ECONOMIC INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500140014-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 15
• Document Creation Date: December 20, 2016
• Document Release Date: March 20, 2006
• Sequence Number: 14
• Publication Date: May 17, 1973
• Content Type: REPORT

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Secret
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LOAN COPY
Return to ?Sd
I N 1 107, Hqu
Economic Intelligence Weekly
Secret
CIA No. 7446/73
17 May 1973
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Page
'
Chile
s Labor Strife C
t
C
E
u
s
opper
xports
India Delays Additional Foodgrain Imports
I
Moscow Apparently Looks to Brazil for Sugar
2
Burma Interested in US Private Investment
2
Renewed Tensions in International Money Markets European money
markets have experienced their first severe speculative pressures since
the joint float was initiated on 19 March.
Current Soviet Grain Prospects Favorable planting weather and a
massive sowing campaign have enhanced prospects for this year's
harvest.
Brazil's Growing Ties with Japan With Brazilian encouragement,
Japan is rapidly expanding its financial stake in Brazil's booming
economy.
Global Arms Flow to the Third World Arms imports totaled $ 3
billion in 1972 and are expected to rise in the future.
Note: Comments and queries on the contents of this publication are welcomed. They may be directed
to
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S.EltRiff 17 May 1973
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ECONOMIC INTELLIGENCE WEEKLY
Notes
Chile's Labor Strife Cuts Copper Exports
Labor problems at the two largest nationalized mines should help keep
the world copper market bullish, at Chile's expense. A month-old strike
at the Teniente mine has cost Santiago about $20 million in export earnings;
this mine normally produces about one-fourth of Chile's copper. Workers
at the even larger Chuquicamata mine went on a 48-hour sympathy strike
last Friday and are considering a longer walkout. Coppe - miners,
traditionally Chile's labor elite, have been growing more militant as inflation
and shortages have eroded their living standards.
India Delays Additional Foodgrain Imports
A decision is expected this week on the quantity and type of grains -
probably sorghum and wheat - to be purchased abroad for delivery during
the latter half of this year. New Delhi still hopes that government collections
from the domestic wheat crop will be large enough to avoid additional
large-scale imports. The supply situation has improved slightly in recent
weeks as procurements from the domestic harvest have risen and imports
have continued to arrive. The government may be able to squeeze by until
August, but shortages threatel, to occur between then and November, when
fall-harvested crops become available for consumption. 25X1
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Moscow Apparently Looks to Brazil for Sugar
The USSR reportedly has signed a three-year agreement with Brazil
to purchase 1.5 million to 2.0 million tons of sugar that would be worth
roughly $250 million to $350 million at present world prices. Brazil denies
making such a sale, but the deal is credible because Cuba promises to have
another poor crop this year. With an output estimated at 5 million tons
or less, Cuba will be unable to supply the USSR with all of the 1.6 million
tons promised in the 1973 trade protocol and also meet its other export
obligations. The Soviets plan to import at least 2.2 million tons in 1973
to meet domestic requirements and export commitments.
Buena Interested in US Private Investment
An official of Burma's Ministry of Planning and Finance has stated
privately that Rangoon is prepared to negotiate an investment guaranty
agreement with the United States. Such an agreement would permit the
US Overseas Private Investment Corporation to issue political risk insurance
to US investors in Burma. Last month, Burma invited interested US oil
companies to compete with Japanese and other foreign firms for rights to
conduct offshore exploration. Burma has been liberalizing its foreign and
domestic economic policies in an effort to reverse the stagnation of
p
roduction, investment, and exports experienced since 1962 under General
XT- 11 - -
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Exchange Rate Appreciation/Depreciation Against the Dollar
Since European Joint Float
Initiated on 19 March
Percent Change
7 May 14 M
ay 15 May
16 May
Mark
-0.9 +1.
0
+2.0
+1.6
Guilder
-2.1 +0.
3
+1.0
+0.8
French franc
-0.4 +1.
1
+2.6
+2.1
Sterling1
+1.3 +3.
4
+4.3
+3.5
Swiss francs
0 +2.
4
+3.4
+3.0
Yen 1
-0.3 0
+0.5
+0.6
1973
January
60.__
554368 5-73
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London Gold Price
February March
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Renewed Tensions in International Money Markets
European money markets have experienced their first severe speculative
pressures since the joint float was initiated on 19 March.
? The dollar has come under strong attack in the last week
for the first time since early March, with losses exceeding
the gains made against the band currencies in earlier weeks.
The pound reached its highest level since it was floated
last June.
The Bank of England is the only European central bank
reported to have supported the dollar. Nevertheless, if the
run on the dollar continues, the European participants in
the joint float may well attempt, through limited
intervention, to prevent too rapid an appreciation of their
currencies vis-a-vis the dollar in order to minimize the
impact on their foreign trade.
Many traders attribute the dollar's problems primarily to the Watergate issue,
but this has only added to an already pervasive uncertainty about the dollar
in the wake of two devaluations. Dollar sales also reflect the New York
Stock Exchange's poor performance, worries about the US balance of
payments, and US inflationary pressures.
The dollar's weakening in Europe abruptly halted the Bank of Japan's
heavy dollar selling in the Tokyo market. Foreign exchange banks and other
private sources have replaced the central bank as a dollar supplier on the
Tokyo market. Continued strong dollar demand for imports and foreign
investment has caused the dollar to drop only moderately against the yen
so far.
The free market gold price soared to a record high this week. The
London gold price, which had stabilized at about $90 an ounce between late
March and early May, reached $112 on 15 May before backing off
somewhat. The attack on the dollar clearly has contributed to the demand
for gold. Tight exchange controls on the Continent that have made it more
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difficult and expensive for money managers to shift funds among currencies
have added to gold's attraction. Other factors in the price rise include
reduced South African sales, reflecting reduced output because of high
Prices; a rumored Soviet-US gold arrangement; and Middle East tensions.
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Favorable planting weather and a massive sowing campaign have
enhanced prospects for the Soviet Union's grain harvest this year. If the
plan for spring sowings (about one-half complete) is successfully carried
out and average growing conditions prevail, the outlook is for a total harvest
of about 154 million tons of usable grain.
? This can be compared with 134 million tons in 1972 and
an average of 149 million tons in the record years of 1970
and 1971.
? At this stage of development, however, such a projection
is still very uncertain.
The outlook for winter grains is clearer than the prospects for total
grain.
? Dry conditions in the winter grain belt last year led to
a shortfall in fall sowings of 20%.
? A normal winterkill, taken together with subnormal
precipitation since last fall, leads to a tentative output
estimate of 37 million tons - about eight million tons
more than the poor crop of 1972 but 12 million tons
below the average for 1970-71.
The campaign is now under way for a record sowing of 104.5 million
hectares of spring grains. This is 16.5 million hectares above the average
for 1970-71. So far, the enormous amount of fieldwork required in this
effort has gone smoothly, helped by the fact that the season is about two
to three weeks early. The strategy in response to a shortfall in fall-sown
breadgrains is to substitute spring-sown feed grains (barley and oats), which
promise higher yields than spring wheat.
? It is too early to project spring grain yields at other than
their long-term trend values, but these would give a spring
grain harvest of about 1 17 million tons - 12 million tons
above 1972 and 17 million tons above the average for
1970-71.
Even if this early projection of a crop of 154 million tons proves
to be accurate, the USSR would need to import large amounts of grain
to meet domestic and export requirements in fiscal year 1974. A large
proportion of these imports may consist of relatively high-cost wheat. So
far this year the Soviets have contracted for, or are rumored to have
purchased, about 9 million tons of grain, much of which is scheduled for
delivery by this faa.
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Jan Minister of Planning Rcis Velloso visits Tokyo to discuss trade and investment proposals.
Feb Banco do Brasil inaugurates a Tokyo branch.
Minister of Finance Delfim Neto visits Tokyo to participate in opening the Banco do
Brasil branch and discuss prospective Japanese investments.
Mar Export-Import Bank of Japan extends a $36 million credit to Brazil's National Development
Bank.
Ishikawajima do Brasil announces a $15 million investment to expand its Guanabara
shipyard.
May C. Itoh & Co. announces that it will invest $150 n zillion to construct a wood pulp operation
in conjunction with other Japanese firms and Brazil's Cia Vale do Rio Doce (CVRD).
Oct Export-Import Bank of Japan, in conjunction with other Japanese banks, extends 15-year
loans totaling nearly $180 million to Brazil's three largest steel producers to help finance
their expansion programs.
Minister of Finance Delfim Neto visits Tokyo again to talk with government and business
leaders. Later in the month, Delfim announces that Brazil will float $30 million in
government bonds on the Japanese market in 1973.
Fuji Bank announces an agreement with the Banco America do Sul, Sao Paulo, to form
a jointly owned development bank. The new bank is chiefly intended to help finance
Japanese industrial operations in South America and is the region's first such Japanese
venture.
Mitsubishi Chemical Indushies Ltd. and Nissho-Iwai Company agree with Petrobras (the
Brazilian state petroleum monopoly) to construct South America's largest vinyl chloride
plant.
Nov Keidanren, the Japanese Federation of Economic Organizations, sponsors a trade delegation
to Brazil, which explores possible investments in the Bahia petrochemical complex, the
Itaipu (Sete Quct'.as) powerplant, a nuclear powerplant, a steel mill to exploit Amazon
iron ores, and numerous other projects.
Dec Toyota announces its decision to expand its Brazilian operation to encompass passenger
automobile production.
cony announces that it will build a plant in Brazil to manufacture color television sets.
Jan Japanese aid to the Export Corridor Project is announced by a consortium of 24 Japanese
banks, which extended $256 million in credits to finance purchases of rail and other
equipment. Another $10^ -aillion is under consideration.
Feb Brazilian Economic Mission of 70 Sao Paulo business leaders visits Tokyo, led by the
State of Sao Paulo's Finance Secretary.
Banco do Estado de Sao Paulo opens a Tokyo branch.
Brazilian. Ministry of Finance conducts a Tokyo seminar on the Brazilian economy for
businessmen and government officials.
Mitsubishi Group sends a large delegation to Brazil to discuss investments in shipbuilding,
mining, petrochemicals, food processing, etc. Upon departure, Mitsubishi's president states
that the company is prepared to invest more than $1 billion during the next five years.
Mar Japanese Trade Fair is held in Sao Paulo viith more than 100 firms participating; it probably
is the largest trade fair Japan ever mounted in a forc;gn country.
Mitsui Group offers to invest up to $ i billion in Brazil's Itaipu hydroelectric power project.
May Kawasaki Steel Co. agrees tLi join with Brazil's National Steel Council in constructing a
steel mill with an annual capacity of 5 million to 6 million tons - more than triple the
size of Brazil's largest existing mill and the largest in Latin America.
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Brazil's Growing Ties with Japan
Brazil's economic ties with Japan are expanding rapidly. Impressed by
its political stability, rapid growth, and abundant resources, Japanese leaders
view Brazil as the emerging economic power in Latin America. They value
it as a reliable source of raw materials, a potentially important export
market, and a profitable locale for manufacturing operations aimed mainly
at regional and US markets. Tokyo's activities are helped by Brazil's large
and prosperous Japanese community, some members of which occupy high
positions in business and government. Brazilians, for their part, see Japan
as a growing market and source of capital, industrial technology (including
nuclear energy expertise), and business know-how - fields where US
influence long has predominated.
The rash of direct investment and loan decisions announced during
the last year or so will enlarge the Japanese presence substantially. Some
$700 million in loans and direct investments have been authorized since
the end of 1971, compared with the total of $200 million to $300 million
invested in Brazil up to that time. Even larger spending is expected to result
from recent visits by top Japanese business leaders. The Mitsubishi and
Mitsui groups alone are considering investing more than $2 billion in
Brazilian operations during the next several years, and Kawasaki decided
last week to help build Latin America's largest steel mill in Brazil. If all
these plans are carried out, Tokyo's 1980 forecast of a $4 billion private
investment in Brazil could be on the low side.
The most important Japanese interests presently are in the iron and
steel industry. Nippon Steel Company owns about 20% of one of the largest
producers, the government-controlled USIMINAS company, and Japanese
banks are heavily involved in financing expansion by other major steel firms.
One of the country's leadin; steel users, the Ishikawajima do Brasil shipyard,
is almost wholly owned by Japanese. This shipyard is currently building
five large ships to carry iron ore to Japan, the main importer. Japan already
has a foothold in the automobile industry; Toyota manufactures jeeps and
other utility vehicles for the local market. Japan is also expanding its equity
interests in industries producing motorcycles, heavy ma ;hinery, electronics,
and textiles. In addition, Japanese loan capital and technical assistance are
playing a major role in a transportation project designed to facilitate
agricultural exports.
Japanese investments have sparked a rapid growth in trade. Brazil's
purchases of Japanese products rose sixfold during 1969-72 to $380
million - 9% of total imports. Despite the yen's revaluation, Japanese sales
will increase considerably in the next few years because of heavy
commitments for steelmaking, transport, and other equipment.
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Arms Exports to the Third World, by Exporterl
1. Because of rounding, components may not add to the totals shown.
2. US data are by fiscal year and do not include some $15.7 billion of arms provided under the
Military Assistance Service Funded (MASF) program. MASF was designed to support non -US forces in
Indochina and was provided directly from the US military budget. US data also do not include some
$700 million in naval equipmr'it made available under the Ship Loan and Lease Program.
3. Includes Australia, Canada, Japan, New Zealand, South Africa, and small amounts from several
Third World countries.
1966-72
1966
1967
1968
X969
1970
1971
1972
Total
17,095
2,060
1,750
2,140
2,170
2,940
3,015
020
3
United States2
8,380
1,015
900
1,065
1,080
1.405
1,455
,
460
1
USSR
4,445
495
485
500
440
985
830
,
710
Western Europe
3,120
390
295
460
480
415
465
615
Eastern Europe
400
45
25
60
50
75
85
60
Ch_.ia
310
70
25
25
25
25
65
75
Other3
440
45
20
30
95
35
115
100
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Brazil's sales to Japan grew from about $60 million in 1968 to $200
million in 1972 (5% of total exports) and will become much more
important. Long-term contracts call for a substantial rise in iron ore
deliveries to Japan, already a customer for one-third of such sales. As part
of its involvement in the Brazilian program to promote agricultural exports,
Japan has agreed to buy more products such as cotton, corn, and perhaps
soybeans. Rapidly expanding soybean output promises to allow Brazil to
compete with the-1-h-Lited States in Ja an's large and owin market.
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Global Arms Flow to the Third World*
Arms imports by Third World countries totaled $3 billion in 1972,
about the same as in 1970 and 1971. The United States supplied about
one-half of the arms, Communist countries (mainly the USSR) nearly 30%,
and Western Europe most of the remainder. Shares of the market have
not changed much over the last several years. In Western Europe in 1970-72,
France and the United Kingdom each accounted for one-third of the
shipments, with West Germany, Italy, and others trailing behind.
The bull( of the arms have gone to three trouble spots: to countries
directly involved in the Arab-Israeli conflict (Israel, Egypt, and Syria), to
the primary antagonists on the Indian subcontinent (India and Pakistan),
and to the chief contenders for dominance in the Persian Gulf (Iran, Iraq,
and Saudi Arabia).
During the last three years, suppliers have delivered increasingly
complex weapons systems, including advanced surface-to-air missile systems,
supersonic jet fighters, guided-missile patrol boats, radar-controlled
antiaircraft glans, and sophisticated tanks. This equipment has a high initial
cost and requires extensive and continuing technical support.
In 1972, more than one-third of the US arms exports to the Third
World were grants, with cash and credit sales making up the remainder.
Many Soviet sales involve discounts from list price; the discounts amounted
to about one-quarter of the sales volume in 1972. Details on terms of sale
by Western Europe are incomplete, but grants play a considerably smaller
role than in US sales.
Agreements concluded in the past few years assure a rise in deliveries
to annual levels substantially above the current $3 billion flow.
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