ECONOMIC INTELLIGENCE WEEKLY REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80T00702A000900060002-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 61
• Document Creation Date: December 15, 2016
• Document Release Date: July 8, 2004
• Sequence Number: 2
• Publication Date: November 9, 1978
• Content Type: STUDY

25X1 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Next 10 Page(s) In Document Exempt
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved !F rRelease 2004/07/28 : CIA-RDP80T00702A0009
Economic Intelligence
Weekly Review
9 November 1978
i97Y
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 25X1 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
ECONOMIC INTELLIGENCE WEEKLY REVIEW
9 November 1978
Current Survey .....................................................................................
Major Recent Developments Affecting the International Economy
Italy: Debate Over EMS .........................................................................
A sharp debate over participation In the proposed European Monetary
System finds high-ranking politicians generally in favor and government
technocrats deeply worried about the impact on the economy.
Iran: Economy in Upheaval ..............................
Several months of intermittent strikes have culminated in the. recent oil
walkout, which is costing $50 million to $60 million a day In lost export
revenues.
The proposed Common Fund for commodity price stabilization will be the
subject of another set of formal negotiations in Geneva from 14 to 27
November.
North-South Dialogue: Back to the Common Fund ................. 11
omes ~c budget crisis, serious foreign exchange shortages, and
oniestc budget crisis, serious foreign exchange shortages, and
continued hostilities in the Sahara have forced a series of emergency
economic measures.
Morocco: Retrenchment Follows Financial Crisis ............ 26
...........................
Ad
USSR: Estimated Savings from MBFR Agreement ... .... 23
An MBFR (Mutual and Balanced Force Reduction) pact would likely save
"up to 800 million rubles" through 1985.
o pragmatic Soviet policy decisions have allayed former
Western concern about Moscow's creditworthiness and have resulted in
the availability of ample credit on favorable terms.
USSR: Successful Hard Currency Debt Management ............... 18
A `series f
Note ..... . .....................................................................
29
25X1
25X1
Statistics
i
SECRET
ER EIWR 78-045
9 November 1978
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
MAJOR RECENT DEVELOPMENTS AFFECTING THE INTERNATIONAL
ECONOMY
Current Survey
25X1
25X1
Reaction to US Monetary Measures
Foreign response to recent US action to bolster the dollar and trim inflation has
been overwhelmingly positive, a reversal of reaction to Washington's original plan of
voluntary wage and price controls, which was viewed as not strong enough to prevent
further dollar slippage. Official and unofficial comments on the original plan ranged
from weakly positive-"a step in the right direction" (Canada, Switzerland)-to
disappointment-"lacked punch" or "failed to live up to expectations" (France,
Japan).
As for the latest action, West German, Swiss, and Japanese officials immediately
expressed backing for US plans to market foreign currency denominated bonds.
Japanese Prime Minister Fukuda was particularly pleased by the US decision to hike
the discount rate and to activate yen/dollar swap lines. Tokyo reportedly was
considering shaving its own discount rate again to take some pressure off the yen; Bank
of Japan officials had requested several times in the past 18 months that the US
Federal Reserve invoke the swap.
Spillover to Oil Prices
OECD countries are particularly concerned that OPEC will use the depreciation
of the dollar to justify a large oil price hike in December.
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
25X1
25X1
25X1
25X1
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
We believe that dollar movements will be only one of many factors-including
the Iranian situation, global demand for oil, Saudi revenue shortfalls, Israeli-Egyptian
political developments, impact on OECD countries-that the Saudi leadership will
consider when making its final decision on oil prices. At the OPEC meeting in Abu
Dhabi next month, price hawks, led by Kuwait and Iraq, will use the dollar
depreciation as well as the recent tightening of the international oil market to argue
for at least a 10-percent boost in oil prices.
The Shah's domestic problems no doubt will make it tougher for Iran to maintain
its moderate stand on the price hike. Iran has lost substantial revenue from the strikes
in the oilfields
25X1
25X1
While gauging US actions, most developed countries are zeroing in on their own
economic policies for 1979. London and Paris remained focused on trimming
inflation. For example, the French have shaved their money supply growth target
from 12 percent this year to 11 percent in 1979.
In Tokyo, the privately held view of government economists is that GNP growth
in fiscal year 1978 (which began on 1 April 1978) will be under 6 percent-well below
Prime Minister Fukuda's target of 7 percent. The Japanese Economic Planning
Agency blames the growth shortfall on slipping export volume-induced by yen
appreciation-and sluggish consumer spending.
25X1
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
SECRET
Articles
ITALY: DEBATE OVER EMS
A sharp debate over participation in the proposed European Monetary System
(EMS) is dividing Italian policymakers. High-ranking politicians, led by Prime
Minister Giulio Andreotti, charge that failure to join in so widesweeping an enterprise
as EMS could consign Italy forever to the cellars of Europe. Technocrats, taking aim
from the bastions of the Bank of Italy, argue that exchange rate rigidity is a sure
formula for economic disaster given Italy's high inflation rate. Andreotti, the master of
compromise, is attempting to smooth over the dispute. While affirming Rome's intent
to join EMS, he is pressing for a system flexible enough to accommodate Italy.
During October, Italy's EMS advocates took a beating. West German insistence
on a parity-grid system for regulating exchange rates had sparked a technocrat revolt.
Voices from every quarter were being raised against Italian participation in what
would allegedly be a reconstituted snake. Once passive observers of the fray, the
Communists and Socialists were remonstrating against an EMS built to West German
specifications. Though Andreotti at first hedged, government policy seemed to shift
away from EMS. Several officals called for a delay in Italian entry of six to 12 months.
Some private economists were warning that if the West Germans had their way, Italy's
entry would have to be postponed for at least several years.
New EMS understandings made public after the Schmidt-Andreotti bilateral
discussion of 1 November represent a clear attempt by the Chancellor to find a
formula suitable for Rome and, possibly, London. Under the proposals, a weak
currency may be admitted into EMS with allowable margins of fluctuation much
wider than those for current snake members. A two-tier system should help appease
technocrats agitated over the potential deflationary impact on the Italian economy of
a rigid EMS. Most importantly, the new EMS proposals contain concessions Andreotti
can deliver to the leftists in Rome. While technical details could still torpedo his
efforts, Andreotti has strengthened his political hand to draw Italy into EMS. The odds
for entry now seem better than even.
The Policy Conflict
Italians have long hoped that through participation in a united Europe they could
attain the stability, both political and economic, which they have been unable to
achieve on their own. All the major political parties applaud the principle of European
integration; a greater proportion of the population supports the European Community
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Deutsch-franzosische Stabilisierungsbemuhungen Gottscheber%HannoversdieAllgemeine
than in any other West European country. Italians recognize, however, that their
position in the EC has deteriorated in the 1970s. Sharp depreciation of the lira, soaring
prices and wages, low investment, and the political shift to the left have generated
anxiety that Italy is being gradually forced from the European mainstream. Fears of
isolation and underdevelopment are the driving forces behind the Italian desire to
enter EMS. Many are convinced that if Italy cannot join the EMS, it will be forever
condemned to second-class status in Europe.
For several months following the Bremen summit of July 1978, Italian officials
were optimistic about Italy's ability to join. The elements most concerned with Italy's
international orientation-the foreign ministry and leading Christian Democrats-led
the chorus of yeas. The advocates cited the slackening of inflation and the big
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
surpluses being run up on the current account as evidence that prospects had
improved for tying the lira to competitor currencies.
The monetary authorities, however, have always viewed life under the proposed
EMS as particularly difficult. Central Bank Governor Paolo Baffi has repeatedly
stressed that continual devaluations of the lira would be required to maintain export
competitiveness with inflation still at the 14-percent level and no relief from rising
labor costs in sight. Before the monetary authorities can support EMS, two prerequi-
sites must be met, according to Baffi: the system itself must be extremely flexible and
the government's three-year plan aimed at gradual realignment of the Italian
economy with the rest of Western Europe must be well on its way to enactment. Baffi
doubts that these prerequisites will be fulfilled. Moreover, he has expressed his
resentment that since the Bremen meeting certain countries-in particular, West
Germany-have moved backward on fundamental aspects of the EMS system, opting
for a rigidity that would perforce exclude Italy.
Technocrat Revolt
In his skeptical approach to EMS, Baffi has found an able ally in Treasury
Minister Filippo Pandolfi. He represents the younger and more independent breed of
Christian Democrats and has no qualms about publicly expressing his reservations on
EMS. Though favoring the EMS concept, Pandolfi is adamantly opposed to a
reemergence of an expanded snake. He has been explicit in stating the conditions
under which Italy could join EMS. These are:
? An exchange rate mechanism that would (a) provide flexibility and (b)
assure intervention and, ultimately, policy adjustments by both weak and
strong currency countries.
? A generous credit facility to ward off speculative attacks.
? Structural investment and resource transfer programs to benefit the poorer
EC regions.
Trade Minister Rinaldo Ossola has been even more demanding, insisting that the
government should seek a major overhaul of the EC's Common Agricultural Policy as
a price for entry.
While EMS advocates cite reduced inflation and a strong current account as
arguments for joining EMS, Pandolfi has focused on the fragility of these improve-
ments. He notes that they are threatened by new wage contract demands and ever-
rising public spending. Even under the optimistic scenario of his own three-year plan,
9 November 1978 SECRET
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Pandolfi expects inflation to be at the 8-percent level in 1981. Under these
circumstances, a close linkup with the deutsche mark could not be sustained.
Other technocrats stress that Rome, unlike Bonn, has no reason to be perturbed
by the dollar's fall. Almost half of Italian exports go to other EC countries; most
imports are dollar-price denominated. By allowing the lira to remain stable or
appreciate slightly against the dollar while dropping against the deutsche mark, Italy
has been able to maintain both export competitiveness and import price stability. The
technocrats argue that in return for leaving the safety of the "dollar umbrella," the
government must press for the maximum in resource transfers from its EC neighbors.
EMS Becomes Political Football
For several months following the Bremen summit, debate over EMS participation
was confined to cabinet circles. The silence of the political parties, however, was
broken in late October when the small but influential Republican Party issued a
lengthy policy statement on EMS. The Republicans linked government implementa-
tion of the three-year plan with Italy's ability to join EMS, arguing that the former was
a prerequisite for the latter. The Republicans have threatened to return to the
opposition if the government wavers from its announced stabilization plan-particu-
larly by allowing wage increases incommensurate with Italian "reentry" into Europe.
The Republicans also seconded Pandolfi in demanding that the exchange rate system
be flexible and not discriminate against weak currency countries.
Most ominous for the advocates of EMS, the Communists have inserted them-
selves into the debate. Already under intense heat for trying to impose wage
moderation on the unions, the PCI has watched with growing alarm the rigid EMS
proposals coming from Paris and Bonn. It is convinced that Italy could adhere to these
arrangements only through the adoption of a straitjacket incomes policy. Speaking
from the party daily L'Unita, the Communists have denounced an EMS based on
present snake arrangements as totally unacceptable to Italy. Always suspicious of West
German influence in Europe, the PCI views the rigid system favored by Schmidt as a
threat to Italian autonomy in setting economic policy goals.
The voice of business was heard when Guido Carli, former Bank of Italy governor
and now president of the national manufacturers association, came down squarely
against the Franco-German design. Echoing business fears that tying the lira too
closely to the deutsche mark would spell export disaster, Carli has insisted that the
government resist West German efforts to impose the parity grid. He has repeated the
complaint often heard in Italian business circles that tying European currencies tightly
together would accentuate imbalances with the dollar area and exacerbate the boom-
and-bust cycle to which Italian industry is subject.
6 SECRET
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Bargaining for Italian Entry
Andreotti entered recent meetings with Giscard and Schmidt with his back to the
wall. Though himself strongly supportive of EMS, Andreotti knew he must gain
substantial concessions on the flexibility of the system to deflate opposition at home.
Andreotti emerged from the 26 October meeting with the French president
sounding confused. Though Giscard announced that the Italians shared his "vision of
Europe" and that agreement "in principle" had been reached on the 1 January startup
date for EMS, Andreotti's remarks were cautious and contradictory. He confirmed
agreement on the startup date provided "we can insert ourselves by then." Andreotti
reiterated demands that the EMS provide wider bands of currency fluctuation than
the present snake.
The 1 November meeting with Schmidt seems to have been more productive.
Andreotti has apparently secured West German approval of a two-tier exchange rate
system for EMS. To-avoid having the lira publicly labeled a second-tier currency, the
Italians have proposed that all currencies be allowed to move into or out of either tier.
In practice, however, the lira, and possibly the pound, would be admitted into the
system with an allowable spread much wider than the 2.25 neroent nrPCr'rihP,l fnr
present snake currencies.
How Far Will Italy Go?
Clearly, political pressure is being exerted at the highest European levels to assure
Italian entry into EMS. By personally negotiating on the size of permissible currency
fluctuations, Schmidt and Giscard have revealed the priority they place on Italian
participation. They apparently hope they can pressure the United Kingdom into
joining by first inducing Italy to join. The Italians recognize that, in this sense, they
have become the linchpin of an expanded EMS and will try to exploit this leverage in
subsequent bargaining.
Andreotti, however, faces greater obstacles in setting economic policy than
Schmidt or Giscard. His minority government faces a host of contentious economic
policy issues in the coming months, including wage contract renewals, budget cuts,
and pension reform. The strong stance of the PCI against a rigid EMS could prove
especially irksome for Andreotti. While the Communists have not totally rejected
EMS, Andreotti will have to bring home substantial concessions to still their opposition.
9 November 1978 SECRET
25X1
25X6
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
The concession offered on a two-tier exchange rate mechanism may still not win
Italian acceptance of EMS, altho in favor of acceptance
are now slightly above 50-50.
IRAN: ECONOMY IN UPHEAVAL
The Iranian economy, which managed real growth of less than three percent last
year, is reeling from several months of intermittent private and public sector strikes,
culminating in the recent oil sector walkout. Oil workers ignored the government
ultimatum that they return to work by 4 November or be fired and face possible legal
action. Elsewhere in the economy, additional groups of workers staged walkouts, while
some who had returned to work following resolution of earlier strikes resumed their
walkouts. The ability of the new military government to convince strikers to return to
work will provide a major test of the leadership's effectiveness.
The effects of the turmoil will clearly be felt for years to come. While a
reordering of development priorities and a cleanup of government corruption would
have considerable beneficial effects, further economic difficulties seem inevitable over
the intermediate term.
. 25X1
Oil Production Hard Hit
Oil production and exports have fluctuated widely since the first interruption of
production
As of 5 November, workers in the postal, telephone, and communications sectors
were still off their jobs, as were employees of the Central Bank and the national
8 SECRET
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
airline. Although information on private sector walkouts is spotty, the strikes have
increasingly disrupted private business activity. One of the first actions of the new
military government was to man Tehran's service stations to assure supplies of
gasoline.
Current Account Into the Red
The slowdown in oil exports has already cost Tehran $600 million to $700 million
in forfeited oil revenues; the losses are now running at $50 million to $60 million a
day. Even before these losses, Iran's current account was headed for a substantial ($1.5
billion) deficit in 1979 in the absence of an oil price increase. These and any further
losses will have their greatest impact during calendar year 1979 due to the normal 45-
to 75-day credit terms extended oil buyers. Moreover, when the workers settle down,
the sizable wage gains granted in recent months will sharply increase the demand for
imported consumer items.
The value of Iran's imports was already picking up substantially earlier this year
due to both volume increases and price inflation. For the year, payments for foreign
goods are expected to total about $18 billion, 17 percent above last year's total, even
though strikes and civil disorders have curtailed imports in recent months. The current
account surplus should fall from $4.6 billion in 1977 to $1.0 billion in 1978. A 10-
percent oil price hike next January would just about balance Iran's current account for
1979, provided oil exports return to normal.
Iran is also losing capital and access to capital. Capital flight, which cannot be
accurately measured has been variously estimated at $3 billion to $5 billion since the
start of the year 25X1
the Central Bank advised commercial
$20,000 per transaction and $40,000 per year should be placed on noncommercial
transfers. Up until the fifth, Iran had practically no exchange controls. Transfers
abroad for education, medical care, and tourism (which already is limited by the
government) and for normal commercial transactions will not be affected. In addition,
the new limits may be exceeded with permission of the Central Bank. The exemption
for educational purposes is a potentially large loophole since many families have
relatives studying abroad.
The political strife has at least temporarily impaired Iran's strong external credit
rating. Foreign bankers have warned that new international issues might prove
embarrassingly unmarketable at this time and that Iran should no longer expect to get
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
So far, neither the outflow of capital nor the damage to Tehran's credit rating has
hurt Iran's ability to pay for imports. The recent outflow of capital appears to have
come mainly from liquid assets built up over many years and from Iran's "gray
market" of noncommercial foreign exchange dealers. International reserves, a healthy
$11.7 billion at the end of September, remain a bright spot in the external account
picture. Iran also has an additional $6 billion in nonreserve assets, mostly nonliquid
private placements abroad and large blocks of foreign corporate stocks, which could
be liquidated only at a substantial loss.
Domestic Implications
On the domestic front, once a measure of political stability is established, the
government will find that its problems have been made more complex and immediate
by recent events. The Shah recently stated his willingness to reassess economic
priorities, with a view to cutting back on high-posture industrial, military, and nuclear
power projects in favor of agriculture and rural development. The financing of any
new development projects, however, will have to take a back seat to covering costs
generated by pay hikes and increased fringe benefits.
The diversion of resources from investment to consumption will refuel inflation
in the short run and cut into real economic growth in the long run. Holding down the
cost of living has been the one successful economic policy of the past year. Living cost
increased at an annual rate of less than 10 percent during the first eight months of
1978, compared with a 24-percent increase in 1977. We anticipate a near-term jump
to at least 25 to 30 percent in view of recent pay hikes and output disruptions. Even if
additional consumer imports help meet this demand, time lags and distribution
problems will blunt their effect.
To remain afloat, Iranian industry, already suffering from high capital costs and
low labor productivity, will need a relaxation of price controls to pass on to consumers
the costs of extravagant wage settlements. Moreover, domestic producers almost
certainly will petition the government for special tax treatment and protection against
imports so that they can retain their share of domestic markets. Hopes of achieving
competitiveness in world markets have been further dashed. Private investment,
which declined last year, will continue to fall.
Within the Iranian labor force, those least well off and unorganized-that is,
agricultural and construction workers-will experience a further worsening of their
relative incomes. Moreover, the leverage of the construction sector has declined with
the substantial cooling of construction activity during the past 12 months. Widening
income differentials and worsening inflation could breed future unrest among the
unskilled, underemployed laborers who have not participated in recent wage gains.
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Iran's nascent labor movement, previously consisting of weak, unaffiliated,
company unions, can be expected to evolve rapidly based on its recent experiences.
Having seen the benefits of direct confrontation with the government, workers
presumably will be more willing to defy the authorities for economic gain. The
workers' actions, of course, will be tempered by the severity of any military
crackdown.
International Implications
Oil pricing policy is becoming a domestic political issue, with some strikers calling
former Finance Minister Yeganeh a traitor for Tehran's recent moderation in oil
pricing. The increased revenue needs brought on by the strike settlements and the loss
in nvnnrt Aarninac may force the Shah to go along with a higher January price increase
NORTH-SOUTH DIALOGUE: BACK TO THE COMMON FUND *
The proposed Common Fund for commodity price stabilization, now into its
third year as the centerpiece of the North-South dialogue, will be the subject of
another set of formal negotiations in Geneva from 14 to 27 November. Since the last
session broke down in November 1977, prospects for an agreement on the framework
for this institution have improved appreciably, largely because of energetic LDC
diplomacy and greater receptivity among developed countries.
Individual LDCs still differ considerably on important aspects of the G-77 (Group
of 77, the LDCs' UN caucus) negotiating package. As in the past, this diversity could
result in a breakdown in negotiations, with radical LDCs bullying the ill-prepared and
less-interested delegations into mutual stonewalling. On balance, however, we believe
it more likely that the G-77 tradition of unity, together with the flexibility of key
leaders, will permit the LDCs to seize opportunities for further progress on the
Common Fund.
Any basic agreement at this month's conference would tend to refocus attention
on other North-South topics. Several of the topics are of greater concern to key LDCs
than creation of a Common Fund. These LDCs-as well as many of the developed
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
countries--would prefer to settle the Common Fund issue before next spring's
UNCTAD V, the major North-South event of 1979.
Events Since November 1977
Going into last November's negotiating session, the G-77 negotiating position
stressed the need for prior, direct funding of a Common Fund, the functions of which
would include:
? The financing of buffer stocks under existing international commodity
agreements and the encouragement of new agreements (the "first window").
? The financing of "other measures"-in addition to stabilization-such as
economic diversification, market promotion, commodity research and devel-
opment, and productivity improvements (the "second window").
The 1977 meeting was suspended at the initiative of the G-77 when the developed
countries would not agree to the LDC demands. A statement issued by the G-77 then
left open the possibility of resuming the talks at a later date. To place the burden of
failure on the developed countries, the G-77 noted that it would not sit down again
until the other side showed the necessary "political will" for progress in the
negotiations.
Since last November a clearer and stronger political consensus has emerged
among the developed countries and between them and the G-77 leadership that a
Common Fund should be created. The final communique of the Commonwealth
ministerial meeting in April 1978 reflected a degree of compromise on the part of
Australia, New Zealand, Canada, and the United Kingdom in the direction of
considering direct government contributions and a second window. This was taken by
the LDCs as an important policy shift on the part of some developed countries and as
a signal to increase pressure on the United States, West Germany, and Japan to modify
their opposition to the G-77 package. The anouncement at the Bonn Summit in July
that the developed countries meant to pursue the negotiations "to a successful
conclusion" and positive US statements at the August ASEAN talks in Washington
gave further impetus to the LDC belief that the developed countries were ready to
return to the negotiating table.
Current G-77 Stances
To date, the G-77 has not softened its official positions on the Common Fund put
forth at last year's suspended conference, despite vigorous activity by the UNCTAD
12 SECRET
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Secretariat and key LDC officials to win backing for various compromise proposals.
Bolstered by perceived disunity among the developed countries, hardliners such as
Tanzania, Libya, and Venezuela have successfully insisted on maintaining the official
G-77 position.
This veneer of G-77 unity cloaks considerable churning and reevaluation. LDCs
hold disparate views on each of the three major discussion areas-financial resources
and capital structure, the second window, and voting and organization.
Financial Resources and Capital Structure. The official G-77 position calls for
payments of mandatory capital subscriptions by participating countries before any
Common Fund operations begin (the so-called prior, direct financing stance).
Borrowing on capital markets and voluntary contributions would supplement this
source of financing. This Common Fund would serve as a central source of finance
both for buffer stocking under international agreements and for "other measures"
to assist LDCs in producing and marketing commodities.
The majority of LDCs support the concept of prior, direct financing, but with
important national shadings. Among the stalwarts, some-India, Bangladesh, and a
number of African countries-see in the Common Fund a chance to create yet
another development finance institution. Others-Tanzania, Jamaica, Libya, and
Peru, for instance-take the offensive mainly for political reasons such as support for
the concept, of a New International Economic Order, interest in regional or G-77
leaderships roles, or logrolling purposes. This group is especially influential in the
caucuses and may attempt to provoke confrontation unless a consensus emerges among
other LDCs to push for compromise.
The less zealous supporters of direct funding include two prominent factions.
One-composed, most notably, of the ASEAN countries-lends support to this aspect
of the G-77 formula because it seeks to augment the funds available to existing
international commodity agreements (ICAs). Another faction reportedly presses for
direct financing because it feels that a Common Fund with its own resources would be
catalytic in the formation of new ICAs. Adherence to this position has weakened,
primarily because related commodity discussions in UNCTAD`s Integrated Program
have underlined basic technical and political problems hindering the creation of new
ICAs.
A number of wealthier LDCs are flatly uncomfortable with the G-77 insistence
on prior, direct financing. They prefer some cosmetic arrangement, such as a variant
of pooling of funds from ICAs, that would cost them less. Generally these are the
countries-Brazil, Saudi Arabia, Argentina, and Yugoslavia--that would as easily
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Key Common Fund Issues: Individual LDC Attitudes Toward G-77 Positions
Hardliners Willing to Negotiate Opposed Not Interested
Financial Resources and Capital Algeria Willing to consider departures Argentina Cuba
Structure Ghana from G-77 position Brazil Kuwait
Iraq Chile Singapore
Jamaica Indonesia Pakistan Colombia Thailand
Libya Ivory Coast Philippines Iran Yugoslavia
Mexico Kenya Sri Lanka Saudi Arabia
Peru Malaysia Zambia
Sudan
Tanzania
Venezuela May be willing to consider
departures if other features
satisfactory
Bangladesh Nigeria
Egypt Zaire
India
Algeria Wants mainly as sop to other Argentina Cuba
Bangladesh LDCs Brazil Ivory Coast
Ghana Indonesia Philippines Chile Kuwait
India Iraq Zambia Colombia Singapore
Jamaica Malaysia Iran Thailand
Libya Saudi Arabia Yugoslavia
Mexico Seriously interested, but
Nigeria Could compromise
Peru
Sudan Egypt Pakistan
Tanzania Kenya Sri Lanka
Venezuela
Zaire
Voting and Organization Algeria Probably insist on ICA Iran
Bangladesh autonomy Kuwait
Iraq Argentina Saudi Arabia
Libya Brazil Ivory Coast Singapore
Mexico Chile Kenya Thailand
Peru Colombia Malaysia
Sudan Cuba Philippines
Tanzania Ghana Zaire
Venezuela Indonesia Zambia
Probably skeptical of bloc or
unweighted voting
Argentina Indonesia
Brazil Malaysia
Chile Philippines
Colombia
Use issues as bargaining
points
Egypt Pakistan
India Sri Lanka
Jamaica Yugoslavia
Nigeria
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
welcome the demise of the Common Fund notion. As the negotiations move toward
agreement on the basics, several of these LDCs will probably work to tone down the
more onerous G-77 financing proposals and may be willing to cooperate in this area
with the developed countries.
Second Window. The G-77 position paper calls for the Common Fund to actively
support producers of a broad range of commodities through, measures other than
stabilization-such as product diversification, productivity improvement, and mar-
ket promotion activities. (Historically, some ICAs and regional production agree-
ments-in rubber and coffee, for example-have played such roles.)
The political importance of the second window to several major LDC actors
should not be underestimated. The Indians, usually well prepared for negotiations,
advertise it as their brainchild and will battle vigorously for it. The Tanzanians and
Sudanese, eager for both more project aid and more influence in the Organization for
African Unity, have been especially vehement on the need for a strong second
window, controlled by LDCs. The Jamaicans, who usually field especially competent
diplomats in North-South exchanges, have cemented their relations with the Africans
in other parts of the dialogue with their stand on this issue. Mexico, Peru, and
Venezuela, often represented by aggressive and influential spokesmen, continue to
champion LDC solidarity on the issue with little risk to their own interests.
For the faithful followers of these hardliners, the second window is mainly a
vehicle for development aid. Moderate African countries--notably Zambia and
Kenya, but probably a large number of the poorer African countries-seek improve-
ment in the terms of commodity-related project assistance and view a second window
as a touchstone of appropriate political commitment by the developed countries. Some
of these LDCs, however, have become increasingly doubtful that the second window
itself could provide aid flows at the desired levels. Left to their own devices, they
could probably accept a facility limited to nondevelopmental measures (such as
market promotion) for a few commodities, especially if it were coupled with increased
aid from other sources.
Although the number of LDCs seriously interested in a second window is small,
the possibility of any LDC coalition opposing this facility is near zero. All the LDCs
will hew to the official G-77 line supporting formation of a second window, while
harboring their own perceptions of suitable scale. A possible source of early dissension
in this field would be an initial negotiating figure so small as to offend an India or so
large as to worry stabilization-minded Malaysia.
Voting and Organization. The official G-77 position is that the LDCs must have
a majority (51 percent) stake in any voting mechanisms. This would be assigned
evenly on the basis of an implied minimum country share. Broad, centralized control
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
of all parts of the organization-first window, second window, and member
commodity agreements-would be held by the LDCs.
Only the hardliners now seriously support the original G-77 demand for LDC
majority control of the Common Fund. They could use this issue for stonewalling if
they saw any collapse in other aspects of the dialogue. Other LDC positions on voting
primarily reflect financial concerns or vested national interests in existing or possible
ICAs.
25X1
A common threat among these national positions on the voting issue is a reluctance to
settle on any system before financial arrangements are clearer.
The parallel questions of how broad a charter to grant the Common Fund has
always provoked controversy within the G-77. Some of the hardliners, who stand the
least to gain or lose, still pay lip service to a Common Fund with broad, ill-defined
powers, but the majority of LDCs probably will not vigorously defend this stance.
Influential LDC members of ICAs strongly support a management structure preserv-
ing the independence of these organizations on a wide range of internal matters. Nor is
consolidated management of the first and second windows-a related issue that is still
firmly supported on paper-likely to provoke much G-77 interest so long as the
resolution of the financing issues is satisfactory. If a compromise were framed along
the lines of a second window based largely on voluntary funding, donors would
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
probably insist on separate management to preserve a measure of control over the use
of their contributions.
Developed Country Attitudes
At this point, the developed countries are edging closer to acceptance of the key
features of the Common Fund demanded by the G-77, even though they have yet to
work out agreed positions. Most now concede that agreement on limited direct
contributions to the first window and (at least) voluntary contributions to a second
window is necessary to ensure the success of next month's negotiations. Nevertheless,
they adhere to the notion that the Common Fund should basically be financed
through international commodity agreements. Differences remain on the size and
form of direct contributions and how they should be used; the Europeans, especially,
believe that these details should be taken up after the basic elements are agreed upon
with the G-77. The Japanese, still reluctant to take any stand, have said that even they
are considering what kind of direct contribution to make.
The key foreign governments-West Germany, France, the United Kingdom,
and Japan-still agree on the importance of maintaining developed country solidarity
and are waiting for the United States to decide on its approach. They believe the
developed countries should consider, as a last fallback position, symbolic direct
contributions to the first window and voluntary contributions to the second window.
Some, however-such as West German economics ministry representatives-contend
that the G-77 leadership has given little indication that it would be willing to accept
anything less than manadatory cash contributions to both windows. In any event,
European anxiety over the possibility of being tapped for contributions at both the
November meetings and UNCTAD V will encourage support for a concerted
developed country approach.
In an odd twist, the developed countries have achieved general consensus on the
issues of least immediate concern to the LDCs, that is, management and voting
procedures for the Common Fund. Nearly all of the industrial countries agree that the
Fund should have a three-tier decisionmaking structure consisting of a general
assembly, an executive board elected by the assembly, and a professional management
and staff. Some differences persist on a scheme for weighting country votes in the
decisionmaking bodies; the United States and West Germany prefer a system based
solely on contributions, rather than any composite indexes.
Prospects
Despite the apparent rigidity of their opening positions, both sides are expected to
move closer to an agreement on principles at this November session. On the crucial
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
financing issue, developed countries like the United States, West Germany, and Japan
are weighing the appropriateness of direct contributions, possibly totaling as much as
$200 million to $300 million. Assured of some element of "own" resources for the
Common Fund, many of the less seriously interested LDCs would, in turn, probably
trade off their original demand for a $1 billion subscribed capital base. Indeed, a
number have already expressed discreet interest in the $500 million figure peddled by
certain UNCTAD and LDC leaders. Other potential areas of compromise at this
session are the sources of funding and scope of the second window. Some voluntary
financing for research and development and market promotion-while likely to fall
short of the expectations of second window enthusiasts-is a possible starting point for
a resolution in this area. If the key financing provisions are settled, a host of less
critical issues (including borrowing arrangements, voting and organization, and second
window commodity coverage) will fall into place more easily. Threatening compro-
mise at all stages, however, is the likelihood that some LDCs will see in the current
softening of the developed country positions a signal to hold out for even more
concessions.
Allowing for the strong drive among such radicals as Libya and Tanzania to
create an LDC-dominated institution, counterpressures to move the North-South
dialogue on to other issues before UNCTAD V are substantial. Basic agreement at the
upcoming Common Fund meetings would permit a shunting of the details on
commodity price stabilization and the second window to technicians, thereby freeing
developed country personnel and resources and LDC political energies for more
important economic issues. In particular, large Latin American and OPEC countries,
never enamored of the Common Fund concept, are especially eager to get on to
technology transfer and trade preference issues. Equally concerned about trade
barriers is a broad spectrum of middle- to high-income LDCs-such as the Philip-
pines, India, Mexico, and Pakistan-that have been numbered among the strong
supporters of the Common Fund. Among the poorer countries, many are arguably
more concerned with the stakes in further debt relief than in limited transfers through
a Common Fund. Finally, even in the commodities area, the Common Fund suffers
from competition, as regional arrangements-such as the ASEAN stabex proposal or
the renegotiation of the Lome Convention-overlap with preparations for the May
UNCTAD meeting.
Western governments and banks are now willing to extend far more credit on
favorable terms than the USSR actually requires. This marks a rapid turnabout from
the situation in 1975-76, when a sizable increase in Moscow's hard currency debt had
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
SECRET
led to widespread concern in the West about Soviet creditworthiness and had limited
Soviet ability to obtain new commercial credits at satisfactory interest rates. The
change stems from a series of pragmatic Soviet policy decisions, orchestrated by USSR
State Bank Chairman Vladimir Alkhimov. The availability of ample credits will not
likely cause Moscow to deviate from its present conservative borrowing policy. The
USSR seems to be opting for a reduction in resource transfers from the West in the
short term in exchange for larger resource transfers in the 1980s.
In the 1970s, the Soviet Union has relied heavily on Western credits to manage its
hard currency balance of payments. As a result of the growing Soviet commitment to
Western technology and equipment for economic development, Soviet imports from
the West increased substantially after 1971. Since the USSR could not generate
sufficient hard currency earnings from merchandise exports, tourism, and transporta-
tion services to pay for rising imports, it had to look to foreign financing, gold sales,
and increased sales of arms for hard currency to cover its trade deficits. Apart from
heavy gold sales and some bank borrowing to pay for large grain imports in 1973, the
Soviets typically financed their deficits before 1975 by drawing on low-cost Western
government-backed credits granted for the purchase of machinery and equipment.
Moscow's trade and financial policies proved inadequate for dealing with the
unexpected events that produced massive hard currency trade deficits in 1975 and
1976. Despite the need for large grain imports due to a poor 1975 harvest and a drop
in export growth caused by Western recession, the USSR maintained a growing level
of capital goods imports from the West. The failure to scale back nongrain imports
produced trade deficits of $6.3 billion in 1975 and $5.5 billion in 1976, forcing the
Soviets to finance a gross hard currency debt which soared from more than $7 billion
at yearend 1974 to $18 billion at yearend 1976.
The Soviet Foreign Trade Bank, which is responsible for financing Moscow's
foreign trade, compounded the damage from the trade deficits by failing to fully
coordinate and control Soviet borrowing
ectic and apparently uncoordinated 6oviet
borrowing produced wi esprea pu icity about mushrooming Soviet debt and put
some major Western banks close to internal lending limits, leading to demands for
higher interest rates on loans to the USSR.
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Addressing the Situation
The Kremlin perceived its image was being tarnished by the adverse publicity
about the rapidly rising hard currency debt and the demands of the bankers for higher
interest rates. In October 1976, the Soviet leadership turned to its most astute
international financier, then Deputy Foreign Trade Minister Vladimir Alkhimov, to
put Soviet finances in order. Alkhimov, who had been overseeing the Ministry of
Foreign Trade's Foreign Currency Administration, was moved from his second-rn
job in the foreign trade bureaucracy to the chairmanship of the USSR State Bank
In line with his view of the central banker as one who must exercise discipline
over resources, Alkhimov orchestrated a strategy aimed at tightening control over
Soviet hard currency trade and finances. Direct statements by Alkhimov along with
decisions attributed to him by Soviet officials describe this strategy as including:
? Placing limits on further debt growth during the 1976-80 plan period and
ordering a number of major industrial projects postponed until the 1981-85
plan period to reduce credit needs.
? Ordering a reduction in direct borrowing from Euromarket banks in favor
of greater use of Western government-backed credits.
? Increasing hard currency export earnings by the brisk expansion of raw
materials exports and the establishment of specialized export industries.
? Forcing greater coordination between the Soviet Foreign Trade Bank and
USSR foreign trade organizations and, in particular, giving the bank veto
power over all foreign trade deals.
? Demanding more compensation trade arrangements with Western suppli-
ers, thus making imports of material and technology contingent on genera-
tion of sufficient foreign currency to pay principal and interest.
The Happy Outcome
Since the beginning of 1977, Moscow has in fact regained control of its current
account, restrained the growth of its debt, lessened its dependence on Western bank
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
credit in favor of government-backed financing, and moved to offset the impact of
substantial debt service payments in 1979-81:
? Moscow brought its current account into surplus in 1977. The merchandise
trade deficit was reduced to $3.1 billion as the dollar value of Soviet exports
rose by 20 percent on the strength of larger oil deliveries while a 50-percent
drop in grain imports allowed Moscow to cut back slightly on total hard
currency imports.
? The growth of gross Soviet debt slowed to $2.5 billion in 1977; despite a
substantial increase in debt service, the USSR was able to hold new drawings
well below the totals of 1975 and 1976.
The Soviet Union also reduced its exposure to Western banks. Net bank claims on
the USSR declined in 1977, indicating that net Soviet borrowing was tied more closely
to government-backed credits. After raising more than $1 billion in publicized
syndicated Eurodollar loans in 1975-76, Moscow refrained from this form of
borrowing from mid-1976 until March 1978, when it raised a $400 million loan on
favorable terms. In particular, repayments on this last loan are not scheduled to begin
until 1982 when payments will be completed on earlier syndications.
The USSR both reduced its use of promissory note financing and took steps to
minimize the impact of this type of borrowing on its credit rating. To control the flow
of Soviet paper into Western bank portfolios and thus ease pressure on its credit lines,
the Soviet Foreign Trade Bank began inserting provisions into its guaranteed notes that
give it the first right to repurchase should the Western exporter decide to sell them.
The USSR also began spreading its nonrecourse borrowing among more banks in order
to prevent major commercial lenders from reaching their lending limits vis-a-vis the
USSR.
At the same time, Moscow strengthened its ability to draw on low-cost, long-term
government-backed credits for future imports of Western machinery and equipment
by obtaining new government-backed credits from Japan, Italy, and France on terms
more favorable than those stipulated by the OECD gentlemen's agreement.
Slowing the growth of long-term debt and shifting new borrowing from bank
loans to government credits have allowed Moscow to address the problem of rapidly
rising debt service payments. The Soviet Union is taking other steps to soften the
impact of financing costs on its balance of payments. Soviet buyers are demanding
more compensation trade in import contracts in order to make more credits "self-
financing." Furthermore, Moscow has prepaid a portion of its Eurodollar debt and is
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
seeking refinancing on more favorable terms
Current Ample Credit
These pragmatic financial policies have produced a rapid turnabout from the
1975-76 period, when there was general concern in the West about Soviet creditworth-
iness, to the current situation in which the amount of credit Western governments and
bankers are willing to extend at favorable rates far exceeds current anticipated Soviet
needs. In addition to the sizable amounts of equipment under order for which credits
have been granted, the USSR has access to several billion in unused lines
Although we expect the USSR's trade deficit to increase to roughly $4 billion in
1978, Moscow should be able to keep its current account roughly in balance. The
Soviet Union is taking advantage of the bullish gold market to make heavy sales that
will net it record earnings of more than $2 billion. Moscow is also continuing sizable
sales of arms for hard currency. Long-term credit drawings, although down from
previous years, will again be substantial; however, their impact on import capacity
will be largely offset by Soviet Euroloan prepayments and rising debt service. Moscow
will probably obtain the Eurocurrency syndication presently sought for refinancing its
prepayments.
Pragmatic Policies To Continue
The Soviet Union will probably continue its pragmatic financial policies in order
to preclude a recurrence of its earlier heavy borrowing. It will try to limit imports to
levels that can be financed without renewed substantial dependence on Western
banks. The Soviet Union will look mainly to its ample supply of government-backed
credits, some promissory note refinancing, and sales of gold and arms to cover its trade
and payments deficits.
The Soviet Union will not renounce direct bank financing, but will seek to be in a
position to secure funds, when needed, on very favorable terms. A sharp drop in the
price of gold would likely induce Moscow to draw more heavily on its bank credit
25X1
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
lines. The USSR will probably maintain moderate hard currency balances with
Western banks as a hedge against uncertainties as to future grain import needs, money
market conditions, and gold prices.
The USSR State Bank's reluctance to draw heavily on Western credit offerings
will slow the growth of capital goods imports from the West. Declines in the volume of
Soviet orders for Western machinery and equipment in 1977 and 1978 suggest that
industrial projects have been scaled back to reduce the need for new credits. Since
debt service will probably continue to offset a major portion of new medium- and
long-term drawings, growth in import capacity will be largely dependent on growth in
export earnings and Moscow's ability to sustain heavy gold and arms sales. In essence,
the USSR seems willing to accept a lower net resource transfer in 1978-80 in return for
greater assurance of a continued positive net resource transfer in the 1981-85 period
and beyond.
Although Soviet savings in defense expenditures through 1985 from an MBFR
(Mutual and Balanced Force Reduction) agreement conceivably could reach 5 billion
rubles, a more likely figure is "up to 800 million rubles"-equivalent to less than 0.2
percent of defense spending and less than 15 percent of the potential savings from a
SALT II pact.
In a proposal tabled during the MBFR negotiations in June 1978, the East
adopted a number of provisions contained in previous Western proposals. In
particular, the East accepted provisions for a phased reduction of ground forces
personnel in the NATO Guidelines Area (NGA) * * to a common ceiling of 700,000
men. A number of unresolved issues continue to block progress toward an agreement,
however. Perhaps the most contentious of these is the number of Warsaw Pact ground
forces personnel to be reduced to reach the common ceiling. According to the Eastern
position, a reduction of 105,000 Warsaw Pact personnel is required, of which some
56,000 would be Soviets. According to Western calculations, the reduction should be
nearly 300,000, of which some 130,000 would be Soviets.
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Estimating Savings From Force Reductions
We have estimated the potential Soviet savings from force reductions by
calculating the difference between a projection of Soviet defense spending from 1978
to 1985 that assumes no arms control constraints and projections based on specific
arms control scenarios. * The estimate of savings is based on the assumption that, if an
agreement is reached, the Soviets could alter planned defense expenditures by the
amount we calculate and transfer the savings to alternative military or civilian uses.
This analysis is complicated both by conceptual problems and by uncertainties
concerning the outcome of negotiations. The effect that a reallocation of defense
resources would have on the Soviet economy is difficult to measure because many of
these resources are highly specialized and could be transferred to other uses only with
difficulty and with a considerable time lag.
25X1
Estimating the potential savings and economic effects from an MBFR agreement
is complicated further by the current disagreements between East and West as well as
by uncertainty as to how many of the Soviet troops withdrawn from Eastern Europe
under MBFR would be redeployed to bases in the Soviet Union and how many would
be demobilized. Considerable uncertainty also surrounds the financing of Soviet troops
in Eastern Europe. Any contributions made currently by the Warsaw Pact allies
toward maintaining Soviet forces in Eastern Europe would reduce potential Soviet
savings from an MBFR agreement.
Savings From MBFR
We present below three alternative estimates of savings based on possible
outcomes of the current MBFR negotiations.
High Estimate
The greatest savings-between 1.5 billion and 5 billion rubles through
1985-would result if the Soviets were to demobilize all of the forces withdrawn from
24 SECRET 9 November 1978
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
the NGA and reduce total ground forces procurement proportionately. * A 5 billion
ruble saving is less than 1 percent of projected Soviet defense spending through 1985
and would reduce the average annual rate of growth in defense spending by less than
one-sixth of a percentage point.
It is unlikely, however, that the Soviets will pursue this course of action. They
have made a major effort since the mid-1960s to increase the size and combat ability
of their forces in Eastern Europe. They probably would not demobilize forces but
rather redeploy them to bases in the western Soviet Union so that they could be
reintroduced into Eastern Europe should the need arise.
If the Soviets redeployed all the ground forces units withdrawn from the NGA to
bases in the western Soviet Union and maintained these units at full strength,
estimated savings through 1985 would range from 100 million rubles to slightly over
300 million rubles. These are negligible amounts in comparison to total defense
spending. The projected savings would result from the elimination of supplementary
pay for ground forces personnel serving in Eastern Europe and transportation costs
associated with equipping and supplying these personnel. The savings would be even
smaller if the redeployment required construction of new base facilities in the USSR.
The most likely Soviet action would be to redeploy ground forces units to the
western Soviet Union and maintain them at reduced strength. (Most of the divisions
currently based in the western Soviet Union are at reduced strength.) Some of the
personnel assigned to these units could then be demobilized. Reduced spending for
personnel and for operation and maintenance associated with these units probably
would range from about 300 million rubles to 800 million rubles through 1985. A
savings of 800 million rubles represents less than 0.2 percent of total defense spending
projected through 1985. If construction of new bases within the Soviet Union is
required to house these units, the savings would be smaller-about 200 million to 500
million rubles.
Economic Impact
The high estimate of savings from an MBFR agreement-at most 5 billion
rubles-is less than the estimated savings resulting from a SALT II agreement as it is
* All ruble figures are in constant 1970 prices. In this range, as well as in the ranges that follow, the lower value reflects
the Eastern MBFR proposal and Eastern data on forces in Central Europe; the higher value reflects the Western'
proposal and Western data.
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
currently being discussed-some 6 billion rubles over the 1978-85 period.
The best estimate of savings from MBFR-up to 800 million rubles-is less than
15 percent of the potential savings from a SALT II agreement. Using the best estimate,
reallocation to the civilian economy of the savings from both agreements would boost
Soviet GNP in 1985 by less than 1 percent.
MOROCCO: RETRENCHMENT FOLLOWS FINANCIAL CRISIS
Morocco has experienced a marked economic downturn since late 1977, following
five years of impressive expansion when real GDP growth averaged almost 5 percent
annually. A domestic budgetary crisis, serious foreign exchange shortages, and
hostilities in the Sahara have provoked a number of emergency economic measures,
which include a scaling down of the development effort and the imposition of
stringent controls over imports. As a result, growth prospects for the next several years
are dim.
Government Spending Up
A rapid expansion in public expenditures in recent years underlies Morocco's
liquidity crisis, the Treasury dificit soaring to $1 billion last year. Development outlays
were upped in 1975 on the assumption that high price levels for phosphates, the
primary export, would be maintained indefinately. When world phosphate prices
collapsed in early 1976, Rabat was slow to adjust its finances to declining demand,
which led to increased foreign borrowing to cover the costs of the ambitious
development program.
Sizable expenditures on military operations in the Western Sahara and on
peacekeeping operations in Zaire have further drained the public coffers. In the last
two years alone, direct military spending has almost quadrupled. While much of this
rise has been financed externally-almost $800 million in 1977 was provided by
Saudia Arabia alone-the large indirect costs of the expanded military effort have
fallen on the Moroccans. An estimated 40 percent of Morocco's 1978 budget of $4.3
billion goes for military expenditures, if both direct and indirect costs are included.
25X1
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
While Morocco has been heading for a crunch for several years, the crisis was
accelerated when Saudi aid flows were interrupted in early 1978. At a minimum,
Morocco had expected to continue to receive inflows at the 1977 level. Riyadh's
position may have been motivated by a desire to prod Morocco toward a Sahara peace
settlement in the negotiations now under way.
Payments Deficit and Austerity
Morocco has relied heavily on Arab aid and foreign borrowing to finance its
burgeoning current account deficit. Last year the deficit reached about $1.4 billion as
phosphate sales-more than one-third of total exports-continued to slide because of
lagging demand in Western Europe. Imports, inflated by Morocco's desire to proceed
Morocco: Balance of Payments
1975
1976
1977'
19782
Trade balance .. ........... .........
-1,035.4
-1,367.4
-1,896.6
-1,650
Exports, f.o.b
1,529.4
1,247.3
1,301.2
1
480
Of which;
Phosphate rock.....
846.4
495.8
468.8
,
480
Imports, c.i.f. ...... .............
2,564.6
2,614.7
3
197.8
130
3
Net services and transfers .................... ......
602.6
435.6
,
546.3
,
510
Current account ..........................
-432.8
-931.8
-1,350.3
-1,140
Capital account
403.7
919.8
1,351.7
970
Private (net)
113.5
71.5
126.8
35
Public (net) .. ........ .......... ..:...........
290.2
848.3
1
224.9
935
Errors and ommissions ... ........ .............
-12.1
1.4
,
11.5
.
0
Changes in reserves ....... . _..........
-41.2
-10.6
12.9
-170
Estimated.
2 Projected.
with industrialization and the military buildup, increased more than 20 percent.
Service exports-mostly remittances from Moroccans working abroad-were still
below the 1975 peak. Government borrowing to cover the deficit pushed external
public debt to $5 billion at yearend 1977, compared with $1.4 billion at yearend 1974.
Morocco was headed for an even worse payments situation in 1978 unless it could
cutback spending on imports or receive more Arab aid. Although some upturn in
exports was anticipated, potential gains were limited, in part because of EC import
restrictions on Morocco's textiles and agricultural products. In these circumstances the
interruption in Arab aid flows threatened to exhaust foreign exchange reserves by
mid-1978. Accordingly, Rabat moved to toughen austerity measures, which were
gradually being imposed since the start of the year.
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
As part of the austerity program, Rabat has abandoned its five-year plan (1978-
82) and replaced it with a less ambitious three-year plan. The revised 1978 spending
target calls for a 30-percent slash in investment expenditures for the year as a whole,
with the cutback concentrated in second half 1978. Although few details are available,
most development projects now under construction apparently will be sharply
curtailed. The major exceptions will be the phosphate mining expansion program and
the construction of related fertilizer capacity; key projects include enlargement of rock
mining capacity at three sites and development of the Jorf Lasfar chemical complex.
Controls designed to reduce imports by 20 percent also form part of the
government's austerity program. Included in a list of 190 prohibited imports are
luxuary items and products that could be produced locally. License requirements have
been placed on 125 imported items such as machinery, industrial supplies, and
commercial vehicles. Moreover, a 25-percent deposit on the value of import orders
with the Bank of Morocco has been implemented to ease the bank's liquidity shortages
and to discourage imports. Finally, to stimulate repatriation of worker remittances, a
preferential rate of exchange has been established in favor of Moroccan workers in
France, two-thirds of all workers overseas.
Effect of Austerity
We expect the austerity program to hold GDP gains to 2 to 3 percent this year,
compared with 5 percent in recent years. Even before the program was strengthened,
budgetary and foreign exchange shortages were forcing a slowdown in government
payments to private contractors, causing project delays and bringing some firms close
to bankruptcy. The government is only now beginning to pay some bills incurred as
long ago as 18 months. The austerity measures have caused a slowdown in manufac-
turing, especially in automobile and truck assembly, leading to increased layoffs and
reduced work-weeks.
Unemployment in Casablanca has reached an unprecedented 20 percent of the
labor force. The 15- to 20-percent inflation has cut the real income of urban workers,
even though prices of certain basic consumer items are ostensibly controlled through
an extensive subsidy program. Overdue government and private payments, import
deposit requirements, and tight credit limits are worsening the condition of labor. As a
result, strikes are on the rise and may become more severe.
28 SECRET 9 November 1978
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Outlook: Continued Sluggish Growth
Export earnings are destined to languish until the new industrial expansion
program begins to come on stream in the mid-1980s. Putting this capacity in place
depends on success in the government's austerity program. if peace is not reached
soon, the continued drain of the Sahara conflict and the threat of further interruptions
in Saudi financial support may require a further stretching out of the development
effort. Present constraints on foreign borrowing and rising debt service will also inhibit
economic recovery.
A more general factor in the Moroccan equation is the degree to which demands
will revive in the world economy, especially demand in Western Europe. Even though
Rabat has shown itself to be a reasonably disciplined manager of monetary affairs,
improvement in the balance of payments largely depends on a strong revival in world
demand for its exports.
Chinese Grain Prospects Continue Favorable
Chinese grain output in 1978 almost certainly will show the first sizable increase
since 1975. Peking already has claimed a 10-million-ton increase in spring- and
summer-harvested crops above the 1977 level, and the fall harvest appears promising,
especially for coarse grains-primarily corn, sorghum, and millet. Considerably
improved growing conditions this summer, particularly in the North China Plain and
the northeast (where most of the coarse grains are grown) account for the favorable
fall outlook.
China: Total Grain Production
1974
1975 1976 1977 1978'
275
284 285 285 Roughly 300
9 November 1978
SECRET
25X1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Even though production should rise substantially, China probably will import
between 8 million and 9 million tons of grain this year, and again in 1979, to maintain
a steady supply to cities in the north while stocks are being rebuilt. (The population of
China in 1979 will be about 12 percent higher than in 1974.) China continues to buy
US grain for delivery during 1979 without first attempting to meet its needs from
traditional suppliers, indicatin that the PRC no longer considers the United States
merely a residual supplier.
30 SECRET
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 4 X Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Assessment
Center
Economic Indicators
Weekly Review
ER EI 78-045
9 November 1978
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
This publication is prepared for the use of U.S. Government
officials. The format, coverage and contents of the publication are
designed to meet the specific requirements of those users. U.S.
Government officials may obtain additional copies of this document
directly or through liaison channels from the Central Intelligence
Agency.
Non-U.S. Government users may obtain this along with similar
CIA publications on a subscription basis by addressing inquiries to:
Document Expediting (DOCEX) Project
Exchange and Gift Division
Library of Congress
Washington, D.C. 20540
Non-U.S. Government users not interested in the DOCEX
Project subscription service may purchase reproductions of specific
publications on an individual basis from:
Photoduplication Service
Library of Congress
Washington, D.C. 20540
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
1. The Economic Indicators Weekly Review provides up-to-date information
on changes in the domestic and external economic activities of the major non-
Communist developed countries. To the extent possible, the Economic Indicators
Weekly Review is updated from press ticker and Embassy reporting, so that the
results are made available to the reader weeks-or sometimes months--before receipt
of official statistical publications. US data are provided by US government agencies.
2. Source notes for the Economic Indicators Weekly Review are revised every
few months. The most recent date of publication of source notes is 16 February 1978.
Comments and queries regarding the Economic Indicators Weekly Review are
welcomed.
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 BIG SIX Fb j~ tj j l, P JSITE INDICATORS
Industrial Production
Unemployment Rate
4
Big Five
INDEX: 1970=100, seasonally adjusted
Semilogarithmic Scale
JAN APR OCT JUL JAN
JAN APR JUL OCT
197 73 0002-4 1978
Release 12M/07/28 N : CIJ1,-3QB80T00702A4~ J9006 M1
llncluding Japan, West Germany, France, the United Kingdom, Italy, and Canada.
A-2
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Consumer Price Inflation
Note: Three-month: average compared with previous three months.
Trade Balance
4.0
Note: Five-month weighted moving average.
JAN APR JUL OCT
1973
Industrial
Production
Big Six
United States
Consumer Prices
Big Six
United States
JAN APR JUL OCT JAN APR JUL OCT
1974 1975
AVERAGE ANNUAL
Percent Change GROWTH RATE SINCE
Months
LATEST from Previous
MONTH Month 1970 Earlier Earlier2
AUG 78 -0.6
AUG 78 0.5
AUG 78
AUG 78
2.8 3.0 1.4
3.9 6.2 9.2
0.7 9.2 6.6 8.4
0.5 6.7 7.9 10.1
Percent, seasonally adjusted, annual rate
Billion US $, f.o.b., seas rally adjusted
JAN APR JUL OCT JAN APR JUL OCT JAN
1976 1977
APR JUL OCT
1978
3 Months
LATEST MONTH I Year Earlier Earlier
Unemployment Rate
Big Five AUG 78 4.6 4.4 4.4
United States AUG 78 5.9 7.0 6.1
LATEST MILLION CUMULATIVE (MILLION US $)
MONTH US $ 1978 1977 Change
Trade Balance
Big Six AUG 78 5,559 36,972 20,145 16,827
Q'ir
b17709 1178
2Average for latest 3 mApproved wiFo erRelfor previous 3 months, ease 2004/07/28nel~Cl tL3 P8PTJe0702A000900060002-4 ann
ompared
A-3
 Ap roved For Release 2004/07/28: CIA-RDP80T00702A000900060002-4
INDUSTRIApL PRODUCTION INDEX: 1970=100, seasonally adjusted
United States
Semilogarithmic Scale
--120 '"? ...~.
1973 Average 120
Japan
West Germany
130
120
126 71710
France
V. la w N127
JAN APR JUL OCT JAN APR JUL OCT JAN APR'-JUL -OC
1973 Apps",, For Releas ?4/07/28: CI1-i
OVTUB/OLHODU'90UU60VV2-~FR JUL OCT
76
1977 1978
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
United Kingdom
Canada
150
JAN
APR JUL OCT
JAN
APR JUL
OCT JAN APR JUL OCT JAN
APR JUL OCT
JAN APR
JUL OCT
JAN APR JUL OCT
Percent
Change
AVERAGE ANNUAL
GROWTH RATE SINCE
Percent
Change
from
AVERAGE ANNUAL
GROWTH RATE SINCE
LATEST
from
Previous
1 Year 3 Months
LATEST
Previous
1 Year 3 Months
MONTH
Month
1970 Earlier Earlierl
MONTH
Month
1970 Earlier Earlierl
United States
SEP 78
0.5
3.9 6.5 7.7
United Kingdom
AUG 78
0.9
0.6 1.2 5.0
Japan
AUG 78
0.8
4.0* 5.5 1.3
Italy
AUG 78
-5.4
1.6 1.7 -11.3
West Germany
AUG 78
-1.7
2.1 1.7 12.1
Canada
AUG 78
-0.8
4.1 3.8 3.6
France
AUG 78
0.0
3.0 1.6 -7.1
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
lAverage for latest 3 months compared with average for previous 3 months.
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
UNEMPLOYMENT RATE
United States
Japan
West Germany
France
JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT
Approved For Release 2004/07/a : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
United Kingdom
5.7
Italy (quarterly)
3
A labor force survey based on new definitions of economic activity sharply raised the official estimate of Italian unemployment in first quarter 1977. Data for earlier periods thus are not comparable.
-Italian data are not seasonally adjusted.
APR JUL OCT
1975
1 Year
Earlier
3 Months
Earlier
1 Year
Earlier
3 Months
Earlier
United States
OCT 78
5,870
6,688
6,193
United Kingdom
OCT 78
1,360
1,432
1,371
Japan
AUG 78
1,270
1,130
1,270
Italy
78 III
1,658
1,692
1,455
West Germany
SEP 78
986
1,035
986
Canada
SEP 78
946
887
944
France
SEP 78
1,235
1,132
1,186
NOTE: Data are seasonally adjusted. Unemployment rates for France are estimated. The rates shown for Japan and Canada are
roughly comparable to US rates. For 1975-78, the rates for France and the United Kingdom should be increased by 5 percent and
15 percent respectively, and those for West Germany decreased by 20 percent to be roughly comparable with US rates. Beginning in
1977, Italian rates should be decreased by 50 percent to be roughly comparable to US rates.
Approved For Release 2004/07/28 : CAI9-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
CONSUMER PRICE INFLATION Percent, seasonally adjusted,
25
20
15
to
2.9 Average Annual Rate of Inflation 1961-1972
West Germany
IAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT -JAN" ipR' 161 -'66T
1973 1974 1975 1976 1977 1978
'Three-month average compared th previous the mont
Lpproved for Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
United Kingdom
35
30
25
20
15
JAN APR
JUL OCT
JAN
APR JUL
OCT JAN APR JUL OCT JAN
APR JUL OCT
JAN APR
JUL OCT
JAN APR JUL OCT
Percent
AVERAGE ANNUAL
Percent
AVERAGE ANNUAL
Change
f
GROWTH RATE SINCE
Change
GROWTH RATE SINCE
LATEST
rom
Previous
1970 1 Year 3 Months
LATEST
from
Previous
1970 1 Year 3 Months
MONTH
Month
Earlier Earlier2
MONTH
Month
Earlier Earlier2
SEP 78
0.8
6.8 8.3 9.1
SEP 78
0.9
13.2 7.8 12.2
Japan
AUG 78
1.0
9.8 4.2 7.2
I Italy
5EP 78
1.0
13.1 12.2 13.5
SEP 78
0
5.1 2.2 2.5
i Canada
SEP 78
0.1
7.6 8.6 8.7
SEP 78
1.5
9.2 10.2 13.0
Approved For Release 2004/07/28 9CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 :
ICl, raR89ATL%9702AO00s000s0002-4
Average
Annual Growth Rate Since
Percent Change
Latest from Previous I Year Previous
Quarter
United States 78 II
Japan 78 II
West Germany 78 II
France i 78 I
United Kingdom 1 77 IV
Italy 78 I
Canada 78 II
' Seasonally adjusted.
Quarter 1970 Earlier Quarter
Nonresidential; constant prices
4.1 I 1.4
Average
Annual Growth Rate Since
Percent Change -- _-
.atest from Previous I Year Previous
u]uarter Quarter 1970 Earlier Quarter
Average
Annual Growth Rate Since
United States
Japan
West Germany
France
United Kingdom
Italy
Canada
Percent Change
Latest from Previous I Year 3 Months
Month Month 1970 Earlier Earlier'
Jul 78
Jun 78
Jun 78
Jan 78
Sep 78
May 78
Aug 78
Seasonally adjusted.
' Average for latest 3 months compared with average for previous 3 months.
Average
Annual Growth Rate Since
United States
Percent Change
Latest from Previous 1 Year 3 Months
Period Period 1970 Earlier Earlier'
Jul 78
United States
J
78
J
apan
un
Japan
78 II
West Germany 78 I
West Germany
78 II
F
77 IV
rance
France
77 IV
4
0
4
7
.
.
United Ki
ngdom
Jun 78
United Kingdom
78 I
1.8
11.3
Italy
Jul 78
Italy
Canada
Jul 78
Canada
6.5 I
6.11
49.9
' Hourly earnings (seasonally adjusted) for the United States, Japan, and Canada; hourly wage
rates far others. West German and French data refer to the beginning of the quarter.
' Seasonally adjusted.
' Average far latest 3 months compared with that for previous 3 months.
latest
Date
1 Year
Earlier
3 Mouths
Earlier
1 Month
Earlier
United States
Commercial paper
Nov 1
9.33
Japan
Call money
Nov 3
4.13
West Germany
Interbank loans (3 months)
Nov 1
3.90
France
Call money
Nov 3
7.00
United Kingdom
Sterling interbank loans (3 months)
Nov 1
11.08
Canada
Finance paper
Nov 1
9.98
Eurodollars
Three-month deposits
Nov 1
10.98 1
7.14
Approve or a ease 200 167TZ1TTA=RDPZ 007-02 00660-00 -4
A-10
 EXPORT PRICh3proved For Release 2004/07/28 :
US $
Average
Annual Growth Rate Since
Percent Change
Latest from Previous 1 Year 3 Months
Month Month 1970 Earlier Earlier
United States Aug 78 1.3 9.7 11.0 19.5
Japan Jul 78 1.0 11.7 26.8 37.9
West Germany Jun 78 1.7 11.5 12.9 -4.0
France Jun 78 2.2 11.5 13.6 7.8
United Kingdom Sep 78 1.7 12.3 21.8 41.9
Italy Jun 78 0.5 10.8 8.1 2.7
Canada Jul 78 0.9 8.3 0.6 10.3
IMPORT PRICES
National Currency
Average
Annual Growth Rate Since
Percent Change
Latest from Previous 1 Year 3 Months
l
End of
1 Year 3 Months
Billion US $ Jun 1970 Earlier Earlier
ier
Month Month 1970 Earlier Ear
i
d
U
t
St
78
S
18
8
14
5
19
0
18.9
United States
Aug 78
0.6
12.7
7.9
3.3
n
te
a
es
ep
.
.
.
Japan
Aug 78
29.2
4.1
17.8
27.7
an
Ja
Jul 78
-6.6
5.8
-20.9
-22.7
p
West
Germany
Jul 78
41.1
8.8
35.1
41.3
West Germany
Jun 78
- 1.6
3.0
-5.9
- 12.5
France
Apr 78
10.6
4.4
10.0
10.2
France
Jun 78
-0.6
9.1
0.2
-9.1
ited
U
dom
Kin
Aug 78
17.4
2.8
15.0
17.3
United
Kingdom
Sep 78
0.9
17.1
4.3
3.8
g
n
Italy
Aug 78
14.9
4.7
10.5
12.2
Italy
Jun 78
-0.7
18.7
1.8
2.4
nada
C
78
Se
3.7
9.1
4.8
4.7
Canada
Jul
78
2.3
9.7
11.3
17.4
a
p
BASIC BALANCE '
Current and Long-Term Capital Transactions
Cumulative (Million US 8)
Latest
Period Million US $ 1978 1977 Change
Latest
Period Million US $ 1978 1977 Change
United States2
78 I
-6,954
-6,954
-4,158
-2,796
United States
No longer published 2
Japan
West Germany
Sep 78
Jul 78
1,900
-868
13,982
2,831
6,442
1,406
7,540
1,425
Japan
West Germany
Sep 78
Jul 78
600
-881
6,746
1,915
4,390
-2,363
2,356
4,278
France
United Kingdom
Italy
Canada
78 I
78 I
78 I
78 II
-84
-803
288
- 1,201
-84
-803
288
- 2,381
-1,628
-896
-1,025
-2,658
1,543
94
1,313
277
France
United Kingdom
Italy
Canada
78 I
78 I
77 III
78 II
-863
-326
2,427
883
-863
-326
N.A.
327
-1,889
543
N.A.
- 557
1,025
-869
N.A.
884
Converted to US dollars at the current market rates of exchange.
Converted to US dollars at the current market rates of exchange.
As recommended by the Advisory Committee on the Presentation of Balance of Payments
2 Seasonally adjusted.
Statistics, the Department of Commerce no longer publishes a basic balance.
Spot Rate
As of 3 Nov 78
US $ 1 Year 3 Months
Per Unit 19 Mar 73 Earlier Earlier 27 Oct 78
19
1 Year 3 Months
Mar 73 Earlier Earlier 27 Oct 78
Japan (yen)
0.0054
40.77
34.6
0 0.4
9 -3.45
United States
-
-4.05
-9.14
0.02
2.86
West Germany
0.5283
48.61
19.4
9 3.91
-7.03
Japan
43.76
30.37
0.27
-1.94
(Deutsche mark)
`Nest Germany
33.93
5.26
1.87
-2.25
France (franc)
0.2326
4.80
12.5
6 -0.02
-5.70
France
-
10.41
-2.23
-2.65
-0.36
United Kingdom
1.9820
-19.83
11.5
4 0.92
-3.93
United Kingdom
--
29.09
-0.25
-0.85
0.34
Italy
-
43.72
-7.95
-2.21
0.57
(pound sterling)
Italy (lira)
0.0012
-31.95
5.3
6 -0.17
-4.62
Canada
-
16.38
-8.75
-3.07
1.52
Canada (dollar)
0.8558
- 14.70
- 5.3
6 -2.77
0.50
Approved For Release 2004/07/28 C
1A-i1flwr 9dTU (}i?=yoeyCC?a 060oo2-Q ong the major currencies.
l40Wq 2A000900060002-4
National Currency
Average
Annual Growth Rate Since
Percent Change --
Latest from Previous 1 Year 3 Months
Month Month 1970 Earlier Earlier
United States Aug 78 1.3 9.7 11.0 19.5
Japan Jul 78 -5.8 3.8 -4.3 -8.8
West Germany Jun 78 0.7 3.9 -0.1 4.9
France Jun 78 0.6 8.8 5.3 -2.8
United Kingdom Sep 78 0.8 15.1 8.3 9.6
Italy Jun 78 -0.8 15.3 4.9 4.6
Canada Jul 78 1.5 9.3 6.6 3.8
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Billion US $
World
Big
Seven
Other
OECD
OPEC
Com-
munist
Other
UNITED STATES
1975 ..........................
107.65
46.94
16.25
10.77
3.37
29.82
1976 ..........................
115.01
51.30
17.68
12.57
3.64
29.44
1977 ..........................
120.17
53.92
18.53
14.02
2.72
30.98
1978 ..........................
1st Qtr ................
30.94
13.65
4.60
3.76
1:00
7.93
Apr ......................
12.06
5.40
1.68
1.38
0.42
3.17
JAPAN
1975 ..........................
55.73
16.56
6.07
8.42
5.16
15.87
1976 ..................... . ....
67.32
22.61
8.59
9.27
4.93
17.84
1977 ..........................
81.11
28.02
9.73
12.03
5.32
26.01
1978
1st Qtr ................
22.11
7.83
2.39
3.35
1.32
7.22
Apr ......................
7.89
2.80
0.80
1.19
0.57
2.53
WEST GERMANY
1975 ..........................
91.70
28.33
36.44
6.78
8.81
11.05
1976 ..........................
103.63
33.44
41.86
8.25
8.72
11.04
1977 ..........................
119.28
39.01
48.00
10.78
8.59
12.90
1978
1st Qtr ................
32.45
FRANCE
1975 ..........................
52.87
20.00
15.50
4.90
3.13
8.61
1976 ..........................
57.05
22.49
16.15
5.08
3.23
8.75
1977 ..........................
65.00
25.90
18.19
5.97
3.00
11.94
1978
1st Qtr ................
18.49
7.66
5.07
1.57
0.66
3.53
Apr ......................
6.74
2.82
1.90
0.56
0.28
1.18
UNITED KINGDOM
1975 ..........................
44.03
12.55
16.59
4.55
1.56
8.64
1976 ..........................
46.12
14.03
17.53
5.13
1.39
7.92
1977 ..........................
57.44
16.99
22.56
6.78
1.63
9.48
1978
1st Qtr ................
16.86
5.09
6.27
2.03
0.55
2.92
Apr ......................
5.75
1.73
2.19
0.74
0.18
0.91
ITALY
1975 ..........................
34.82
15.61
7.86
3.72
2.46
4.67
1976 ..........................
36.96
17.41
8.69
4.23
2.18
3.96
1977 ..........................
45.04
20.92
10.20
5.85
2.45
5.62
1978
1st Qtr ................
10.80
CANADA
1975 ..........................
33.84
26.30
1.73
0.71
1.20
2.00
1976 ..........................
40.18
32.01
2.03
0.81
1.25
2.09
1977 ..........................
1978
42.98
34.77
2.13
0.94
1.06
4.08
1st Qtr ................
10.75
8.78
0.55
0.23
0.22
0.97
Apr ......................
4.20
3.44
0.16
0.08
0.07
0.45
'Source: International Monetary Fund,
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80TOO702AO00900060002-4
UNITED STATES
1975 ..........................
1976 ..........................
1977 ..........................
1978
1st Qtr ................
Apr ......................
JAPAN
1975 ..........................
1976 ..........................
1977 ..........................
1978
1st Qtr ................
Apr ......................
WEST GERMANY
1975 ..........................
1976 ..........................
1977 ..........................
1978
1st Qtr ................
FRANCE
1975 ..........................
1976 ..........................
1977 ..........................
1978
1st Qtr ................
Apr ......................
UNITED KINGDOM
1975 ..........................
1976 ..........................
1977 ..........................
1978
1st Qtr ................
Apr ......................
ITALY
1975 ..........................
1976 ..........................
1977 ..........................
1978
1st Qtr ................
CANADA
1975 ..........................
1976 ..........................
1977 ..........................
1978
1st Qtr ................
Apr ......................
Big Other Com-
World Seven OECD OPEC munist Other
103.42 49.81 8.83 18.70 0.98 25.08
129.57 60.39 9.75 27.17 1.16 31.09
156.70 70.48 11.08 35.45 1.22 38.47
43.14 20.39 3.51 8.15 0.47 10.62
15.42 7.54 1.27 2.73 0.18 3.70
57.85 16.93 6.08 19.40 3.36 12.05
64.89 17.58 7.78 21.88 2.91 14.72
71.33 18.87 7.93 24.33 3.41 16.79
18.32 5.04 2.06 6.46 0.87 3.89
6.28 1.64 0.74 2.01 0.36 1.53
76.28 27.09 27.78 8.24 4.87 8.21
89.68 31.28 32.64 9.73 5.93 10.01
102.63 36.38 37.37 10.12 6.14 12.62
53.99 23.04 14.33 9.43 1.94 5.21
64.38 27.81 16.93 11.36 2.24 6.01
70.50 30.28 18.24 11.82 2.46 7.70
19.76 8.58 5.40 3.05 0.64 2.09
6.79 3.02 1.84 1.00 0.23 0.70
53.35 18.47 18.52 6.91 1.68 7.67
55.56 19.66 18.81 7.29 2.08 7.65
63.29 24.02 21.34 6.31 2.40 9.22
18.87 7.44 6.68 1.80 0.55 2.40
5.67 2.27 2.04 0.39 0.16 0.81
38.36 17.32 6.75 7.85 2.09 4.34
43.42 19.35 8.04 8.12 2.65 5.24
47.56 20.80 8.67 9.03 2.80 6.26
38.59 29.78 1.70 3.43 0.32 2.02
43.05 33.55 1.82 3.48 0.38 2.56
44.67 35.67 1.77 3.05 0.33 3.85
10.80 8.60 0.44 0.77 0.08 0.91
4.61 3.84 0.18 0.03 0.19 0.37
Approved For Release 2004/07/28 : CIA-RDP80TOO702AO00900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
FOREIGN TRADE BILLION US $, f.o.b., seasonally adjusted
United States
14.0
12.0
Japan
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
A-14
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL
OCT JAN APR JUL OCT
1978
CUMULATIVE (MILLION US $)
LATEST
MONTH
MILLION
US $ 1978
1977
CHANGE
LATEST
MONTH
MILLION
US $ 1978
1977
CHANGE
ited States
U
SEP 78
13,429
104.054
91,352
13.9%
United Kingdom
SEP 78
6,043
50,004
41,298
21.1%
n
15,120
126,721
109.305
15.9%
6,423
51,895
44,234
17.3%
Balance
-1,691
-22,667
-17,953
-4,714
Balance
-380
-1,891
-2,936
1,044
n
J
SEP 78
8,618
71,117
58515
21.5%
Italy
SEP 78
4,509
37,843
32,756
15.5%
apa
6,216
50,210
46,130
8.8%
4,005
35,250
32,347
9.0%
Balance
2,402
20,907
12,385
8,522
Balance
504
2,593
409
2,184
West Germany
AUG 78
11,974
90,233
76,223
18.4%
Canada
AUG 713
3,640
29,739
27,962
6.4%
9,258
74,1 31
62,846
18.0%
3,478
28,071
26,672
5.2%
Balance
162
1,668
1,289
379
France
8,907
59,761
47,645
25.4%
SEP 78
6 776
57 5-ti--.
49.99-9-
Balance
2,131
2,250
-2,354
4,604
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
A-15
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
FOREIGN TRADE PRICES IN US $1
United States INDEX: JAN 1975 =100
West Germany
JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT
197Approved Fd' 4kiffiase 2004/OltI286CIA-RDP801YT02A0009000L&ZJ -4
tExport and import plots are based on five-month weighted moving averages.
A-16
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
United Kingdom
Italy
/mar
197AApproved For Release 2004/071/2%~6CIA-RDP8011&ff72A000900069(7284
577670 11-78
 Approved For Release 2004/07/28 : CIA-RDP80T00702A00 900060002-4
SELECTED DEVELOPING COUNTRIES
MONEY SUPPLY t
INDUSTRIAL
PRODUCTION t
Average
Annual
Growth Rate
Since
Average
Percent Change
Amud Growth Rate Since
latest
from Previous
1 Year
3 Months
Percent Change
Month
Month
1970
Earlier
Earlier
Latest
from Previous
1 Year
3 Months
Period
Period 1970
Earlier
Earner r
Brazil
Mar 78
2.7
36.4
43.3
34.7
India
Jun 78
-2.8 5.2
5.4
21.1
India
Apr 78
2.5
14.0
16.2
13.0
South Korea
Jun 78
-1.2 22.5
20.1
26.5
Iran
May 78
0.4
29.0
21.4
66.2
Mexico
Jun 78
0 6.2
8.5
27.7
South Korea
Jun 78
4.3
31.6
30.4
20.9
Nigeria
78 I
6.8 11.4
0.5
30.0
Mexico
Jul 78
1.9
21.0
37.3
36.4
Taiwan
Aug 78
2.9 16.3
33.6
40.6
Nigeria
Mar 78
5.6
35.3
18.9
3.3
Taiwan
May 78
0.6
25.1
32.8
40.8
seasonaty adjusted.
Thailand
Apr 78
-3:2
13.3
12.5
32.3
Average for latest 3 months compared with average for previous 3 months.
Seasonally adjusted.
Average far latest 3 months compared with average for previous 3 months.
CONSUMER
PRICES
WHOLESALE PRICES
average
Annual Growth
Rate Since
Average
Percent Change
----
Annual Growth Rate Since
Latest
from Previous
1 Year
Percent Change
Month
Month
1970
Earlier
Latest
from Previous
1 Year
Month
Month
1970
Earlier
Brazil
Jun 78
4.1
28.3
38.0
Brazil
May 78
3.4
28.4
34.5
India
Jun 78
1.2
7.5
2.2
India
May 78
0.6
8.0
-2.8
Iran
Jun 78
-0.1
12.2
10.2
Iran
Jun 78
-1.3
10.7
9.3
South Korea
Aug 78
0.3
14.5
13.5
South Korea
Aug 78
0.1
15.7
10.9
Mexico
Aug 78
1.0
15.1
17.0
Mexico
Aug 78
-0.2
16.3
13.8
Nigeria
Dec 77
3.1
16.6
31.3
Taiwan
Aug 78
0.4
8.1
1.6
Taiwan
Aug 78
1.9
9.8
-0.6
Thailand
Mar 78
-0.1
9.4
5.8
Thailand
Jun 78
0.9
8.7
8.4
EXPORT PRICES
OFFICIAL
RESERVES
US $
Minion US $
Average
Latest Month
Annual Growth
Rate Since
-
1 Year
3 Months
Percent Chaps
End of
Minion US S
Jun 1970
Earlier
Earlier
Latest
from Previous
1 Year
Month
Month
1970
Earlier
Brazil
Feb 78
6,733
1,013
5,878
5,994
Brazil
Feb 78
0.4
14.0
1.5
India
Jun 78
6,140
1,006
4,559
5,823
India
Sep 77
-2.7
10.0
18.4
Iran
Aug 78
11,949
208
11,561
12,468
South Korea
78 I
0.7
8.7
7.7
South Korea
Jul 78
4,296
602
3,656
4,138
Taiwan
Jun 78
1.9
11.3
3.3
Mexico
Mar 78
1,766
695
1,422
1,723
Thailand
Dec 77
0.1
10.2
-7.8
Nigeria
- Aug 78
1,872
148
4,611
2,609
Taiwan
Jun 78
1,462
531
1,411
1,433
Thailand
Aug 78
2,295
978
1,992
2,129
Approved For Release 2004/07/28:1CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
FOREIGN TRADE, f.o.b.
Latest 3 Months
Percent Change from
3 Months 1 Year ------ -- -
Latest Period Earlier' Earlier 1978 1977 Change
May 78 Exports
84.8
-3.7
4,743
4,979
-4.7%
May 78 Imports
26.6
1.4
5,110
4,939
3.5%
May 78 Balance
-367
40
-407
Mar 78 Exports
-19.6
-13.5
1,476
1,707'
-13.5%
Mar 78 Imports
-24.1
9.7
1,444
1,316
9.7%
Mar 78 Balance
32
391
-358
Iran
Jul 78 Exports
49.4
14.0
13,913
13,562
2.6%
May 78 Imports
- 1.6
1.6
5,705
5,259
8.5%
May 78 Balance
4,087
4,871
-783
South Korea
Jul 78 Exports
39.3
23.5
6,749
5,351
26.1%
Jul 78 Imports
83.0
29.2
7,284
5,695
27.9%
Jul 78 Balance
-535
-344
-191
Mexico
Jul 78 Exports
78.8
29.8
2,867
2,453
16.9%
Jul 78 Imports
225.3
41.9
3,596
2,751
30.7%
Jun 78 Balance
-728
-298
-430
Nigeria
78 II Exports
86.7
-26.0
1,808
2,526
- 28.4%
78 I Imports
579.5
115.0
1,808
841
115.0%
78 I Balance
-974
368
-1,342
Taiwan
Aug 78 Exports
84.2
38.7
8,044
5,884
36.7%
Aug 78 Imports
68.9
32.5
6,439
5,119
25.8%
Aug 78 Balance
1,605
765
840
Thailand
May 78 Exports
21.9
4.5
1,609
1,506
6.8%
May 78 Imports
105.7
21.3
1,908
1,624
17.5%
May 78 Balance
-299
-117
-182
Approved For Release 2004/07/28a a?A-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
AGRICULTURAL PRICES MONTHLY AVERAGE CASH PRICE
250
2 NOV
3.48
25 OCT
3.48
OCT 78
3.42
200
NOV 77
2.79
150
3.47
2 NOV 2.31
4 25 OCT 2.28
fAN OCT 78 2.25
NOV 77 2.19
1-2 NOV MI
No. 2 Medium Grain. 4% Brokens,
f.o.b. mills. Houston, Texas
1-23 OCT II
1974 1975 1976 1977 1978
COTTON
1.0 $ PER POUND
Memphis Middling 1 1/16 inch
SUGAR
$ PER METRIC TON 0 PER POUND
2 NOV 8.46
25 OCT 9.16
OCT 78 9.02
NOV 77 6.66
1-2 NOV II
World Raw London, bulk
COFFEE/TEA
PER POUND ...
R METRIC TON
1-2 NOV 11
8.62
r
COFFEE
2,000 Other Milds Arabicas, ex-dock New York 8,000
Approved For Release 2004/07 go: CIA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
SOYBEANS
15 $ PER BUSHEL
500
400
2 NOV
6.89
25 OCT
6.91
OCT 78
6
76
.
400
NOV 77
5.78
320
1-2 NOV I I
1977 1978
SOYBEAN OIL/PALM OIL
$ PER POUND $ PER METRIC TON
SOYBEAN OIL
Crude, Tank Cars, f.o.b. Decatur
Crude, Bulk, c.i.f. US Ports
2 NOV 0.3050
25 OCT 0.3050
OCT 78 0.3045
NOV 77 0.2045
0 PER POUND
2 NOV 0.2627
25 OCT 0.2745
OCT 78 0.2718
NOV 77 0.2099
SOYBEAN MEAL
$ PER TON
FOOD INDEX
500
1,000 1970=100
1-2 NOV'I
AUSTRALIA
Boneless Beef,
f.o.b., New York
UNITED STATES
Wholesale Steer Beef,
Midwest Markets
19 OCT
108.00
28 OCT
77.19
13 OCT
106.00
21 OCT
81.83
SEP 78
101.57
SEP 78
81.64
NOV 77
67.23
NOV 77
65.47
108.38 2,500
1-19 OCT
1-19 OCT II
1976 1977 1978
NOTE: The food index is compiled by the Economist for 16 food commodities
which enter international trade. Commodities are weighted by
3-year moving averages of imports into industrialized countries.
1-24 OCT II
1975 1976 1977 1978
2 NOV 186.00
25 OCT 177.50
OCT 78 176.26
NOV 77 163.40
1-2 NOV
1976 1977 1978
Approved For Release 2004/07/28 A42IA-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
INDUSTRIAL MATERIALS PRICES MONTHLY AVERAGE CASH PRICE
LME U3
2 NOV 68.6 73 8
25 OCT 69.3 7iP
OCT 78 68.4 71.4
NOV 77 53.6 61).b
$ PER METRIC TON 45 C PER POUND
1-2 NOV 11 1,000
1974 1975 1976 1977 1978 10 1 1974 1975 1976 1977 1978
LME (IS
2 NOV 32.3 3,".u
25 OCT 33.3 3b.0
OCT 78 32.5 34.9
NOV 77 23.7 31_2
2 NOV
MP
280.0
USD
3.,1.1)
125
25 OCT
280.0
345.5
300
OCT 78
262.9
327-8
NOV 77
167.2
749.4
100
1-2 NOV 11 200
LME US
2 NOV 737.0 785.0
25 OCT 731.5 7/b.3
OCT 78 700.9 748. i
NOV 77 572.6 621 "
$ PER METRIC TON
787.6?III 1 16,000
1-2 NOV (I
$ PER METRIC TON
, e1
1-2NOVII 6,000
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
A-22
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
SELECTED MATERIALS
ALUMINUM
Major US Producer
I". per pound
55.25
53.00
53.00
48.00
US STEEL
Composite
$ per long ton
419.31
395.81
359.36
327
00
IRON ORE
Non-Bessemer Old Range
$ per long ton
22.55
21.43
21.43
.
20.51
CHROME ORE
Russian, Metallurgical Grade
$ per metric ton
NA
NA
150.00
150
00
CHROME ORE
S. Africa, Chemical Grade
$ per long ton
56.00
56.00
58.50
.
42
00
FERROCHROME
US Producer, 66-70 Percent
6 per pound
42.00
42.00
41.00
.
43.00
NICKEL
Composite US Producer
$ per pound
2.02
2.06
2.07
2.41
MANGANESE ORE
48 Percent Mn
$ per long ton
67.20
67.20
72.24
72.00
TUNGSTEN ORE
Contained Metal
$ per metric ton
18,411.00
17,169.00
22,113.00
18,082.00
MERCURY
New York
$ per 76 pound flask
151.00
150.55
138.43
134
50
SILVER
LME Cash
t per troy ounce
598.31
514.64
482.70
.
436
90
GOLD
London Afternoon Fixing Price $ per troy ounce
230.33
176.31
162.10
.
130.44
RUBBER
60C PER POUND
:
LUMBER INDEX6
160
INDUSTRIAL MATERIALS INDEX
100
1Approximates world market price frequently used by major
world producers and traders, although only small quantities of
these metals are actually traded on the LME.
2Producers' price, covers most primary metals sold in the U S.
3As of 1 Dec 75, US tin price quoted is "Tin NV lb composite."
40uoted on New York market.
5S-type styrene, US export price.
6 This index is compiled by using the average of 13 types of lumber whose
prices are regarded as bellwethers of US lumber construction costs.
7Composite price for Chicago, Philadelphia, and Pittsburgh.
1-24 OCT I-f
1978
NOTE: The industrial materials index is compiled by the Economist for 19 raw
materials which enter international trade. Commodities are weighted by
3-year moving averages of imports into industrialized countries.
Approved For Release 2004/07/28A_A-RDP80T00702A000900060002-4
 Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4
Approved For Release 2004/07/28 : CIA-RDP80T00702A000900060002-4