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December 9, 2016
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April 24, 2001
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January 1, 1965
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Approved For Release 2001/05/17 ? fSTO 1003AO02200070001-9 INTELLIGENCE BRIEF EGYPTIAN FINANCIAL PROBLEMS CIA/RR CB 65-7 January 1965 Copy No. 201 DIRECTORATE OF INTELLIGENCE Office of Research and Reports Approved For Release 2001/05/17 : C kVT'E1003A002200070001- GROUP 1 Excluded from automatic downgrading and declassification Approved For Release 2001/05/17 : CIA-RDP79TO1003AO02200070001-9 This material contains information affecting the National Defense of the United States within the meaning of the espionage laws, Title 18, USC, Sees. 793 and 794, the trans- mission or revelation of which in any manner to an unauthorized person is prohibited by law. Approved For Release 2001/05/17 : CIA-RDP79TO1003AO02200070001-9 Approved For Release 2001/05/17 : CIA-RDP79T01003A002200070001-9 S-E-C-R-E-T EGYPTIAN FINANCIAL PROBLEMS Egypt is caught in a financial dilemma born of progressively grow cul - ing overcommitment in many fxields. forhseveral years si-s- is larg ly the nation of a situation that has e product of a longstanding deficiency of foreign exchange. In his attempts to raise living standards in 'the United Arab Republic (UAR) and to gain a place of importance on the world scene, Nasser has assumed heavy financial commitments. Industrial investment, welfare services, mili- tary power, and foreign ventures have been costly, and these programs have made conflicting demands on inadequate resources. A rate of eco- nomic growth of almost 6 percent per year has been attained, an indus- trial complex has been implanted, and the military forces have been equipped with modern weapons, but these gains have been accomplished at a high cost, particularly in terms of serious depletion of present for- eign exchange and the need to employ a significant share of future exports to pay for past imports of military and industrial equipment. Financial assistance adequate to support Nasser's programs has be- come increasingly hard to find, and some adjustments in economic policy appear likely. Consumer goods may become more scarce in the months ahead, and the ambitious development program may be subjected to close scrutiny. The unrealistic nature of economic goals is becoming increasingly hard to ignore as financial difficulties mount. Development credits of the sort provided earlier by the Communist YCt on the short-term neither solve the problems nor have much impact symptoms. US deliveries -of food under P. L. 480 are more directly applicable to existing problems, covering Pri ateoforeign. investmentVis tively small part of the many shortages. almost at a standstill, largely because of nationalization policies. 1. Shortage of Hard Currency Sale of more than $30 million of the UAR's official gold holdings -?- a sharp departure from past policies -- is clear evidence that other sources of ready money have been exhausted. From the end of World War fI until the early 1960's, Egypt financed a growing trade deficit out of large reserves of foreign exchange and foreign assets. Resources were strained further by compensation payments to foreign owners of nationalized companies. Little remained of former holdings in 1961, when a cotton crop failure and expanding development costs doubled the balance-or-payments deficit in a single year. With reserves exhausted, Egypt turned to the International Monetary Fund (IMF) and private Western banks. During 1962-64, $90 million Approved For Release 2001/056A-2D79TT01003A002200070001-9 Approved For Release 2001/05/17 : CIA-RDP79TO1003AO02200070001-9 S-E-C-R-E-T was drawn from the IMF, and short-term commercial credits were amassed. By the end of 1964, however, the limits of these lines of credit apparently were reached. Moreover, repayments on long- term development loans extended in the 1950's also were beginning to mount. The current annual obligation of some $60 million to $70 mil- lion on long-term loans now extant is expected to reach about $95 mil- lion in 1966 and about $160 million by 1970. Bankers, fearful for the safety of existing short-term loans, have resisted pressures to increase the amounts outstanding. With no place else to turn, the UAR has con- verted gold from its "currency cover" into the hard currency required to meet overdue commitments. This temporary expedient, however, does little to relieve the continuing pressure. Hard currency earnings are increasing, but not fast enough to cover the payments deficit. Sketchy data from Egyptian sources indicate that foreign exchange earnings for 1964 may have been somewhat more than $50 million above the level of 1963, with most of the increase probably in hard currency. An increase of this magnitude would be a noteworthy achievement, but in the context of the deficit; on current account in 1963 of $283 million (including $132 million in US loans in local currency), earnings remain far from adequate. 2. Shortages of Consumer Goods A serious shortage of consumer goods that developed in the fall of 1964 brought popular discontent into the open for the first time. Strict import controls were imposed in mid-year,and, in an attempt to keep the industrial complex operating and growing, emphasis was placed on restraining "nonessential" (consumer) imports. Much of the consumer merchandise for urban markets must be imported, and that which is manufactured at home requires a high proportion of imported raw ma- terials and components. While the influx of foreign goods was being curtailed, the government continued to subsidize food prices and to con- trol prices (many below cost) of manufactured items. Within a few months the available supplies of food, clothing, and consumer durables in city stores had dwindled., and potential purchasers, unable to buy goods from government cooperatives, were turning to the black market. Profiteering became widespread, and consumer dissatisfaction mounted. New measures were adopted to reduce the disparity between supply and demand and to quiet the unusual display of public unrest. An emer- gency expenditure of $92 million in foreign exchange from budgeted S-E-C-R-E-T Approved For Release 2001/05/17 : CIA-RDP79TO1003AO02200070001-9 Approved For Release 2005 0-j1RIPi P79T01003A002200070001-9 funds was authorized for the immediate import of goods to satisfy the most urgent consumer needs.' Price controls on some locally produced foods were lifted to encourage farmers to increase the supply in domestic markets. Meat rationing was imposed, food marketing channels were reorganized, and the government began a concerted campaign to promote saving and to discourage consumption. In an attempt to siphon off increased consumer purchasing power, a higher interest rate on savings accounts was introduced, accompanied by an official campaign urging workers to increase savings as their way of contributing to economic progress. 3. Difficulties in Industry Egyptian industry has made tremendous advances and now contrib- utes about one-third of national income, but it is suffering from --and adding to the economic'difficulties besetting the country. The iron and steel plant at Helwan, a project justified more by prestige than by. potential profitability,.-is an outstanding example. One of the two blast furnaces was closed down for several months in 1964 because the cur- rency shortage had caused a delay in orders for necessary replacement items. As a result, increased imports of steel are needed to fill the gap. Other factories operating far below capacity for lack of spare parts and raw materials include the Ford and Fiat automobile plants; cement factories; and plants producing plastics; "batteries, and paper. Funds to purchase the necessary inputs, which must come from abroad, are not available. In spite of this shortage of foreign exchange, how- ever, a new law has just been -drafted that would prohibit any enterprise from closing down. either wholly or partly, without government per- mission. 4. Bloc Economic Assistance The Communist countries seem willing to support Nasser' s pro- grams by using the traditional solutions of soft currency and the stretch- ing out of debt obligations. They do not appear willing to provide the massive injections of hard currency required to finance the Egyptian trade deficit with non-Communist countries. In mid-December 1964. the UAR` s cumulative deficit on bilateral trade accounts (mostly with Communist countries) had reached $232. million -- an increase of about $18 million in 1 month. Bilateral agreements permit the creditor coun- try to demand hard currency payment of debit balances above a certain limit, but in December Soviet officials reportedly promised not to exer- cise this option, thus removing a potential threat, at least for a time. S-E-C-R-E-T Approved For Release 2001/05/17 : CIA-RDP79T01003A002200070001-9 Approved For Release 2001/05/17 : CIA-RDP79T01003A002200070001-9 S-E-C-R-E-T New trade agreements with the USSR, several European Satellites, and Communist China provide for higher debt limits. Egyptian ministries have been instructed to divert foreign purchases to Bloc countries, even when Western equipment would be cheaper or better. The promise of almost half a billion dollars in new economic credits by Communist countries in 1964 should help to make further industrial- ization possible. However, Egypt needs goods - - especially food and manufactures -- in a quantity that the Bloc may not be willing to provide. To date, no offers of hard currency for such a purpose have been noted. 5. Search for a Solution Nasser himself has admitted publicly that serious problems exist and will require drastic solutions. Thus far, however, only minor steps have been taken to stem the flow of funds abroad. Selective tax increases and import surcharges were introduced last summer. More recently, government offices abroad have been closed, salaries of officials serving overseas have been withheld in part, and foreign travel has been cur- tailed. Responsible officials assert that more basic changes will be adopted. The Minister of the Treasury has projected imports of $828 million for the fiscal year ending 30 June 1965 -- a drop of 13 percent in spite of the emergency expenditure of $92 million. Prime Minister Ali Sabri has admitted that the development effort must be slowed down, and the Minister of Economy has stated that investment in industry has been cut 15 percent below the budgeted level in the current fiscal year and that the cut in the services sector has been set at 30 percent. Nasser has claimed that his people will "tighten their belts" for the sake of national growth, but recent disturbances indicate that the process will be painful politically as well as personally. 25X1A Analyst; Coord: OCI S-E-C-R-E'-T Approved For Release 2001/05/17 : CIA-RDP79T01003A002200070001-9 SECRET Approved For Release 2001/05/17 : CIA-RDP79TO1003AO02200070001-9 Approved For Release 2001/05/17 : CIA-RDP79TO1003AO02200070001-9 SECRET Analyst: Approved For Release 2001/05/17 : CIA-RDP79T01003A00220N7,cq@'b9 43. 5217) OFFICE OF RESEARCH AND REPORTS St/P/RR -R Control Section Control Sheet Series Number CIA/RR CB 65-7 Date of Document January 1965 _34 AD/RR 33 DAD/RR 174-177 HR/ Ops, Filed in St/P Returned 25X1 A 25 Jan 65 Recipient Ufa-? 1 8 E QQ~~ , :xcl.. c :i auta~ at;c! ;a '~. is r ;1 and I Number of Copies 280 w Ic,cc i V 01- 1 Ir) 6 I - i 'Approved For Release 2001/05/17 : CIA-RDP79TO1003AO02200070001-9 Approved For Release 2001/05/17 : CIA-RDP79TO1003AO02200070001-9 Approved For Release 2001/05/17 CIA-RDP79T01003AO02200070001-9 SUBJECT: Distribution of Current Support Brief No. 69-7, Copy No. 2-3 4 - 12 13 - 15 16 - 21 22 23-31 32 33 - 280 O/DDI, Room 7E32, Hdgtrs. NIC OCI Internal ONE St/CS/R O/DDI - NSA NSAL, nt Support Section, e / 25X1A Docum ORR Distribution, St/A Room GH0915, Hdqtrs. (sent direct to St/AIDS, 27 Jen b5)< (Distributed by OCR) Approved For Release 2001/05/17: CIA-RDP79T 25X1A Approved For Release 2001/05/17 t1A-RDP79T01003A002200070001-9 St/A/DS Distribution of Current Support Brief No. 6,5-7., al Problems -- 3 puary 1965 (SECRET Copy No. 35 36 37-42 43 - 48 49 - 54 55 56 - 60 61 - 66 67 68 - 76 77 - 78 79 - 80 81 25X1A 82 - 87 88 89 25X1A 91 92 93 94 95 25X1A 96 97 98 99 100 101 102 - 103 104 - 106 107 108 109 - 110 111 112 113 - 114 115 - 153 158- 169 170 - 171 172 - 173 174 - 230 231 - 280 Recipient *bodm .jj A ]a (as Ch/E St/PR D/A (1 each branch) D/MS (1 each branch) D/R (1 each branch) M RA DIP (1 each branch) A/F (1 St/PS each branch) D/I (1 each branch) D/GG D/GC D/GX/X t P"~ St/FM Room 1B4004, Hq. BR/CR FIB/SR/CR, Room 1G27, Hq. Library/CR IPI/CR A Chief, OCR/FDD CD/OO OCI/SA/R, Room 5G19, Hq. DDI/CGS, Room 7F35, Hq. DDI/CGS/HR, Room 1G81, Hq. OSi. OBI DD/S&T/SAINT 25X1A OTR/1S/IP, Room 532, Broyhill Bld .., 1000 Glebe (1 - OTR/SIC) NPIC/CSD/REF, Room 15518, Commandant National War Col. ege, t. Leslie McNair, Attn: Classified Records Section, Rm. 26, Nat'l War College Bldg. ,, Washington, D. C. Assistant Secretary of Defense, ISA, Room 4D825, Pentagon Defense Intelligence Agency, DIAAQ-3, ABldg., Arlington Hall Station USIA, Warren Phelps, IRR/D, Room 812, Walker Johnson Building, 1734 New York Avenue, N. W. State, INR, Communications Center, Room 7818, State Dept. Bldg. Dr. Neilson. Debe.voise, NSC, Room 365, Executive Office Bldg. Frank M.Charrette, Agency for International Development, Chief, Statistics and Reports Division, Room A-204, State Annex #10 St/P/C/RR, Room 4F41, Hq. (held in St/P/c, 27 Jan 65). Records Center Approved For Release 2001/05/17: CIA-RDMTQT ROtT?200070001-9 dar,n?rr and I 0lnik'.. All SECRET Approved For Release 2001/05/17 : CIA-RDP79TO1003AO02200070001-9 8 February 1965 1,0CRANDt&Y FCIR: (fief, Dissemination Control Branch, DD/GR FROM : Chief, Publications Staff, ORR SUBJECT Transmittal of Material Egatian It is requested that the attached copies of CIA/RR CB 65-7, Financial Problems,, January 1965, Secret, be forwarded as followst State, ThR Communications Center, Room 7818, State Dept. Bldg. Suggested distribution for 'Embassies in Kara,, Athens, Cairo, Damascus, .Nicosia, Tehran,, Baghdad, Tel Aviv, Beirut, Amman, Jidda, opoidville, Addis Ababa, Accra, Nairobi, Tripoli, Rabat, Mogadisclo, Xhartoun, Tunis, Algiers, and Bamako 25X1A Attachments: Copies #219 - eel C(;S/RB of CB 65-7` c7r The dissernuvatron by this memorandum has been completed, BY:227664' Date:,' . Approved For Release 2001/05/17: CIAO 002200070001-9 CQwtigrading end SECRET Approved For Release 2001/05/ : AJ*-RDP79T01003A002200070001-9 Project No. 43, 5Z17 Report Series CIA/RR CB 65-7 Egyptian Financial Problems -- January 1965 (SECRET) Responsible Analyst and Branch 25X1A I/NEA RECOMMENDED DISTRIBUTION TO STATE POSTS Berlin, Germany Bangkok., Thailand Mexico Bucharest, Romania Djakarta, Indonesia Guatemala Budapest, Hungary Hong Kong Panama Moscow, USSR Rangoon, Burma Brazillia, Brazil Prague, Czechoslovakia Kuala Lumpur, Malaya Buenos Aires, Argentina. Bulgaria Sofia Saigon, Vietnam Bogota, Colombia , Warsaw, Poland Seoul, Korea Santiago, Chile Singapore, British Malaya La Paz, Bolivia Europe Taipei, Formosa Montevideo, Uruguay Venezuela C Tokyo, Japan aracas, Belgrade, Yugoslavia Vientiane, Laos itzerland S B Phnom Penh, Cambodia w ern, Germany Bonn Colombo, Ceylon , Yaounde, Cameroun Brussels, Belgium Copenhagen, Denmark Near East 8c South Asia eLeopoldville, Congo =Addis Ababa, Ethopia Frankfurt, Germany Geneva, Switzerland Ankara, Turkey 'Accra, Ghana Helsinki, Finland Athens, Greece Abidjan, Ivory Coast The Hague, Netherlands Caro, Egypt a.irobi, Kenya Portugal Lisbon Damascus, Syria Monrovia, Liberia , London, England ul, Afghanistan -Tripoli, Libya Luxembourg, Luxembourg Karachi, Pakistan Rabat, Morocco Madrid, Spain New Delhi, India Lagos, Nigeria Norway Oslo -Nicosia, Cyprus 'Mogadiscio, Somal , Paris, France -Tehran, Iran 'Khartoum, Sudan Italy Rome GBaghdad, Iraq -Tunis, Tunisia , Stockholm, Sweden Z"rel.Aviv, Israel Pretoria, South Africa Vienna, Austria -Beirut, Lebanon !Algiers, Algeria Amman, Jordon Cotonou, Dahomey .i-dda, Saudi Arabia Dakar, Senegal Mali k B o, _ ama Wellington, New Zealand Ottawa, Canada Manila, Philippines Canberra, Australia Melbour Aus : ali Approved for release 2001/05/17: CIA-RDP79T01003A002200070001-9 25X1 C RECORD OF REVIEW OF ORR PUBLICATIONS FOR SECURITY/SANITIZATION APPROVAL 25X1A 70001-9 (9-36-43) FORM n35v MTYJ Excluded from automatic 1 2- 64 L v downgrading and declassification