ECONOMIC INTELLIGENCE WEEKLY REVIEW

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CIA-RDP80T00702A001000040001-5
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RIPPUB
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S
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72
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December 12, 2016
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January 16, 2002
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1
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Publication Date: 
December 15, 1978
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l4pprVaglq a?r Release 2002/05/07: CIA-RDP80T00702AO010000490 115 Foreign NOT I W", Assessment Secret Approved For Release 2002/05/07: CIA-RDP80T00702A001000040001I5u r?; Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 NATIONAL SECURITY INFORMATION Unauthorized Disclosure Subject to Criminal Sanctions DISSEMINATION CONTROL ABBREVIATIONS NOFORN- Not Releasable to Foreign Nationals NOCONTRACT- Not Releasable to Contractors or Contractor/ Consultants PROPIN- Caution-Proprietary Information Involved NFIBONLY- NFIB Departments Only ORCON- Dissemination and Extraction of Information Controlled by Originator REL. . . - This Information has been Authorized for Release to ... Classified by 015319 Exempt from General Declassification Schedule of E.O. 11652, exemption category: ? 58(1), (2), and (3) Automatically declassified on: date impossible to determine Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 SECRET NOFORN ECONOMIC INTELLIGENCE WEEKLY REVIEW (U) Italy: Current Account Shows Big Gain (U) ............................................. 1 A positive swing of $8 billion since 1976 stems from the domestic austerity program, improved terms of trade, a competitive exchange rate policy, and record tourist receipts. (U) (Confidential) World Rice: Adding to the Grain Surplus (U) ........................................... 7 Increased acreage and generally good weather suggest a 3-percent rise in worldwide output in the 1978/79 crop year. (U) (Confidential) 25X6 Chile: Reform Program Revitalizing Economy (U) ..................................... The Pinochet government has used market-oriented policies to restore growth, break hyperinflation, and ease foreign payments problems. (U) (Confidential) Cobalt: US Dependence on Outside Supplies (U) ..................................... 22 Despite global supply difficulties, the United States should be able to meet its 1979 needs for this critically important metal through imports, that is, without tapping government reserves. (U) (Confidential) Malaysia: Steady Growth Ahead for Manufactured Exports (U) ................ 25 Sales of manufactured products abroad will top $1 billion in 1978, putting Malaysia in eighth place among LDC exporters. (U) (Confidential) USSR: Improved Trade Balance (U) ......................................................... 34 The Soviets held the third quarter hard currency trade deficit to $400 million by boosting exports and curbing both grain and nongrain imports. (U) (Secret) OPEC Countries: Falling Exports, Rising Imports (U) .................................. 36 The combined current account surplus will drop to less than $6 billion in 1978 compared with $30 billion last year. (U) (Confidential Noforn) Notes ................................................................................................... 42 Italy To Join EMS Despite Communist Opposition (U) (Unclassified) US Deals Hit New High at Canton Fair (U) (Unclassified) Arab States Discuss Baghdad Aid Commitments (U) (Secret Noforn) Publication of Interest, Statistics (U) i SECRET Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 SECRET NOFORN ITALY: CURRENT ACCOUNT SHOWS BIG GAINS (U) The Italian current account balance has made a stunning positive swing of $8 billion since 1976, thanks to domestic austerity, improved terms of trade, a competi- tive exchange rate policy, and record tourist receipts. The surpluses on current account have been used to repay debt and build reserves to a near-record level. As international accounts have improved, Rome has relaxed its foreign exchange controls. (U) Italian government economists view the strong current account performance as a cyclical phenomenon and are pushing the proposed three-year stabilization program, which is intended to slow inflation from the present 12-percent rate. Critics contend that a permanent lowering of the propensity to import is responsible for the surplus and argue for a more expansionary policy. While favorable momentum on invisibles should contribute to another strong current account showing in 1979, higher prices for imported oil, rising labor costs, stockbuilding, and Italian participation in the European Monetary System (EMS) will be pressing in the opposite direction. (U) Sources of Surplus A sharp improvement in the trade account is primarily responsible for the surge in Italy's current account surplus this year. Data through July indicate that 80 percent of the improvement was achieved in nonoil trade. The January-October trade surplus of $3.0 billion (customs data basis, f.o.b./f.o.b., seasonally adjusted) contrasts with a meager $30 million surplus for the like period in 1977. On a balance-of-payments basis, Italian trade should be close to $2.3 billion in surplus for all of this year. Now that trade is so substantially in the black, the large surplus on invisibles, which Rome has relied on in the past to offset chronic trade deficits, gives the government room to maneuver. (U) A number of factors have contributed to this year's unprecedented current account surplus-some fortuitous, others policy induced: Note: Comments and queries regarding the Economic Intelligence Weekly Review are welcome. For the text, they may be directed to of the Office of Economic Research, telephoneII for the Economic Indicators, to of OER, telephone Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Italy: Foreign Trade 2.5 1 1 1 1 1 1 1 1 1 1 1 1 I 1 1 1 I 1 I 1 1 I 1 1 1 1 1 1 1 1 1 1 1 1 Jan Jan 1976 1977 Unclassified Jan 1978 ? Government stabilization programs have kept GDP growth low, depressing imports. In January-September 1978, import volume climbed only 0.7 percent compared with the same period in 1977. ? Export volume meanwhile has risen 4.6 percent. ? The composition of final demand has shifted; investment, with its high import requirement, has been depressed. ? Slack prices for oil and raw material imports have contributed to an Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 improvement in the terms of trade; this accounts for more than one-third of the trade surplus in 1978. During the first nine months of this year, export prices were up 10.5 percent in dollars from the like period of 1977, while import prices increased only 8.1 percent. ? Rome has pursued a competitive exchange rate policy. The CIA trade- weighted, price-adjusted exchange rate index for Italy (a device for tracking the international price-competitiveness of Italian manufactured goods) has fallen continuously since yearend 1976, indicating improvement in their competitive position, Italian manufacturers are maintaining their world market share near its all-time high. ? Flocks of tourists from northern Europe, encouraged by a bargain lira, are seeking the Italian sun. Despite the bad press generated by terrorist attacks, tourist spending will reach $5.8 billion this year, up from $3.9 billion in 1977. (U) Uses of Current Account Surplus Italy has accumulated $7.5 billion in current account surpluses over the last two years. The money has been used primarily to repay medium-term debt and to build up reserves. (U) Rome has been saddled with heavy medium- and long-term debt, much of it official borrowing to cover balance-of-payments deficits in 1974-76. At yearend 1977, Italy's gross medium- and long-term hard currency debt (public and private) totaled $20.8 billion, exceeding foreign asset holdings by $5.5 billion. (U) The debt service burden rose substantially in 1978, with net principal repayments of $2.4 billion ($5 billion gross) falling due. Nevertheless, the current account surplus has allowed repayments to be made punctually. Italy, in fact, has made a number of payments ahead of schedule as part of an ongoing campaign to restore its international credit standing. The $2 billion "gold-backed" credit from the Bundesbank was settled in July by early repayment of the $1 billion balance. Also settled ahead of the due date was the 1974 $1.4 billion EC standby loan. A $1.2 billion International Monetary Fund standby was the third major loan paid off this year, with a final installment of $300 million. (U) Italy has also been using surplus earnings to rebuild reserves. As of October, official reserves stood close to an alltime high at $14.1 billion. In the 12 months since October 1977, holdings of convertible foreign exchange grew 28 percent to stand at $9.6 billion. (U) Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Italy: Foreign Trade Volume 100 L ? Jan 1976 Jan 1977 I I 1 1 Jan 1978 Million US $ 1975 1976 1977 1978' Trade balance .................................................... -1,166 -4,239 138 2,350 Exports f.o.b . .................................................. 34,553 36,998 44,546 51,450 Imports f.o.b . .................................................. 35,719 41,237 44,408 49,100 Services, net ........................................................ 338 1,144 1,916 2,650 Transfers, net ....... ...... .................. .............. ........ 264 277 229 250 Current account balance ................................ - 564 - 2,818 2,283 5,250 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Dismantling Exchange Controls With the current account improving, Italy launched a series of moves to ease exchange controls. In early 1977, Rome abolished the tax on foreign exchange purchases and the import deposit scheme-under which importers had been com- pelled to deposit a portion of foreign exchange purchases in noninterest bearing accounts at the Bank of Italy. In October 1977, the reins were loosened on spending by Italian tourists; an Italian is now allowed to spend $880 abroad each year instead of $585. At the same time, the ban on the export of lower denomination lira bank notes was abolished. (U) In June 1978, the requirement that Italian exporters obtain foreign exchange financing for 25 percent of short-term credits was eliminated. In November the time limit for the conversion of foreign exchange earnings into lire was extended. Also, the Foreign Exchange Office eased restrictions on forward purchases of foreign currency. Peeved with the Italian penchant for slapping on exchange controls whenever the lira is threatened, Italy's EC partners have greeted Rome's easing of restrictions with relief. (C) One domestic monetary control with interesting balance-of-payments implica- tions is the tight ceiling the Bank of Italy has imposed on domestic credit expansion by commercial banks. When unable to obtain lira credit, Italian borrowers press their banks to arrange loans in foreign exchange. Last year, the net foreign indebtedness of Italian banks rose about $3.5 billion; this short-term capital inflow accounted for about 60 percent of the 1977 growth in central bank reserves. In the first 10 months of 1978 the net foreign indebtedness of the banks declined about $600 million, mainly due to shifts in interest rate differentials. (C) Feedback on Domestic Policy The gyrations in Italy's foreign accounts traditionally have been explained as resulting from an inventory stock cycle. About 60 percent of Italy's imports consist of oil, raw materials, and semifinished goods-the commodities that make up the input inventories of the industrial sector. In times of government-induced contraction, firms slash their imports, bringing relief to the foreign accounts. Economic recovery, in turn, is often accompanied by speculative import buying as manufacturers stock up in anticipation of lira depreciation and hikes in import prices. (U) Government planners treat the strong current account performance as a cyclical phenomenon. They reason that austerity measures have slowed import growth and that a firmer lira and higher interest rates have discouraged speculative stockpiling. When viewed in this manner, the surpluses appear transitory. As soon as the Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 government releases the financial brakes, an import buying spree would swing the trade account once again into the red. Wage and public finance reform are needed, government economists contend, before Italy can attain stable growth. (U) In recent months, a study published by an Italian bank (Credito Italiano) has touched off criticism of the government's analysis. The critics argue that the turnaround in Italian foreign accounts has been too sharp and too prolonged to be explained by cyclical forces. They maintain that a structural shift has occurred, a permanent lowering of the propensity to import. According to this line of reasoning, business firms have developed import substitution measures and have switched to energy-saving production techniques. Backers of the second theory contend that Italy has been more successful than other major industrial countries in this adaptation process due to greater reliance on small, flexible firms. Since the improvement in the foreign accounts is here to stay-these dissenters argue-the government has ample freedom to reflate. (U) Available data are insufficient to confirm or refute the structural-shift theory. F conometric tests have produced inconclusive results. Nonetheless, the theory has given powerful intellectual ammunition to opponents of the government's stabilization program. Industrialists are advocating a return to fast growth through the diversion of some available foreign exchange from rapid debt repayment to finance imports of capital goods and industrial materials. Similarly, the unions are insisting that Rome not follow the West German practice of accumulating exchange reserves. They especially favor more spending to finance job-creating investment and economic development in the Mezzogiorno. (U) Treasury Minister Filippo Pandolfi-author of the three-year plan for the gradual economic alignment of Italy with the rest of Europe-recognizes the irony of his present situation. The austerity measures Pandolfi sponsored in 1976-77 have succeeded so well in rectifying Italy's international payments situation that some of the pressure for seeking longer term solutions to inflation /growth problems has dissipated. Enactment of his new plan will require difficult choices by all the political parties. Historically, foreign exchange crises have been the only stimuli potent enough to turn the attention of Italian leaders away from political machinations and toward economic reform. (C) The Italian current account should make another strong showing in 1979. Slippage on trade almost certainly will be offset by gains on invisibles, with tourist receipts continuing to rise. (U) Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 As the economy picks up, import volume-propelled by inventory buildups-is likely to register a sizable increase. A rise in OPEC oil prices will hike the oil import bill. New labor contracts slated to be negotiated this winter for more than five and one-half million workers will bring higher wages and probably shorter hours. In the short run, as negotiations become more heated, strikes and worker rallies are likely to multiply, causing a reduction in output and exports and a switch to non-Italian sources of supply. Furthermore, the government's continued inability to stem increases in transfer payments to state enterprises, local governments, and welfare groups will add fuel to inflation. In short, some erosion of Italian export competitiveness appears unavoidable in the absence of lira depreciation. (C) Participation in the proposed European Monetary System (EMS), which will tie the lira to the French franc and the currencies already in the European joint float, could also have a negative effect on next year's current account performance. In recent years, Italy has been able to preserve export competitiveness by allowing the lira to depreciate against the currencies of most trading rivals. For example, the lira has lost more than half its value against the deutsche mark since March 1973, when the Smithsonian system of exchange rate parities was abandoned. (C) (Confidential) WORLD RICE: ADDING TO THE GRAIN SURPLUS (U) Increased acreage and generally favorable weather worldwide will likely bring world rice production to 380 million tons for the 1978/79 crop year, an increase of about 3 percent over the 1977/78 crop year.* (C) The abundant harvest expected in major rice consuming countries should reduce import demand and keep prices weak. In turn, rice stocks will likely rise to a record level, adding further to already ample supplies of grain worldwide and causing problems of storage and surplus disposal in several countries. (C) Record Production Again Most of the increase in world production is occurring in the Asian rice bowl region where favorable monsoons and below-average pest infestation have boosted yields. Record rice harvests are forecast for India, the Philippines, Burma, South * Rice production figures are on unmilled basis. All other data are on a milled basis. The crop year for rice is the period 1 August - 31 July. (U) Approved For Release 2002/05/07 : CIA-RDP80TOO702A?01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Total .............. ....._..... 349.1 369.0 380.0 China ..... .......... _........... .__..... ......... ...._..... ....... .... ............ 125.5 129.0 132.0 India ........ _ ....................... _................................... ............. 64.2 79.1 80.3 Indonesia ....... ......... ._.... .........................................._._........ 23.3 22.8 26.0 Bangladesh ..................... _........................... ................ ....... . 17.9 19.5 19.5 Japan .......... _.._ ........ ...... .......................... .._................... ........ 14.7 16.4 15.7 Thailand ....... ............. ........................ ......_....... ...... ...... 15.8 15.0 15.5 Vietnam ........... ......... ............. ............ ......_....... ............. 12.0 11.2 10.7 Burma ........ ...... _ .................................................................... 9.3 8.8 10.0 South Korea .__...... ._.._._............ .................... .._............... 7.2 8.3 8.4 Brazil ................ ........... ........................................ .... 8.0 7.5 8.4 Philippines .......................... ....... .............................. 6.5 6.8 7.0 United States ....................... _..................................._.......... 5.4 4.5 6.5 Pakistan ........ ................ .......__....................................._........ 4.1 4.4 4.3 Soviet Union ..... ........... ........................................................ 2.1 2.2 2.3 Sir Lanka .............. ........ .................................... ..... .......... 1.5 1.8 1.8 Colombia ....._..._..........._................... ................................ 1.5 1.3 1.6 Italy _._ _ ._......... ..._......... ....... ......... ...._.._.... ._...... ... 1.0 0.7 1.0 Australia .................. ..._ .................... ....................... ...... 0.5 0.5 0.6 Laos .......... ................. ...... ...................... ............................... 0.9 0.5 0.5 Other ..... ............... _._...................... ..... ........... .......... ............ 27.7 28.7 27.9 Figures are on an unmilled basis; crop year runs from 1 August to 31 July. Preliminary. Forecast. Korea, Sri Lanka, and Indonesia. Production in the People's Republic of China is also expected to reach a record level despite some drought problems with late rice. Unfavorable weather has reduced production in Vietnam, Laos, and Cambodia. Total production in the Asian rice bowl region, which accounts for more than 85 percent of the world harvest, is expected to be up 2.5 percent. (C) An increase of 36 percent in acreage and favorable growing conditions have led to a record US rice harvest of 6.5 million tons, up 44 percent from 1977/78. Higher support prices and a return to more favorable weather are expected to boost production in Colombia and Brazil. Small gains are also expected in Australia and the Soviet Union, and Italian production has recovered to a more normal level as the result of favorable weather. (U) Consumption Up, Trade Down Ample supplies of rice at moderate prices combined with continued population Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 growth in Asia will push consumption to a new record of about 240 million tons, A growing demand for wheat in several Asian countries, especially Japan and Sri Lanka, has diverted some growth potential in rice consumption. Nonetheless, strong demand from Middle Eastern OPEC countries and increasing demand from urban areas in West African countries will keep growth in world consumption ahead of last year's rate. (U) World trade in rice in calendar year 1979 is expected to decline 600,000 tons from the 9.1-million-ton level estimated for 1978. Import demand is expected to drop in Asia as a result of increased production in four major importing countries. Indonesia, the world's largest importer, is expected to import only 1.5 million tons, 21 percent less than in 1978. A large rice carryover and the record harvest could result in even lower Indonesian imports than currently estimated, Other countries expected to trim imports as a result of good harvests are Sri Lanka (by 125,000 tons) and Malaysia (by 300,000 tons). Import demand by Bangladesh will probably remain low as a result of a record harvest and the receipt of wheat from aid donors. India and the Philippines, formerly net importers, are again not expected to purchase rice; in calendar year 1979 each may even export 200,000 tons. (U) Import demand for rice elsewhere in the world is expected to register a small increase. An additional 250,000 tons of imports may be required to meet consumption increases in Africa and the Middle East. The major uncertainty clouding this outlook is the Iranian situation where import demand was expected to account for one-fourth of the increase. A continuation of the present popular unrest and further port congestion could sharply reduce Iranian import capabilities and cut the demand for US rice. (U) Production shortfalls caused by heavy rains and flooding have reduced the availability of rice for consumption in Laos, Cambodia, and Vietnam. Laos and Vietnam together will probably have to import a minimum of 500,000 tons of rice to meet domestic shortfalls. Total imports will be lower than requirements due to hard currency constraints and the substitution of cheaper wheat for rice. The majority of imported rice will come as food aid or concessional sales. Cambodia will be forced to limit its small rice exports and domestic consumption. (U) Export supplies of rice are more than adequate to meet import demand in contrast to the situation a year earlier. Thailand's agricultural sector has recovered from a drought and should furnish 300,000-400,000 tons more than the 1.5 million tons exported in 1978. Burma should also have an additional 200,000 tons available for export while Chinese exportable supplies will likely remain the same due to problems with the late rice harvest. US supplies will be up almost 2 million tons, and availabilities from Italy and Brazil will also be larger. (U) Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 12.1 12.3 0.3 0.2 t.i t 1.8 31 19.0 0.9 United States 14.6 I Estimate for beginning of marketing year. Data based on aggregate of different local marketing years and not representative of a specific point in time. Does not include China. Unclassified '~I9q.a 12-08 The record rice harvest and ample world supplies of other grains will push rice inventories to a record level of about 25 million tons * at the end of the current crop year. The high level of world stocks and reduced trade prospects will keep prices 15 December 1978 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Stocks: Rice, Anyone? Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 under downward pressure at least until next year's harvest conditions are known. Prices for quality US rice have dropped to $340 per ton compared with more than $400 per ton for the first eight months of 1978. (U) Burdensome rice stocks have presented serious storage and disposal problems for several countries. India, after four successive years of good grain harvests, has little in the way of unencumbered quality storage facilities and may lose considerable quantities of rice to pests and spoilage. Storage space in Sri Lanka is also short after two successive record harvests and large imports in 1977/78. In an effort to alleviate its storage problem, Sri Lanka has attempted to export rice for the first time in over 200 years. The rice has been of such poor quality that sizable export sales are not likely. (U) Japan's huge stocks of rice have created a disposal problem. Subsidization of production and declining domestic consumption have stuffed Japanese storage bins with 6 million tons of rice, three times the desired carryover level. Favorable weather boosted yields this year after Japanese administrators were successful in reducing rice acreage. The Japanese Ministry of Agriculture, Forestry, and Fisheries must now initiate a program to dispose of 4 million tons of surplus rice over the next five years. One-half of the surplus will probably be allocated to domestic feed use and 40 percent will be exported as food aid. The program will likely result in reduced demand for US feedgrains, and aid donations will further reduce commercial markets for rice exporters. (U) US rice stocks will reach a new record at the end of the 1978/79 crop year. With US rice exports currently projected at 2.1 million tons by the United States Department of Agriculture, stocks by next July will have doubled to a level of 1.8 million tons. This level is 500,000 tons greater than the previous record carryover of July 1977. (U) (Confidential) Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 25X6 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Next 1 Page(s) In Document Exempt Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 CHILE: REFORM PROGRAM REVITALIZING ECONOMY (C) The Pinochet government's thoroughgoing economic reform program has re- versed Allende's socialist revolution and transformed Chile into a market-oriented, free-trade economy. Santiago has restored economic growth, broken hvperinflation, and at least temporarily eliminated payments problems. Industry and agriculture are becoming more internationally competitive, the country is now living within its means, and overriding dependence on copper exports has been greatly reduced. With US hankers and businessmen in the vanguard, growing international business confi- dence in the junta's program has paved the way for new loans and new direct investment, enabling the junta to relax austerity policies that have hit hard at the poor. (C) The US Letelier investigation, possible armed conflict with Argentina, and/or the Regional Inter-American Labor Organization's planned boycott of Chilean products could trigger international payments problems in 1979. Nonetheless we expect the economic gains and structural improvements of the reform program to continue apace. 'l'o maintain economic growth in the 6-percent to 7-percent range beyond next year the Chilean junta must take steps to boost domestic savings and investment from their still relatively low levels. (C) The Chilean economy has recovered from the chaos of the last years of the Allende government. Comprehensive economic reforms along with stringent austerity treasures have brought inflation under firm control, restored Chile's economic credit rating, and fostered economic growth: ? Inflation is down from triple-digit levels in the mid-1970s to 30 percent in 1.978. ? The external accounts will post a $500 million surplus this year compared with the $100 million deficit recorded in 1973. ? Real economic growth in 1978 will hit about 6 percent in contrast to a 4-percent decline in 1973. (C) Reform Program The junta reform program has touched every aspect of the economy. The it(," economic authorities-a group of orthodox economists known as the "Chicago Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Cost of Living Percent Change- Dec./Dec. 400 360 280 200 120 40 0 Real GDP Growth Percent Change 10.0 r--- 7.5 5.0 2.5 0 -2.5 -5.0 -7.5 Unemployment Rate (Santiago) Percent at Yearend 20I --------~_-. - Real Wages Index:1974=100 200x----- - 120 100 80 40 0 Agricultural Production Index: 1973/74=100 125 100 75 Industrial Production Index: 1974=100 Government Surplus or Deficit Percent of GDP Average Tariff Levels Percent Gross International Reserves Billion US $ 76 77 781 792 1. Estimated 2. Projected Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Boys"-restructured the economy along free-market lines. Prices of industrial pro- ducts were decontrolled to encourage production and eliminate black markets. At the same time, wage increases were restrained and strict labor discipline imposed. Agricultural production was boosted by ending land reform, returning expropriated farmlands, freeing crop prices, and implementing technical assistance programs. To reduce state involvement in the economy, the government sold off most nationalized Firms to private investors. Policymakers slashed government spending, eliminated oluust subsidies for public enterprises, and revamped the tax collection system. Monetary expansion was curtailed drastically. Capital markets were rehabilitated by eliminating interest rate controls, indexing financial instruments, and reducing public sector borrowings. (C) The military government also reestablished Chile's interuational credit rating and unproved its international payments position. To regain the confidence of foreign vrivestors, Santiago compensated the foreign owners of expropriated copper holdings and has met the $1 billion annual debt service obligations since 1976. The government has unified the multiple exchange rates to eliminate implicit export taxes and import subsidies. Nontraditional exports have been encouraged by revoking exchange con- trols, devaluing the peso in line with relative rates of inflation, rebating value-added taxes on overseas sales, and expanding export promotion efforts. Barriers to foreign direct investment were dropped, and Chile withdrew from the Andean Pact in late 1976 to free itself from restrictive regulations on this investment. (C) Santiago also moved to revitalize the industrial base and to generate new jobs. Productive efficiency in the industrial and agricultural sector was fostered by opening Chilean markets to foreign competition through a program of dismantling import controls and reducing tariff barriers. To encourage expansion and modernization, policymakers introduced accelerated depreciation, eliminated restrictive labor legisla- tion, and encouraged cooperative producer associations. Since 1976, the economic authorities have channeled subsidized investment credits into fishing, forestry, agriculture, and copper-sectors in which Chile has the greatest comparative advan- tage. Earlier this year, commercial banks were permitted to make medium-term loans, increasing the availability of investment credit for the private sector. (C) Progress to Date Before the reform program could take hold, Chile's precarious payments position was further damaged in late 1974 by the 40-percent plunge in average copper prices and the quadrupling of oil import prices. To prevent a runaway deficit, the military government implemented harsh austerity measures. During 1975, industrial produc- tion fell 23 percent, real CDP declined 11 percent, inflation hovered at 340 percent, and unemployment doubled to 19 percent. Since mid-1976, the junta reform strategy plus a cautious easing of austerity have spurred a coordinated recovery. (C) Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Domestic Economy Growing Chile has managed strong economic gains for three successive years. Real growth is estimated at 6 percent this year after jumping 8.6 percent in 1977 and 4.1 percent in 1976. The industrial sector is leading the advance. Industrial production has increased 32 percent since 1975, reflecting the recovery in manufacturing and a rebound in construction. Agricultural output rose 30 percent in 1976-77 because of increased plantings and improved yields, but dropped 6 percent this year partly because of bad weather. (C) As a result of tight fiscal and monetary policies, price increases have slowed to an annual rate of 30 percent, compared with 64 percent last year and 174 percent in 1976. The budget deficit, which totaled 23 percent of GDP in 1973, has been virtually eliminated, while the real growth in the money supply has been held to a 20-percent annual rate since 1976. Competition from imports and the stretching out of automatic wage adjustments have also contributed to the reduction in the rate of inflation. (C) Paralleling the upturn in economic activity, employment has risen by 6.7 percent yearly since 1975. Unemployment in Santiago has fallen to 14 percent from the March 1976 high of 19.8 percent. Real wages, which plummeted 23 percent during the 1973- 75 period, have now climbed to 45 percent above the 1976 level. (C) Payments Position Improved Although official loans fell off in protest against the junta's human rights practices, growing private capital flows have enabled the Chilean regime to avoid payments problems since 1976. Resumption of loans and direct investments by banks and businessmen this year will increase capital inflows to an estimated $2.1 billion, compared with $1.4 billion in 1977. On the strength of its refurbished international credit rating, Chile is tapping world money markets for $1.5 billion in loans this year to extend its debt maturity structure and to build reserves. Last month, for example, Manufacturers Hanover raised $370 million for the Central Bank in the form of a 10- year credit at 11/s percentage points over the London Interbank Rate. US banks-Citi- corp, Morgan Guaranty, Chase, Chemical-are underwriting the bulk of the syndicat- ed credits and providing a substantial share of direct loans. US financial institutions held an estimated 45 percent of Chile's foreign debt at yearend 1977, and the share has increased this year. (C) Growing confidence in the junta's ability to manage the economy has also led to an expansion of direct foreign investments. Since 1976, policymakers have approved an estimated $3 billion in new foreign investment projects. Known direct investment will total about $150 million in 1978; US corporations accounted for approximately 80 percent of this total. The $110 million purchase of the Disputada copper mine by Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Chile: Balance of Payments Million ITS $ 1974 1975 1976 1977 1978' 1979 Current account balance -214 -578 164 -496 -750 -790 Trade balance 230 -203 491 -111 -280 -360 Exports, f.o.b. 2,243 1.571 2,072 2,186 2,320 2,500 Copper 1,716 850 1,238 1,159 1,060 1,150 Other 527 721 834 1,027 1,260 1,350 Imports, c.i.f. 2,013 1,776 1,581 2,297 2,600 2,860 Net services and transfers -444 -373 -327 -385 -470 -430 Interest payments -272 -284 -310 -336 -396 -372 Capital account balance -402 71 318 511 1,230 370 Debt amortization -596 -747 -680 -842 -850 -930 Capital inflows 463 797 991 1,353 2,08(1 1,500 Direct investment -538 -4 0 22 150 150 Commercial credits 131 492 538 726 1,500 1,000 Official credits 870 309 453 605 430 350 Errors and omissions -269 21 7 0 0 0 Debt relief 560 232 tl 0 (1 0 Change in reserves -56 -275 482 15 480 -220 Estimated. Projected. Including compensation for nationalization. Exxon Minerals International represents the largest US investment, while Goodyear Tire, Diamond Shamrock, and Atlantic Richfield have made smaller acquisitions. European firms have made several investments in manufacturing, Canadian compan- ies are prospecting for new copper deposits, and Japanese interests have invested in the fishing industry. (C) Despite the 14-percent decline in copper earnings since 1976, Chile's exports have increased 12 percent to $2.3 billion in 1978. Shipments of noncopper products-such as fruits, lumber, fish, pulp, and wine-have increased 51 percent since 1976. Export gains and the increased inflow of foreign credit have enabled Santiago to relax austerity programs. As a result, imports have increased by 64 percent since 1976, to an estimated $2.6 billion. US exporters, the country's largest suppliers, have not kept pace with these gains; their trade share declined to 20.9 percent in August 1978, compared with 23.8 percent in December 1976. A sharp falloff in US agricultural sales was only partially offset by gains in shipments of machinery and consumer goods. (C) Structural Changes Economic reforms are slowly introducing structural changes that should enhance Chile's future growth. Tariff reductions programs are fostering industrial efficiency. Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 The industrial sector, coddled behind protective tariffs since the 1930s, now produces only 25 percent of real GDP, compared with 31 percent in 1973. To survive the industrial shakeout, firms have cut their workforces, adopted new technology, and improved management. Despite fierce competition from imports, industrial produc- tion in most sectors has recovered to historic highs. Exports of industrial products increased from 10 percent of industrial output in 1973 to 23 percent in 1977. (U) The interplay between market and government incentives is encouraging the growth of Chile's agriculture. Agricultural production has shifted away from tradition- ally subsidized crops-sugarbeets, barley, rapeseed-to more profitable items such as fruits, vegetables, meat, and dairy products. As a result, Chile is now a net exporter of foodstuffs, with a surplus of about $40 million this year compared with the $470 million import deficit recorded in 1973. (C) Government modernization programs coupled with incentives to foreign investors are revitalizing the mining sector despite low world copper prices. In particular, these efforts have enabled Chile to increase mine production from installed mine capacity while improving the efficiency of mining operations. Since 1975, the Chilean Copper Corporation, the state firm that manages the large mines, has invested about $300 million in new equipment and cost-reduction technology. As a result, copper production increased from 735,400 tons in 1973 to 1.06 million tons in 1977, the recovery of byproducts has risen, and production costs have declined. Moreover, the liberalized foreign investment climate is spurring renewed foreign interest in develop- ing Chile's copper reserves, about 20 percent of the world total. In 1977, for example, a US-Canadian consortium spent $5 million in studying the feasibility of developing the Quebrada Blanca copper deposits which will require a minimum of $500 million to bring into production. (C) New export policies are sparking the growth and diversification of the export base. During the past five years, Chile has tripled the number of commodities sold abroad and has established new markets, especially in the Third World. Latin America, for example, now accounts for 30 percent of Chile's exports compared with only 12 percent in 1973. Chilean exporters have also established a toehold in the OPEC countries, Africa, and the Far East. As a result, dependence on copper revenues declined from 81 percent of exports in 1973 to 53 percent in 1977. Even if coppper prices in 1977 had equaled historic averages, copper would have accounted for only 63 percent of total exports. (U) Government austerity and new taxes are greatly increasing the public resources available to help finance new investment. Introduction of a value-added tax, indexation of tax liabilities, and a crackdown on tax evasion have doubled government revenues since 1973. These measures have been sufficient to cover public sector Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 consumption and generate savings equal to 7.7 percent of GDP in 1977. About one- half of these savings are being channeled into private sector projects such as agriculture and copper. Commercial loans have quintrupled since December 1974 in response to increasing confidence among private entrepreneurs, the fall in monthly interest rates from an average of 16 percent in 1975 to about 5 percent this year, and a gradual easing in reserve requirements. Chilean corporations have also found foreign capital markets receptive to medium- and long-term credits necessary to finance industrial expansion projects. (C) Continuing Troublespots The poor and the workers, who have borne the brunt of the stabilization program, still represent a source of potential social and economic unrest. The abandonment of price controls has raised the cost of essential goods, while tariff reforms and austerity measures have helped to keep unemployment at a high level. Moreover, a study by the t niversity of Chile indicates that real earnings of miners, utility workers, and government employees has not yet regained 1970 levels. The Pinochet regime is forestalling social unrest by restricting political liberties, maintaining strict labor discipline, implementing a public works employment program, and increasing spending on social services for the poor. (C) Labor trouble has flared this year, however. Since July, blue-collar workers have been demanding higher wages to recoup lost purchasing power. At the end of July, laborers at the Chuquicamata copper mine protested the erosion of wages and benefits and the absence of trade union freedoms. Workers at the other large copper mines, at the Huachipato steel complex, and at the Lota coal mines followed their example. Despite some economic concessions, the government has taken a hard-line approach toward labor. In October, for example, the junta dissolved seven trade union federations and announced a general election to replace all incumbent union leaders. In the longer term, a new crop of inexperienced labor leaders could cause trouble by making unrealistic wage demands if the government honors its pledge to restore collective bargaining next year. (C) Inadequate domestic savings and the consequent sluggish rate of new capital formation are worrying policymakers. The low rate of total fixed investment, 11 percent of GDP last year, is primarily the result of (a) the low level of private domestic savings and (b) the still small contribution of foreign capital, an estimated 3.2 percent of GDP in 1977. The sluggishness of new investment will pose a less serious constraint to economic growth in the short run because of the availability of considerable unused industrial capacity. Unless domestic savings can be greatly increased, however, Chile over the longer period will have to depend increasingly on foreign capital to sustain growth and prevent substantial increases in unemployment. (C) Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 If Santiago can maintain labor peace and defuse international tensions, the Chilean economy should manage another year of solid economic gains. We expect real growth to increase by 7 percent in 1979, led by continued growth in manufacturing output, further recovery in construction activity, and a rebound in agricultural production. Inflation should fall to 20 percent, and the rate of unemployment should dip below 13 percent by yearend. (C) Labor will continue to press for higher wages and fewer restrictions. Strikes are unlikely in the next several months because of government controls. Moreover, new concessions to labor demands should calm growing worker restiveness. This month, for example, the government decreed a 12-percent salary increase for Chilean workers. This should add only marginally to inflationary pressures. (C) Chile's external payments position will likely deteriorate next year. Anticipating this development, policymakers have nearly doubled gross reserves of international exchange (to $1.5 billion). These measures are intended as precautions against the Chile: External Debt 1974 1975 1976 1977 1978' 19792 Million US $ External debt ........... ..... ................. 4,774 5,263 5,195 5,434 6,100 6,400 Debt service payments .................. 868 1,031 990 1,178 1,246 1,300 Estimated. 2 Projected. possibility of (a) a clash with Washington over the Letelier investigation, (b) an armed conflict with Argentina over the Beagle Channel, and (c) a $150 million loss in export earnings because of the recently announced boycott of Chilean products by the Regional Inter-American Labor Organization. (C) We expect that Chile's gross financial requirements will total $1.7 billion in 1979, up 8 percent over 1978. The trade deficit will probably widen to about $360 million, compared with $280 million this year, as economic recovery spurs increased imports while the international boycott limits export gains. Debt servicing costs should total about $1.3 billion, an increase of 4 percent compared with 1978. Despite higher Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 capital investments, foreign borrowings are unlikely to match last year's level. Chilean entities have rushed to complete major syndications this year, and apparently only a few small credits remain in the international pipeline. Policymakers will therefore have to draw down accumulated reserves to finance the payments gap. (C) (Confidential) COBALT: US DEPENDENCE ON OUTSIDE SUPPLIES (U) Despite the rise in US consumption of cobalt, persistent production problems in Zaire, and generally tighter worldwide supplies, we estimate that the United States will be able to meet its 1979 needs for cobalt out of current global production and will not have to dip into government reserves (now at a two-year level). Aside from scrap, the United States relies on imports for all its cobalt-a critical vulnerability since cobalt is an often irreplaceable element in the high-temperature parts of jet engines and turbines and in cutting tools. (U) Key Industrial Applications Cobalt is one of the few critical metals, denial of which would severely impede output of a wide range of important industrial products. It is nearly irreplaceable in an estimated 60 percent of its applications: ? Jet engine parts-Superalloys of up to 65 percent cobalt provide resistance to stress and high temperatures. ? Tools, dies, and drill bits-Cobalt imparts wear and abrasion resistance. ? Wellhead and pipeline valves and seamless tubing--Alloys of up to 35 percent cobalt are vital for hardness, corrosion resistance, and protection against abrasion and heat buildup. ? Chemical processing-Cobalt serves as a catalyst in petroleum hydrogena- tion and as a drying agent in paints. (U) Particular Significance to the United States Cobalt has been designated as one of two critically important minerals that pose serious supply problems to the United States. (Chromium is the other.) The Mineral Review Committee of the President's Nonfuel Minerals Policy Study in October 1978 noted that: Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 ? At present the United States has no cobalt reserves (that is, identified and economically mineable deposits). Taking into account recovery from scrap, the United States is 97-percent import reliant. ? Up to 80 percent of current US supply originates in Africa (in 1977, 65 percent from Zaire, including 22 percent transshipped through Belgium for further processing, and 13 percent from Zambia); Africa accounts for about 45 percent of world output ? Zaire and Zambia possess nearly 40 percent of the world's cobalt reserves. ? Cobalt is of critical importance to US national defense due to its use in high-temperature parts of jet engines and turbines and as a vital ingredient in cutting tools. In these applications, a suitable substitute for cobalt often cannot be found, especially where ultrafine cobalt powder is a necessity; the United States relies on Belgium for some 80 percent of its requirements of cobalt ultrafine powder. (U) US Demand Increasing US consumption of cobalt, about 8,000 metric tons in 1977, has increased in response to expanded demand from the aircraft industry for superalloys containing cobalt. We estimate that 1978-79 demand will range between 8,500 and 10,000 tons annually, or roughly one-third of total non-Communist demand for cobalt. The USSR, which normally is almost self-sufficient in cobalt, together with the other European Communist countries consume a total of 6,000 to 7,000 tons annually. (U) US Supply and Stockpile Situation Despite the increasingly tight worldwide cobalt supply, the 200 to 300 firms that account for US cobalt consumption have managed to expand operations. Even with intensified pressure on supply following the May 1978 invasion of Zaire's Shaba Province, US users of cobalt were able to obtain needed supplies through supplemental purchases on the "free" or "gray" market which consists of small independents and speculators. Prices for small-lot free market sales of cobalt have soared from $6.85 per pound prior to the Zaire invasion to an estimated $50 per pound at present. The official producer price over the same period has tripled to $20 per pound and probably will go higher. (U) US manufacturing firms have experienced little difficulty passing these stiff price increases to their consumers because the added cost of cobalt is only a small fraction of the final product price. For example, tripling the price of the 200 pounds of cobalt Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 used in a JT-9 jet engine adds less than 0.2 percent to the $2 million final product cost. (U) No one knows precisely how much cobalt is held in the inventories of US merchants and processors. The best guess, based in part on consumer stocks reported to the US Bureau of Mines in August, is the total commercial supplies do not currently exceed one or at most two months' requirements. Small quantities also are held by US dealers in various free ports outside the continental United States. US cobalt consumers are trying to husband these stocks through economies of one form or another-for example, cutting unit usage and saving scrap for reprocessing. Some are taking the ultimate step of replacing cobalt with other metals, but this takes time, involves exceedingly high costs, and does not always give fully effective technical results. (U) Ultimately, if the United States faces shortages sufficient to warrant a Presidential decision that the national security is endangered, supplies would be doled out from US strategic stocks. These stocks, equal to approximately two years' consumption at 1978 levels, were acquired several years ago and probably would require some reprocessing to meet present specifications. (C) Outook for Continued Tight Supply We believe that the world cobalt supply will remain tight over the next year or two, given the likelihood of nagging production problems in Zaire. We assume that the fragile security now maintained in Zaire's cobalt/copper mining belt will continue and that, if insurgents make occasional forays into the area, they will spare vital cobalt facilities such as the refineries in Liulu and Likasi. (C) Zaire's cobalt industry did not sustain any appreciable physical damage during the 13 May invasion; output resumed shortly thereafter at near or slightly above the immediate preinvasion level. Loss of the 400 or so foreign (mostly Belgian) specialists did not prove to be as serious a problem as forecast by earlier field reports, due in part to the redundancy of many expatriates and also to the exceptional efforts by the Zairian work force to demonstrate a go-it-alone capability. Even the Zairians, however, recognize that additional technicians are needed now to cope with inadequate maintenance, shortages of spare parts, and aged equipment. Purchases of spare parts-a chronic but increasing problem-have been restricted by government limitations on the foreign exchange made available to GECAMINES, the state company responsible for operating and financing the cobalt facilities. An estimated $100 million is needed now to replace major equipment and to provide the required inventory of spare parts. Even if orders were placed immediately, however, deliveries would stretch out over a year or more. In the interim, production problems would Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 continue; in the absence of these expenditures, such problems will reduce recent levels of output. (C) The shortfall in Zairian cobalt output next year is not expected to precipitate a global supply crisis. Production in other countries could rise by 5,000 tons. Zambia alone is planning to expand output by about 2,000 tons, roughly doubling its current production rate. Other anticipated increments to 1979 output include: Norway, 500 tons; Finland, 500 tons; Canada, 770 tons; South Africa, 160 tons; and Japan, possibly 1,000 tons (using ores from the Philippines). (U) (Confidential) MALAYSIA: STEADY GROWTH AHEAD FOR MANUFACTURED EXPORTS (U) With exports of manufactured products continuing to rise this year, Malaysia will join an exclusive group of LDC exporters whose annual sales of manufactures top $1 billion. Malaysia ranks eighth among LDC exporters, ahead of the Philippines and Thailand but well behind such middle-tier exporters as Singapore, India, and Brazil. Plentiful and inexpensive labor, a rich natural resource base, and government encouragement have enabled manufactured exports to grow at an impressive 38 percent annually in the 1970s. These gains have been based largely on the export of transistors and other semiconductors, phonograph and radio parts, wood manufac- tures, and clothing to OECD markets.* (U) Despite some slowdown in total export growth over the next several years, Malaysia should continue to do well in selected markets. By the early 1980s exports of manufactured goods almost certainly will approach the $2 billion mark, as the government continues to capitalize on wage rates below other Asian LDC manufactur- ing centers. Moreover, Kuala Lumpur is taking a pragmatic approach toward implementing its policy of "Malayanizing" the economy to sustain inflows of foreign investment in manufacturing. (U) Export Dynamics Export growth in the 1970s stems from economic policy decisions taken after Singapore's separation from the Malaysian Federation in 1965. At that time the Malaysian Government viewed development of export-oriented manufacturing indus- tries as a means (a) cushioning fluctuations in export earnings of raw materials; (b) reducing the historic dependence on Singapore for processing and upgrading Malay- * Export data in this article include the large volume of semiprocessed tin exports which distort underlying trends in manufactured exports. Tin exports amounted to $760 million in 1977. (U) Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Malaysia: Commodity Export Trends Dollar Value Index: 1974=100 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 sia's raw materials; and (c) creating employment opportunities for a rapidly growing and increasingly youthful labor force. Serious anti-Chinese riots in 1969 by native Malays spurred the government to greater efforts to accelerate economic growth. In 1970, Kuala Lumpur enacted the Industrial Coordination Act to increase the stake of native Malays in the economy; the government hoped to raise the overall share of Malay ownership from the then existing 3 percent to 30 percent by 1990. In 1971-75, Malaysia established five Free Trade Zones to encourage investment in manufacturing and to create job opportunities for the growing labor force. Malaysia has also periodically improved the benefits to business enterprises provided under the Investment Incentive Act of 1968. (U) The government's success is witnessed by the rise in manufactured exports from $100 million in 1970 to almost $1 billion in 1977. In the process, Malaysia has broadened its manufactured export product mix to include transistors and other semiconductors, phonograph and radio parts, and watches and automatic control devices in addition to processed raw materials. Consumer goods accounted for more than 30 percent of the overall gain in manufactured exports since 1970, transistors and other semiconductors 40 percent, processed raw materials (mainly wood and rubber products) almost 15 percent, and capital goods and miscellaneous items about 15 percent. (U) Malaysia: Leading Manufactured Commodity Exports Total ......................................................... 100 940 38 Transistors and other semiconductors 5 328 82 Watches and automatic controls ...... 2 143 84 Wood manufactures 29 126 23 Textiles ............................................... 5 64 44 Clothing ............................................... 5 62 43 Nonelectric machinery ........................ 12 58 25 Transport equipment .......................... 11 46 23 Chemicals .............................................. 12 35 16 Rubber products ............ ........_.... ........ 5 20 22 Footwear ................................................ 2 16 35 Other .................................................. 12 42 20 ' Estimated. 2 Average annual rate. Manufacturing in Malaysia runs the gamut from labor-intensive assembly operations to capital-intensive heavy industrial production such as oil refining and steel manufacturing. Much of export manufacturing in such fields as radios and Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 electric appliances consists of labor-intensive assembly of imported parts into finished products. Likewise, Malaysian workers in electronic factories in the Free Trade Zones assemble imported integrated circuits and other parts into calculators and other consumer products. (U) In the 1970s, OECD countries have replaced Asian LDCs as Malaysia's largest market for manufactured exports. Foreign sales to OECD countries increased from $32 million in 1970 to nearly $600 million in 1977, largely the result of increased sales of semiconductors, phonograph and radio parts, and consumer goods to the United States, West Germany, and Japan. Still, Malaysia holds only a small share of the OECD market, providing 0.3 percent of manufactured imports in 1977. Exports to LDCs go mainly to other East Asian countries, especially Singapore and Hong Kong. (U) Malaysia: Destination of Manufactured Exports (Million US $) (Percent Growth) Z World ..... .............. __........... _._............... 100 940 38 OECD ......... _...... _.......... _ ............... 32 589 52 United States ............. ___ 14 277 53 Japan ..... 5 57 42 Australia 1 35 66 EC ...... _..... ............. __._._ .......... ._. 11 185 50 West Germany .--._...... _ Negl 71 United Kingdom ......... ._.............. 10 54 27 France ......... ........... _.... _..... Negl 25 Other ....,... .._. _._..........___..__..... 1 35 66 Other 1 35 66 LDCs ............. 67 350 27 OPEC .. ... ........ . 8 47 29 Asian ....... _...._,__.._....._ ................. 57 291 26 Singapore ___ _.......... ... 42 205 25 Hong Kong _.......... _.___.......... .... 5 42 36 Other _ ......... ........._...__..... 10 44 24 Communist Countries .__.. _.... ..... 1 1 0 Estimated. Average annual rate. Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 The United States is Malaysia's leading customer for manufactured exports. Led by sales of transistors and other semiconductors, wood manufactures, and phonograph and radio parts, exports of manufactured goods to the US market reached almost $280 million in 1977. Malaysia has done exceptionally well in exporting semiconductors, raising its share of the US import market from zero to 4.9 percent since 1970. As for phonograph and radio parts, Malaysia holds a 0.6-percent share of the US market, up from zero in 1970. Overall, Malaysia's share of the US import market in manufactures has grown from 0.1 percent in 1970 to 0.5 percent in 1977. (U) Malaysia: Major Commodity Market Penetration, 1977' Share of Import Market (Percent) Transistors and other Semiconductors 4.9 2.4 I Phonograph and Radio Parts 0.6 1 Watches and Automatic Controls 0.4 Clothing 10.4 Wood Manufactures 1.5 Transistors and other Semiconductors 1.1 . Clothing 0.7 Watches and Automatic Controls 0.6 ' Footwear 0 .3 Wood Manufactures 4.6 Phonograph and Radio Parts 1.9 Transistors and other Semiconductors 1.8 Textile Fabrics, Yarn 0.7 Watches and Automatic Controls 0.6 Wood Manufactures 5.3 Footwear 3.1 Transistors and other Semiconductors 1.8 Phonograph and Radio Parts 1.1 I Textile Fabrics, Yarn 0.6 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Manufactured exports to the EC reached $185 million in 1977. going mainly to West Germany and the United Kingdom where Malaysia has a 0.4-percent share of the import market. * Like several other LDCs. Malaysia has found that penetration of the clothing and textile import markets generates strong protectionist reaction; under restrictions imposed by the EC this year, Malaysia's share of items such as knitted shirts, T-shirts, blouses, and woven shirts are limited to an overall quota of 9.5 million pieces annually for five years. Despite proximity to Japan, sales to that market amount to less than $60 million annually. (U) Sales of manufactured goods to LDCs more than quintupled to $350 million from 1970 to 1977. Singapore, Malaysia's second largest market for manufactures, took $205 million in 1977, five times the amount bought in 1970. Semiconductors, wood manufactures, and watches are leading exports to Singapore. This same group of products boosted sales to Hong Kong from $5 million in 1970 to $42 million last year. Other Asian LDCs, including the Philippines and Thailand, together imported $44 million of Malaysia's manufactured exports in 1977. (U) Competitive Factors Malaysia has capitalized on several basic economic strengths to spur exports of manufactured products in the 1970s. Rich natural resources, particularly timber, have underpinned several export manufacturing industries. A well-educated labor force of 4.5 million and competitive wage rates have also given Malaysian exports an advantage. In 1977 average hourly earnings in Malaysia of 52 cents were about 20 percent lower than earnings in South Korea, Taiwan, and Singapore. Malaysia has also benefited from its proximity to Singapore, which gives Malaysian firms access to that country's international financial and commerical connections. (U) Malaysia has seen some of its export competitiveness erode in the last three to five years. Average dollar prices of its manufactured exports have increased slightly faster than the prices of its regional competitors. Labor productivity has increased only 2.7 percent annually since 1973, substantially lower than gains achieved by Singapore and South Korea. Wages have been rising, but unit labor costs are still below costs in other * Malaysia's market share in EC countries decreases considerably when intra-EC trade is taken into account, dropping from 0.3 percent to 0.1 percent of all EC manufactured imports. Its share of both West Germany's and the United Kingdom's manufactured imports, for example, drops to 0.2 percent. (U) Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Malaysia: Selected Exports by Destination, 1976 us ;Asian LDCs Other LDCs OPEC Clothing US $ 62 Million ,-negl. negi. Machinery, non-Electric US $ 53 Million Watches and Automatic Controls US $ 138 Million Textile Fabrics, Yarn US$ 51 Million Transistors and Other Semiconductors US $ 205 Million Wood Manufactures US $ 128 Million Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Asian exporting nations. Some of the upward pressure on export prices has been offset by depreciation of the Malaysian ringgit. Since early 1975, the ringgit has depreciated on a bilateral, price-adjusted basis 15 percent against the US dollar, 14 percent against the West German mark, and 26 percent against the Japanese yen. (U) Multinational corporations have played a key role in export growth, particularly in the electronics industry, which now employs 50,000 workers. Among the leading US multinationals operating in Malaysia are Motorola, RCA, and Texas Instruments; foreign multinationals include Matsushita and the Dutch electronics gaint, Philips. The multinationals have used Malaysia as a base to supply both developed country and LDC markets; in the process, they have made Malaysia one of the major exporters of semiconductors and electronic products in the world. (U) Malaysia: Price Adjusted Bilateral Exchange Rates Index: March 1973=100 I I I II III IV Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Government Policy Kuala Lumpur has used a variety of direct and indirect incentives to spur exports of manufactured products including (a) accelerated depreciation allowances for firms exporting 20 percent or more of outputs; (b) income tax deductions for promotion expenses; (c) income tax deductions for increasing export sales that incorporate domestic materials and components; (d) export financing at preferential interest rates; and (e) substantial technical marketing assistance from the Ministry of Trade. (U) To boost foreign investment inflows, Kuala Lumpur is currently considering the sweetening of the incentives package as well as improvements in ports and inland transportation systems. In response to frequent investor complaints about red tape for new ventures, the government recently introduced procedures to make the Federal Industrial Development Authority truly a one-stop promotion agency. As part of the effort to garner new foreign investment, government trade officials this year sponsored investment conferences in the United Kingdom, West Germany, France, Denmark, and the United States. (U) Kuala Lumpur goes to great lengths to assure potential foreign investors that its policy of fostering greater participation in the economy by native Malays poses no threat to their interests. Although preferring joint ventures with majority ownership in Malay hands, the government has shown considerable flexibility toward the allowable share of foreign ownership. Indeed, it will permit 100-percent foreign ownership if the project is entirely export oriented. (C) The benefits of the Generalized System of Preferences (GSP) to Malaysia have been partially offset by recent rises in nontariff barriers, such as quotas on clothing and textiles. Even so, Malaysia is one of its important beneficiaries, particularly in US and EC markets. In 1976, $210 million worth of its manufactured exports were eligible for GSP coverage, about one-twentieth of the total benefit accruing to all LDCs. Malaysia has campaigned for increased GSP coverage of its exports. Last year, for example, it joined other members of ASEAN (Singapore, Indonesia, the Philip- pines, and Thailand) in urging the developed countries to extend product coverage, deepen tariff cuts, and liberalize rules of origin. (U) Moving Into the 1980s We expect Malaysia's manufactured exports to grow at 20 percent annually in the next few years, a pace that would raise foreign sales to approximately $2 billion by the early 1980s. Malaysia should continue to benefit from its competitive edge in labor costs; the annual entry of 150,000 young workers to the labor force, should moderate Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 wage increases over the next few years. As countries such as Taiwan and Singapore emphasize more capital-intensive industries to overcome rising unit labor costs, Malaysia stands to gain new labor-intensive manufacturing operations. Indeed, Singapore's Prime Minister Lee Kuan Yew has said that he hopes much of his country's existing labor-intensive industry moves to other East Asian countries-such as Malaysia-over the next several years because he sees little hope of remaining competitive. (U) (Confidential) USSR: IMPROVED TRADE BALANCE (U) The USSR managed to hold down its third quarter hard currency trade deficit to $400 million by boosting exports while reducing both grain and nongrain imports. We expect this trend to continue, putting trade roughly in balance in the fourth quarter. The 1978 hard currency trade deficit would thus equal the accumulative three- quarter figure of $3.4 billion. The deficit for 1979 should be lower because of reduced imports and higher exports. (U) Hard Currency Imports Soviet imports through September amounted to $12.8 billion-a 20-percent rise over the same period in 1977. A jump in grain deliveries after the disappointing 1977 harvest caused most of the increase. Fourth quarter grain imports are expected to drop sharply, reflecting in part this year's bumper crop. Nongrain imports for the first nine months were up slightly. Data from major Western suppliers show a small increase in sales of machinery to the USSR. Last year's substantial drop in Soviet equipment orders, however, points to a decline in machinery deliveries, perhaps beginning in fourth quarter 1978. (U) Hard Currency Exports Exports in the first three quarters of 1978 were $9.4 billion, 18 percent more than in the first three quarters of 1977. Except for West Germany, Soviet exports to its major Western trade partners grew little and in some cases declined substantially. Deliveries to the United Kingdom, Japan, and the United States were off 10 percent while exports to the Netherlands fell by nearly 30 percent. The year-to-year increase in exports has been slowed by stagnation in the volume of oil exports; oil deliveries in 1978 are expected to be about the same as in 1977 (1.1 million b/d). Soviet exports to Iraq-traditionally machinery and equipment-more than doubled, accounting for most of the 65 percent gain in hard currency sales to developing countries. Exports to Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 USSR: Hard CurrencyTradel u 1978- 1 Trade totals are based on official USSR foreign trade statistics while the value of Soviet grain imports are from Western partner country reporting. The "Other" category is a residual. Import data for 1977 exclude about $890 million worth of machinery and pipe bought by the USSR on behalf of other CEMA members. These imports were used in the construction of the Orenburg pipeline-a joint CEMA project. Secret Ethiopia, Libya, and Nigeria also increased. Fourth quarter exports are expected to rise over third quarter levels because of both secular trend and seasonal factors. (U) Financing the Deficit Moscow has easily covered its 1978 hard currency trade deficit. Earnings through September from gold sales-estimated at more than $2 billion-already exceed those for all of 1977 by roughly $500 million. In addition, drawings on an ample supply of long-term government-backed credits for equipment purchases, substantial Soviet holdings of foreign exchange, and arms sales have left the Soviets in a strong payments position. (S) The 1979 Soviet national economic plan calls for enlarging the share of trade with Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 other socialist countries, and implies a continued slowdown in the growth of trade with the West. The hard currency trade deficit next year is likely to be lower than in 1978. Machinery imports should be down as a result of the substantial cutback in 1977-78 Soviet orders for Western equipment. Grain deliveries next year are unlikely to increase because of this year's large harvest and high level of imports. Although the outlook for exports in 1979 is less certain, a moderate rise seems likely. Total Soviet oil exports next year probably will not increase and could drop by as much as 100,000 b/d; the expected price rise could bring a small increase in receipts. (Oil deliveries account for about one-half of Soviet hard currency earnings.) Meanwhile, Soviet exports of gas should increase by 20 percent, to roughly $960 million, while the growth of other exports will be limited by sluggish economic conditions in the West. (U) (Secret) OPEC COUNTRIES: FALLING EXPORTS, RISING IMPORTS (U) Most OPEC countries have suffered a serious deterioration in their current account positions in 1978 because of reduced world demand for OPEC oil and import price inflation. The rise in import prices has resulted primarily from the depreciation of the dollar against the currencies of the other industrialized countries and secondarily from domestic inflation within supplier countries. As a consequence of these unfavorable developments, most OPEC countries will slow down their foreign investment and increase their foreign borrowing. (U) The overall current account surplus of the OPEC countries is expected to drop to less than $6 billion in 1978, down 80 percent from the 1977 level. The surplus will he roughly $3 billion in each half of 1978. (U) Saudi Arabia, faced with declining oil export earnings and rising import expenditures, will account for more than 36 percent of the decline in OPEC's surplus from 1977 to 1978. The same factors plus serious domestic turmoil will move the Iranian current account into balance or even produce a small deficit in 1978 after a $4.6 billion surplus in 1977. Venezuela and Nigeria will each see their deficits grow by $2.9 billion. In Venezuela, the primary cause will be rapidly rising import expendi- tures; in Nigeria, declining oil revenues as well as increased import spending are taking their toll. Among OPEC countries, only Kuwait and Algeria will improve their current account positions this year. (U) Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 OPEC Countries: Estimated Current Account Balances, 1977 and 1978 Billion US $ Ecuador Negl Gabon -0.1 FO 2 H 0.7 Qatar 0.6 ted Arab Emirates J 3.4 2.3 l 3.2 4.7 5.1 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Billion US $ 1977 1978 Assumed oil prices rise Jan 1979 1st Half 2d Half 1st Half 2d Half 1977 1978 0% 5% 10% 15% Exports (f.o.b.) 72.3 73.7 67.1 Oil ......... 67.5 68.9 61.7 Nonoil ............. _...... 4.8 4.8 5.4 Imports (f.o.b.) 39.3 44.8 46.8 Trade balance 33.0 28.9 20.3 Net services and private 73.1 146.0 67.6 136.4 5.4 9.6 51.7 84.1 21.3 61.9 transfers .... ..__.._ -13.2 -14.1 -15.8 -16.5 Freight and insur- Investment income receipts ._.... ...... . 4.3 4.3 4.7 4.7 Other -11.6 -11.6 -14.0 -14.0 Grants .......................... -2.1 -2.7 -1.8 -1.8 Current account Oil Exports UNCLASSIFIED Slack world demand for OPEC oil, partly reflecting growing output from the North Sea, Alaskan North Slope, and Mexico, cut OPEC export earnings sharply in the first three-quarters of 1978. Oil exports of nearly all cartel members, skyrocketed in the fourth quarter, however, as liftings increased in anticipation of a January 1979 oil price hike. Total OPEC oil revenues in 1978 will be an estimated $129 billion, down $7 billion from record 1977 levels. OPEC's oil exports are projected to drop by 1.6 million b/d in 1978, to 28.0 million b/d. (U) The impact of the softer oil market has varied widely among OPEC countries: ? Saudi Arabian oil export earnings will drop by an estimated $3.3 billion in 1978. ? Iran will lose an estimated $2 billion in oil revenues this year. The oilfield workers' strike in the fourth quarter is a major factor in the Iranian shortfall. ? Nigerian oil revenues will decline $1.5 billion in 1978 as a result of sluggish first quarter demand for high-quality crude. ? Stepped-up sales will raise the oil export revenues of Iraq, Kuwait, and Qatar above 1977 levels. (U) 8.5 -23.3 -4.8 140.2 144.5 150.9 157.3 163.8 129.3 132.3 138.7 145.2 151.6 10.9 12.2 12.2 12.2 12.2 98.6 112.7 113.8 114.9 115.9 41.6 31.8 37.1 42.5 47.8 9.5 9.5 9.6 9.7 9.8 -28.1 -31.1 -31.1 -31.1 -31.1 -3.6 -3.4 -3.4 -3.4 -3.4 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 1977 Total: 29.6 Million bid Indonesia 3.5% 4.8% Nigeria 6.9 % United Arab Emirates 6.8% Venezuela 6.7% Libya 7.0% Kuwait 6.6% Iraq 7.5% Saudi Arabia 30.3% Iran 17.3% 1978 Total: 28.0 Million bid There were small changes in the export shares of individual cartel members in 1978. Oil production restrictions-ceilings on production and/or share restrictions on liftings of light crude-have been imposed by Saudi Arabia and the United Arab Emirates. On the other hand, the reduced Iranian oil liftings have resulted in increased exports by some producers, especially Saudi Arabia. Overpricing of crude resulted in slack sales in Kuwait, Ecuador, Algeria, Libya, and Nigeria early in the year; they then adjusted price differentials between their crudes and Saudi benchmark crude, and exports picked up. (U) Nonoil Exports The value of OPEC nonoil exports, including reexports, will be $11 billion in 1978, roughly 8 percent of total export earnings. Increased sales of liquefied natural gas will nearly triple Algerian nonoil exports. Kuwaiti nonoil exports will grow almost 30 percent because of increasing reexports of manufactured goods and, to a lesser extent, growing fertilizer sales. In Indonesia and Venezuela, nonoil exports will grow more slowly. Declining market prices of cocoa and coffee had a large negative impact on Nigerian and Ecuadorian nonoil exports, respectively. The value of nonoil exports from Nigeria will stagnate after increasing by 50 percent in 1977; Ecuadorian nonoil exports will fall in 1978. (U) Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Imports In 1978 the value of OPEC imports is expected to rise by 17 percent, to $99 billion. Both the amount and the causes of import spending growth vary widely among cartel members; some even will experience a decline in the real value of imports: ? Increased development spending will raise imports over 20 percent from 1977 levels in Iraq, Saudi Arabia, the UAE, Qatar, and Venezuela. ? Spiraling import price inflation will cause nearly all of the 15 to 20 percent growth in import expenditures in Indonesia, Kuwait, and Libya this year. ? In Iran, dock worker strikes and internal political unrest hampered import offloading in the fourth quarter of 1978, and imports will be only about 14 percent above the 1977 level. ? Algeria, Ecuador, Gabon, and Nigeria will constrain import spending in 1978 in order to hold down their current account deficits. Import prices for OPEC countries rose 14 percent in 1978. They were particularly hard hit by exchange rate changes because oil revenues are collected in dollars. The depreciating dollar accounted for 80 percent of import price inflation; inflation in the developed countries accounted for the remainder. Import volume will only grow 2 percent this year. (U) Service Expenditures We estimate that combined OPEC deficit on invisibles in 1978 will be $32 billion, $5 billion above the 1977 level. Growth in expenditures for freight and insurance, foreign technology fees, interest payments on debts, and net private remittances will far exceed the increase in investment income receipts. (U) For most OPEC countries, freight and insurance costs will remain level. In Saudi Arabia, however, an improved internal transportation network and an easing of port congestion (the latter holds for Iran also) should lower these costs, while Nigeria continues to be plagued by severely congested ports. As a result of the diminishing surplus, investment income receipts for OPEC countries in 1978 will rise less rapidly than in 1977, increasing only $1 billion. At the same time imports of other services will rise 20 percent on the average. In Gabon, Iran, Kuwait, Qatar, and Saudi Arabia, other service payments will increase more than 20 percent owing to large imports of foreign technology and services for infrastructure development, while Venezuela's expendi- Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 tures will grow by one-half because of burgeoning payments for debt service and travel. (U) Surplus for Investment With OPEC's sharp current account dropoff in 1978, its ability to finance capital outlays will diminish. Nonetheless, the investable surplus will contract less rapidly than the current account, due to OPEC's increased borrowings in international capital markets this year. Total loan commitments to OPEC countries in 1978 include $13 billion in publicly announced syndicated bank loans, and $2-$3 billion more from other private and governmental sources. Probably only $6-$10 billion worth of these commitments will be drawn upon in 1978. (C) Billion US $ Preliminary Projected Investable surplus ..... ...... ............. Sources of investable surplus Current account surplus ..... .:....... Loan receipts .... ................ ..... Change in oil company indebtedness ..... ........ Uses of investable surplus 3 1 Official foreign asset accumulation ..._..- 26 32 6-10 Other use of funds (Net of adjustment for changes in asset values due to exchange rate fluctuations) 7 12 5- 9 As in previous years, OPEC countries will use the bulk of their available funds to add to official foreign asset portfolios. New OPEC official foreign investment will probably be between $6 billion and $10 billion in 1978, down from $32 billion in 1977. The proportion of surplus OPEC funds placed in short-term assets is likely to increase as OPEC governments ajust their asset portfolio to compensate for increased import costs and the fall-off in oil revenues. A slowdown in private foreign investment from OPEC countries is also likely in 1978. Other uses of surplus funds will include OPEC subscriptions to multilateral aid institutions and amortization of past foreign borrow- ings, especially by Algeria, Indonesia, Iran, and Venezuela. (C) Prospects for 1979 The outlook for the OPEC current account surplus in 1979 will depend primarily on the pricing decision made by the cartel at its regular ministerial meeting in Abu 36 30 4- 8 4 11 6-10 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Dhabi this week. OPEC's current account balance in 1979, for example, could fall to a $7 billion deficit if prices are frozen, or rise as high as a $9 billion surplus, if a January 15-percent increase is established. The situation in Iran will also be a key factor. (U) All major components of the OPEC current account are projected to increase in 1979. OPEC oil revenues could range from $132 billion to $152 billion depending on the price increase. The volume of oil exports in 1979 is expected to rise by nearly 700,000 b/d from the 1978 level, to about 28.6 million b/d. In any case, oil revenues will comprise more than 90 percent of total export earnings. OPEC imports are anticipated to rise to $113-$116 billion in 1979-up some 14 to 18 percent from 1978, reflecting both a 6.5- to 8-percent increase due to import price inflation and a 7- to 9- percent growth in import volumes. The net services deficit will probably increase by 10 percent to $36 billion reflecting continued growth in development-related services and debt service and slackened growth in investment income. (U) Without a 1979 oil price increase of at least 10 percent, OPEC as a whole will almost certainly become a net borrower of funds next year. Loan commitments will probably approach $15 billion as cartel members continue to rely on external financing to deal with balance-of payments problems and pay for capital-intensive development projects. Asset accumulations will decline if the current account surplus falls from the already-low 1978 level. (C) (Confidential Noforn) Notes Italy To Join EMS Despite Communist Opposition (U) Prime Minister Giulio Andreotti has won parliamentary approval of his govern- ment's decision to take Italy into the European Monetary System (EMS) on 1 January, notwithstanding opposition from the Communists. Although PCI members abstained on parts of the government resolution that referred in general terms to Andreotti's economic goals and to Italy's European commitment, they voted to keep Italy outside the system. The resolution passed the parliamentary test because the Socialists-Italy's third largest party, after the Christian Democrats and Communists-were persuaded to swallow their own objections and abstain. (U) Communist spokesmen argue that EMS will have a deflationary impact on the Italian economy. They probably will try to impute future economic difficulties to membership in the system. Political infighting in Rome threatens to make Italy's affair with EMS stormy and perhaps short. (U) (Unclassified) Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 US Deals Hit New High at Canton Fair (U) US sales and purchases at China's 1978 Fall Canton Trade Fair reached record levels. Purchases-consisting largely of textile products-rose to $60 million, up 35 percent from the level achieved at the spring fair and 20 percent above the record established last fall. The upswing was facilitated by stable prices for most Chinese goods and by a continued trend toward greater Chinese flexibility on contract terms. US sales came to about $80 million, almost three times the level achieved at any earlier fair. Polyester chips, pharmaceuticals, and agricultural chemicals made up the bulk of Chinese purchases. (U) The increase in transactions at the fair, although impressive, actually understates the current rise in overall US-China trade. We estimate US exports to China may top $800 million in 1978, more than four times last year's figure. Renewed Chinese purchases of US wheat and corn will account for most of the increase. US imports are also expected to show a substantial growth, perhaps to $340 million, 70 percent more than the record set in 1977. Next year, total US-China trade may top $1.4 billion, with US shipments of agricultural products rising to more than $900 million. (U) (Unclassified) Arab States Discuss Baghdad Aid Commitments (U) A survey of Arab donor intentions indicate that the new financial aid arrange- ments stemming from the November Baghdad Arab Summit agreement will be less striking then announced earlier. At the Summit meeting the donor states had agreed (a) to pay out $3.5 billion annually for 10 years as follows: Syria, $1.85 billion; Jordan, $1.25 billion; and the PLO, Gaza, and the West Bank municipalities, $400 million; and (b) to discontinue financial support for Egypt should Cairo sign a peace treaty with Israel. We now believe, however, that little more aid will be made available to Syria or Jordan in 1979 than in previous years and that Arab aid to Egypt might continue even if a peace treaty is signed. (C) Libya and Algeria, which together would provide about one-quarter of the total Baghdad commitment, will probably renege on their pledges. Libyan President Qadhafi has long been cool to the idea of contributing to such a consortium fund because he sees no political benefit to Libya; furthermore, he regarded the Summit's indictment of Sadat as far too mild. Algeria will likely withhold assistance partly out of sympathy to the Libyan position and partly due to a critical shortage of funds. (C) Saudi Arabia, Kuwait, the United Arab Emirates, and Qatar were reluctant participants in the Summit. Even if the largest donors, Saudi Arabia and Kuwait, Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 honored their respective pledges of $1 billion and $550 million, the portions earmarked for Jordan and Syria would merely approximate the corresponding 1977 sums. Although the aggregate pledges of the UAE ($400 million) and Qatar ($230 million) at the Summit represent a substantial increase over 1977 levels, these donors are unlikely to meet their obligations. Both have encountered periodic cash flow problems and have been delinquent in meeting past commitments. (S) Iraq, with pledges of $460 million, is the most likely source of additional aid for Syria and Jordan, but even this prospect is uncertain. Iraqi assistance to Syria is contingent on a continuation of progress in conciliating past differences between rival Baathist regimes in the two countries (C) As for a conclusion of a peace treaty with Israel, the UAE and Qatar have already indicated that they intend to continue to make funds available to Egypt, and Saudi Arabia may also continue its support, especially if some agreement on the West Bank and Gaza Strip questions is reached. According to Egyptian Vice-President Mubarak, the Saudis have indicated that they intend to continue financial assistance to Cairo, including at least partial financing of Egypt's purchase of F-5 fighter aircraft from the United States. (C) (Secret Noforn) Arms Flows to LDCs: US-Soviet Comparisons, 1974-77 (ER 78-10494U, November 1978, Unclassified) This publication presents alternative methods of assessing the magnitude of Soviet arms sales and deliveries to LDCs in 1974-77 and comparing these activities with corresponding US programs. US and Soviet arms flows are compared in terms of: physical units, actual prices charged recipients, and US dollar export costs. A Confidential version of this report was published in August 1978. 25X1A Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Secret Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 OPA?POor Release 2002/05/07: CIA-RDP80T00702AO01000040001-5 oreign Assessment Center Economic Indicators Weekly Review ER EI 78-050 15 December 1978 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 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 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 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 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 BIG SIX FO Cb F If 7C.ZJIVR-'VM'1-C ?4tffl 7o--1'6RS Industrial Production 140 130 INDEX: 1970=100, seasonally adjusted Semilogarithmic Scale JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT Apprpj4,For Releasq /05/07: CIA1 0T00702A9 9 0040001-5 1978 llncluding Japan, West Germany, France, the United Kingdom, Italy, and Canada. A-2 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Consumer Price Inflation Percent, seasonally adjusted, annual rate 20 4.0 Industrial Production Big Six United States Consumer Prices Big Six United States United states tauu .o Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Unclassified 578017 12a8 2Average for latest 3 months compared with average for previous 3 months, seasonally adjusted at annual rate. AVERAGE ANNUAL Percent Change GROWTH RATE SINCE LATEST from Previous 1 Year 3 Months MONTH Month 1970 Earlier Earlier2 AUG 78 -0.6 2.8 3.1 1.8 AUG 78 0.6 3.9 6.4 9.7 Billion US $, f.o.b., seasonally adjusted 3 Months LATEST MONTH 1Year Earlier Earlier Unemployment Rate Big Five SEP 78 4.5 4.4 4.5 United States SFP 78 6.0 6.8 5.7 LATEST MILLION CUMULATIVE (MILLION US $) JJJ MONTH US $ 1978 1977 Change IN DUSTRIergxfgF.Q~~'e~e,, f?Q~/Q5/07 : CIA-RDP80T00702AO01000040001-5 FF'' VV CC.... ~~ VV~~vv INDEX: 1970=100, seasonally adjusted West Germany 130 120 JAN APR JUL OCT JAN APR JUL OCT JAN APR JU N PR 1973 Appr~6efl4For Release.;Q ~/E/0f C1A-Rb08a'fOd? 2X601'b`OObc4OdO"I-~"PR JUL OCT 1976 1977 1978 A-4 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Italy United States Japan West Germany France LATEST MONTH Percent AVERAGE ANNUAL Change GROWTH RATE SINCE from Previous 1 Year 3 Months Month 1970 Earlier Earlierl ' OCT 78 SEP 78, 0.8 3.1 1.6 -1.0 Percent AVERAGE ANNUAL Change GROWTH RATE SINCE from LATEST Previous 1 Year 3 Months MONTH Month 1970 Earlier Earlierl Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 lAverage for latest 3 months compared with average for previous 3 months. Unclassified Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 UNEMPLOYMENT RATE United States West Germany Approved For Release 2002/05/076 CIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 United Kingdom Italy (quarterly) 3.8 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. THOUSANDS OF PERSONS UNEMPLOYED APR JUL OCT 1978 LATEST MONTH 1 Year Earlier 3 Months Earlier 1 Year Earlier 3 Months Earlier United States OCT 78 5,870 6,688 6,193 United Kingdom NOV 78 1,339 1,430 1,392 Japan SEP 78 1,330 1,120 1,310 Italy 78 III 1,658 1,692 1,455 West Germany SEP 78 986 1,035 986 Canada NOV 78 919 903 941 France OCT 78 1,215 1,097 1,241 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 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 A-7 Unclassified 578019 11-78 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5 CONSUMER PRICE INFLATION Percent, seasonally adjusted, annual rate' 1973 1974 1975 1976 1977 1Three-month average comparApedtFormfdMease 2002/05/07 : CIA-RDP80T00702A001000040001-5 A-8 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 United Kingdom 4.7 Canada Percent AVERAGE ANNUAL Percent Change GROWTH RATE SINCE Change from from LATEST Previous 1970 1 Year 3 Months LATEST Previous MONTH Month Earlier Earlier2 MONTH Month AVERAGE ANNUAL GROWTH RATE SINCE 1 Year 3 Months Earlier Earlier2 West Germany SEP 78 0 5.1 2.2 2.5 ? Canada OCT 78 1.0 7.7 8.7 5.8 France OCT 78 0.8 9.1 9.3 10.1 P. _ Unclassified 578016 12-78 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 A-9 ' Approved For Release 2002/05/07 : C*TW%gTJ0702A001000040001-5 GNP Constant Market Prices Constant Prices Average Average Annual Growth Rate Since Annual Growth Rate Since Percent Change -- - - - Percent Change - -- - --- - - - - - - Latest from Previous 1 Year Previous Latest from Previous 1 Year 3 Months Quarter Quarter 1970 Earlier Quarter Month Month 1970 Earlier Earlier ' United States Sep 78 0.8 3.5 4.9 3.6 United States 78 III 0.8 3.2 3.8 3.4 Japan Jun 78 1.9 9.3 6.4 11.9 Japan 78 III 1.0 5.3 6.3 3.9 West Germany Aug 78 0 2.7 2.5 6.6 West Germany 78 II 2.1 2.7 4.2 8.8 France Jan 78 9.9 0 1.0 10.5 France 78 I 1.8 4.1 1.4 7.4 United Kingdom Oct 78 0 1.2 6.6 2.8 United Kingdom 78 I 1.7 1.8 2.3 7.2 Italy Jul 78 -7.0 2.9 3.0 28.3 Italy 78 I 2.0 2.8 -0.8 8.2 Canada Sep 78 6.3 4.6 7.3 6.3 Canada 78 III 0.9 4.6 4.1 3.7 ' Seasonaly, adjusted. Seasonally adjusted. 7 Average for latest 3 months compared with average for previous 3 months. FIXED INVESTMENT ' WAGES IN M ANUFACTURING' Nonresidential; constant prices Average Annual Growth Rat e Since Average Percent Change Annual Growth Rate Since Latest from Previous 1 Year 3 Months Percent Change ------- ----- Period Period 1970 Earlier Earlier Latest from Previous I Year Previous Quarter Quarter 1970 Earlier Quarter United States Jul 78 1.2 7.6 7.6 6.8 United States 78 III 1.0 3.2 8.5 4.0 Japan Aug 78 0 15.4 4.8 2.8 Japan 78 III 1.8 1.8 8.3 7.2 West Germany 78 II 1.7 8.8 4.2 7.1 West Germany 78 II -0.5 1.2 7.8 -2.0 France 77 IV 3.1 14.1 12.0 12.9 France 77 IV 0.8 4.0 4.7 3.3 United Kingdom Jun 78 0.1 16.3 20.5 84.0 United Kingdom 78 I 2.8 1.8 11.3 11.6 Italy Aug 78 4.0 20.2 14.7 15.6 Italy 78 I 2.3 1.1 - 19.6 9.4 Canada Sep 78 1.2 10.8 6.7 10.7 Canada 78 III 3.2 6.5 5.9 13.6 ' Hourly earnings (seasonally adjusted) for the United States, Japan, and Canada; hourly wage Seasonally adjusted. rates for others. West German and French data refer to the beg inning of the quarter 7Averoge for latest 3 months compared with that for previous 3 months. MONEY MARKET RATES Percent Rate of Interest 1 Year 3 Months 1 Month Representative rates Latest Dote Earlier Earlier Earlier United States Commercial paper Dec 6 10.25 6.54 8.30 10.01 Japan Call money Dec 8 4.50 5.00 4.13 3.75 West Germany Interbank loans (3 months) Dec 6 3.87 4.21 3.63 3.83 France Call money Dec 8 6.63 9.38 7.38 7.00 United Kingdom Sterling interbank loans (3 months) Dec 6 12.13 6.96 9.24 11.54 Canada Finance paper Dec 6 10.36 7.37 8.96 10.31 Eurodollars Three-month deposits Dec 6 11.56 6.99 8.85 11.44 A-10 EXPORT PRICEApproved For Release 2002/05/07: CCpW% 702A001000040001-5 US $ National Currency Average Average Annual Growth Rate Since Annual Growth Rate Since Per cent Change - Percent Change Latest from Previous 1 Year 3 Months Latest from Previous 1 Year 3 Months Month Month 1970 Earlier Earlier Month Month 1970 Earlier Earlier United States Aug 78 1.3 9.7 11.0 19.5 United States Aug 78 1.3 9.7 11.0 19.5 Japan Sep 78 -1.0 11.7 31.3 12.8 Japan Sep 78 -0.2 3.3 -6.6 -30.5 West Germany Aug 78 1.7 11.7 14.3 23.3 West Germany Aug 78 -1.2 3.7 -1.5 -0.3 France Jul 78 4.2 11.9 16.5 16.5 France Jul 78 1.0 8.9 6.6 2.2 United Kingdom Oct 78 2.8 12.5 22.2 36.3 United Kingdom Oct 78 0.3 14.9 7.7 8.2 Italy Aug 78 2.6 11.4 10.9 28.2 Italy Aug 78 2.6 15.4 5.2 9.5 Canada Sep 78 -4.7 8.0 0 -1.2 Canada Sep 78 -2.5 9.4 8.6 17.0 IMPORT PRICES OFFICIAL RESERVES National Currency Average Billion US $ Annual Growth Rate Since Latest Month Percent Change 1 Year 3 Months Latest from Previous 1 Year 3 Months End of Billion US $ Jun 1970 Earlier Earlier Month Month 1970 Earlier Earlier United States Sep 78 18.8 14.5 19.0 18.9 United States Aug 78 0.6 12.7 7.9 3.3 Japan Aug 78 29.2 4.1 17.8 27.7 Japan Sep 78 -0.4 5.0 -23.7 -37.8 West Germany Sep 78 44.7 8.8 34.5 40.7 West Germany Aug 78 0.4 3.4 -3.4 7.6 France Apr 78 10.6 4.4 10.0 10.2 France Jul 78 -2.3 8.7 -2.1 -9.0 United Kingdom Sep 78 17.6 2.8 17.3 17.3 United Kingdom Oct 78 0.5 17.0 4.1 5.2 Italy Oct 78 14.1 4.7 11.1 13.5 Italy Aug 78 0.8 18.4 1.8 1.3 Canada Nov 78 4.5 9.1 4.2 4.2 Canada Sep 78 -0.9 9.6 13.1 13.8 CURRENT ACCOUNT BALANCE ' BASIC BALANCE ' Current and Long-Term Capital Transactions Cumulati ve (Million us a> Cumulative (Million US $) Latest Period - Million US $ 1978 1977 Change Latest Period Million US $ 1978 1977 Change United States 78 II -3,261 - 10,119 -8,762 -1,357 United States No longer published 2 Japan Sep 78 1,900 13,982 6,442 7,540 Japan Sep 78 600 6,746 4,390 2,356 West Germany Aug 78 10 2,725 788 1,937 West Germany Aug 78 -75 1,730 -3,308 5,038 France 78 I -84 -84 - 1,628 1,543 France 78 1 -863 -863 -1,889 1,025 United Kingdom 78 I -803 -803 -896 94 United Kingdom 78 I -326 -326 543 --869 Italy 78 I 288 288 -1,025 1,313 Italy 77 Ill 2,427 N.A. N.A. N.A. Canada 78 11 -1,201 -2,381 -2,658 277 Canada 78 II 883 327 -482 809 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 s Seasonally adjusted. Statistics, the Department of Commerce no longer publishes a basic balance . TRADE-WEIGHTED EXCHANGE RATES' EXCHANGE RATES Spot Rate As of 1 Dec 78 Percent C hange from Percent Change from As of 1 Dec 78 US E 1 Year 3 Months 1 Year 3 Months Per Unit 19 Mar 73 Earlier - Earlier 24 Nov 7B 19 Mar 73 Earlier Earlier 24 Nov 78 Japan (yen) 0.0050 31.81 21.98 -4.17 1.47 United States -1.89 -5.93 0.92 -0.45 West Germany 0.5229 47.09 15.34 3.32 1.10 Japan 35.57 19.56 -4.02 1.24 (Deutsche mark) West Germany 35.04 4.63 2.81 0.19 France (franc) 0.2277 2.59 10.25 -0.40 1.09 France -10.92 -1.09 -1.62 0.16 United Kingdom 1.9600 -20.72 7.69 -0.04 1.11 United Kingdom -28.73 -1.10 -0.65 0.38 (pound sterling) Italy -43.65 -6.87 -2.74 -0.24 Italy (lira) 0.0012 -32.91 3.51 -1.75 0.68 Canada -16.44 -8.17 -0.96 -0.90 Canada (dollar) 0.8500 -15.28 Approved For - 5.78 -1.131 -0.67 Release 2002/05/07: IAjj C x 10 &,oW'?he or countries Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Big Other Corn- World Seven OECD OPEC munist Other UNITED STATES 1975 .......................... 107.59 46.93 16.25 10.77 3.37 30.27 1976 .......................... 115.01 51.30 17.67 12.57 3.64 29.82 1977 .......................... 120.17 53.92 18.54 14.02 2.72 30.97 1978 1st Qtr ................ 30.96 13.65 4.60 3.76 1.00 7.95 2d Qtr ................ 37.05 16.14 5.25 4.43 1.44 9.79 Jul .......................... 10.94 4.51 1.51 1.38 0.40 3.14 Aug ........................ 11.61 4.95 1.65 1.32 0.37 3.33 JAPAN 1975 .......................... 55.73 16.56 6.07 8.42 5.17 19.52 1976 .......................... 67.32 22.61 8.59 9.27 4.94 21.91 1977 .......................... 81.12 28.03 9.72 12.03 5.33 26.01 1978 1st Qtr ................ 22.11 7.79 2.43 3.35 1.32 7.22 2d Qtr ................ 24.07 8.60 2.44 3.55 1.74 7.74 Jul .......................... 8.58 2.99 1.02 1.33 0.51 2.73 Aug ........................ 8.18 2.94 0.86 1.19 0.58 2.60 WEST GERMANY 1975 .......................... 90.11 28.33 36.44 6.78 7.21 11.33 1976 .......................... 101.93 33.44 41.86 8.25 7.02 11.36 1977 .......................... 118.01 39.00 48.01 10.78 7.30 12.92 1978 1st Qtr ................ 32.45 11.17 13.05 2.76 1.97 3.49 2d Qtr ................ 34.69 11.94 13.71 3.01 2.26 3.77 Jul .......................... 10.42 3.64 3.93 1.01 0.65 1.18 Aug ........................ 10.99 3.38 4.57 1.01 0.71 1.32 FRANCE 1975 .......................... 53.03 20.01 15.50 4.90 3.13 9.50 1976 .......................... 57.05 22.49 16.15 5.08 3.23 10.10 1977 .......................... 64.86 25.90 18.18 5.96 2.99 11.82 1978 1st Qtr ................ 18.49 7.66 5.07 1.57 0.66 3.53 2d Qtr ................ 20.36 8.31 5.60 1.70 0.84 3.91 Jul .......................... 6.66 2.78 1.72 0.59 0.27 1.29 Aug ........................ 4.86 1.92 1.25 0.46 0.24 1.00 UNITED KINGDOM 1975 .......................... 44.46 12.54 16.59 4.55 1.56 9.21 1976 .......................... 46.56 14.03 17.53 5.13 1.39 8.48 1977 .......................... 58.04 17.29 22.20 6.77 1.63 10.14 1978 1st Qtr ................ 16.86 5.09 6.27 2.03 0.55 2.92 2d Qtr ................ 17.60 5.38 6.59 2.20 0.51 2.92 Jul .......................... 5.80 1.84 2.10 0.71 0.16 1.00 Aug ........................ 5.77 1.73 2.18 0.69 0.15 1.02 ITALY 1975 .......................... 34.84 15.61 7.86 3.72 2.46 5.19 1976 .......................... 37.25 17.58 8.73 4.27 2.18 4.48 1977 .......................... 45.04 20.91 10.20 5.84 2.46 5.64 1978 1st Qtr ................ 10.80 5.22 2.40 1.37 0.48 1.33 2d Qtr ................ 13.65 6.51 2.92 1.81 0.66 1.75 Jul .......................... 4.46 2.17 0.93 0.57 0.22 0.57 CANADA 1975 .......................... 34.07 26.30 1.72 0.71 1.20 4.14 1976 .......................... 40.52 32.01 2.03 0.81 1.25 4.40 1977 .......................... 43.08 34.83 2.20 1.17 1.08 3.80 1978 1st Qtr ................ 10.87 8.88 0.45 0.23 0.22 1.10 2d Qtr ................ 12.66 10.32 0.56 0.23 0.36 1.19 Jul .......................... 3.53 2.81 0.13 0.08 0.15 0.36 25X1X Approved For Release 2002/05/07 : CIA-RDP8OTOO7O2AOO1000040001-5 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Big Other Com- World Seven OECD OPEC munist Other UNITED STATES 1975 .......................... 103.42 49.81 8.83 18.70 0.98 25.09 1976 .......................... 129.57 60.39 9.75 27.17 1.16 31.10 1977 .......................... 156.71 70.48 11.09 35.45 1.23 38.47 1978 1st Qtr ................ 43.14 20.39 3.51 8.15 0.47 10.62 2d Qtr ................ 45.99 22.53 3.68 7.90 0.48 11.40 Jul .......................... 15.67 7.56 1.29 2.62 0.14 4.04 Aug ........................ 14.96 6.92 1.11 2.91 0.19 3.83 JAPAN 1975 .......................... 57.85 16.93 6.08 19.40 3.36 12.07 1976 .......................... 64.89 17.58 7.78 21.88 2.91 14.73 1977 .......................... 71.32 18.88 7.92 24.33 3.41 16.79 1978 1st Qtr ................ 18.32 5.04 2.06 6.46 0.86 3.89 2d Qtr ................ 19.39 5.51 2.30 5.95 1.01 4.63 Jul .......................... 6.47 1.95 0.80 1.82 0.30 1.60 Aug ........................ 6.92 2.17 0.81 1.92 0.32 1.70 WEST GERMANY 1975 .......................... 74.92 27.09 27.78 8.24 3.51 8.30 1976 .......................... 88.14 31.28 32.64 9.73 4.38 10.11 1977 .......................... 101.42 36.39 37.37 10.12 4.92 12.61 1978 1st Qtr ................ 28.24 10.11 10.88 2.32 1.39 3.55 2d Qtr ................ 29.75 11.10 11.43 2.24 1.40 3.58 Jul .......................... 9.57 3.60 3.48 0.77 0.54 1.18 Aug ........................ 9.43 3.41 3.51 0.82 0.50 1.19 FRANCE 1975 .......................... 53.99 23.04 14.33 9.43 1.94 5.24 1976 .......................... 64.38 27.81 16.93 11.36 2.24 6.04 1977 .......................... 70.49 30.28 18.24 11.81 2.46 7.69 1978 1st Qtr ................ 19.76 8.58 5.40 3.05 0.64 2.09 2d Qtr ................ 20.42 9.16 5.62 2.77 0.68 2.19 Jul .......................... 6.31 2.88 1.65 0.94 0.23 0.61 Aug ........................ 5.56 2.49 1.29 0.95 0.21 0.63 UNITED KINGDOM 1975 .......................... 53.93 18.47 18.52 6.91 1.68 8.36 1976 .......................... 56.20 19.65 18.81 7.29 2.08 8.36 1977 .......................... 64.06 24.03 21.38 6.32 2.42 9.91 1978 1st Qtr ................ 18.87 7.44 6.68 1.80 0.55 2.40 2d Qtr ................ 19.31 7.66 7.27 1.30 0.59 2.48 Jul .......................... 6.42 2.58 2.17 0.58 0.21 0.88 Aug ........................ 6.30 2.48 2.08 0.60 0.23 0.91 ITALY 1975 .......................... 38.39 17.32 6.75 7.85 2.09 4.39 1976 .......................... 43.43 19.35 8.05 8.12 2.65 5.26 1977 .......................... 47.57 20.80 8.66 9.03 2.80 6.28 1978 1st Qtr ................ 11.26 5.03 2.10 2.18 0.51 1.44 2d Qtr ................ 13.38 6.14 2.58 2.15 0.73 1.76 Jul .......................... 4.90 2.18 0.93 0.82 0.37 0.61 CANADA 1975 .......................... 38.67 29.78 1.70 3.43 0.32 3.43 1976 .......................... 43.04 33.55 1.82 3.48 0.38 3.81 1977 .......................... 44.91 35.75 1.79 3.06 0.34 3.98 1978 1st Qtr ................ 10.80 8.60 0.44 0.77 0.08 0.91 2d Qtr ................ 13.52 11.08 0.50 0.71 0.09 1.13 Jul .......................... 3.88 3.05 0.17 0.26 0.04 0.35 Approved For Release 2002/05/07 : CIA-RDP8OTOO7O2AOO1000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 FOREIGN TRADE BILLION US $, f.o.b., seasonally adjusted 2.0 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 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 A-14 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 United Kingdom 6.3 6.0 CUMULATIVE (MILLION US $) LATEST MONTH MILLION US $ 1978 1977 CHANGE;` LATEST MONTH MILLION US $ 1978 1977 CHANGE United States OCT 78 13,011 117,064 100,727 16.2% United Kingdom OCT 78 6,264 56,265 46,177 21.8% 15,138 141,859 121,889 16.4% 6,025 57,957 49,019 18.2% Balance -2,128 -24,795 -21,162 -3,633 Balance 239 . -1,692 -2,842 1,149 Japan SEP 78 8,618 71,117 58,515 21.5% Italy OCT 78 5,162 43,005 36,261 18.6% 6,216 50,210 46,130 8.8% 4,746 39,996 36,231 10.4% Balance 2,402 . 20,907 12,385 8,522 Balance 416 3,009 30 2,979 West Germany AUG 78 11,974 90,233 76,223 18.4% OCT 78 4,398 38,533 34,870 10.5% 9,258 74,131 62,846 18.0% 4,439 36-329 33 228 93% Balance 2,715 16,102 13,378 2,725 Balance -41 2,204 1,642 562 OCT 78 7,311 M - 55 16.5 Balance 171 589 -2,187 2,776 Unclassified 578020 12-78 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 A-15 FOREIGNeTRRelease RICES IN-R_4S8o oo7o2AOOloooo40001-5 United States Japan West Germany APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT 1Wooroved For F asge 2002/05/d 17gZ k-RDP80T0b 1A001000040W?,43 1Export and import plots are based on five-month weighted moving averages. A-16 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040 1974pproved FolI~giase 2002/0991@7 CIA-RDP803gb7T-62A0010000 -6$ 5 Unclassified A-17 577971 12-78 ApprovMq -Ife 2nQJ QLO,5 fqk6DPd95U-N -100040001-5 MONEY SUPPLY' INDUSTRIAL PRODUCTION ' Average Average Annual Growth Rate Since Annual Growth Rate Since Percent Change Percent Change Latest from Previous 1 Year 3 Months Latest from Previous 1 Year 3 Months Month Month 1970 Earlier Earlier' Period Period 1970 Earlier Earlier' Brazil Mar 78 2.7 36.4 43.3 34.7 India Jun 78 - 1.8 5.1 5.4 18.2 India Apr 78 2.5 14.0 16.3 13.1 South Korea Aug 78 6.4 22.8 23.1 12.8 Iran Jul 78 0 28.2 26.7 17.9 Mexico Jun 78 0 6.2 8.5 27.7 South Korea Sep 78 -5.8 30.0 17.7 10.3 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 3.0 16.3 31.0 42.1 Nigeria May 78 -2.4 33.5 9.3 14.8 Taiwan May 78 0.6 25.1 32.8 40.8 ' Seasonally adjusted. Thailand Apr 78 -3.2 13.3 12.5 32.3 'Average for latest 3 months compared with average for p revious 3 months. ' Seasonally adjusted . 'Average for latest 3 months compared with average for previous 3 months. CONSUMER PRICES WHOLESALE PRICES Average A nnual Growth Rate Since Average Percent Change Annual Growth Rate Since Latest from Previous 1 Year Percent Cha nge 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 Aug 78 -0.4 11.8 7.8 Iran Aug 78 -1.3 10.0 7.8 South Korea Oct 78 0.9 14.6 16.8 South Korea Oct 78 1.1 15.7 13.1 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 $ Million us $ Average Latest Month A nnual Growth Rate Since 1 Year 3 Months Percent Change End of Million US $ 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 Jul 78 6,117 1,006 4,395 6,064 India Sep 77 -2.7 10.0 18.4 Iran Oct 78 11,951 208 11,546 11,982 South Korea 78 II 2.4 8.8 8.9 South Korea Sep 78 4,354 602 4,040 4,199 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 Sep 78 li 1,558 148 4,597 2,387 Taiwan Jun 78 1,462 531 1,411 1,433 Thailand Sep 78 2,269 , 978 1,925 2,161 Unclassified Approved For Release 2002/05/07A:1($IA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 Latest 3 Months Percent Change from Cumulative (Million US $) 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 Aug 78 Exports 2.9 10.4 15,868 15,635 1.5% May 78 Imports -1.6 1.6 5,705 5,259 8.5% May 78 Balance 4,087 4,871 -783 South Korea Aug 78 Exports 12.6 21.6 7,798 6,217 25.4% Aug 78 Imports 52.3 33.7 8,561 6,574 30.2% Aug 78 Balance -764 -357 -407 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% Jul 78 Balance -728 -298 -430 Nigeria 78 II Exports 86.7 -26.0 1,808 2,526 -28.4% 78 1 Imports 579.5 115.0 1,808 841 115.0% 78 1 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 Jul 78 Exports 7.1 10.4 2,246 2,099 7.0% Jul 78 Imports 51.5 13.8 2,697 2,330 15.7% Jul 78 Balance -450 -231 -219 Approved For Release 2002/05/074:'eIA-RDP80T00702A001000040001-5 Unclassified Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 AGRICULTURAL PRICES MONTHLY AVERAGE CASH PRICE $ PER BUSHEL 7.5 No. 2 Medium Grain, 4% Brokens, f.o.b. mills, Houston, Texas 1-7 DEC 11 1974 1975 1976 1977 1978 0 RICE 37,5 $ PER HUNDRED WEIGHT 1-27 NOV II 1.0 $ PER POUND.. Memphis Middting 1 1/16 inch 2,000 350 7 DEC 0.6563 30 NOV ' 0.6765 150 NOV 78 0.6646 500 DEC 77 0.4938 100 1974 1975 1976 1977 1-7 DEC II 1978 0 50 COFFEE Other Milds Arabicas, ex-dock New York 7 DEC , 132.00 30 NOV 141.42 NOV 78 147.31 DEC 77 202.39 TEA London Auction SEP 94.2 AUG 90.3 JUL 78 96.2 DEC 77 93.6 1-7 DEC II 0 1-7 DEC 1[ .8,000 6,000 4,000 136.00 Approved For Release 2002/05/0Z_iCIA-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 SOYBEANS 15 $ PER BUSHEL SOYBEAN MEAL $ PER TON 500 400 7 DEC 6.83 7 DEC 191.30 30 NOV 6.73 30 NOV 178.50 NOV 78 6.66 NOV 78 175.95 DEC 78 5.87 DEC 77 160.88 Crude, Bulk, c.i.f. US Ports 7 DEC 0.2900 30 NOV 0.3000 NOV 78 0.3042 DEC 77 0.2392 AUSTRALIA Boneless Beef, f.o.b., New York 1-7 DEC 11 0 80 1976 1977 1978 SOYBEAN OIL Crude, Tank Cars, f.o.b. Decatur 1,0 7 DEC 0.2583 30 NOV 0.2565 NOV 78 0.2489 DEC 77 0.2264 1-7 DEC II 1976 1977 1978 UNITED STATES Wholesale Steer Beef, Midwest Markets 22 NOV 109.00 25 NOV 82.12 15 NOV 110.50 18 NOV 80.12 OCT 78 107.40 SEP 78 81.64 DEC 77 71.89 DEC 77 50.70 108.10 2,500 1-22 NOV 1-25 NOV II 1,000 1974 1975 1976 1977 1978 1-7 DEC RGH 1975 1976 1977 1978T 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. Approved For Release 2002/05/07 : &If-RDP80T00702A001000040001-5 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 INDUSTRIAL MATERIALS PRICES MONTHLY AVERAGE CASH PRICE COPPER WIRE BAR 140 a PER POUND us LME us 1050 C PER POUND LME us 6 DEC 30.3 35.0 2,000 6 DEC 647.7 695.8 29 NOV 30.9 35.0 29 NOV 671.2 725.8 NOV 78 31.1 35.0 NOV 78 680.8 745.9 DEC 77 24.4 31.0 DEC 77 579.7 615.1 $ PER LONG TON 1-6 DEC 111,000 yn 1-6 DEC II200 PER METRIC TON 45 C PER POUND 3,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 350 PLATINUM $ PER METRIC TON 150 550 $ PER TROY OUNCE ........... MP $ PER METRIC TON 22,000 IJSD 4 DEC 88.2 6 DEC 300.0 323.0 29 NOV 84.8 125 29 NOV 300.0 322.5 NOV 78 82.2 NOV 78 284.0 331.9 DEC 77 61.3 DEC 77 171.0 176.6 1-30 NOV (I 0 150 1-6 DEC II 1974 1975 1976 1977 1978 1974 1975 1976 1977 1978 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 A-22 82.2 100 30 NOV Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5 CPYRGHT ALUMINUM Major US Producer t 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 it per pound 43.00 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 18,095.84 17,169.00 22,113.00 18,082.00 MERCURY New York $ per 76 pound flask 157.00 150.55 138.43 134.50 SILVER LME Cash t per troy ounce 596.19 514.64 482.70 436.90 GOLD London Afternoon Fixing Price $ per troy ounce 195.64 176.31 162.10 130.44 F PER POUND 80 LUMBER INDEX6 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 US. 3As of 1 Dec 75, US tin price quoted is "Tin NY lb composite." 4Quoted on New York market. 5S-type styrene, US export price. 6This index is compiled by using the average of 13 types of lumber whose prices are regarded as bellwethers of US lumber construction costs. 150 1-24 NOV 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. Unclassified 578022 12-78 Apprmiarl For Ralaasa 9009/0-5/07 ? fit.IA-RDP80T00702AO01000040001-5