEVEL STATE OFFICERS.
TURKEY: NEW GOVERNMENT EYES PAYMENTS CRISIS.
1. THE MONTH-OLD TURKISH GOVERNMENT OF PRIME
MINISTER BULENT ECEVIT PROBABLY WILL ADOPT CONTROVERSIAL
AUSTERITY MEASURES VITHIN THE NEXT FEW WEEKS IN AN
ATTEMPT TO REMEDY T-HE-CRITICAL BALANCE-OF-PAYMENTS-SITUATION.
FOREIGN EXCHANGE RESERVES ARE AT THEIR LOWEST LEVEL IN
SIX.YEARS, AND SHORT-TERM DEBT HAS REACHED AN ALARMING $4
BILLION. FORMER PRIME MINISTER DEMIREL'S NATIONAL FRONT
COALITION FOUNDERED IN PART BECAUSE IT COULD NOT AGREE ON
MAJOR POLICY CHANGES THAT WOULD SATISFY THE IMF AND
PRIVATE FOREIGN BANKERS, THE SOURCE OF MUCH-NEEDED LOANS.
ECEVIT MUST CONVINCE POLITICIANS AND PUBLIC ALIKE THAT
-STIFF -AUSTERITY MEASURES ARE ESSENTIAL-AND DO NOT REPRESENT
KNUCKLING UNDER TO OUTSIDE PRESSURE.
DIAGNOSIS.
2. TURKEY HAS BEEN ENGAGED IN A FOREIGN EXCHANGE
JUGGLING ACT FOR AT LEAST A YEAR AS OFFICIALS TRY
DESPERATELY TO MAINTAIN ESSENTIAL IMPORTS, CENTRAL BANK
OVERDRAFTS AND ARREARS CARRIED OVER FROM LAST YEAR AMOUNT
TO $1.5 BILLION TO $2.0 BILLION. INABILITY TO PAY FOREIGN
SUPPLIERS ALREADY HAS LED TO CUTBACKS IN INDUSTRIAL
PRODUCTION AND SLOWDOWNS IN DEVELOPMENT PROJECTS, ,IIRR,AQ
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WERE NOT PAID. FOREIGN EXCHANGE RESERVES HAVE FALLEN BELOW
$500 MILLION, THE VALUE OF ABOUT FIVE WEEKS' WORTH OF
IMPORTS, AND EXPECTATIONS OF A SUBSTANTIAL DEVALUATION
OF THE TURKISH LIRA ARE SLOVING BOTH PAYMENTS FOR EXPORTS
AND REMITTANCES FROM TURKS ir:ORKING ABROAD.
3, THE DEEPENING FOREIGN EXCHANGE CRISIS STEMS
FROM SEVERAL YEARS OF RAPID ECONOMIC GROWTH AND HIGH
MILITARY EXPENDITURES IN THE FACE OF SKYROCKETING OIL
PRICES, A WORLD RECESSION, AND A SHUTOFF OF US MILITARY
GRANT AID, DURING THIS TIME, THE GOVERNMENT HAS BEEN
SUPPORTING AGRICULTURAL PRICES WELL ABOVE WORLD LEVELS,
MAKING KEY EXPORTS SALEABLE ONLY ON A SUBSIDIZED BASIS.
THE RESULT OF THESE AND OTHER POLICIES HAS BEEN A BALLOONING
_OF..THF CURRENT ACCOUNT DEFICIT, FROM $720 MILLION IN 1974
TO $3.1 BILLION IN 1977.
4, TO FINANCE THE DEFICIT, TURKEY HAS BORROWED
ABROAD AND ENCOURAGED FOREIGN BANKS--MAINLY US--TO
MAINTAIN-DER O.SI3S OF,EOREIGN CURRENCY IN' TURKISH BANKS.
THESE SO-CALLED CONVERTIBLE LIRA DEPOSITS PLUS CENTRAL
BANK ARREARS AND OVERDRAFTS MAKE UP TURKEY'S SHORT-TERM
DEBT OF $4 BILLION, LONG-TERM DEBT, PRIMARILY OWED TO THE
UNITED STATES AND'INTER.NATIONAL ORGANIZATIONS, AMOUNTS
TO $5 BILLION.
REMEDIES TO DATE.
5. THE DEMIPEL GOVERNMENT BEGAN TAKING STEPS TO
REDUCE THE CURRENT ACCOUNT DEFICIT FOLLOWING ITS FIRST
DISCUSSIONS WITH THE IMF LAST SEPTEMBER, ANKARA DEVALUED
THE- LIRA BY 9 PERCENT VIS-A-VIS -THE DOLLAR AND TRIMMED
THE ANNUAL INCREASE IN AGRICULTURAL SUPPORT PRICES. IN
ADDITION, DOMESTIC PETROLEUM PRICES WERE RAISED FOR THE
FIRST TIME SINCE 1973, AND PRICES OF PRODUCTS PRODUCED
BY SOME STATE ENTERPRISES WERE RAISED SUBSTANTIALLY TO
REDUCE THE BUDGET' DEFICIT, THE COALITION GOVERNMENT BALKED
AT FURTHER MEASURES--SUCH AS ANOTHER DEVALUATION AND A
COMMITMENT TO FISCAL AND MONETARY RESTRAINT--NEEDED TO
MEET IMF LOAN CONDITIONS AND RESTORE THE CONFIDENCE OF
FOREIGN BANKERS.
6. INTERNATIONAL BANKERS, AFTER CONSIDERING LENDING
MONEY TO TIDE TURKEY OVER UNTIL AN IMF SETTLEMENT COULD
BE REACHED, DECIDED IN DECEMBER TO CONDITION NEW ASSISTANCE
ON THE GRA~13v0lFaNRgleps%IRMZD1130RELI-RpP719W07 AtoDO9L1a 0002-5
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TO $110 MILLION POTENTIALLY AVAILABLE FROM THE IMF FOR
1978 IS SMALL CHANGE COMPARED WITH TOTAL FINANCING NEEDS,
BUT TURKISH ACCEPTANCE OF IMF POLICY CONDITIONS WOULD
OPEN THE DOOR TO MEDIUM-TERM PRIVATE CREDITS THAT COULD
TOTAL. $1 BILLION OR MORE. TURKEY THUS IS LEFT WITH LITTLE
CHOICE OTHER THAN TO ACCEPT THE IMF POLICY RECOMMENDATIONS,
THE DEMIREL GOVERNMENT FELL ON 31 DECEMBER FOLLOWING THE
DEFECTION OF LEGISLATORS FRUSTRATED BY THE COALITION'S
CONTINUED INABILITY TO TAKE DECISIVE POLITICAL/ECONOMIC
ACTION,
PROSPECTS.
7, THE NEW ECEVIT GOVERNMENT, WISHING TO AVOID
TROUBLE UNTIL IT HAD WON A VOTE OF CONFIDENCE, THUS FAR
HAS ONLY CATALOGUED TUR-KISH ECONOMIC ILLS WITHOUT PROPO.SI-NG
REMEDIES. ECEVIT PROBABLY UNDERSTANDS THE NEED FOR
AUSTERITY, NOTWITHSTANDING PUBLIC STATEMENTS THAT SUGGEST
THE CONTRARY, AND IS LIKELY TO SEEK AN EARLY AGREEMENT
WITH T_HE.IMF. ANKARA MAY DELAY-THE NEXT ROUND OF IMF TALKS
AT-LEA-ST UNTIL NEXT MONTH-TO ALLOW APPROVAL OF THE 1978
BUDGET AND ENACTMENT OF OTHER ECONOMIC MEASURES, THE .
GOVERNMENT PROPOSALS WILL BE DIFFICULT ENOUGH TO DEFEND
WITHOUT THEIR APPEARING TO BE IMPOSED FROM OUTSIDE,
8. IMF PROPOSALS DISCUSSED WITH THE DEMIREL
GOVERNMENT HAD INCLUDED A FURTHER 20-PERCENT DEVALUATION,
A CUT.IN 1978 GOVERNMENT SPENDING IN REAL TERMS,-LIMITS
ON MONEY SUPPLY EXPANSION, AND A SHARP CUT IN IMPORTS-
UNDER THESE GUIDELINES, REAL GNP WOULD BE SCHEDULED TO
GROW BY 4,5 PERCENT IN 1978, WELL BELOW THE AVERAGE 7-
TO__.8-PERCENT RATE OF THE PAST FEW YEARS, THIS SLOWDOWN
IN GROWTH PROVED TO BE A KEY STUMBLING BLOCK FOR MEMBERS
OF THE DEMIREL GOVERNMENT, PARTICULARLY DEPUTY PRIME
MINISTER ERBAKAN,
WITH ERBAKAN OUT OF THE GOVERNMENT
AND PRELIMINARY FIGURES SHOWING GNP GROWTH DOWN TO 5.0
PERCENT OR LESS IN,1977, THE IMF PROPOSALS APPEAR TO BE
GAINING GREATER ACCEPTANCE AMONG TURKISH OFFICIALS, THE
NEW GOVERNMENT ALREADY HAS ACCEPTED THE.$4,85 BILLION IMF
LIMIT ON IMPORTS, AND ECEVIT PROBABLY WILL AGREE TO THE
PROPOSED DEVALUATION. HE MAY TRY TO RAISE SLIGHTLY THE
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NMEN ANDETHE IMF AW(gv FgrS~NIg A1j&(WO 0~aT J~D ~ TCI BUDGE
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9. IN THE ABSENCE OF A STANDBY AGREEMENT WITH THE
IMF, EXTERNAL FINANCING CONSTRAINTS COULD RESULT IN ZERO
REAL GNP GROWTH OR EVEN A DECLINE THIS YEAR. WITH IMF
SUPPORT, MUCH OF TURKEY'S SHORT-TERM DEBT COULD BE
RESCHEDULED, EXPORTS AND WORKER REMITTANCES SHOULD RECOVER,
AND SOME REAL GR00H SHOULD BE REALIZED. TURKEY IS IN
FOR HARD TIMES IN ANY CASE. HIGH INFLATION AND UNEMPLOYMENT
WILL PERSIST AND REAL INCOMES MAY FALL EVEN IF ANKARA
ENACTS THE MEASURES DEMANDED BY THE IMF. TIGHT CONTROL
OVER IMPORTS AND GOVERNMENT SPENDING PROBABLY WILL HAVE
TO BE MAINTAINED THROUGH 1980. US RATIFICATION OF THE
FOUR-YEAR DEFENSE COOPERATION AGREEMENT, WHICH CALLS FOR
$250 MILLION A YEAR IN LOANS AND GRANTS TO TURKEY IN
RETURN FOR USE OF MILITARY BASES, WOULD MAKE AVAILABLE
FOREIGN EXCHANGE THAT COULD BE USED TO SUPPORT DOMESTIC
INV.E$TMENT PROJECTS. IF, HOWEVER, THE TURKS DECIDED TO
BUY MORE ARMS, THE US GRANTS WOULD RESULT IN NO NET GAIN
FOR ECONOMIC DEVELOPMENT OR FOR THE BALANCE OF PAYMENTS.
100 ONCE THE IMMEDIATE FOREIGN EXCHANGE SITUATION
IS BROVUGHT UNDER CONT;ROL, TURKISH LEADERS WILL HAVE TO
ADDRESS STRUCTURAL ECONOMIC PROBLEMS, FOR INSTANCE,
ANKARA HAS CHANNELED A LARGE PORTION OF INVESTMENT INTO
HIGH-COST SHOWPIECE PLANTS, SUCH AS STEEL AND ALUMINUM,
OR INTO CONSUMER-ORIENTED INDUSTRIES THAT DEPEND HEAVILY
ON IMPORTED MATERIALS AND ARE NOT COMPETITIVE IN EXPORT
MARKETS. YET WITH 40 MILLION PEOPLE AND SUBSTANTIAL
NATURAL RESOURCES, TURKEY HAS MUCH GREATER LONG-TERM
25X1A POTENTIAL ;THAN MANY OTHER COUNTRIES AT A SIMILAR STAGE
OF DEVELOPMENT, (CONFIDENTIAL WNINTEL) E112,3 IMPDET WNINTEL.)
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END',OF PSSAGE CONFIDENTIAL