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APPR~VED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 - FOR OFFICIAL USE ONLY - JPRS L/9875 29 July 1981 _ ~1/~st Euro e Re ort p p CFOUO 35/81) FBIS FOREIGN BROADCAST INFORMATIOi~ SERVICE FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/49: CIA-RDP82-00850R440400030056-3 NOTE . , JPRS publications contain information primarily from foreign newspapers, periodicals and books, but ~lso from news agency transmissions and broadcasts. Ma~:erials from foreign-language sources are translated; those from English-language sources are transcribed or reprinted, with the original phrasing and other characteristics retained. Headlines, editorial reports, and material enclosed in brackets are supplied by JPRS. Processing indicators such as [TextJ or [Excerpt] in the first line of each item, or following the last line of a brief, indicate how the original information was - processed. Where no processing indicator is given, the infor- mation was summarized or extracted. Unfamiliar names rendered phonetically or transliterated are enclosed in parentheses. Words or names preceded by a ques- tion mark and enclosed in parentheses were not clear in the original but have been supplied as appropriate in contex+:. Other unattributed parenthetical notes with in the body of an item originate with the source. Times within items are as given by source. The contents of this publication in no way represent the poli- cies, views or attitudes of the U.S. Government. , COPYRIGHT LAWS AND REGULATIONS GOVERNING OWNERSHIP OF MATERIALS REPRODUCED HEREIN REQUIRE THAT DISSEMINATION OF THIS PUBLICATION BE RESTRICTED FOR OFFICIAL USE ONLY. APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY JPRS L/9875 29 July 1.981 WEST EUROPE REPORT (FOUO 35/81) CONTEHTS ECONOMIC BELGIUM _ Economics Mini~ter on Structural Problems, Third World Relations (Willy Claes Interview; JEUNE AFRIQUE, 3 Jun 81) 1 ITALY � Development of Italy~s Relations With Arabs r~evi.ewed (AL-WATAN AL-'AR.ABI, 29 May-1t Jun 81) 5 Increased Contact Growth in Trade Relations - Ciampi~s Annual Report to Bank of Italy - (Carlo Azeglio Ciampi; II, MONDO, 12 Jun dl) 15 MIZITARY FRANCE New Short-Range Ground-to-Air Missile Presented ' (Pierre Langereux; AIR & COSMOS, 27 Jun 81) 47 First Military Telecorrununications Satellites Described (Pierre I,angereux; AIR & COSMOS, 27 Jun 81) 49 Briefs SEP 17isplays Antitank Missile 54 - - a - [III - WE - 150 FOUO] FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00854R004400030056-3 FQR OFFICI~L U3E ONLY ECONOMIC . BELGIUM ECONOMICS MINISTER ON STRUCTURAL PROBLEMS, TIiIRD WORLD RELATIONS _ Paris JEUNE AFRIQUE in French 3 Jun 81 pp 88-90 LInterview with Willy Claes, Vice-Premier and Minister of Economics by JEUNE AFRIQUE; date and place not specified/ ~ ~ext7 Willy Claes: A north-south dialogue must become the instrument of a new but � equitably shared growth. What is the situation of present day Belgium? Vice-Premier and Minister of Economics, Willy Claes gives a frank discussion of the realities af the situation. But the internal difficulties are not a pretext to shirk the obligations of the Western countries towards the developing countries. In this regard, his proposals cannot fail to attract attention. JEUNE AFRIQUE: Mr. Vice-Premier, what is the position of the Belgian economy in - regard to econamic cycles and structure? ti'illy Claes: First let me say this: for an international journal. as prestigious as JEUNE AFRIQUE to open wide its columns to a developed country, while its bent is to treat the problems of developing countries, shows emphatically the w*.11 and the necessity to reinforce the dialogue between the industralize~] count es and those of - the Third World. You are to be thanked for this. The central location of Belgium at the heart of the EEC has a favorable effect on its foreign trade: with a population representing about .25 percent of the earth's inhabitants, Belgium has 3 percent of world trade. Except for coal, sand, and clay our country possesses hardly any raw m3terials; we must therefore buy abroad the raw materials necessary for our industries. Consequently, its exp~rts are v~tal but, at the same time, make it dependent on worldwide economic cycles c~d st�-uctural move- ments. About two-thirds of Belgium's foreign trade is realized with EEC countries and, among those, essentially West Germany (22 percent of the total), France (19 percent), the Netherlands (15 percent). The portion attributable to the developing countries in the total of Belgium's exports remains too small, especially in comparison to the share they have of our imports (about 16 gercent). Nearly half of the GNP is exported. The areas of activity which are the most oriented towards overseas trade are areas such as mineral products, metal and electronic products, chemicals, and certain other industries such as the gold jewelry trade. With the goal in mind of consoli- dating its exterior position, Belgium actively particnpates in the endeavors of international organizations such as the UN--notably the United Nations Conference 1 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2047102109: CIA-RDP82-00850R400404030056-3 FOR OFFICIAL USE ONLY on Commerce and Develepment--GATT and OCDE. In addition, the Belgium-Luxembourg Economic Union (BLEU), founded in 1921 and recently renewed for 10 years, Benelux, created in 1948 and reinforced thereafter, and the EEC make possible a more har- monious development of the constituent parts which these economically oriente3 entities comprise. Since the beginning of the worldwide econanic crisis, growth of the GNP has slowed down. After experiencing an average annual growth rate of 4 to 6 percent from 1969 to 1974, the GNP fell back in 1975 (-1.8 percent) and except in 1976 when it recovered a part of its slowdown, it has grown only feebly since (2.1 percent in 1980 according to certain estimates). The results for 1979 show that the rise of 2.1 percent of the GNP in constant prices is due to the branches of the following - activities: chemical and allied industries, iron, steel and non-ferrous metals, financial services and insurance, transport and communications, and the textile industry. Other branches, like the extractive industries, clothing and shoes, pottery, ceramics, and glass, as well as construction are declining. JEUNE AFRIQUE: What is true the situation af the economy in the present climate of international crisis? Willy Claes: In 1980, the Belgian econo,~iy was influenced by two factors: the high level of interest rates in the United States on the one hand, and the ever more significant depletion brought about through the gasoline prices in the importing countries on the other hand. Market conditions in Belgium have shared in the depressed international economic climate which has continued all this past year. Largely positive in the first quarter of 1980, the growth rate of the industrial production index, without including the building industry, (in seasonally adjusted and polished data) later became negative. The intervening deterioration appeared _r,iincipally in such sectors as the chemical and rubber industry, the basic metal industry, and the construction industries. Ultimately, demand remained weak throughout 1980. Private consumption as well as exports registered lower growth rates. Only investments were able to keep up, but this evolution touches only certain branches such as energy and metal fabrication. JEUNE AFRIQUE: And the effect of unemployment? Willy Claes: In that area we were confronted with difficulties of a wide nature. ~ On the one hand, the ever increasing mass of unemployed weighs directly on the weakening of private consumption; the growing weight of unemployment is a direct result not only of demographic change, but also of industrial stagnati.on as well as a rationalization process in production which has speeded up in recent years. On the one hand, the disequilibrium of the current balance of trade--due in large measure to the primitive structure of exports--and that of public finances restricts the margin of action of the authorities. The most favorable element remains the evolution of prices: their rise is largely below that which exists in many countries, all of which offers important competitive advantages. The present situation thus - appears difficult and the short term prospects appear ~omber and almost inescapable. Industrial policy is, more than ever, at the center of government deliberations. All the more so as the secondary sector is, and will remain in the future, confronted with profound mutations, among which are the progress of newly-industrialized countries and the very considerable transfer of buying power to the oil-producing countries. That is why what has come to be called the "new industrial policy," as 2 FOR OFF[CIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL U~E ONLY well as the agreement which founded the current government, are oriented tok~ards ~ industrial reconversioc, and renovation of inethods, procedures,. materials, and pro- ducts in arder to guarantee a lasting economic ~ecovery by the ir.cJispensahle adap- ~ tation of industrial structures. JEUNE AFRIQUE: What are the major options in this new industrial policy? Willy Claes: They are five in number.. 1. Restructure and .~odernize the traditional branches of activity while taking into account ,vorldwide economic reorganization; 2. Diversify production; manufacture more productis of a high added value and of tiiyh technology; 3. Reach a degree of sufficient specialization in these types of products, and here also; _ 4. Limit dependence on foreign decision centers. Tha~ implies therefore a net growth, at the heart o~ industrial activity, of national, private, and public ' initiative. 5. Enlarge exterior outlets, without at the same time neglecting the necessary favorable working of the domestic market. To all that can be added two factors which st:ould be kept in mir.d: the promotion and reorientation of industrial research as well as the interest shown in labor intensive activities. .7EUNE P.FRIQUE: What are the goals of this policy? Willy Claes: Firstly, restructuring aims at branches such as textiles, the iron and steel industry, construction materials, food products, lumber, hides, paper, maritime construction, and certain sub-branches of the chemical and metal industries. These areas must increase their competitiveness by increasing productivity ant~ ameliorating the commercialization of products; they must direct thzir production towards high level goods and integrate even more the different stages of production. Moreover, the social effects of rationalizatior?s must be supported by everyone. The strategy of specialization must lead industry towards the benefits detailed which incorporate a high added value and a great effort at research. The market for these products is that of the industrialized countries and of the Third World countries which are industrializing rapidly. With the goal in mind of reducing the risks connected with too strong a dependence on investors and foreign decision centers, at the same time preserving their positive aspects, it seems necessary to addres~ oneself preferably to European enterprises, to give more attention to medium-sized businesses and to promote the formula of "joint venture," an association of foreign and Belgian businesses, at the heart of which the partners are equal. 3 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY What's more~ we must preserve and enlarge the acquired experience formed by foreign investments, which have been factors in the industrial renovation, by means of the new technologies they have introduced. Finally,. enlarging our foreign outlets implies an accompanying growth in the size of a certain number of businesses in order to allow them to better withstand the competition, to look after the marketing of their prcducts and the canvassing of foreign markets, as well as augmenting the share which equipment holds in the total of Belgian goods ex_~orted. JEUNE AFRIQUE: What are the basic fundamentals of your policy concerning north-south relations? _ Willy Claes: Our new industrial policy is directed equally at the questions raised by the current weakness of development of certain Third World countries. Today, one fourth of the world's popula~ion con~umes 80 percent of its essential manufactured goods while the other three quarters, living in tt~,e developing countries, must be � satisfied with 20 percent. This relationship must change, and it will change, what- ever the eventual will of t~e industrialized countries might be to oppose it. Thus, if one wishes to avoid any serious tensions of a worldwide nature, it is necessary to _ see to it that there is a balanced development between the north anc7 the south, from which will result a new international dis~ribution of work. The industrialized _ countries, by reason of their experience, will be called upon to act in favor of the general infrastructures (transportation, energy, housing, etc.) as well as to be responsible for the engineering and realization of industrial projects. Belgium intends to be even more of a presence on the supposed battlefield of large exports, but this process must be brought about by stimulating the complementarities and appropriate forms of collaboration, notably by sub-contracting, between Belgium com- panies and those of the developing coun~ries. If Belgium wishes to carve out a more importai~t place in world markets for industrial equipment, we are, at the same time, aware ttiat we must guarantee imports, on a permanent basis, of indvstrial products originating from the Third World countries. , In the same vein, the Belgian government proposes, conjointly with the other industrialized countries, to set forth a broad program whose goal will be to obtain capital for the "poor" nations among the developing countries. It is a matter, there- fore, of a"marshall plan" for development Lin boldface7. In effect, more and more numerous are those who, in Belgium as in other European countries, are aware that the current economic crisis will be overcome only if a more narrow collaboration is created between the developed and the developing countries, in order to confront present-day difficulties. Then,the north-south dialogue, so often demanded by the Third World, will become the instrument of a new growth, but one that is shared more equitably than that of the sixties. COPYRIGHT: Jeune Afrique GRUPJIA 1981 9803 ~ CSO: 3100/780 ~ FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY ECONOMIC ~ IT~L'Y.. DEVELOPI~NT OF ITALY'S RELATIONS WITS ARABS REVIEWED Iacreased Contact ~ Paris AL-WATAN AL-'ARABI in Arabic No 224, 29 May-4 Jua 81 pp 65, 66 [Article: "Historical aad Geographic Facts ia ltaliaa-Arab Relatioas; European Italy Pos:ttively Inclined Toward Arabs"] ~ [Text] The recent qears have witnessed coasiderable developmeat in relationa betweea Italy and the Arab w~orld. This develop~meat has i~;~cluded the political, economic and cultural spheres. Until receat times, the 1950's aad 1960's for exam;~Ie, the relationship binding these two sides was aa unclear and incomprehensible foggy re- lationship or, Iet ue say, a relationship with ao clearcut dimensions aad features. This despite the fact tn~c Italq, next to Greece, is conaidered the closest Europeaa countrq to the Arab w~orld aad therA is a rich history of the relations with this couatry which shares with the Arab couatries its lo^..ation in the Mediterranesa Basin. Moreover, there is a strong similarity between many of the austoms aa.d tradi- tions of the Italiaa people, especiallq the sov~he~,a Italians, and the peoples of the Arab Mediterranean couatries, i.e. the couatri~:s located on the Mediterranean coast. Despite ~].1 these common denominators, the relations tyiag Italy to the Arabs were not, r~s we have already poiated out, compatible with the facts, especial- ly the political relations, coneidering that Italy has beea one of the last Euro- _ peaa countries to show tmderstanding toward the Arab-Zionist conflict. This may have been due to the strong relations established by the successive Italian govern- meats with the IInited States, especially ia the aphere of foreign policy where there was evideat coordination betweea the Italian aad II.S. goveraments on manq of the ' positians tak.en by the two gover~meats vis-a-vis interaatioaal events, especiallq the Middle East issue. ~ Diseagagement With America Aowever, this fact begaa to dieappear ia ltalian foreiga policy, in the late 1970's and with the onset of the 1980's specifiically. The Uaited States can ao longer use Italy as a lauaching point for ite activfties aga3aet the Mideastern countries. Oae - of the distinguishing marks iadicating the exteat of the transformatian ia the Italian policy aad this policy's liberation from the shaclcles of ~he II.S. policy ia the area is fouad ia ltaly's condemnation of the Uaited States ia the wak.e of the ~ failure of tfie latter's attampt to free the~II.S. hostages in Tehraa [By military - force~. It has also becoiae evideat in Italy now that there has beer~ a more positive inclination in the interest of the Arab countries, especially when Francisco Coseiga 5 FOR OFF[CIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY was prime miaister and Emilio Colombo miaister of foreiga affaire. There has been a large increase in the number of viaita made by Italian officials to the varioua Arab couatries in recent years aad certaialy the Italian po?iticians have begua t~ . realize that Italy, with its geographic Iocation and oa the basis of hiatorical aad cultural reality, must interact to a greater extent aad more positively with the hot political eveats aad the influentiaZ economic developments that tatce place [in the Arab world]. Moreover, Italy is, by virtue of all of the abwe~meationed, among tihe Westera countries moat atrongly affected by the Middle East crisis. Italy relies on Arab c+il to meet 68 perceat of its energy needs. Local [oil] production is very meager and can be disregarded, cona~dering that it doesn't exceed 1.5 millioa tons annually whereas the countrq needa more than 100 million toas a year. Look for Oil Ia addition to the oil which represents an important factor ~i th~e consideratioa of Italian foreiga policy, there is aaother factor which has influeaced modify3ag the course of Italian policy vi.s-a-vis the Middle East generally and the Arab countries ia particular. This inclination appeared in the first half of 1980 wilea it was Italy's turn to head the EEC Council in the first 6 montihs of 1980. Therefore, - Rome took the leadership uf maaaging the EEC affairs in an importaat period during which the EEC member statea were finaliz~ng their views and preparing themselves ' for a role in the M3ddle East--to be apecific, for a role ia settling the Arab- Zionist conflict geaerally. Coasequeatlq, Italy fouad itaelf iaterested, perhaps for the first time in this caacerted masiner, with whatever was happeaing in the Middle East politically, economically aad culturally. We even notice that this interest did not ead or terminate with the tesminatioa of Italy's chairmanship of the EEC Council in the secaad half of 1980. Therefore, this period witnessed aumerous visits by Italian officials to the Arab couatries and the conclusion of b ilateral agreemeats betweea Italy and many of the Arab covatries. However, the impact of tlzis positive turn in Italian policq dim.inished quickly. An official. of the Italiaa Ministry of Foreign Affairs attributes this chaage to the eruption of the Traqi- Iraniaa war ~ad the reaigaatiaa of Cosaiga's cabinet at the end of September 1980. Cossiga was the maa whn headed the EEC meeting was held in Vienna on 13 June 1980 and ia which the nine EEC member statea issued their joint declaratioa oa peace in the Middle East. In this declaratioa, theae states eapressed their readi- nesa to participate in the efforts to briag about a compreheasine settlement ac- lmowledging the Palestinian people's legitimate rights to their land and their right to self-determinat ion. While recogniziag Israel's right to survival and securitq, the EEC member states coademaed the Israeli settlemmt palicq ia the occupied ter- ritories. They also declared their rej ection of the Israeli attempts to change the status of Jerusalem unilaterally. For the f irst time, the EEC member atates also stressed that the PLO ahould have a part 3a aay peaceful settlemeat. This may not include a11 that the ma~o~ity of the Arab countries want fram Europe. However, the Italian Miaistrq of Forelga Affairs considered this declaration by the EEC member states to be conaiderable progreas, the credit for which goes to Italian diplomacq which plaqed an effective role in changing the political direction conceraing the Middle East in the Netherlaads and Denmark both of which had been - lmown for their positions of full supporx for Israel. For the first time ever, we saw the Weat European countries not [only] biading themselvea to the declaration issued but [also] laying down the foundations for an active diplamary embodied in the mission which toured the Arab countries and Tsrael to familiarize itaelf with the points of agreement aad disagreement between the parties to the conflict. Th~s 6 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY miss3~on was lmowa as the (Thora) mission, Thorn being the chairman of the EEC Council for the second he?f of 1980. Oae of the most i~nportant results of the tours, con- tacts aad talks of the mission was the declaration by the European. couatries of their readiaess to offer int~rnational guarantees biadiag to bath side~ in the area with3a the framew~ork of a comprehensive peaceful settlemeat. Ia July 1980, whea _ Ita].q haaded over chairmanship of the EEC Cc~uacil to the Luxembourg, Italian Miuister of Foreign Affaira Colambo was planaing to underliae the bilateral relations be- tweea Italy aad the Arab couatries. ge pr,id aa official visit to Tuaisi.a during which he held talks with Chedli Rlibi, the Ara~o League secretary geaeral. Shortly after- war3, "Izzat Ibrahim, the Iraqi vice presideat, vlsited Rome with 3 Iraqi ministers 3a response to aa official invitatioa from ~he Italian Government. Meaawhile, active preparations were uaderway to receive Pr~uce Saud al Faysal, the Saudi miaister of foreign affairs. But suddenly the Iraqi-Iraaian war erupted aad the ICaliaa cabinet fell. Accordiag to an Italiaa diplomat, Italy had attached big importance to the Saudi minister's visit and was lcoking forward to restoring Italiaa-Saudi rela- t3ons to the conditions that prevailed before the baa on the eaportation of S~udi oil to Italy. In aay case, this problem has receatly beea solved satisfactorily to both sides. Generally, it can be said that the relations between Italq aad the Arab homeland are coastantly developiag in a posi~ive direction at the various palitical, economic and cultural levels. Inaofar as each individual Arab country is concerned, it is evident so far that Italy is trying aot to interfere in the political axes that emerge between some countries of the Arab ha~eland. Italy's interest lies, accord- ing to the statemeats of more tFian oae Italian official on more thaa one occasion, in the disappearaace of the petty conflicts among the Arab states so that Europe, including Italy, may be able to deal with an Arab world that has unified positions on both the foreiga and the damestic policies. _ Growth in Trade Relations - Paris AL-WATAN AL-'AxABI in Arabic No 224, 29 May-4 Jun 81 pp 69-72 _ [Article: "Italy: Economic Artery Between Europe and Africa; Italiaa Exports to Arab World Triple in 4 Years"] [Text] There is the following faaoous statemeat by a prominent Ital3aa busiaessman in which he describes the necessar.q guarantees for the survival, growth and de- velopment of the Italian economy and iaduatry: The only soluti,on before Italy is to develop its econamic relatioas with the Arab world, especiallq with the Arab . oil couatries, to the utmost degree gossible. From them we acquire oil, which is the energy aecessary to run the factories, and to them we eaport the largest volume possible of the production of these factories at prices and on conditions uamatched in other couatries. It seems that the Italian busiaessmen aad the Italiaa Government have fully realized this fact or takea this advice, as they describe it in Italy. A single glance at the developmeat of the Italian exports to the Arab coun.tries ahows us the estent of the stunnjag growth in the econamic relatioas between the two aides in a short period not over 4 qears. Whereas the value of the Italiaa exports to the entire Arab world did not eacceed $3,746,831 ia 1976, we f~nd that the figure rase to $5,237,347 in. 1977 and to $6,219,446 in 1978. In 1979, the f igure reached $8,668,837. ~ All sigas indicate ~hat the 1980 f igures will exceed all the preced3sig f igures aad all the e~pectations follow3~ig them. [All figures as published] 7 - FOR OFF[CIAL USE OIYLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY - Italq is the biggest state in the Mediterranean Basin. Lil~e all the industrial countri~.s that lack local energp resources, Itsly has beea strongly affectedby,-the rise of oil prices ia recent years, especial~v whea we learn that it depeads on oil to meet 68 percent of its eaergy needs. Deapite the efforts it is exerCing to increase its imports from other sources, such as Nigeria, Venezuela gnd M~ico, Lhe largest part of Italy's oil imports comea fro~ the Middle East. Thus, crude oil repreaeats the burdea that saddles its balance of paymeiits. This burden grew heavier in 1979 in particular wisea the deficit ia ltaly's baYaace of payments _ amounted in the first 8 maaths of 1979 to 11,182,000,000,000 liras--$12,912,000,000. _ Eaergy Problems and Their ?~ocal Causeg . Thus, the Italian economy, like the economies of the other industrial couritries, has _to_shoulder the_wei~ht of the zis3ag prices of crude oil and of the interruption of some oil supplies because of the Iraqi-Iraaian war. The quaatity of oil supplied bq Iran to Italy has dropped by a large amount since the Iraaiaa revolutioa whereas uuder the shah, Iran wae the second largest supplier of ail to Italy after Saudi Arabia. Iraq then replaced Iraa as tihe second largest supplier and this eituatioa cantinued until the outbreak of the ?*_'aa3-Iraaian war. How~ever, maay political observers aud economic aaalysts believe that the blame for the interruption of oil supplies fram some sources falls on the shoulder of Italy itself. The government-controlled Italian Sydrocarboas OrgaaizatiAn, imown as ENI, has failed to implement the dir~ct importation deal for 12.4 million tons of oil concluded with the Saudi Petramin Orgaaization becauc+e the Saudis stopped delivery of the oil whea the political scaadal concerniag the $114 million agreed - upon as "cmumission" spread in Rcme. The goverameatal and parliamentary iavestiga- tions have reached no concluaive result and have found no evideace of aay payments to certaia ltaliaas. How~ever, this has aot preveated Italp from importing Saudi oil via the interaat ional oil campaniese There is aaother story with Ruwait, the gist of it being that Ruwait has stopped delivering oi1 to two Italian importers who have aot beea able to pay what they owe it, namely the SIR Compaay and the Atilio-Italiana Group. Ruwait was also aanoyed whea the Pont OiI. Company, headquartered in Geaoa; sold a ahipa~eat of Ru- wa~.ti oil on the high seas aad this shipmeat was ualoaded in South Africa. The situation has also beea affected by the finaacial difficulties faced by the Italian conaultiag aad contracting firms. The major shareho'lder of the (Itaaat) Compaay, a company which had an eacellent reputation in the Third World, liquidated the compaay. However, the labor uaions and the campany emploqees protested very strongly aad so the governmeat appoiuted a represeatative to take charge of n~n~ting the ~ compaay. Exactlq the same thing was repeated ia the case of the group o� construc- tion companies supervised by Mariro (Giagini) which had important coatracts in Saudi Argbia aad Iraq. The courts ara still look3ag iato the affair of these campanies and no decision has beea made qet. It is evideat from the above-a~entioaed examples that the curtailmeat of the oi]. relationship betweea Italy aad the world's o il couatries, especially the Arab countries, is due fuadameatally to some domestic Italiaa actions which have nothing to do with the other side, meaning the oil source. Arabs and Economy As for Italy's economic relationship with the Arab couatries, it is, as we have already mentioned, generally good aad developing, especially with the countries 8 , ~ APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY - close to Italy, such as Libya, Tunisia and Egqpt. Ytaly [presumably meaaing Libya] is considered among the best markets for the Italian exports. Perhaps this is due - to the old historical relations binding the two couatries, in. add~tion to the geo- graphic proximity. Nea~ly 15,000 Italian.s wurk in Libya at preseat. As for Saudi Arabia and the Arab Gulf States, Italy is exertiag usgent efforts to develop the � relations with them. It has aow become �amiliar to see Italiaa fixms implemeating large, mediu~ and small pro~ects 3n the Arab countries. Perhaps one of th~e most important pro3 ects eatrueted to an Ital3an f irm to imple~ment in the Arab world is the pipeline which will carry Algerian methane gas to Italy via the Strait of Sicily. TEie first_real aad peraaneat liak between Afri~a and Europe was completed in 1980. - This link or this pipeliae will go into operatioa by the and of I981 to carry gas to Italq, and maybe to other European countries. The length of this pipeline which crosses the Mediterraaeaa is 2,498 l~s aad its costs amouats to $3.5 billion. It will transport gas from (Hasi Ram].) in the Greater Sahara to the European pipeliae network which exteads to (Akoaisk) in the North Sea, the gasf ields in the Soviet Uaion aad the ~,tlaatic coast of F~aace~ The observers likea this ambitious project, which is a record �igure in laying pipeline in deep water, to a aecret rope l~uking North Africa with Europe. The Italiaa fisms taking part ia layiag dowa the pipeliae prefer to call it the artery pipeline becauae aa artery is a living thing that etaada as a symbol and as a testi- mony to t~e two-waq cooperation aad co~unication across the Mediterranean. In aaq case, this pipel3ne is capable of turning Algeria iato the biggest exporter of ~ the gas to Italy because the pipeline will carrq 30 percent of Italy's needs in - 1985. The other suppliers, besides the local Italian production, are the Soviet Union, the Netherlaads aad Libya. Special Relat{.oas With Gulf States This covers Italy's efforts in the biggeat pro~ect of its kixid being implemented in oae of the Arab couatries is conceiued. If we contiaue to review the activities of the Italiaa firms in the Arab world, we will find that the Italiaa (Acoli Marilli} Firm, along with an Italian conaortivm, is implementiag a contract valued at 400 million dinars to supply power production equipment aad plaats for waste treatmeat, air conditioniag aad power distribution. In Kuwait, the Italiaa (Techait) group of compaaies has won a contract to design a system for load3ng oil truck tankers capable of controlliag weight, flow and delivery, of recordiag the value [of deliveries] and of prepariag the bills. This pro3ect will cost in its eatirety $115 million aad Work on it started� �ia 1981. These are ~ust esamples of the projects the Italian f irms are implement~ng in a number of Arab couatries. It is worth aotiag here that the economic aad industrial relations between Italy and the Arab hameland are not conf ined to such pro~ ects but go beqond to other spheres, such as the ezportation of consimmer goods. There is, for eaample, the ICE [Foreiga Trade Inatitute] which has braaches ia nearly a11 parts of the world, iacludiag 12 branches in the Middle East. Thep all work to enha.nce trade betweea Italy ~d the Arab homelaad. At present, these off ices are _ engaged in campa~gas to improve the sales of Ita].ian home appliaaces in Saudi Arabia, the UAE aad Kuwait. There is also the Italia.n Industrq and Com~nerce Fair which is held in Sharjah enery year and whiah displays Itali~n foodstuffs, cookiag ware, light machiaery and construction materials, in addition to kitchen uteasils and s inka . 9 FOR O~FICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-04850R000400030056-3 - FOR OFFICIAL USE ONLY - F`uture... We thus find that the Italian.firms have a broad market in the Arab world. If wA continue citing examples, we find that an Italian firm is curreatly busy implement- ing a$20 million contract to jmprove Benghazi's sewers. But one of the things for which Italy is best laiowa is its production of ma.rble, porcelain and granite. From Italy or by way of Italy come three quarters of the world's marble aad granite p~o- duction and 82 percent of the machinery used ia cutting and polishing rock. There was a stuaning increase ia ltaly'a marble aad granite exports from 1975-77 due to flourishing construczivn activity in the Arab countries. Saudi Arabia became the fourth largest importer of Italiaa marble whereas it had previously occupied 14th place. The value of the exports to Kuwait has risen bp 500 percent. In 1978, Saudi Arabia occupied second poaition among importers of Italian marble even though there are similar good-quality materiala in same Mideastern couatries. But the Itali,an pr~oducts are different ia quantity aad quality from the similar materials found in Iraq and the UAE, far example. In Saudi Arabia, the locally available marble is suitable for limited purposes, such as f loors. Thus, Italian u~rble finds a broad market ia the Arab covntries, especially ~n Saudi Arabia and the Gulf states where huge construction pro~ects have beea going on for years and will continue for many years to come. This fact is taken into consideration bq the Italiaa fiYms and , governmeat which seek to take part in these pro~ects that open broad spheres before the Italian ecoaomy, iadustries aad labor. Italy's Heavq Equipmeat and Machiaery Expor~:s to the Arab Countries (In millions of Italian Liras) Name of Country 1977 1978 1979 Saudi Arabia 12.8 I2.8 12.4 U~ 4.6 2.6 0.3 Jordan 0.8 0.8 1.3 ' Ruwai:c 6. 8 4.1 2. 7 Gran~l Total 25.00 20.30 16.70 Ita1y's Arab Oil Imports in 1918 ~~a Millions of Tons) Name of Country Volume in Million Tons Percentage Abu Dhabi 1.979 1�$~ Algeria 4.052 3.8X - Dubai 0.876 0.8% Egypt 6.348 6�8% Iraq 18.950 17.5% Kuwait 9.577 $�9~ 10 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2047102109: CIA-RDP82-00850R400404030056-3 FOR OFFICIAL USE ONLY Libya 14.899 13.89: Qatar 0.854 0.8% Saudi Arabia 22.394 20.79~ 5yria 2.123 2.OX Tuaisia 0.912 0.7~ Italy's Marble Exports to the World 1978 1979 Value Value Volume In Million Volume In Million Country In Tans Italian Liras In Tons Ita'tian Liras West Germany 691,151 169,38I 590,759 122,073 Saudi Arabia 258,900 70,310 171,433 45,920 Fraace 185,235 42,919 212,409 38,059 IIaited States 130,798 42,344 106,202 32,484 Kuwait 126,828 1~,676 92,994 ".12,025 Japan 42,962 15,101 35,122 8,810 Libya 72,648 14,163 77,070 8,294 _ Switzerland 139,026 14,017 122,760 9,656 Spaia 68, 378 !.13; 57.1 58, 963 9, 023 ' Belgium 59,420 13,521 58,452 10,192 Britain 155,499 13,405 256,824 10,496 Austria (79,670) 13,325 67,839 9,723 Netherlands '46,877 11,826 46,412 9,035 _ Graad Total 2,056,825 499,559 1,897,239 325,790 Italy's Exports to the Arab Countries (In Million Italiaa Liras) Couatrp 1976 1977 1978 1979 Algeria 354,180 579,168 804,155 892,567 Bahraia 15,324 26,493 26,007 28,904 D~ ibout i - - - 8, 081 11 FOR OFFTCIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY Egypt 243,692 300,181 345,590 431,338 Iraq 206,297 202,315 274,035 558,050 Jordaa 49,376 60,407 75,854 101~,667 Kuwati 151,888 229,756 243,896 270,237 Lebannin 27,332 176,751 197,424 294,788 _ Libya 835,280 1,810,035 1,106,860 1,597,869 Mauritania 4,120 5,972 5,560 9,350 Morocco 117,880 185,945 181,925 216,861 pmaa 9,808 16,248 16,643 22,921 Qatar 22,288 37,132 56,566 50,238 Saudi Arabia 55,635 953,612 1,242,889 1,563,153 Somalia 26,279 64,722 79,565 112,351 Sudaa 56,612 63,823 50,662 37,384 - gy=~ 189,950 192,102 201,275 376,004 109,572 163,858 1ffi7;655~~ 281,356 U~ 1I5,446 170,240 213,148 280,402 yemen (A,den) 9,803 16,349 15,157 21,135 Yemea (San'a') 16,601 34,621 37,638 57,816 Grand Total 3,117,363 4,561,730 5,342,504 1,212,472 (In Liras) Graad Total 3,746,831 5,237,347 6,219,446 8,668,837 (In Dollars) - [Box on page 71] Constaat Growth ia ltalian Exports Italian exports to the OPEC co~mtries, ar?d also to the Arab countries, registered coasiderable progresa in 1979 aad 1980~. The increase rate ia the 1980 exports to the OPEC couatries, which ia.clude Aral~ coumtriea, amouated to 31.3 percent over 1979. The increase rate realized by the Italiaa exports to the Arab couatries amouated to 10.84 perceat in 1979 and I2.76 perceat in 1980. 12 , ~ APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400034056-3 ~ FOR OFF[CIAL USE ONLY [Box on page 71] ITaliaa Trade Represeatation Offices in Middle East - Offices of the Italiaa ICE ia the Middle East: Algeria Office Italiex~ pour le Commerce F~terieur, 8 Rue Hamaai, Algiers, te1 635889/ 635896, telex 52148. Egppt Italian Trade Ceatere, Shari Tahrir, A1-Dokki, Cairo, tel 705631, telex 92676. Ethiopia . Italiaa Iastitute for Foreiga Trade, Eresco Building, PO Box 3185, A,ddis Ababa, teI 444043, teles 21233. Iraa Italian Trade Commissioner, 145 Shah Abbas Rabir, Tehran, tel 831001/832727, telex 213300. Iraq _ Trade Promotioa Section (ICE), 2/B/3/3 Zuqaq 4, Mahala 601, Maasur, PO Box 13006, - Baghdad. Ruwait Italiaa Trade Commissioner, A1-Salhia Ca~ercial Co~plex, 1/3rd flo~r, Ituwait, tel 447582, te.~.ea 3483. Lebaaoa Tnstitut Italien pour le Com~erce Esterieur, Ceatre Sabbagh, Bureau 406, 4th floor, _ Hamra, Beirut, tel 342607/8. ' Libya Italian Institute for Foreiga Trade, Maidaa Dahara, Palazzo Saghezzi, CP 12368, Tripoli, tel 48207, telea 20~91. Morocco Off ice Ttalian du C,omQaerce Exterieur, 291 Boulevard Mohamed~V, Casablaaca, tel 278182, telex 22850. Saudi Arabia Italian Trade Commissioner, Shari ~ha].id ibn Walid, Sharafia, PO Box 1193, Jeddah, tel 665~167/6659913, teles 44439. 13 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY ~aisia Institut Italien pour le Commerce Fxterieur, Immieuble Africa, 50 Aveaue S Bourguiba, PO Box 1222, Tunis, tel 255107, telex 40934. UAE Italian Trade Commissioner; Shaikh Hgmdan Building, PO Box 6752, Abu Dhabi, tel - 21808, telex 3487. COPYRIGHT: AL-WATAN AL-'ARABI, 1981 8494 - CSO: 4304/33 14 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 ECONOMIC ITALY CIAMPI'S ANNUAL RFPORT TO BANK OF ITALY Milan IL MONDO in Italian 12 Jun 81 pp ~0-120 [Verbatim transcript of concluding remarks by Carlo Azeglio Ciampi, Governor of the Bank of Italy on 30 May 1981, published by the Bank of Rome as an insert to IL MONDO for its 12 June 1981 edition] /Text~ Honored Guests, _ Going back to recount events that, even though they are as recent as those of 19~0, tend to be driven from one's mind by subsequent occur-;,. rences,_is always necessary not only out of respect for the Bank~s traditional duty to this annual assembly, but out of the conviction that a detailed knowledge of those events stimulates and sustains the act of will that leads to action. I should like first of all to emphasize the long-standing continuity of the Bank~s determination to pursue efficiency, through innovations in its internal arrangements, the contribution of a thoroughly renovated and skilled staff through advances in training processes, and our aware- ness of the essential bond between the institution and the interest o� the puaiic to be served. Interaction between our activity as central bank and guardia~ and eco- nomic and juridical research has intensified. Getting down deeper into everyday activities, research'is beginning to come up with more helpful suggestions as to procedures and insights which are its specialty, and in return getting some very fruitful and stimulating feedback. Over the course of the current fiscal year our budget machinery has been improved, and we have gone ahead with our review and revision of operat- ing procedures, particularly for the provisioncial treasuries and for the monetary and financial markets; now nearing completion is the pro- ject which will give the bank new and more complex electronic systems; further innovations are in the advanced planning stages which will im- prove cashier services and speed decentralization of to branches. Improvements have also been sought in staff organization. Partly as a followup to the agreements reached last year with union representatives, 15 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY we have worked out a complete format for union and publ olicies tions, and some changes have been made in career advancement P ~ so as to upgrade relevant skill level~ for individual positions and esta- blish closer correlation between rank, responsibility, and salary. Developments in these management aspects have suggested alter.ations in the central office tables of organization,making due allowances for the growing importance of planning and training procedures. To the Bank~s staff, to whom I am bound by working relationships deve- loped over all my professional career, I express my deep and affection- ate thanks for the commitment and dedication they have displayed. That comraitment expresses a style that is part of the heritage of the Bank and of our nation, which tells us that the soundness of what we do in our governance of the currency draws much of its strength from discre- tion. ~he International Economy In the course of 1980 the international economy at first showed very slight gains, followed by a modest decline. Everywhere the recession- ary effects of the second oil shock were compounded by the impact of restrictive economie policies. Growth in the gross domestic productin the OECD countries dropped from 3.6 percent in 1979 to 1.3 percent. Unemployment, which affected $.1 percent of the labor force in the final quarter of 1979~ topped 6 per- cent at the close of last year to hit 23 million, and that figure has risen still higher in the first part of 1981. The crude oil price explosion of 1973-1974 Was followed by sharp rises in base pay and an increase in personal savings rates. Business re- acted to the squeeze on profits and conswnption with sharp reductions in inventories and in fixed investments. Expansive tax measures were taken to cushion the negative impact on production of the rise in oil prices. In this second crisis, the wage response was moderate; it was accom- panied by a decline in savings rates, while economic policies concen- trated their efforts on containing the secondary repercussions on costs and prices. Helping to keep wage gains modest was the conviction gaining ground in business and labor circles of the need for accepting the real transfer connected with the mounting cost of oil, refraining from asking for higher prices to offset the mounting costs of energy� In some countries where there are escalator mechanisms available, income controls par- tially neutralized their operation. Containment of domestic costs made it possible, throughout the OECD area, despite the impact of oil prices, to get the decline in consump- tion, after reaching a peak of 12 percent in the first half of 1980, 16 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R044400030056-3 FOR OFFICIAL USE ONLY _ back down to 10.5 percent in the second half. Before the latest oil ' crisis the average wage per employee was growing by 9 percent per year and the decline in buying by ~ percent; in the second half of 1980, wages rose 11 percent, as did consumer prices. Costs in terms of unemployment and inflation were lower in those coun- tries where policies designed to slow the growth of the money and cre- dit supplies worked in harmony with positions taken in concert by labQr _ and management and with more centralized collec~ive bargaining. The steadiness of consumption and productive investment, along with the _ fact that the inventory cycle was not nearly so spread-out as it was during the first oil crisis, made the production slump less acute than it was in 19~4 and 19~5, despite the lesser degree of economic phase - slippage among the several countries. As early as the opening months of 1980 the United Kingdom, Canada, and the United States were moving toward recession; in the United States, - however, the cyclical change came almost a year later� than the majo- rity of forecasters had predicted. In Japan, Italy, France, and Fede- ral Germany expansion continued through the first half of the year. In the second half, all the decline affected all the principal countries, with the exception of Japan and Canada. In the opening mon~:hs of this year the world economy has shown some growth recovery, felt mainly in the United States and Japan. Equally uncertain is the short-term impact of American economic policy. The new administration has laid down short-term guidelines on the basis of which a diminished role for the public sector should stimulate pri- vate in~+iative and savings and cut ba~k existing patterns of regula- tion. This was designed to encourage profitable accumulation and de- velopment, simultaneously reducing the urgency of public intervention to rescue troubled sectors of the economy. On the monetary front, the _ slowdown in aggregate demand would insure a steady decline in infla- tion. In the short term, the burden of stabilization falls primarily on mone- tary policy. Since the demand for credit is hardly slowing at all, the quantitative goals of the Federal Reserve System continue to require high and still climbing interest rates. This is forcing the European countries into the unattractive choice between accepting higher inf la- tion rates via the exchange rates, and pursuing monetary policies more restrictive than required for domestic purposes. Even if economic policies prove to be aware of the ne~d to avoid any further decline in production, the outlook reveals, even more than in recent years, very slender margins for growth in domestic demand and employment in heavily energy-dependent countries. Those constraints will become far more stringent upon those economies that delay their quest for greater efficiency, higher productivity, and expansion and upgrading of their productive capacities. 17 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R044400030056-3 FOR OFFICIAL USE ONLY International trade in 1980 shifted into lower gear, rather than act- ing to expand the cycle. The deceleration from 6.5 to 1.$ percent, in the volume of goods traded can be imputed in large measure to the drop of 10 percent or so in oil exports, which had increased 3�5 in 1979� Most significantly, crude oil imports by the industrial countries shrank by 14 percent on the average, with a peak of 20 percent in the U.S. Declines in volume of overall imports running between $ and 8 percent were recorded in the United States, Japan, Canada, and the United King- dom. The United States and Japan, as a result of earlier depreciation in their own currencies, also showed remarkably energetic growth in exports, with increases of 8 and 18 percent, respectively. The United Kingdom, while suffer�ing losses in exports of manufactured goods, de- rived some advantage from its increased oil production. Principally in the wake of these developments, the UK and US recovered to a position of current surpluses; Canada climbed back to parity, while the growth of the deficit balance in Japan proved to be relatively moderate. Deterioration in the trade balances of the major industrial countries was concentrated in Federal Germany, in France, and most of all in Italy, where it hit $~.5 billion, triple what it was in 1979� In France the deficit was $7 billion by comparison with 41 billion in 1g79� These shifts occurred although the most painful increases in overall energy spending were recorded in the United States and Japan, where the deficit swelled .by $1$ and $20 billion respectively, and in both cases reach totals of around $'70 million. The growth in the energy deficit was on the order of $10 billion in Federal Germany and France, and about $8 billion in our country. The worsening of the German deficit, the continuation of a surplus in the United States and the United Kingdom, and the new direction in mo- netary policy in the latter two countries have had some impact on the standings of the principal currencies, on recycling patterns, and on the channels for creation and absorption of international liquidity. The upward spiral in interest rates began in 1g79 in Federal Germany: in 1980 and thus f ar in the current year the Federal Reserve Board's rigid controls over the money supply has led to unheard-of and giddily variable prime rates for all credit operations in dollars. Along with this went high real interest rates as well; the latter ran even higher ~ on transactions in marks than on those in dollars, despite a steadily softening economy. In short-term international capital movements, operators were keeping a sharp eye on exchange rate differentials and their variation~, keenly mindful of the behavior of exchange rates over the period of fund wit~ holding. Iri 1980 the relative positions, current and projected, of mo- ney supplies in the United States and Federal Germany lent scant pl~aus- ibility to the notion of a depreciation of the dollar vis-a-vis the Deutschmark. The finance market therefore chose to f avor investments in dollars, thus pushing up their value abroad. The general approval 18 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY greeting the new President~s economic policies has further ted the rise of the dollar. The decline of the mark vis-a-vis the U.S. dollar, but also against the Canadian dollar, the pound, and the yen, may have been perceived by the Federal German authorities, at least to some degree, as a price to b~ paid for regaining its competitive margin; in relation to these four currencies, as of the start of 1980 up to the present, the variation has run from 2$ to 30 percent, and most inevitably have very marked impact on current balances. Last February, the urgency of combating this imported inflation moved the German monetary authorit ies to assign priority to defense of the value of the mark abroad over support for productive activities. A spread- ing dearth of spot money triggered noticeable increases in interest rates, and the exchange rate between the mark and the dollar settled down temporarily. With the rise of the German rates similar trends set in in all the principal industrial countries with the exception of Japan. Over the most recent period, despite some slowing in the rise of inflation, tahich today stands at around 10 percent measured by the consumer price index, rates in the United States have begun to rise again: the prime rate has hit 20.5 percent. This has brought sti11 further strengthening of the dollar, and a stiffening of restrictive attitudes in the other countries. Rocketing interest rates cannot but delay recovery and render it sti11 more fragile: even from this angle the present preeminent reliance on monetary policies to whip inflation is showing its heavy costs. Notwithstanding the huge OPEC surplus, up from $65 to $120 billion, the recycling process has moved along without any serious tensions, partly following the distribution of deficits among the industrial countries. Specifically, recourse to forms of direct financing by OPEC countries. for a total equivalent of more than $10 billion, on the part of Federal Germany, Japan, and to a le sser extent Switzerland has eased the pres- sure on private internation al markets, simultaneous~y hardening the trend toward a system with more reserve currencies, which includes as well such composite units as the DSP and ECU. This new stance is not necessarily unstable. The management problems it entails, however, will be more demanding and will c all for a more complex process of coordina- - tion among the monetary galicies of the major countries. Net financing of balance of payments deficits by official agencies has swollen from the 1979 level of $13 billion to $20-billion in 1980, mainly because of the International Monetary Fund~s action on behalf of tre developing countries. The total net credit flow through the marKets, though, stayed substantially unchanged at arnund $1$0 billion. The developing countries c:ontinued to increase their indebtedness, even thr~ugh recourse to the market; h~wever, they have had to resort in- creasingly to direct relations with single lending institutes, rather than with consortia of banks, and to accept price hikes and increases 19 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY in commissions; some have agreed to a contraction in gross reserves heid in the European markets. All of these are clear signals of ten- sion, and they counsel closer surveillance over international banking operations so as to forestall excessive concentration of risks. The difficulties loom formislable particularly when we 1oo~k ahead: the the troubles due to rising oil prices c~me on top of those deriving from the strength of the dollar itself and from the prohibitive interest rates. In 1979 and 1980 the twelve major developing countries saw their total oil bills rise frotn $14 to $39 billion and their interest payments from to $18 billion. In some major economies interest on indebtedness vis-a-vis exports have reached levels ranging from 20 to 35 percent. It is vital to keep the costs of financing from becoming unbearable. It is up to the less prosperous countries themselves, first of all, to set about putting their own houses in order, partly through assur- ing more attractive conditions for direct investments. A basic role must perforce go to the OPEC countries, which are, for that matter, greatly expanding their aid and financial relief to countries with far lower incomes. That same responsibility is incumbent, albeit with some i time-lag, upon the industrial countries themselves, specifically through maintaining an adequate volume of aid d~signed to spesd up the process ; of st rengthening economic structures, either directly or through the multilateral institutions. The international agencies have already struck out along the road that leads to more trenchant, more lasting support, better attuned to the evolution of supply capacity, particularly in the energy field, while deepening their commitment to cling to their primary calling, which in the case of the IMF is that of keeping watch over the economic policie s and outsidE imbalances of all its member nations, as well as on the processes by which international liquidity is generated. ' While occasional resort to the market on the part of the Fund must not be ruled out, it is wise to keep it within proportions that will not distort the structure of its quota-based resources. It is preferable to take the road of direct Fund financing by the member nations: the recent agreement with the Saudi monetary authorities and with a group of central banks in the industrial countries are a significant step in the right direction. In the second year of the EMS the currencies bound by the intervention machinery have shown remarkable consistency, encouraged by the mark~s weakening trend vis-a-vis the dollar. Furthermore, the effect of con- vergence on price advances has been suppressed by the disparate propen- sities toward inflation in the individual countries and shifts in com- petitive standings tiave been significant. Changes such as these have - been accentuated by the equally disparate content in foreign currencies in the exchanges of individual countries. The pound sterling, which is part of the EMS but is not bound by the exchange agreement, buoyed up by the differential in interest rates i 20 ~ ~ APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 , FOR OFFICIAL USE ONLY and the current surplus, appreciated by 30 percent between the end of 1979 and Janu~ry 1981 by comparison with the other Community curren- cies; subsequently, with the reversal in the rate differential, it declined, although reta~ning a 30-percent edge over the end of 1979� Since inflation, although slowing, is still above the average for the other industrial countries, the United Kingdom~s loss of competitive standing proved too serious to be offset by the appreciation of the pound. Among the currencies bound by the exchange agreement, the lira showed the sharpest alterations, in terms of nominal exchange rates, in a - direction opposite to that of the pound. - ~ - Beginning on 20 February, on the heels of the DBB~s decisive move to t i~hten its restrictions, the mark began gaining strength, floating back up to the top strata of the system, and in so doing pushed the lira beyond the bottom threshold of divergence, thereby whittling its bilateral margins available vis-a-vis the mark and the French franc down to around 1.$ percent. Our currency thus became vulnerable to speculative onslaught. Since the perfbrmance of the basic variables did not lend credence to its uouncing back from the divergence thresh- old, the necessary elbow room was restored by reducing the central ex- charige rates within the EMS by 6 percent. The lira's depreciation on the market, foll.owed by the adjustment to parity, was thus contained with respect to the currencies bound by the exchange agreement: as of yesterday, it stood at less than 2 percent. All the other currencies in the system showed modest bilateral fluctua- tions and improvements, albeit diversified, in competit~ive standings. Until spring of this year, the French f ranc stayed comfortably within ~ the upper portion of the oscillation range, while the Bel~ian franc stayed stubbornly in its lower reaches: frequently the two currencies touched the opposite bilateral limits, giving rise to massive interven- tion. The German mark reacted spectacularly to the shows of strength by the dollar: heavy support, buying ensured both against the dollar _ and against other Community currencies. In the past few weeks, concom- itantly with the elections in France, the franc has been under heavy pressure, which led to stringent currency and monetary restrictions: short-term interest rates, for instance, soared to 22 percent. The mark, - while weak against the dollar, is still the only currency in the exchange machinery that is steadily running out in front of the field. On the whole, over the first $ months of this year, the cumulative ef- fect of outside pressures plus troubles at home has brought strong ten- sions within the EMS. Above and beyond the need for closer coordination among the economic po- licies of inember nations and for more effica'~i.ous support both for the budget and for the Communities' other financing machinery, which wou~ld be expanded in both role and dimension, the systemts cohesion suffers from the lack of a common policy toward the dollar ans of agreed-upon approaches toward the United States monetary authorities. They have, 21 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/49: CIA-RDP82-00850R000400034056-3 FOR OFFICIAL USE ONLY as a matter of f act, just recently manifested a willingness to refrain, as part of the new orientation of U.S. economic policy, from interven- tion in the ~xchange markets, save"ir1 truly exceptional circumstances. The European Council resolution establishing the EMS posited the neces- sity, subsequently reaffirmed by the heads of state and government, for - consolidating the initial designs on the basis of a specific institu- tional stance, via the creation of a European Monetary Fund capable of sustaining the process of monetary stabilization. Holding the EMS together and strengthening it can hardly be done with- - out establishment of a fund capable of upgrading the ECU as a medium for reserves and regulation, for assuring its existence in some less precarious form, and for providing it with an endowment tailored to ~ oi~r actual liquidity requirements. All this implies a qualitative leap which will be possible only with the support of a determined political will. That political will must be directed not only, nor so much, at the solution of institutional problems as primarily at evoking behavior consonant with the commitments made when the System was launched. Our primary need is for greater determi.nation in reining in domestic infla- tionary thrusts on the part of countries, like our own, that are fur- thest away from stability. The Situation in Italy The moderate expansion of the It alian economy folldwing the 1977 reces- sion erupted between June 1979 and April 1980 into an explosion in do- mestic demand the like of which had not been seen in the last 20 years. ~ The subsequent turnabout ushered in a brief phase of decline in pro- _ duction toward levels higher than those before the expansion phase. Inflation, too, showed a spurt in the 6 months prior to the peak of the cy~le; helping to fuel it were rising costa (particularly energy costs), demand pressures, azid th~ tightening bottlenecks in sector supply. Upon the slowdown in the middle quarters of 1980 followed yet another hot spell, with a rate of increase of more than 20 percent per year. - The reversal of our country's economic situation came about several ~ months later than expected, la~ging behind that in the other major in- - dustrial economies; the vigor of domest�ic demand was far greater. In a very short time we had gone from a fat surplus to an even f atter de- f icit in our current balance of payments. What got us out of the recession during 1978 was, f irst of a11, our exports, and second consumer demand. Consumer demand continued to grow through the first half of 1979, buoyed up by the rise in discretionary income, which later topped the growth rate. The twin performances of exports and consumer buying triggered a stsong ugswing in investments in the secQnd I~alf of 1979, mainly in machinery and eqixipment. In first-quarter 1980, the rate of ut3.lization of plant capacity was pointing to a widespread condition of excess demand. For 9 months from 22 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 , ~ the start of the acceleration into the expansive phase, the gross in- ternal product went on rising at an annual rate of 10 percent. Inter- nal demand was still at its peak during the second quarter: the in- crease over the preceding year came to 10 percent i:~ all 6 percent in private cohsumption and 26 percent in investment in plant machinery and equipment. The first signs of an inversion of the cycle came with the first-quar- ter decline in export volwne. By reason of the delays with which the relative price adjustments ac~ed on the flow of trade, the effects of the loss of competitive standing that had been uninterrupted since the middle of 1979 were particularly intense during the expansion phase and, beyond it, right into the summer. Our reduced success at pushing into foreign markets was reflected in the decl~ning share of Italian - goods in world trade in manuf actured goods, which had itself been on the downswing since spring. On top of the initial recessionary push from the foreign. f actor came the slowdown in consumer buying caused by the automatic tax siphoning and the deterioration in the terms of trade. Fixed investments held relatively steady, until a mild 3-per- cent decline shawed up in the third quarter. Accumulation of inven- tories of fnished products underwent an interruption that summer: the decline of production over that period might betoken greater readiness on the part of indus~ry to take advantage of the chance to extend the summer vacation period to pare dawn their production plans to match the slackening in demand, probably feeling an additional nudge in that direction f rom the shrinking availability of credit and its rising real cost. During the second and third quarters, despi�te some easing of pressure on producti've capacity and the momentary plateau in the international spiral of price increase~ for raw materials, inflation and the trade - deficit persisted at high levels, though they did taper off slightly. The intention to correct the demand structure and encourage the emer- - gence of a trend toward stabilization suggested the measures taken on 3 July, which increased the tax bite on consumption, reduced the fringe- benefit burden on corporations, and exempted interest on new l~ond is- sues from taxation. Those measures had to be withdrawn and submitted anew, with some modifications, in August; they lapsed at the end of September; they were submitted once more and finally won passage in the 3 months that followed. In June and August, the Bank of Italy fought off assaults on the lira's value abroad. At the end of September restrictive monetary and cur- rency measures warded off the chance that destabilizing expectations might take root in the current budget deficit and in a government cri- sis precipitated over the issue of the way the economy was being run. Inflation began to heat up again. The last quarter thus brou~ht full awareness, thanks to the performance of the economy, of the.abrupt ~a1.t in the wake of the reversing cycle: we were moving into a phase of stagnation with renewed inflation. 23 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400034056-3 _ FOR OFFICIAL USE ONLY Also helping to keep prices from turning onto the desired path was the autumn rise of the dollar. Above a11, the new wave of government spending and the mounting budget def icit, above and beyond their direct effects, projected a permissive image that aroused expectations of yet another round of price increases and an uxirestrained rise in income~. However, measures designed to put the lid on any increase in the bud- get deficit and to contain the areas of waste and leakage, such as increases in utility rates, controlled prices, and indirect taxes also concentrated their immediate inflationary impact in those same months. So ended a 2-year period during which the growth of the gross int~rnal product and in private consumption, in~ real terms, touched 10 percent, investments in machinery and plant equipment hit 30 percent, and domes- tic demand rose by 13 percent: these rates are twice or three times those reported within the OECD area. The Italian~economy out distanced - the other countries in the rate of income growth and even in employ- ment growth, but it paid the price in terms of the balance of tr ade deficit and of inflation. The hike in imported oi1 prices 175 percent by December i98o over the November 19~8 level, did not blunt the tip of the cycle, though it did have umtoward effects on inf lation and on the balance of trade. To both the initial shock effect and the indirect impact of the in- - creased oil costs we can attribute about a third of the intensified decline ix~ industrial value added and about ~ quarter of that in pri- vate consumption, which, in mid-1980, were running at 18 and20 per- _ cent, respectively. ' The deterioration in the current balance of payments, begun in third- quarter 1979, amounted within 2 years to 5 percent of the gross pro- duct; about two thirds of it can be written down to the rise in the oil deficit, which in turn is totally due to prices, since the quanti- ties imported actually declined. On top of the higher cost of crude, and more generally the unfavorable development of the terms of trade, 1g80 brought a 5-Percent 3rop in quantities exported and a 7-percent climb in those imported. Both processes were generated primarily by the persistent exuberance of domestic demand by comparison both with external demand and with available production capacity, and the loss of competitive standing; that last figure was 2 percent in 1979 and 4 percent in 1980. ~ Even before the close of last year, the rela~ively sustained level of internal demand, the recessionary trend in the world economy, the rise of the dollar and the continuing deterioration in the terms of trade had, in the absence of significant support to keep prices competitive, effectively prevented any easing of the trade deficit. Demand for credit had risen again and had been met, albeit at rising costs, by s~retching the elasticity of the ceilings and above all, among the exemptions,~that of commitments in foreign currencies. In response to such factors, the Bank announced at the end of January 1981 the res- toration of the ceiling in advance and with more restrictive conditions. 21~ ' ~IAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/49: CIA-RDP82-00850R440400030056-3 FOR OFFICIAL USE ONLY In the opening mon~hs of this year the situation g:ave no signs of im- provement. The spiral that had been fed during 1980 by price policies in many cases concerned only with short-term profit margine, by index- ation mechanisms that transmit and amplify the inf lationary push, and by expanding government spending, gave every indicat~.on of a tailspin into the proliferation of sectorial demands for more income, of specu- lative behavior on the exchange, sec~zrities, and commodity markets. The lira's position in the EMS was sinking close to the divergence threshold. This dismal picture, ~iepressing as it was and ominous for the future, ~ was enough to call for a carefully crafted body of stabilizing mea- sures that would work in three directions: on current government spending, on the soaring monetary return rates, and on the credit sup- ply. . And so the 22 March decisions were reached. The government declared its commitment to cut the deficit, suspended wage negotiations with civil servants for a cooling-off time, and called for moderation in incomes in the private sector. The discount rate was boosted from 16.5 to 19 percent, and the mandator+y marginal reserve from 1$.7$ to 20 percent. The lira's parity in ~he EMS was modified to protect our currency against speculation, and lowering it to a position around - the middle of the fluctuation strata. ' The translation of avowed intent into action was delayed, thereby eat- ing up the margin of time gained with the emergency currency and mone- tary measures, which implied speedy follow-up with a broader and more decisive economic maneuver. It was not until the latest government crisis that provisions to reduce the deficit were approved in a decree law. We had to resort to yet another emergency measure: we imposed a 30-percent, non-interest-bearing, 90-day deposit in advance of a11 payments to foreign countries. The trade balance, already showing a deficit of 19,000 billion lire in 1980, and weighted down in 1981 by the additional load of some $4 bi1- lion for increases already made in oi1 prices alone, cannot trigger the requisite compensation process. Overall imports show a decline in quantity, but that modest improvement is more than wiped out by the rise in the strength of the dollar. Exports can hardly be expected to expand in an international atmosphere of flagging demand. The trade deficit for the first quarter was about 5,000 billion, as compared - with 3,800 billion for the same period last year. In the first 4 months hard currency payments reached a deficit more than half -~hat chalked up for the whole of 1980. ' These fi~ures give some rough idea of the scope of the change in the _ ratio of internal and external demand it will take to start a process of restoration of equilibrium through net exports of resources to make up for the loss, already incurred and now taking place, in the terms of trade. ~ 25 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2047102109: CIA-RDP82-00850R400404030056-3 FOR OFFICIAL USE ONLY At the internal demand 1eve1 we find continuing inf luence f rom the Trea- sury's cash requirements, which for months has hovered at around 4,000 billion, thwarting the ~ffects and the expectations placed in the mone- tary maneuver and forcing it into unremitting efforts to mop up the ex- cessive liquidity. The survey conducted among corporations at the be- ginning of April shows some recovery in the flow figures along with ex- pectations that production will not slow down, while demand for bank loans sho~s mosign of easing. Inflation is still with us at around 20 percent, widening the gap between us and the other countries. In manu- f acturing, growth in unit prices on product is tending to exceed that in prices to end consumer. This alarming development is partially attributable to a worsening in external causes; this observation alone, howe~rer, ought to make us keenly aware of the stringent necessity for more decisive behavior in- sofar as concerns those economic variables which the nation has the power to control. The speed with which expanding demand bumped against the ceiling on pro- duction in the early months of 1980; the sustained levels of economic activity that prevailed even past that point in .spite of credit restric- ~ tions; the persistently high deficit in foreign accounts, even after the peak of the cycle: all of this becomes easier to understand if we stop concentrating on temporary glitches and ~xt.~�.rnally begotten dom- estic and international f actors, we begin looking at a few of the basic conditions of our productive apparatus. Growth and modernization of plant capacity had been suffering since 1974 from the slump in fixed investments, which delayed the structural al- terations required in response to sweeping changes in related costs and in the distribution of earnings and wealth. Given such a situation, the expansive phase of investraent, when it came, was very intense in- deed: companies soon ran into the ceiling on full utilization of avail- able plant capacity and, along with the pressure to increase capacity, came the need to adopt techniques more consistent with the new price - and cost structure. When investments began to stir again, they awoke to financial structures that had seriously deteriorated. Over the 1969-1978 decade, indebted- ness had risen to almost 60 percent of funds managed, and the short- term debt service costs had risen f rom 37 to 44 percent of the total. The share of return earmarked for financing cost payments, which was 3 percent in 1973, had doubled by 1978, with peaks as high as 12 per- cent in some areas. - Starting from a position like this, the requirements for accumulation could be met only by turning the worsening trend in the financial buclget relationship around. Superimposed upon the normal and prevalent ratio, which tied profits into investments according to a causal bond running from profits toward investments was a different relationship dictated by necessity, for companies feeling the urgent need for restructuring, to win back sufficient profit margin to contain the financial risk. - 26 - FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2047102109: CIA-RDP82-00850R400404030056-3 It is quite likely that anticipation of a declining exchange rate had dulled the alertness of companies exposed to the dangers of a~loss of market shares, and working on the assumption that they could swiftly compensate for their lowered corapetitive positions. In the manufacturing industries gross profits be~iefited both by expand- ing sales and by a 19-percent rate of increase in production prices, only a hair above those of combined unit costs. Within the combined unit cost figure, the labor cost per unit of product rose in mid-year by 14 percent, allowing for the effects of additional financing for the debt burden: the cost per employee had risen by 21 percent, while labor productivity had risen by only 6 percent. The compelling urgency of restructuring investments already put off far too long, coupled with the greater proportion of in-house financing re- quired to make them, dulled corporate sensitivity to the high cost of credit imposed by the government's monetary policy. The intensifying flow of investments coincided with the emergence of ominous consumerist phenomena antipathetical to chances of somehow breaking f ree of current difficulties. The prolonged decline in the purchasing power of the lira at home, accompanied by what was in many ways a distorted structure of relative prices for products and of fixed assets and by a recovery in the lagging replacement of durable consumer goods, was ref lected in the growing readiness of f amilies to spend: con- sumer purchases climbed 4.$ percent from 19~8 to 1980. The spurt in value of the real component of wealth may have more than made up fo~ the devaluation of the financial component, thus providing an incentive to consumption. Most significantly, the traditional times requir~ea.for the processes of cor..sumer education and reaction, when confronted with steadily rising inf lation, were markedly shortened. As inflatior_� set- tles in for a prolonged stay, it may well undermine the hitherto high average propensity for savings on the part of the Italian f amily. The intimate interrelationship between the short-term behavior of the economy and ~built-in shortfalls was apparent not on1.y in the accumula- tion process, but also in foreign trade in manuf actured goods. Zmports' share of spending on investment goods, traditionally high in our country, was a~ccentuated by the slowing growth in productive potential - in the 19~$-1978 period, and it had involved primarily the capital goods sector. Furthermore, demand worldwide was shifting in the direction of investment goods, rather than consumer goods and, among the latter, to- ward products other than the so-called mature sort such as textiles and apparel, the traditional fiefdom of Italian exporters. Then, too, in these last sectors, there was mounting competition from the developing countries, particularly in the Far East. The trend data show that, unlike other industrial countries, Italy in- creased its specialization in the mature sectors, precisely where compe- titive pricing is most important. This attitude gives rise to the peril of sliding back into the ranks of second-rate economies, few of - 27 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400034056-3 FOR OFFICIAL USE ONLY which are to be found in the vanguard sectors, and most of which are among the newly industrialized countries which can exploit a cheap labor pool not protected by extensive social legislation. The intensive capit,~l accumulation that marked the expanding cycle vf the past 2 years is its greatest heritage as well as the sine qua non far recovery of our competitive potential, whose emergence is tied in with greater flexibility in the utilization of such f actors as the fruit of improvements in industrial relations anai in economic policy intervention. Managing the Money Supply and Exchange Rates In a situation where both the spontaneous development of the interna- tional cycle and the economic policies of the principal countries com- bined to generate a decline in trade, containment of domestic demand and maintaining substantial stability in the value of the lira abroad became the mandatory path for resisting the upiward thrust on prices. The determination to roll back inflation; the awareness that it would become harder to hold the line on the exchange rate, while the running balance of trade deficit was taking on frightening dimensions; the in- tention to deal summarily with short-term difficulties so as to concen- trate the nation~s resources on strengthening the productive structures: these were the coordinates from which economic policy took its bearings. The goals of containing aggregate demand, protecting investments and ex- ports, should by rights have suggested measures to trim the de�icit in the public sector, thereby compounding the automatic effects of the con- tinuing growth in nominal income, and should have bridled the growth in the cost of doing business and in the discretionary portion of family incomes. Contrariwise, as increased yields tended to offset the deficit, what came were decisions to increase spending and cut revenues, which to a great degree cancelled out the effect of automatic stabilization. In December 1g79 the quarterly cost-of-living increase for civil servants went into effect; in February 1980 pension.payments were increased; in April deductions for ~amily income tax[IRPEF] and family allocations were increased; approved was a concentration over the year of payments of arrears and advances connected with the newly negotiated contracts for government workers. Over the entire year spending rose by 26 per- cent and the overall requirements of the expanded public sector, as against its gross product, stayed at 1979 levels. The fiscal maneuver mounted in early July was moving in the right direc- - tion, but the events that accompanied it partially vitiated its aims, - with untoward impact on prices. The provisions planned in 1980 were beginning to take effect on the bud- get, bringing the net load to around 6,000 billion in the second half- = year, while the public-sector deficit-to-product ratio touched the high- est levels in the last 5 years. By yearts end and in the opening months 28 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPR~VED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL US~ ONLY of 1981, in addition to completion of the government workers' contract for 1979-1981, decisions were taken or reached with the labor organi- zations on further actions whose impact was expansionary: among them, the shift to quarterly revision of pension cost-of-living changes, new deductions and quotas for IRPEF, and a renewal of the contract with health workers. The problems of the balance of payment and inflation thereby grew still more acute, partly in response to the negative ef- f ect s of the announcement . Monetary policy had already taken on restrictive features as early as fourth-quarter 19~9 with the 4.5-percent increase in the discount rate and the reimposition of the ceiling, which put a lid of 11 percent on annual-basis growth in bank loans subject to control as of July 1980. Snterest rates were rising, and rising very briskly indeed in the short- term market. Bank rates rose from l~.$ to 22 percent between the be- ginning of October 1979 and April 1980. Any swifter rise might very well have provoked imbalances in the financial system, particularly in its corporate section, the main features of which were high indebted- ness and highly diversified credit sources. Removal~of the ceilings on loan expansion in the fall of 1g79 and the early months of 1980, and letting them float as high as 4,000 billion in January, encouraged both production and investments, but it also helped fuel inflation and fed the balance of payments deficit. Mean- while the indirect control exercised through bank reserves and rising interest rates was adopted as a backup to direct controls with the in- troduction in March of the non-interest-bearing deposit prior to appro- val of payments abroad beyond the ceiling. Around midyear the troubles on the exchange market made the task of stabilizing harder to do via monetary policy. At the end of May the lira went all the way through the restricted EMS bundle. In June came the first attack on our currency: the breadth of the margin for ups and downs was enough to absorb part of the pressure throu~h a further di op of almusL 2 perceni; in tne exchange rate against othet� Community currencies. The wave of speculation was turned aside by the signal of firmness sent to the market with the early renewal of the credit ceiling and the tightening of the measures implementing it. The flow of short-term credit abated in July, allowing us to regain some re- serves. In August, though, new rumors of impending devaluation called for massive support, which continued, albeit in reduced proportions, well into September. ~ Once the crisis had passed, and faced with the conflicting needs to - finance the foreign deficit and keep the lid on credit, we felt it in- cumbent upon us to reduce the alarming dimensions of the foreign defi- cit and so, in December, the currency restriction$ imposed in late Sep- tember were lifted. Partly because of the way these restraints worked, bank foreign indeb- tedness rose by 4,000 billion lire in the final quarter, making it pos- sible to finance the total deficit in the balance of payments (1,900 29 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/49: CIA-RDP82-00850R440400030056-3 FOR OFFICIAL IISE ONLY li~~a), and to increase our reserves. The banking system's net indebted- ness to foreign creditors hit 1$,000 billion lire, more than double what it had been at the close of 1979� For the year as a whole, a reading of the combined data on aggregate loans and interest rates in relatiun to the picture in incomes and pri- - ces reveals the pervalence of restricted liquidity conditions in the system and on the credit markets, particularly in the second and third quarters. The growth rate in the monetary base was 13.6 percent, just about what it was in the pr�evious year despite the pressure from the Treasury's ~ requirements. The better than 3-point increase in the mean interest rate on Treasury Bills helped modify the public's portfolio preferences in f avor of short-term paper and reduced the banks~ basic'demands f or currency. In midyear the economy's financial activity, as against gross product, fell off by $ percent from the 1979 level; corporate liquidity declined by about the same amount; interest rates on bank loans rose by more than 4 po~nts, and by year's end they had reached 23�5 percent. - The ratio between the growth in total internal credit and gross product, which had dropped in 1978 and 1979 f rom 22.2 to 19�6 percent, fell still further to 18.8. Containment was particu'larly intense until the third quarter: over the 12 months ending in September the ratio had dropped to 16.2 percent. In the final quarter the growth in the public deficit, which at that time was equal to half the total revenues for the entire - year, and in hard-currency financing almost doubled the credit growth rate over the pace set ifl the 9 previous months. Even when we adopt a broader concept of financing, which will include Medium-term loans from abroad, bank acceptances, and stocks, we still see the shrinkage in the ratio right up through September, although it was almost entirely soaked up by the speedup of overall credit in the fourth quarter. The New Year dawned upon still greater difficulties; as early as the fa11 of 1980, while the statistics reported the worsening of the fo- reign trade balance and the renewed intensity of the price push, we saw the need for~ tightening credit restrictions. To regulate bank reserves we made massive use of temporary bond auctions and short-term offers of new issues. � At the end of January the reimposition of ceilings on loans was annaun- ced, with a freeze on hard-currency f inancing for imports and extension of the Gonstraints on exposures below 130 million lire. Exemptions were allowed in proportions greater than predicted, permitting an increase in bank loans to include medium-large companies; this had come about through a spread in the practice of granting multiple loans f ar beyond - healthy levels, which threatened to strip the banks of responsibility for the selection and screening of l~ans. 3p . ' OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400034056-3 FOR OFFICIAL USE ONLY In the first 3 months of 1981 government requirem~nts reached 12,000 billion lire, and meanwhile t~e variation in total internal credit topped 17,000 billion; over the same period of the previous year the deficit had been 4,000 billion, and overall credit expansion just a little over ~,000 billion. The state requirement remained very high even in the last 2 months. To deal with the expansive effect on liquid~.ty and confront the diffi- culties that had arisen on the exchange raarket, partly in response to international tensions, it became necessary in March to increase the discount rate and raise the mandatory reserve coefficient, and, on 27 May, to introduce the non-interest-bearing deposit on payments abroad. Greater control over the creation of the monetary base and more rigorous pursuit of the quantitative targets for that variable, and for bank re- serves in particular, might be gained through adjustments in the Trea- sury's financing system. With that, the Bank of Italy will stop buy- ing back all the Treasury Bills not sold at auctions, but it will go on buying them only in amounts consistent with the objectives of mone- - tary policy. Thereupon the Treasury will try by every means, including more frequent auctions, to find counterpart financing on the market. We are aware of the problems posed by the coexistence of direct and in- direct methods of control: we have made changes in both over the past yeaY~ designed to protect the efficacity of their combined operation in this phase. Administrative constraints yield maximum results when they are introduced or when they are modified; subsequently they tend to be undermined by various evasive procedures which are costly to those involved, tend to distort the economic system, and are hard for the authorities to counter. Even so, the present state of the economy and particularly the persis- tent expectation of continued high and unpredictable inflation, the ina- dequacy of monetary policies, and the wisdom of containing the rise in interest rates do not point, for the time being, in the direction of a Iightening of administrative controls. The modest rise in interest rates on bank deposits, partly connected with the ceiling on loans, has contributed greatly to the squeeze on nominal return on financial operations, driving it well below the rate of inflatiion: the shift in the composition of wealth toward acquisi- tion of commodity interests has been only partially offset by the level of interest rates. One encouraging development has been the return of savings to direct financing on the part of corporationsm and in parti- cular into risk capital, but the volume of spending and the demancl for shelter assets have mounted. A more clear-cut differentiation among categories of deposit as a func- tion of stability and duration might mitigate the penalization of finan- cial savings and assure greater market clarity. Encouragement wi11 be provided for changes in bank policy of a sort to achieve these aims. 31 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY The experience gained in 1980 has proved that, when there is great un- certainty in the market as to the future behavior of interest rates, it is difficult and may actually prove unwise to try to stem the flow into short-term paper. By offering it, the public debt may be covered wliile containing expansion of the money base, even though the degree of liquidity in financial activity remains high. Whereas a repetition of periods of instability heightens investors' aversion to very long- term obligations, the range of short-term options broadens, expanding the opportunity to replace one kind of investment with another and re- ducing the significance of the growth in means for payment as an indi- cator of availability of funds. Under circumstances of thi5 kind policies calling for non-monetary fi- nancing of public requirements and extension in the term of indebted- ness take on particular importance. The changes in the features of CCTs offered in 1981, including higher rates of return for short-term money, are designed to foster this pro- J cess, and also to reduce the cost of debt service during the price slowdown period. It is advisable to move on in this direction, parti- cularly in view of being able to count on a broad and elastic money market: f inancial indexing can satisfy the demands of lenders and bor- rowers alike in today~s state of uncertainty in the markets as to when inflation will be tamed., witness the growth in variable-rate returns in the special credit institutes in 1980. Clearly it would be unwise for the state to resort to the traditional technique of fixed-rate issues beyond the medium term. The very high yield that would have to be offered to overcome public reluctance could have untoward effects on expectations of any lasting reduction in inflation. And then, when such a decline finally did appear, service on the debt at retirement would prove excessively burdensome. Furthermore, generalized indexation of the public debt to prices might look like a surrender to the deterioration of the currency and like a confession of our inability to eliminate or at least attenuate within our system the mechanisms that perpetuate and intensify the inflation- ary thrusts. In the case of capital value indexing, there would arise the fear that the government, by further immediate easing of the ceil- ing of the current budget, risked encountering still greater difficulty _ in resisting pressures for more spending. In the ~past we have spoken out in favor of bond issues by the financial � institutions, tied to the ECU in capital value, consistent with hopes for monetary convergence in Europe and for consolidation of the lira as a component of the EMS. But should it be the state that do it, full cognizance must be taken of the risk that this would look like ab- dication of its determination to seek stability for its own currency. Not even utilizing the auction technique on indexed issues of this sort could avoid distorting the domestic financial market, unless the bonds were conf ined to clearly specified buyers. 32 ~ ? APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 It would be a different story if the introduction of public securities tied to the ECU came about along with economic policy measures agreed upon by government, labor, and management and designed to deal with the structural roots of inflation. The link with the ECU could put the seal on a challenge by the nation and the government to inflation, and on our commitment to b ehave in ways fully consistent with membership in the EMS. In this same context we also come upon the matter of rationalizing the disparate modes of taxation to be levied on financial transactions. With inflation that eats away at them, their nominal return often pro- vides no real compensation, but rather represents an early repayment of capital. Changes in the tax system, sound though they be under sta- ble conditions, would undermine investor confidence, which we ne~ed in- stead to restore. For 1981, expansion in the total internal credit is programmed at 64,500 billion lire; in relation to product it should drop to 16.5 percent. Financing for the economy, too, including funds recevied from the public ~ sector and from abroad, should dro~ by 2 percentage points in relation to product. These t ar gets are based on the commitment, cited in recent - government documents, that the internal requirements of the expanded public sector will not exceed 37,500 billion: in other words, it means, in view of the record for the first 5 months, a very strong sub- sequent cutback. Pursuit of these credit objectives is vital to the restor~ation of price stability; but, if it is to succeed, it must be written into a whole body of government act iori on the public budget, on resource allocations, and on incomes. - The monetary and credit maneuver can stem and slow inf lation, but it cannot cut it off at t he root without the help of f ar-reaching changes in collective behavior patterns. If it is to have a meaningful effect, it will not be that of dispensing with such alterations, but of hasten- ing them in a soci_ety that is at last aware and convinced of their ne- cessity. The complement to this restrictive monetary conduct is action aimed at bringing down imported inf lation via the exchange strategy, which for that matter encounters limitations in phases, like the present one, in which the dollar is very strong. Our having withstood t he downward pressures on the lira in the EMS in the climate which surrounded their onset in 1980, in addition to contri- buting directly to the containment of inflation, triggered reactions and behavior within the system which were themselves conducive to grea- ter price stability. With the easy road of devaluation barred, in many - companies, with participation by labor and management, there was improve- ment in production organization to stand up to the cost push. This does not mean that we ought to rule out, under any and all condi- tions, formal procedures to alter parity within the EMS. Resort to such 33 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFrICIAL USE ONLY remedies is consistent with the regulations and the spirit of the sys- tem. It is what happened t~~is last 22 Marcli. It was a necessary act, thrust upon us by reality; but it is the bitter reality of a failure, which an efficient economy and an efficient society could have spared itself; we regained some room for maneuver thereby, but it was late in coming. Devaluation day was a day of realism; it was certainly not a lucky day, nor a time for rejoicing. Aspects of Public Intervention in the Economy The last decade witnessed still further growth in the mass of social de- mands addressed to government. A point of tension was reached in the movement that began with the Depression of the Thirties, and which led in every couritry to assigning to economic and social policy a central and permanent role in the pursuit of development and prosperity. Lost sight af was the intent, albeit implicit in that movement, to reinforce and stabilize the system's accumulative capacities, and the mission it was to perform often declined into mere passive support. In a great many cases family allocations took on the nature of permanent subsidies rather than temporary replacement of income cut off; s.i.bsidies to cor- porations redistributed value added rather than channeling investments and directing them to where they were needed; the increase in employ- ment in government was used to absorb labor forces rather than to ex- pand the capacity to produce services. The rapidity with which the ratio between public spending and revenue - rose and the very high levels in some countries close to 50 percent which it reached, are evidence of the stresses to which government agencies were subjected, giving ris~ to expectations which, given the rising tide of demands, could not but prove excessive. Awareness of the critical importance which resource reallocation t akes on amid the current crisis has made hardly any headway at all. It has made some impact recently, though, along with the conviction that today the primary task of economic policy is to hasten the unfolding of that process, through action that will not make the presence of the st ate still more pervasive in the economy. The wisdom of getting citizens to shun voluntarily, or of deterring them by positive measures from expect- ing the state to be the first court of appeal for any and every need; the need to prevent hypertrophy in government operations, beyond expan- sion necessary to the functioning of society; f avoring measures that point okt solutions to the private sphere, with respect for a~alanced relationship to the public one: these are the bricks and straw for an approach designed to attack the crisis at its roots rather than t rying to soften the impact of its consequences. In our country, public spending has grown with extreme rapidity, along lines dictated by the process of layering often disparate and even con- f licting measures one atop the other. The scope of interventions ne- - cessary to foster indispensable changes in the production structure and - in the makeup of demand calls for immediate choices as to the commitment of the public portion of our national resources, wr~ich are finite and 34 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400034056-3 already stretched to their limits. The fact that sometinles such inter- vention must perforce take on a direct character imposes moderation in the other demands society places upan the state, as well as real effort aimed at augmenting the performance of the structures and the effica- city of public action. Pursuit of this last aim will call for both an organizational review of the public stewardship in its function as a purveyor of services to the community, and for higher capital endowments. The investment ~hare of overall public spending in Italy is one of the lowest, and it is ut- terly inadequate to fuel technical advance within the public agencies or to support accumulation in the other sectors, thereby raising their productivity. Bigger investments, though, would not be enough, unless accompanied by a binding commitment to minimize costs and improve performance. From the strictly economic aspect, the basic criterion remains that of heightening competitive incentives outside the public sector and find- ing ways to provide the same ,ort of incentives within the sector. One essential condition if this is to come about is that the budget con- straint be made to work again as a disciplinary factor, both at the re- gulatory level and as a matter of moral and ethical obligation. There is a long tradition that had made such discipline the linchpin that held a heterogeneous society together and stiffened the resolve of an economy chronically tempted to take refuge in subsidy. Clear-cut priorities among open options are necessary not only for the efficiency of government in providing essential services, but even more so for its capacity to channel the flow of resources into the rest of - the system. The interrelatedness of all economic activities as well as the nature and peculiar urgency of the problems combine to assi~n the top rung on the priority ladder to energy and to food and agriculture. It is mainly in these two sectors that we have, which helps slow development and weight down the balance of payments. This has been a fact of life all through the seventies; over the past decade the con- straints have emerged in levels steadily more distant from full utili- zation of the economy's productive potential. Our country cannot, unless it is willing to slide down the ramp of pro- tectionism, go on tolerating deficits in these two portions of its ba- lance of payments. In agriculture, the problems demonstrably have very grave social implications, when you remember that a good tenth of the Italian population makes its living by f arming, as well as highly com- plex social interrelations: from relations within an expanded EEC to those with the processing industries; from product distribution and marketing to the dimensions of the basic production unit ar.~d the spread of technical advances. It will take a concerted and well-coordinated attack on all thes~ fronts to make even a start at remedying the prob- lems that beset the sector. 35 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY In the energy f ield the policies to be adopted are mapped out by the technologies and cost structures of the various sources. Despite the declining elasticity in energy consumption as a function of income over r~cent years, there is still considerable room for substantial economy. Some saving can still be achieved without cost; other economies wi11 call for very large investments, along with sweeping reconversion in both production practices and in consumer patterns. Both kinds of con- servation must be encouraged and supported by means of specific incen- tives, proper regulation, adjustments in rates where appropriate, and better consumer information. The outlook for increases in per capita consumption, now relatively low, and the need to reduce our dependency on foreign sources allow of no lag or limits ~n our conservation efforts, but call upon us to expand ~hem to include a broadening of domestic supplies. The road we must follow is pointed out by our need to diversify our energy sources, among which crude oil sti11 covers two thirds of the overall require- ment, and by the prcosttofnenergy~f romec~lffiredlplantsdandamore thanh is half again the twice that of power from nuclear plants. In other basic sectors, including chemicals and steel, an international recession complicates the specific problems besetting the big ~orpora- tions in Italy: problems of management, of industrial relations, of finance, and of their role as dictated by their public or private na- - ture. In chemicals these factors have brought disruptive effects, including the breakup of several major conglomerates. Regrouping instal~lations according to their specialties assumes a rigorous assessment of the like- lihood that they will be managed economically. The new arrangement may be rendered sounder by the emergence of a more clearcut distinction in ~ relation to the nature public or private of the two major produc- tion complexes. Internal problems have rendered the Italian steel in- dustry, particularly the portion of it which is partially state-owned, more vulnerable to the current market crisis, despite the essential soundness of a good share of its plant. For both sectors f inancial measures which would absorb huge resources and divert them to other uses, must be intimately t ied in with rigorous streamlining of the productive apparatus and with renovation of their working conditions which will make it possible to get rid of the rigi- dity in their utilization of labor and to subject their economic eff i- ciency to severe scrutiny. More generally, the whole question of troubled corporations, which has for years been the subject of keen concern among political parties, la- bor unions, management, and financial circles, has seen little progress toward solution thus far, by comparison with the money that has been spent on it, partly because of the unconscionable time it takes to shake off paralyzing preconceptions, such as the one that automatically equates the rescue of an enterprise with its nationalization. 36 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY Government interven.tion on behalf of an enterprise which the market would doom to failure can be justified on the basis of general inte- rests and is something in common use even in strongly market-oriented economies. Transition into public ownership is not the necessary con- ~omitant of such an operation. That is not the only way to ward off the scattering of resources which are deemed worth holding together, while respecting the principle that the inept or dishonest entrepre- neur leave the company, and that the owner and creditor~,. according to their respective positions, be left to suffer the consequences of the risks they freely undertook to run. Public money is there to rescue neither the owner nor his creditors, but whatever can be saved of the company~s good will and its plant. Government intervention can be li- mited to restoring the conditions necessary to attract a buyer ready to shoulder a new risk. If none is forthcoming, that will mean that more decisive action is required to restore the company to health, or else a decision to cut back its capacity. � These remarks sprir~g from an attitude stemmirig from two assumptions: ' one is that our productive system~s outstanding feature is a public ' presence unequaled in the ranks of Western nations and w~ich brings us right up to the threshold beyond which it would cease to be a market system; the other is that there is a growing need for collective de- cisions which will affect the behavior of individuals and corporations. Italy's own experience, and that of other countries, drive us to the conclusion that, once the essential priorities are in place, the effi- ciency of our intervention is generally greater if it is designed to affect the supply structure indirectly, rather than by direct means. _ Rather than using administrative command and control apparatus to co- , erce managers into making desired decisions, it is better to concen- trate on information flows, on institutional attitudes, and on the deterrent/incentive system that governs them. Upgrading the inner efficiency of government administration, setting clearcut priorities in allocation policy, and perfecting the instru- mentalities through which it operates are all lines we should pursue, keeping ever-present before us the fact th3t, alone among the major industrial nations, Italy stil.l has, for a substantial portion of its own territory, a crying need for development. The issue of the Mezzo- giorno is still the central problem for Italian society. The 23 Novem- ber earthquake restated the problem for us in tragic terms. Reconstruc- tion and economic development of the stricken areas of Campania and the Basilicata may we11 trigger a new trend, in which government action will not be confined to further expansion of the welf are rolls. By standing f ast against the wholly understandable pressures from econo- mic and municipal interests, the financial requirement must be calcula- ted with extreme rigor, drawing a clear distinction between what is needed for compensation for material damages and what is needed for development. Reconstruction, furthermore, must be coordinated with ~ industrial siting strategy, in relation to existing infrastructures, and must be able to rely on a Iiealthy entrepreneurial community, which is to be protected. 37 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPR~VED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 ' FOR OFFICIAL USE ONLY The ideas and principles cited here have not been sufficiently imple- mented over the past year, considering the urgency of the problems still unsolved. The 3-year plan specifically states a d~termination to turn the situation around. In a macroeconomic/structural coritext wl~ich from the procedural point of view leaves the cyclical evolution of demand out of consideration, it reasserts the need for reevaluation of the public budget, aimed at reducing the burden of the present de- f icit and at increasing the quotas for capital expenditures. Both these objectives are intermediate goals to be pursued separately, within a prese-t budget ceiling, excluding any and all compensation. These re- quirements coincide fairly well with the other one for modifyirag the very institutional and decision-making machinery which, inside the government, generate the least essential or least productive expendi- ' tures. Changes of this sort imply a policy of resource allocation consonant in its clear definition of priorities and in direct, first- hand v~rification of the suitability of individual programs for achiev- ing the objectives they are designed to meet. _ Better Deployrnent for the Credit System ~ In the makeup of the overall financial debit and credit picture, 1980 saw an intensification of pressures toward reduction of the quota en- t ered in the budgets of the lending agencies, particularly the banks, _ and toward an increase in i;he portion consisting of direct relations between the end users of funds and the depositors. In a financial system that has historically been t ypefied by a marked leaning toward the lending agencies rather than toward the capital mar- kets in the strict sense of the term, a growth trend in the relative importanc~ of the latter can help make our entire eredit stance per-, manently better balanced, more efficient, and sounder averall. The re- duction in the share of the lending institutions, particularly the sav- ings and loan agencies, must be made gradually so that their overall volume of business, their managem~nt performance, and their capit aliza- tion levels all benefit thereby, so that the process can take place in conditions of complete stability. During the year just ended and in the opening months of 1981 the pheno- menor~ at times moved too fast, under the spur of factors which where partly transitory and, in some respects, cause for concern. From what might be called the unsuitable dealings of the public sector pr~essures cor~tinued to build toward a takeover of the whole business of the lend- ing agencies, often with untoward cor:sequences to the allocation of re- sources. The growth of special credit institutions ran up against the obstacles which high and unpredictable inflation raised a~aiii against issues of inedium- and long-term bonds, from the delicate phase of reor- ganization and management shifts, and from expectations of clarifica- tion in their institutional and legal status. Partly in response to the greater opportunities for profit which marked a year in which the peak of the economic cycle coincided with restrictive monetary policy, - the lending ager~cies' interest rates started to rise again after 4 years, thus contributing to their oueter from the loan market. 38 - FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R044400030056-3 FOR OFFICIAL USE ONLY There was a consequent flareup of the bitter argument over the so- called bank revenues, fueled by diametrically opposite opinions. While the Italian banking system is not particularly concentrated~ in the various divisions of its activity and from one area of the country to another, there are conditions of competition which are by no means uni- form, as indicated by service prices and samplings of disparate profits. On the other hand, bank interest margins are affected by the makeup of their budget surpluses, frozen into rigidity by administrative red tape which the monetary authorities are still required to maintain: lower- - ing the ceiling on investments combined with the portfolio constraint and with the low and unvarying yield on mandatory reserves. This last requirement, particularly when the rate structure is risin.g, gives rise, through the banks, to a transfer of family and corporate savings into the coffers of the state. Even the dynamics of operating costs, in a sector which although still highly labor-intensive, cannot help reacting to an inf lationary phenomenon in which the wage component is very large and still growing. Last year, a sharp increase in bank costs per em- ployee produced no significant or widespread ~ains in productivity. The proces: of getting the banks out of the loan business was also af- fected by some salutary and non-transitory factors. The competition to which the loan business in Italy is exposed has grown hotter: the money markets have broadened and gained in strength, both in the area of government securities and in that of acceptances and commercial loans; the stock market has shown a significant gain in volume; relations with the international financial system have intensified and the volume of foreign capital flowing into Italian businesses ~~~as particularly ample. Even the increased return on management to the lendin~; agencies was partly attributable to the spread of the practice of maximizing profits while weighing the risk, rather than trying for dimensional growth at - all costs. This phenomenon must be looked on with f avor from the point of view of more careful selection of loans; furthermore, even reserve funds and amortizations had been shrinking over recent years, while the rate of capitalization amQng Italian lending agencies is still below the international average. Strengthening of their non-trading positions was pursued in timely f ash- � ior.~ by the special credit institutes; particularly among those whose primary commitment was to cover their exposure toward sectors oF +,,he economy in structural difficulties. Favorable results were achieved through efficient management, inputs of new capital, expansion of loan opportunities, differentiation among sources of revenue and the defini- tion in 198o under the terms of PL 784 of the processes for credit transformation for companies holding too much government paper, even non-interest-bearing. In 1980, according to their fiduciary holdings, capitalization rose from 8.4 to 9�3 percent for the special credit institutes and from 4.1 to 4.6 percent for the lending companies. Specifically, last February's PL 23 called for bestowals of some $00 billion lire. The government's decision to recapitalize the public lenders meant con- firmation of the soundness of a differentiation among lending bodies 39 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 ~ FOR OFFIC[AL USE ONLY and responded to the need for upgrading a factor for development in the financial system in a plurality of competing brokers. Observing this institutional dictum, the structure of the public credit agencies will be brought up to the mark, in the awareness that autonomy presupposes and fuels efficiency, and that this must find expression in operating and organizational standards that will protect and reinforce their fi- duciary statu~. The lenders' action is at one with the Bank of Italy~s commitment to single out those factors, including the organizational ones, which in- crease the costs of loan brokerage. In the pursuit of this task it was stated last year in this off ice that action must be taken to correct the imbalance between private and publ~.c lenders, and changes made in - the statutory discipline which would enrich the spirit of enterprise in the latter and bring their management practices more into line with the principles of profitability. This approach was the subject of very deep reflection in the light of the debate over doctrine, intended to bring together all the day-to-day implications and the juridical nexus of the possible organizational solutions. The orientation which emerged has already been adopted by the Vigilanza - in the exercise of its authority in statutory matters and thus welcomed by some of the public lending agencies, which grasped its favorable po- tn~etial. On the legislative level, too, recapitalization for major public banking agencies was written into PL 23 as par~ of the review of their statutory orders, out of concern, in restoring conf idence in business, with drawing on past experience for guidance in future beha- vior. The nature of the business, discipline over revenues apart from capital assets, and the configuration of internal controls over management: these are the three aspects in a bank which is a public corporation that most require improvement. The corporate goal cannot be other than that of acting as intermediary in matters of credit, and this essential task rnus~t be graven into the statutes: to eliminate, in the definition of the sphere ~f opeiations of our public banking agencies, those restrictions that hark back to si- tuations long a thing of the past and hamper their activity serves to make it clear that only behavior consonant with the principles of pro- fitability and competition is perraissible. The public institutes should also be given access to the market in order to attract the kind of investments that will share the bank's risk, according to procedures that do not exempt the agency from public majo- rity control, exercised under the present patterns of participation, and hence from its institutional position. In some cases resort to or- ganizational models quite similar to corporations, already part of the banking regulations, make it possible to enter the market , with suit- able limiting clauses, and to solve the problems of providing.a voice for risk capital in management bodies. Retention of differentiated mo- dels, like that in effect for the Savings Funds, demands a quest for 40 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 for devices which will allow input aside from the capital endowments by means of negotiable securities which also incorporate some sort of sharing i.n the agency's profits and risk, but not in its management. The organization must compel the p~xblic bank to comply with such re- quirements as are expressed in its internal assessments of propriety as to management attitudes and as to individual deals. The overall efficacity of the aud.itors~ function is correlated in an essential way with the smooth and timely performance of such assessraent5 on the part of the corporate bodies. - We cannot dismiss proper distribution of powers among the governance and management organs of the lending agencies. Public appointment pro- cedures, where the balloting is done among people who are professionally expert in the loan business, are designed to make that proper distri- bution of powers effective. During 1980 we did away with the anomalous situation existing in a great many savings ba~iks, which had nobody in their highest offi~e. Ca11ed upon, in compliance with the interpretation of the rules concurred in by Parliament, I submitted lists af nominees, chosen according to pre- dominantly technical criteria, to the treasury minister, who took them as the basi.s ~or his own decisions after hearing the opinions of the Credit Committee. In the few instances where the government authori- ties prefer~ed other candidates, we avoided any mingling of procedures and a different one was followed, under which the office of the Govern- nor consisted in providing, as he does for the private lending agencies [M~nti] his technical opinion as an expert, which was binding should it '~e negative. Once the appointments had been made, after approval by Par~.iament, they straightened out tangles that had been building up for years, and restored full powers to the boards of directors. In a market situation where, particularly at the international level, there is mounting pressure to broaden the array of instrumentalities - for financing the economy, the organ of surveillance must support the healthy evolution of the credit brokers, private and public, while pro- tecting their stability. The problem, fr4m the point of view of what participation the banks can assume, was the object of a recent decision of the Credit Committee, in which it spelled out the boundaries of pos- sible acquisitions, laying down as a guiding principle the rule that investments in securities could be made on~.y when they were such as to foster sounder structures in the credit system and to improve its effi- ciency and its cost effectiveness. Within this framework, the lending agencies can assume shares in other credit agencies or in companies that manage collateral services for the banking business. To the same end of strengthening the confines within which this must be contained, any shares acquired in settlement of loans must be disposed of within stip- ulated time limits. More complex and risky conditions on the international markets, coupled with demand for open dealing, also advised, in the same opinion, forbid- ding Italian lending agencies t o acquire shares in foreign financial I~1 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 - FOR OFFICIAL USE ONLY institutions. With reference to the fact that all agencies of a bank with international ramifications are required to tailor their own con- duct to disparate regulations, it was also ruled that any authorization for the establishment cf facilities abroad through affiliates must also reckon with the various degrees of access to information as to the oper- ating requirements as well as the surveillance structures in other coun- tries. For ascertaining corporate solvency, the soundest procedure is that of consolidating accounts, the use of which assumes the circulation of in- formation back and forth across national boundaries between affiliates - and parent houses, and wi~l be encouraged by understandings among the surveillance bodies concerned. Pending the passage of legislation pro- viding for consolidated reports, there must be collabor~tion by the banks from now on in the regular and systematic supply of information on their financial dealings with their agents abraad. In the special credit sector the aim of restructuring was pursued be- yond the provision of additional capital to expand the sphere of opera- _ tions for such lenders alon~ with their ability to engage in risk-shar- ing, and ordering the incorporation of the Credit Institute for public - interest corporations into Crediop, which was vested with institutional authority in the area of credit to industry as well. Most significantly, there was a review of audit practices in the sector, subjecting all in- stitutes equally to the audit authorities, to those authorized in mat- ters of domestic territorial organizatior~, and those dealing with ad- ministrative sanctions and liquidation. The ongoing debate in many forums produced helpful insights into the limits of loan assistance standards and into the wisdarr, of giving the government direct authority to manage incentives designed to encourage industrial investments and to correct the uneven development of our economy. What actually came out, though, when we got down to formulat- - ing new guidelines, were some new ideas that in fact increase the res- ponsibility of the l~nding agencies for management of government con- tributions. So it is with the proposal that the Cassa per il Mezzo- giorno must rule on requests �or credi~ solely on the basis of the fac- tors inherent in the loan contract. In this way there is only an ap- parent rescission of the link between credit and subsidy, and the fact that the subsidy is by no means certain will have an impact on the assessment of the profitability of the undertaking and hence on the selection of lenders. One idea that takes a more respectful approach to the distinct and se- parate roles of the government and the lending agencies was embodied in the law governing intervention for reconstruction and development in the Southern regions stricken by the earthquake. It provided that con- tribution s to ~quake-damaged companies be determined by the compet~ent local off ices so that any possible loan agreements embody ordinary in- ' terest rates. The higher le~~els of capitalization in the credit agencies, the legis- lative changes made regarding the special credit institutes, and the appointments of presiding officers for the public lending agencies, like L~2 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400034456-3 the innovations in statutory matters all improve the lending process - in a delicate economic situation which requires, in the interests of the entire economic system, greater soundness and efficiency in our financial structures. Ladies and Gentlemen: My intention to give you a complete and. detailed picture of rscent eco- nomic events and to report to you on the conduct of the Hank cannot have concealed the anxiety with which we went through those events, or our concern as we faced the vicissitudes of our economy, which internatio- nal events have made still more complex. In 1980, along with the positive legacy of a growth in investments the like of which has not been seen for years, and with signs of a renewed commitment on the part of labor and management, we wound up with a very grave state of affairs for the currency, which belongs ~o~all of us, and is the indispensable vehicle for the economic and civil bonds that join~us together into a society. We can no longer tolerate an inf lation whose basic component is still rising and pulling us away fr�om the countries with which we are united by history and culture. An inf lation which has not run below 10 percent for 9 years now, and which has hovered at a'round 20 percent for 2 years,~has generated not only enormous dead-end transfers of wealth and the inefficiencies that always come with uncertainty and the volatility of prices; it has affected the very essence of our currency, stripping it in large mea- - sure of its function as a reserve asset and leaving it only the humble function of a counting system and a means of payment. No complex trading economy can survive without a yardstick of value that can be relied on now and in the future. To escape the snare of a currency that melts away at a rate as swift as it is unpredictable, the economy takes as its own yardstick, through a multiplicity of proce- dures and institutes, the very sum total of goods and services it pro- duces. Under conditions like these, even the successes of the conven- - tional monetary maneuver are in danger of de~enerating into tactical fixes which cannot ward off strategic defeat in the form of even worse inf lation. _ When this process has been under way for a number of years, you cannot restore monetary balance by attrition through scant liquidity or by off ering an unalluring exchange rate. The road back to a stable currency calls for a genuine change in monetary constitution, which involves the function of the central bank, as well as the decision-making pro- cesses for public spending and income distribution. The first condition is that the power to create money be exercised in complete autonomy by the same centers that decide on spending. There was a time when this requirement arose with respect to the productive system, and it was then that the public-interest nature of the central 43 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2047102109: CIA-RDP82-00850R400404030056-3 FOR OFFICIAL USE ONLY bank and the separation of bank and business were clearly spelled out. Today that requirement must be met above all in relation to the public sector, freeing the central bank from a condition which allows cash shortages to press for expansive creation of liquidity inconsistent with policy objectives on money growth. This necessitates a reexamination of the means by which, unc}er our cur- rent statutes, the issuing institution finances the Treasury: the overdrafts in the Treasury account, the practice of buying up remain- dered bonds after auctions, underwriting other government-issued secu- rities. Particularly urgent is calling a halt to the Bank of Italy's picking up all BOTs not sold at auction. And yet, in a rapidiy changing democratic society, where there is keen aspiration to a higher standard of living, intense social dialectic, persistent and widespread inequities pressures for the creation of still more liquidity are pushing our currency almost irresistibly over the threshold of st ability, unless we throw up defenses in the very places where demand originates. The second condition, therefore, is a set of rules for procedure that will place the major decisions on spending squarely in the context of monetary stability policy. A basic principle of economic and politi- cal freedom forbids taking the content of those decisions out of the reach of decisions by families, by businesses, by the entire collecti- - vity as expressed in Parliament and in the Government. And the very existence of a currency, of unused purchasing power, is an expression of that freedom. But society must organize to keep spending decisions from being made at the cost of the common heritage that is monetary sta- bility. To do this, it must discipline the ways in which choices are made, without dict ating any of the content of t hose choices, just as other rules establish the manner, and thereby the possibility of taking action without in any way commanding it. There are of course individual decisions which govern the division of income between savings and consumption, and these are defined in their - structure. The tax instrument can provide the necessary guidance for those choices to make them part of a consistently compatible whole. But to a f ar greater degree than in family budgets, the breach in mone tary stability is caused by spending decisions in the public sector and in decisions on distribution of income within businesses. It .is there that the relation between spending and resources is stretched so far as to make price increases and debt devaluation a necessary perverse in- strument for balancing the books. Rules must be put in place to govern public spending decisions that wi11 compel them to substantive respect for the obligation of solvency. Once there was a time when the harmony between spending as the prerogative ai the sovereign and taxes paid by the people was assured by the dialec- tic between the executive and parliament. When the people became so- vereign, the budget constraint worked for a long time under the rigid rule of balance. The disappearance of that constraint led public finance ~ FOR OFFICIAL USE ONLY . APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400034056-3 into a situat-ion whcre economic equilibrium has no other anchorage than the capacity E'or~ self-control of the collectivity. Article 18 of the _ Constitution was supposed to strengthen that guarantee, but the way it has been administered has all too frequently proved incapable of prevent- ing spending f rom acting as a sensitive force for stability, and instead has let it slip f ree of the solvency constraint. We need to look for, off icially def ine, and solemnly impose forms, such f or instance as man- datory balance between current revenues and expenditures, with which to ensure practical application of the principle spelled out in the Consti- tution. Procedures and guidelines are equally necessary in corporate decisions _ on spending. A transformation-based economy, which imports raw mate- - rials and exports finished products at international prices, has labor as its principal cost f actor to be contained, in the twofold component - of wages and productivity. And that containment is entrusted, in our way of doing things, to labor and management through the collective bargaining system. By virtue of its economic and monetary effects, of the vast magnitude of interests involved, and of the representative and delegatory institu- - tions involved in it, collective bargaining, national and corporate, is a genuine force in economic policy, comparable to the one through which public-sector spending is determined, and like that, it stands in need of standards that will keep it from drifting toward monetary instability. Like any other exercise of economic freedom of initiative, th~ freedom to bargain for contracts cannot claim exemption from the constraint of the general interest. As things stand today, the very machinery for ne- gotiation, its fragmentation onto diff erent levels, its f ailure to ac- cept macroeconomic indicators which might act as a binding reqiiirement for overall compatibility, all make it exceedingly difficult for labor and management to arrive at decisions which simultaneously involve both a demand for f air distribution of incomes and respect for monetary sta- bility. We need to seek out and define institutional procedures through which collective bargaining can get back again to being an instrument for governance of income dynamics and working conditions, rather than for the destruction of the currency. We must stop putting so much faith. in automatic devices which degrade the ability of both parties to work out their differences and which are insensitive to changing economic as we11 as social conditions. Just _ when the inflationary push was heating up f astest, some believed that a surrogate for stability had been found in indexation; it is precisely the spread of that practice that sanctions and hastens the ruin of our currency. Monetary stability is too precious and too fragile an asset to allow the lines thrown up to defend it to be undermined by issuing lifetime passes to individuals or groups guaranteeing them automatic protection, especially when such protection is frequent and indifferent to the ori- gin of inflationary pressures. ~5 FOR OFF[CIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/49: CIA-RDP82-00850R440400030056-3 FOR OFFICIAL USE ONLY In the one member nation of the EEC that,more than any other, has held the line on prices of recent years, it is expressly forbidden to use any ~ form of indexing, not only in collective bargaining contracts but also in the form of clauses in individual contracts that link the pecuniary obligations of either party to any index whatsoever. In that same coun- try monetary stability, affirmed and defended, finds further expression in the ease with which its currency is permitted to cross its boundaries. Autonomy for the central bank, increased rigor in budget procedures, and collective bargaining codes are the preconditions for a return to monetary stability. For 10 years now, with even the indirect lznk to gold through converti- bility of the dollar and the fixed exchange rate gone, the lira, like the other currencies, has become an even raore immaterial and abstract commodity, whose value is guaranteed by nothing more than the strength of the economy and the capacity of the society as a whole for organizing itself and for governing. A currency law is indispensable for giving us back a stable yardstick for all present and future assets and to protect us from the risk of backsliding toward positions which did not help us fight inflation, when they were not actually f ostering it. These are the issues which the gravity and urgency of the economic situa- tion demand that we deal with in all their complexity and entirety. The recent debate indicates that decisions have been ripening in our minds and that even now, today, we can take practical steps in the right di- rections. If its efficacy is not to be dissipated, that debate must be translated today, right now, into a will to action. What it needed far more than technical tinkering is the ability to shake off our prejudices, - our mistrust, and our short-sighted defense of narrow individual interests. And the strength to do that is rooted in our civic consciousness, the last, the irreplaceable bastion of a stable currency, as it is of every - other pillar of a f ree and just society. COPYRIGHT: IL MQNDO 1981 6182 CsO: 3104/299 46 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400034056-3 FOR OFFIC'IAL USE ONLY M~LITARY FRANCE ~ i ~ I NEW SHORT-RANGE GROUND-TO-AIR MISSILE PRESENTED Paris AIR & COSMOS in French 27 Jun 81 p 41 [Article by Pierre Langereux: "Presentation of the Very Short-Range Groun~~to-Air SATCP Missile"] [Text] The SATCP [Very Short-Range Ground-to-Air] weapon system was presented in its basic version at Satory for the first time. This is a portable missile slated for the French army and the French air force for the defense of sensitive points and combat units. The various elements of this basic version were presented by MATRA [General Mechanical Aeronautics Company], the contractor, as well as hy SEP [European Propeliant Company~ and SAT [Telecommunications Company, Inc.], respon- sible for the propulsive unit and the self-directional device of the missile, re- spectively. Thomson-CSF [Thomson-General Radio Company] also made a presentation of the TRS 2600 radar intended for the version of the SATCP missile mounted on a light armored vehicle for the army. In all, five versions of the SATCP missile are planned. In addition to the two just mentioned, a ground-to-air version which can be carried on the shoulder of an infantryman and an air-to-air version mounted on the army's helicopters as well as a sea-to-air version for the principal defense of small craft and as complementary armament for the French navy's battle class ves- sels are also envisioned. The SATCP is an antiaircraft missile slated for the interception of both planes and helicopters flying at low or very low altitutes. The missile is guided by an infra- red device of very great sensitivity capable of detecting a helicopter at a distance of 4 lan. The explosive charge of nearly 3 kg triggered by a proximity fuse gives the missile great effectiveness. The two powder propellants (for e~ection and cru~sing) drive the missile to a dis~ance of 4 lan in about 6 seconds with great maneuverability enabling its interception of aircraft flying at less than 8 G's. The TRS 2600 surveillance and t3rget identification radar unit built by Thomson-CSF is especially designed, in conjunction with the SATCP missile system, for hitting - planes and helicopters flying at low and very low altitudes. The radar makes it possible to detect helicopters, planes that fly alone or in patrols, missiles, and drones (RPV's [Remotely Piloted Vehicles]) moving in a hostile environment (natural or man-made clouds). This radar unit can locate a helicopter more than 6 km away a.nd a plane more than 10 km away with a precision in targeting closer than 0.6� on the horizontal plane and 60 meters in distance (on a helicopter). 47 FOR OFFIC[AL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/49: CIA-RDP82-00850R440400030056-3 FOR OFFICIAL USE ONLY Im~olved is a Doppler radar unit with impulses operating on the S band with a mobile antenna (40 revolutions per minute) placed under a radome. The transmitter with phased amplif ication and variable frequency is entirely "solid ~tate," and the lota~ sound receiver with double change of frequency has a high level of fixed echo screen- ing (+55 decibels). The microprogramed computer has a special track for the detec- tion of partially concealed helicopters at the request of French technical departments. _ The numerical resolution, at a speed of 32 frames, is complemented by an automatic pursuit device (TNS) [Timed Wire Service]) which can be activated manually or auto- matically, making it possible to lock in four targets simultaneously (or more if desired). The entire radar unit weighs about 80 kg and can be integrated into light armored vehicles. COPYRIGHT: A & C. 1981 2662 CSO: 3100/819 1~8 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY MILITARY FRANCE FIRST MILITARY TELECOMMUNICATIONS SATET~LITES DESCRIBED Paris AIR & COSMOS in French 27 Jun 81 pp 6"s, 65 ~Article by Pierre Langereux~ ~Text~ In the mi~itary use of space, the French army has finally given p=iority to telecommunications over earth observation. This is obviously for reasons~of expediency. Actually, the Forces will be able to use the P&T ~Postal and Tele- communications Administration~ Telecom 1 satellites, which will be in service - beginning araund year-end 1983, whereas the construction of an earth observation satellite for the French Armed Forces has not yet been decided. The French SAMRO ~Military Optical Reconnaissance Satellite~ project, which has been under study since the 1970's, is however beginning to take on a concrete form that goes well beyond the mere "technical lookout" concept that has governed it until now. The decision to build a SAMRO satellite observation network could be made next year, enabling the system to be put into service by the end of 1986. France will thus be the fifth power possessing military telecommunications satel- lites, after the United Stat~s, the USSR, the United Kingdom and NATO. If the SAMRO program is launched, France will be the third power having military earth observation satellites, after the United States and the USSR (and possibly China). SYRACUSE System in Service By End of 1983 with Telecom 1 The Armed Forces' need for space telecommunications was realized as a result o� the Kolwesi (Zaire) affair, when the need for direct and reliable communications ~ links to monitor and direct the operations of intervention forces abroad was brought home to the government and the Armed Forces. The United States and more recently the USSR have aZready provided the examples. During the (ill-fated) American raid on Teheran, the president of the United States was kept in~ormed "in real time" of the development of events, thanks to the American military telecommunications satell.ite netw~ork that covers the entire world. In view of France's smaller "sphere of influence" abroad, her ambitions are mose limited. 49 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/49: CIA-RDP82-00850R440400030056-3 FOR OFFICIAL USE ONLY They are principal].y to ensure "long distance communications with her ships and interventional forces" by means of a"communications network consisting vf trans- mitting and receiving stations owned and operated by the Armed Forces," thanks to "two repeaters exclusively for the Armed Forces," with which Telecom 1 satellites are being equipped, according to the DTEn CMisaile Technology Directorate~. This military telecommunications network will also be able to provide long distance government links with embassies, DOM-TOM ~Overseas Departments-Overseas Territo- ries~, etc. The use of two telecommunications satellites ia based on the need to cover prin- cipally a priority zone extending from Panama on the west to Reunion Island and the high seas off the east coast of Africa on the east, as well as from Disko � IslanB (75� N) on the north to the open seas off the Cape of Good Hope on the south. This zone covers a large portion of South America, a strip of North America and the western edge of the Inc3ian Ocean. The Navy is especially interested in establishing permanent and reliable links with its ships navigating in the Atlantic, the Mediterranean and the Indian Ocean French abroad" ~as published~ and above all, to protect our oil and other strategic materials supply routes. Pending the availability of a satellite dedicated specifically to military and government telecommunicationa, the Defense Ministry has therefore decided to use (in part) the P&T's civilian Telecom 1 satel].ites, the first o� which will be - launched in July 1983 by an Ariane rocket. This milit~ry use of Telecom 1 is covered by the SYRACUSE ~Radiocommunications System Using Satellites~ program, ultrasecretely decided on 17 January 1980 by the then defense minister, Yvon _ Bourges, according to the REV[TE DE DEFENSE NATIONALE. The SYRACUSE program is under the direction of the SCTI ~Central Aeronautical Telecommunications and Equipment Service~ with assistanae from the CELAR ~Ordnance Electronics Center~ and in cooperation with the Armed Forces General Staff, and in particular the Navy General Staff. Three Telecom 1 satellites are being built under the prime contractorship of MATRA ~Mechanics, Aviation, Traction and Missiles Company~, with Thomaon-CSF for the civilian and military payloads. The Defense Ministry has financed apecifically the addition, to the civilian payload, of supple;nentary equipment to be reserved exclusively for military links. This equipment consists essentially of two repeaters operating at 7.25 and 8.4 GHz, in the frequency band reserved for mili- tary telecommunications. Since this equipment was not available in France, it was ordered from the United States where it is manufactured in California by Ford Aerospace, which specializes in the manufacture of American military apace telecommunications satellites. _ These mili'.ary telephone and telegraph (coded) links will provide a traffic hand- ling capacity equivalent to 60 telephone communications channels simultaneously. _ They will use spectrum-staggered multiple access (AMRC/SSMA) techniques developed - notably by CELAR and full-scale tested over the past several years under the SEXTIUS ~expansion unknown~ program. 50 FOR OFFIC[AL USE ~NLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE O~NLY This experimental program, drawn up by the SCTI and DTCAN ~Technicil Directorate for Aeronautical Construction~, was designed to "test the feasibility of military use of satellite communications using a amall antenna (2.2 m) and different types of modulation anC multiple access." The SEXTItTS tests were run first on land, from October 1977 to June 1978, then at sea, from September 1978 to 1980. Successful digital links (at 4-6 GHz) were established between a Navy ship and the Pleumeur-Bodou (Brittainy) station, via one of the Franco-German Symphonie experimental telecommunications satellites. The advantage of a geostationary satellite for military telecommunications is that it provides l~nks between fixed or mobile stations and headquarters command posts using a simple infrastructure and guaranteeing excellent availability and vast geographic roverage. Tw~o of the three Telecom 1 satellites will be launcbed into geostationary orbit, by 7 and 10� west ~as published~, over the G~lf of Guinea (Africa), from which they will cover Europe, Africa, the Mediterranean, the Midc~le East, the Indian Ocean and the Atlantic Ocean, as well as the east coaste of the Americas. The Telecom 1 satellites will be controlled by the CNES ~National Center for Space Studies~/P&T earth station at Aussaguel, near Toulouae. The SYRACUSE network, the installation of which is being prepared by the SYRACUSE operations group, will cv~nsist of not less than 25 earth and naval, fixed and mobile stations. These stations, designed by Thomson-CSF, will be of four types: fixed or air-transportable (heavy or light) eacth stations, and shipborne sta- tions. - The three principal stations of the SYRACUSE network will be installed as fixed stations near Paris, Brest(Brittainy), and in Southern France. These synchronous stations will be equipped with 8-m diameter parabolic antenrias. The nine heavy transportable stationa (in air-transportable sheltets requiring two Transall planes) will be distributed. Four stationg will be installed at the OMIT CMilitary Interforces Communications Organization~ centers at DAKAR (Senegal), Djibouti, La Reunion and Martinique. The other five will be used by the Armed Forces General Staff for it~ links with the lst Army and for priority government links. The three light transportable stations (on air-tranaportable vehicles via one Transall per station) will be available to intervention forces abroad for their links with the Armed Forces General Staff and the government. Lastly, some 10 naval stations (in shelters with 1.5-m antennas) will be installed aboard large surface ships of the Navy (c:orvettes, frigates, helicopter carriers, aircraft carriers) for their links with OMIT Headquarters or fixed ~tations in the metropole. The total cost of the SYRACUSE program is estimated at around Fr 1 billion. This incl~des participation in the Telecom ~ satellite development costs (Fr 50 mil- lion), operating costs (Fr 45 million/year) and construction of the terrestrial network. 51 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY The DTEn, besides being involved in the development o� the SYRACUSE program, is also conducting preliminary design studies on militaty telecommunications satel- lites that will take over from the Telecom 1 satellitea when these are retired fzom service in 1990. Decision on SAMRO Satellite Expected in 1982 The SAMRO project has to do with a"strategic reconnaissance satellite" designed to provide the Armed Forces with objective knowledge of the infrastructures in countries being overflown, based on "a periodic observation of military, road and waterways camplexes" that can furniah "indications of pseparations," avoiding possible surprises to our Armed Forces. But the SAMRO satellite, generally speaking, will not be able to furnish the information needed to maneuver forces and conc3uct tactical ogerations, which muat still depend upon aerial reconnais- sance. The SAMRO system will consist of a panning satellite and a terrestrial network that includes an operations center, a control center, a terrestrial transmitting and receiving station and an image ope~atioas center, all located in metropolitan ~ France. The satellite will consist of a platform, which reuses the SPOT ~Earth Observation ]Probe System~ auxiliary platform, and a payload consisting of a set of cameras and an adapter frame, all designed to respond to military needs. The satellite will be stabilized on three axes by an attitude control system based on sensors, gyro wheels and gas jets (hydrazine). An on-board calcu].ator-programmer will control the recording of data and their restoral by the telemetering transmitter, in asso- - ciation with a memory and an ultrastable clock. The SAMRO satellite's camera mode will di~fer from that of the SPOT satellite and its resolution will�exceed that of the civilian satellite (10 m visually). Its (digitized) image transm~ssian rate will also be higher and its transm~ssions _ will be secured against jamming or interception. It is also planned to secure the satellite itself against laser weapons that co~ild blind its sensors or even des- - troy it. The satellite will gravitate in a lower orbit than SPOT's (832 km). The DTEn is responsible for the overall SAMRO system design, assisted by the CNES for the satpllite, the camera set, and the conceptual and definitional work. Work is currently concentrated on high-prioritied basic probl~ms to be resolved in connection with the camera set and the on-board recording system for storing imagea until passage of the satellite within view of th~ earth station located in France. Only after the completion of this work can the de~~elopment of the SAMRO satellite be commenced. Recently,, the industri;31 organization for the syatem was drawn up, which confirms that the project is already at an advanced stage. The industrial atructure for the complete system--apace and terrestrial segmenta--has been entrusted to the Ballistics and Space Systems Division of AEROSPATIALE ~National Industrial Aero- space Company~. 52 . FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 FOR OFFICIAL USE ONLY The industrial prime cantractorahip for the satelli.te and the responsibility for the platform and the adapter frame have been entrusted to MATRA, while AERO- SpATIALE (Cannes establishment) has assumed responsibility for the structure, thermal control, the solar generator and the camera set. Image telemetering and remote control have been entruated to Thomson-CSF. Industrial prime contractorship for the earth segment as well as responsibility for the operations center and oontrol center have been assumed by AEROSPATIALE. Thomson-CSF is responsible for the transmitting and receiving station, and MATRA and SEP ~European Propellant Company~ for the imaging operations center. The principal ~ubcontractors for the system are Crouzet, Enertec, Reosc and Sodern. _ The total cost of the SAMRO system was estimated in 1980 at around Fr 6 billion. Through 1980, Fr 236 million wer.e apent on SAMRO project studies; Fr 136 million were al~located to the project ir? the 1981 budget. This does not take into account the participation by the Armed Forces (Fr 60 million through 1980 and Fr 84 mil- lion in 1981) in the SPOT satellite which is to serve as a testing bench for the military satellite. COPYRIGHT: A. & C. 1981 9399 CSO: 3100/818 53 FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3 APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00854R400404030056-3 FOR OFFICIAL USE ONLY MTLITARY FRANCE BRIEFS - SEP DISPLAYS ANTITANK MISSILE--A new entrant into the domain of antitank weaponry, the SEP [European Propellant Company] presented for the first time at Satory its DARD antitank missile developed in the context of the invitation to bid issued by the DTAT [Technical Directorate of Ground Armaments] for the future ACCP [Short-Range Antitank] missile launcher. This antitank weapon:has a range of 600 meters with a high proba- bility of disabiling heavy tanks built in the late 1980's. It consists of two parts: One of them, nonreusable (ir. the rear), whi~h is mainly made up of ammunition, and - the other reusable (in front), consisting of the trigger mechanism and the sighting piece. The nonreusable barrel fits into the reusable tube up to the le~.rel of the front trigger. The weapon is designed for firing from the shoulder with the help of curved sholder piece integrated into the reusable part. The barrel containing the ammunition is equipped in f ixed position with a gas generator (with powder) which - propels the missile, whose stabilizer projects out~ide the barrei. For building the missile, whose stabilizer projects outside the barrel. For building this light infantry weapon, the SEP has used composite materials with which it has had exper- ience thanks to the ballistic and space programs. [Text] [Paris AIR & COSMOS in French 27 Jun 81 p 42) [COPYRIGHT: A. & C. 1381] 2662 CSO: 3100/819 END 54 ' FOR OFFICIAL USE ONLY APPROVED FOR RELEASE: 2007/02/09: CIA-RDP82-00850R000400030056-3