ECONOMIC INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500140019-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 21, 2016
• Document Release Date: April 20, 2009
• Sequence Number: 19
• Publication Date: June 21, 1973
• Content Type: REPORT

 Approved For Release 2009/04/20: CIA-RDP85T00875RO01500140019-7
elljq &,~71
to 1 /0 1
Economic Intelligence Weekly
State Dept. review
completed
Secret
CIA No. 7587/73
21 June 1973
Copy No. 12 8
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Page
USSR: Getting By with the Help of Its Friends
Consortium Promises India Substantial New Aid
Argentina Moves Against Foreign Banks
India's Foodgrain Imports Set at 4 Million Tons
EC Negotiations
Syrian-Lebanese Border Still Closed
Recent US-Romanian Trade Deals Compared with a flood of new
Romanian-US contnrcts signed in the first half of 1973, MFN is
likely to have only a small impact on trade.
':hile's Mining Problems Hit the Copper Market Strikes have reduced
copper output and helped push prices to near-record levels. 5
Britain's Trade Position Weakens London's resistance to an early
entrance of sterling into the European float will increase.
Foreign Countermeasures to Dollar Devaluation Are Minimal Major
US trading partners seem confident that the dollar's devaluation will
have little impact on their economic performance.
Comparative ndicators
Recent Data Concerning Domestic and External
Economic Activity
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ECONOMIC INTELLIGENCE WEEKLY
USSR: Getting By with the Help of Its Friends
Last week's CEMA session highlighted growing East European fears
over the reliability of Soviet deliveries of raw materials, especially since
the USSR has begun to negotiate deals for raw materials with the United
States, Japan, and West Germany. Because of difficulties in Soviet
agriculture and industry in 1972, the USSR failed to meet some export
commitments to Eastern Europe and even more significantly demanded
above-plan deliveries from the East Europeans. The USSR thus incurred
an unprecedented trade deficit with Eastern Europe of about $1 billion.
Consortium Promises India Substantial New Aid
At last weekend's meeting in Paris, the Indian Aid Consortium, which
includes the World Bank, pledged $1.1 billion in new economic assistance,
including debt relief of $180 million, for the year ending 31 March 1974.
The promised support was generous, compared with last year's pledge of
less than $800 million. The United States will join in the debt relief and
will continue to provide a large chunk of the World Bank's share of
consortium aid. The United States also indicated that new aid would be
discussed with New Delhi at forthcoming bilateral economic talks. Earlier
this year, Washington released $88 million of Indian loan funds suspended
in December 1971 and is continuing its grant food aid program of about
$50 million annually.
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Argentina Moves Against Foreign Banks
The Campora government is moving rapidly to nationaliLc foreign
equity in seven local banks. Morgan Guaranty Trust, Chase Manhattan, and
First National City Bank of New York have controlling interests in five
of these banks; a Spanish commercial bank is the major shareholder in the
other two. Foreign ownership of Argentine banks has been a prime target
of nationalist criticism. If the banks are forced to sell off' their equity on
the open market for pesos, they probably will lose a substantial share of
their $20 million to $30 million investment.
India's Foodgrain Imports Set at 4 Million Tons
India's Minister of Agriculture told Ambassador Moynihan this week
that the government plans to buy 3 million tons of wheat and I million
tons of milo (sorghum) for the year ending in March 1974. The minister
indicated that the grain would be purchased from the United States and
that I million tons must be delivered by September - an extremely difficult
feat, considering the current transport squeeze. The Indian supply mission
in Washington has barely begun to act on New Delhi's orders of last month
to begin buying grain. New Delhi apparently hopes that 4 million tons will
compensate for the shortfall in spring wheat production and the lag in
government collections. It also is assuming that the monsoon - now in
its third week and so far behaving normally - will be a good one.
EC Negotiations
The EC Commission is putting pressure on the member nations for
progress in the trade negotiations to compensate the United States for the
Community's nn large nic lit.
The apparent desire of the 113 Committee
for progress in negotiations is a favorable sign that the EC may become
more flexible.
Syrian-Lebanese Border Still Closed
The Lebanese, confronted with a growing loss of exports to Arab
countries to the south and a decline in earnings from tourism, face Syrian
demands that center on greater freedoms for the fedayeen in Lebanon. The
Syrians clearly hold the upper hand in current negotiations with Lebanon
for lifting the closure of the border which Damascus imposed six weeks
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ago. While moderate Arab states are attempting to mediate, it is doubtful
that they will sway the Syrian leaders, who know they have the Lebanese
in a vulnerable economic position and can further tighten the screws by
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While the United States prepares to open MFN negotiations with
Romania, perhaps this summer, the Romanians have been busy signing trade
and cooperation deals with US firms. Known contracts concluded in the
first five months of 1973 total nearly $90 million worth of US equipment,
most scheduled for delivery beginning next year.
The largest contracts so far are a $45 million sale of three Boeing 707s
to be delivered in 1974 and a $29 million contract for General Tire Co.
to provide the equipment for a tire factory in Fleresti. The Export-Import
Bank has authorized financing for 45% of both sales. But for the Romanians,
who are short of hard currency, the most interesting deals may have been
the Control Data Corporation (CDC) investment in Romcontrol Data SRL
and the exchange of a Gulf Energy and Environmental Systems nuclear
reactor for Romanian goods during a 10-year period.
Romcontrol Data will have an initial capitalization of $4 million. CDC,
holding a 45% interest in the firm, will provide $1.8 million in know-how,
licensing, and equipment and will place three men on the seven-man board
of directors, where unanimity is required for all decisions. CDC is to sell
85% of Romcontrol Data's output through its own distribution network
in western Europe, which guarantees hard currency income. Th:; firm will
try to market the balance in Eastern Europe and the USSR.
Whether or not MFN status is extended to Romanian exports to the
United States, Bucharest cannot continue its buying binge in the US market.
Romanian imports from the United States more than doubled in the first
quarter of 1973, compared with a comparable period last year, and exports
grew only 10%. At this rate, Romania would run a $100 million trade
deficit with the United States this year, and next year's deficit should be
considerably higher. In addition to contracts already signed, Romania still
is considering US proposals for sales of 100 helicopters ($100 million) and
as many as 10 Boeing 727s ($8 million to $9 million apiece).
Moreover, negotiations are well under way for another $100 million in
machinery and equipment purchases from the United States.
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Chile's Mining Problems Hit the Copper Market
Output from Chile's largely nationalized copper industry has
plummeted because of labor strife, shortages of spare parts, and weak
management. A 240% annual inflation rate and severe consumer goods
shortages have reduced the living standards of the copper ;miners, the
nation's blue-collar elite, and have antagonized them. The two month old
strike at the huge Teniente mine, which produced 27% of Chile's copper
last year, was triggered by opposition to government wage decrees but soon
mushroomed into a national political issue. Although the army has been
charged with keeping order in the area, it has been unable to prevent violent
confrontations between pro- and anti Allende forces. Sympathy strikes and
work slowdowns also have cut production at Chuquicamata, the largest
mine, and at the nearby Exotica pit. In May, Chilean copper output was
about 38% below the monthly average in the first quarter.
The reduction of copper output has berm costly for both Chile and
its foreign customer,.-. After prolonged difficulty in filling orders, the Allende
government has formally declared that events beyond its control prevent
scheduled shipments from Teniente during June and from both it and
Chuquicamata during July. Lost export earnings thus far total some $60
million, equal to 7% of last year's total exports. Because Chile typically
supplies nearly a quarter of world copper exports, its mining problems have
Copper Prices and Stocks on We London Metal Exchange
Prices
US Cents Per Pound (Wirebat)
80 r
J F M A M J J A S 0 N 0 J F M A M J
1972 1973
,Tama a 13
Stocks
Thousand Metric To ?s
J F M A M J J A S 0 N 0 J F M A M J
1972 1973 ear,
been a major factor in the recent price rise on the London Metal
Exchange (LME). Since the Tenientc strike began, LME inventories have
dropped sharply and the price has risen by 12% -- to a near-record 78 cents
5
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a pound. Chile's West European customers and China turned to the LME
to compens,,:te partly for shortfalls in contracted deiiveries.*
Even if the strikes are settled soon, losses in production will have a
bullish effect on copper prices during the remainder of the year. Lingering
effects from the strikes at Teniente and technical problems at the other
mines appear likely to prevent a full recovery of Lutput.
* Z:.mbia, also the source of about a quarter of world copper exports, has not been forced
to cut back shipments during the past six months in spite of the closure of its border with Rhodesia.
Transport difficulties, however, delayed deliveries to customers and added to the prersure on prices
early this year.
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Britain's Trade Position Weakens*
Britain's unexpectedly large trade deficit of $529 million in May
presumably has increased London's resistance to participating in the
European joint float. The United Kingdom's trade deficit this year will be
about $1.0 billion higher than the 1972 deficit of $1.7 billion. An early
inclusion of Britain in the European float would have advanccd EC unity
on monetary matters, including international monetary reform.
When sterling is re-pegged, it probably will not be set far below the
present rate, which gives a trade-weighted depreciation of 13% from the
rates prevailing before sterling was floated in June 1972. Greater
depreciation would encounter objections from the other EC countries that
London was seeking an undue competitive edge, as well as objections ai
home that higher import prices were intensifying inflation. Less depreciation
probably would not permit the United Kingdom to attain the desired export
expansion.
Britain's trade volume appears to be responding to sterling's
depreciation. Export volume in the first four months of 1973 was up 12%,
and import volume was tip only 6%; in 1972, in contrast, there was no
growth in export volume and an 1 I% rise in import vol une. However, rising
import prices - resulting from d;waluation and higher world commodity
prices - have caused the trade deficit to worsen. If import price increases
do not taper off, the hoped-for improvement in Britain's trade balance
during the last half of 1973 will be threatened.
Britain's most buoyant export market has been North America. The
value of exports to the t',iited States and Canada averaged 22% higher in
the first five months of 1973 than in the last six months of 1972, compared
with a 16% rise for total exports. Expectations of slowing economic growth
in the United States in the last half of 1973 raise additional doubts that
the UK trade balance will improve substanti,1ily.
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Foreign Countermeasures to Dollar Devaluation Are Minimal
The dollar's continuing devaluation since the beginning of the year
has not prompted strong countermeasures by major US trading partners.
Although the dollar has now depreciated almost 9% on a trade-weighted
basis since the Smithsonian Agreement of December 1971, only a handful
of new foreign export subsidies and tax incentives have b,-c,1 introduced.
No significant new tariff restrictions or non-tariff barriers have been imposed
against US goods, nor have any foreign capitals intervened substantially in
the exci:ange market to halt the dollar's slide.
Several minor measures, however, have been introduced to soften any
adverse impact of the dollar's devaluation, particularly on politically
sensitive industries.
i Japan has offered $800 million in financial re,ief for small
and medium-size industries hurt by the currency
realignments.
? Belgium is considering increasing the fw'ds available for
export promotion and for underwriting ex; credits and
payment and exchange guarantees.
? Austria has introduced new tax incentives for exports and
for investment in the export industries.
? Norway has proposed interest free loans and tax refunds
to compensate its exporters for devaluation losses on
dollar denominated contracts.
Most countries have not introduced countermeasures, partly because
so little of their trade is with the United States. Moreover, the economies
of most of the major US trading partners are expanding rapidly -- too
rapidly in some cases - and foreign governments are consequently anxious
to hold down their own inflation by purchasing cheaper US goods. They
are also confident that burgeoning domestic demand will be adequate to
compensate for any losses in foreign sales.
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 COMPARATIVE INDICATORS
GNR4t Constant Market Prices)'
Italy
United States
United States
United States
United States
Japan
West Germany
France
United Kingdom
Italy
Canada
MONEY SUPPLY*
United States
Japan
France
United Kingdom
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Quarter
73 I
73 I
72 IV
72 IV
73 I
72 IV
73 I
May 73
May 73
May 73
Apr 73
May 73
Apr 73
Mar 73
1970-100
114.4
111.2
114.1
118.2
118.2
118.9
118.9
1910-I00
May 73 123.9
Feb 73 156.5
Mar 73 139.5
Mar 73 138.4
Apr 73 138.5
Nov 72 155.3
May 73 145.7
Rate From Period
7.0
12.4
6.4
12.0
5.3
12.1
12.3
5.1
9.4
7.8
6.7
9.2
15.7
14.1
7.1
20.2
0
18.7
27.3
9.7
23.4
8.3
6.0
13.2
13.7
8.8
Apr 73
Apr 73
Apr 73
Dec 72
Apr 73
Dec 72
Dec 72
United States
Japan
West Germany
France
United Kingdom
Italy
Canada
United States
Japan
West Germany
France
United Kingdom
Italy
Canada
OFFICIAL RESERVES
19.0 United States
57.8 Japan
-50.6 West Germany
61.1 France
57.2 United Kingdom
-64.5 Italy
-6.5 Canada
TRADE BALANCE'
14.4 United Sttns (lob/lob.) Apr 73
11.4 Japan(Lobilob.) May 73
7.1 West Germany(I.ob/c.l.) pr 73
10.0 France (lob /lab.) May 73
12.7 United Kingdom (f.o.b./f ob.) May 73
14 .1 Italy(loh./c.it.) pr 73
31 .1 Canada (I.ob./lob.) pr 73
1970-100
130.0
105.8
111.8
112.0
131.3
114.0
106.8
Japan (Yen) 0.0038
West Germany (Deutsche Mark) ` 11881
France (Franc) As of , 0.2340
United Kingdom (Pound Sterling) 15 Jun 2.5816
Italy (Lira) 1973 10.0016
TRADE-WEIGHTED EXCHANGE RATES
f.i 17ec 66
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Per4ml Change el Annual
fate From Period
Index 12 Months 3 Months 1 Month
or Amount Earlier Earlier Earlier
16.3
11.7
13.8
0.2
22.9
4.9
4.4
41.7
-4.1
11.4
17.0
36.9
11.5
6.6
19.0
7.4
11.0
18.5
15.4
3.8
10.3
-6.6
-52.7
263.4
12.3
68. 1
52.9
-6.6
169.4
-7.6
23.6
151.9
32.6
11 .2
15.8
17.3
18.2
9.5
74.0
23.7
0
12.6
0.5
-50.8
49.2
-44.2
219.0
34.5
8.9
Million US S (Lmulmlre Balance 1MIIIlon US St
1973 1972
272 IJan-May) 2,743 l 3,599,
-13 IJan-May) 520 I 255
14rcent C1unR From
18 13ec 71 19 Mu 73 81un 73
16.48 -0.55 0.03
25.07 9.60 1.76
18.84 6.17 0.30
-0.92 4.90 0.28
-5.12 -7.80 -1.81
0 , 21... . 0.2 2.....-0 .17
1F-tit Clunre From
18 Dec71 19 Mn, 73
10.25