ECONOMIC INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500140025-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 21, 2016
• Document Release Date: November 5, 2008
• Sequence Number: 25
• Publication Date: August 2, 1973
• Content Type: REPORT

 Secret
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N
Economic Intelligence Weekly
State Dept. review completed
Secret
CIA No. 7738/73
2 August 1973
Copy No. 156
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CONTENTS
The Soviet Economy at Midyear
International Monetary Developments
Brazil Halts New Beef Export Commitments
Offshore Refining for US Market No Longer Attractive
Possible GM Particitiation in GD
Page
World Coffee Prices Expected to Rise Further Prices should jump
when the market learns how poor Brazil's 1973 crop is going to be. 4
Worldwide Grain Developments
Plans to Strengthen the EC Computer Industry European firms are
mobilizing to gain a larger share of the computer market. 7
Chinese Petroleum Exports to Expand Pace of Chinese purchases of
oil exploration equipment picks up.
EC Effori to Hammer Out a Common Energy Policy Recent
proposals reflect fears of further dislocations arising from increased
US oil products demand.
Comparative Indicators
Recent Data Cor"erning Domestic and External
Economic Activity
Inside Back Cover
Note: Comments and queries on the contents of t' .is publication arc welcomcdJ
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The Soviet Economy at Midyear
Moscow's midyear economic report charts a mild recovery from 1972's
poor performance, although the shortages of agricultural raw materials
continue to limit gains in industrial output. Civilian industrial production
grew by an estimated 5.7% in January-June, much less than the recovery
achieved in 1970 after the last bad harvest. Completions of new plants
increased 13% in the first half of 1973, compared with the first half of
1972. Prospects for 1974 are brighter because of the performance of the
investment sector and encouraging reports on the 1973 harvest. Both crop
and livestock production should rebound, ensuring a much larger flow of
raw materials from the farms next year.
International Monetary Developments
The dollar has fluctuated narrowly on international money markets
in the past week. Extremely tight credit conditions in West Germany late
last week necessitated substantial central bank intervention, especially by
the Bundesbank, to keep the doila, from weakening further and io keep
the European joint float intact. Under strong urging from other capitals,
the Bundesbank then eased money market rates and the upward pressure
on the mark. Nevertheless, the dollar rallied only briefly and fell back by
mid-week, as expectations of renewed credit tightness in West Germany
kept money markets nervous. Pressure on the pound also remained strong.
The Bank of England is keeping interest rates high and has intervened
substantially to keep the pound from weakeni further.
Brazil Halts New Beef Export Commitments
To cope with domestic shortages and rising prices, Brasilia has
temporarily banned beef exports beyond amounts already contracted.
Shipments this year probably will fall substantially below the record
170,000 tons sold in 1972, and Brasilia plans a further cut of at least 10%
next year. The fourth largest beef exporter, Brazil accounted for 5% of
world sales last year.
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Offshore Refining for US Market No Longer Attractive
The recent liberalization of US crude oil import policy and new US
restrictions on product imports have largely removed the incentive to build
new offshore refineries. Industry sources estimate that products refined iii
the United States from Persian Gulf crude oil now have a 52-cent-a-barrel
edge over those refined in the Bahamas. If the United States had ports
capable of handling very large crude carriers, this edge could he increased.
At least one international consortium that had been planning a new
Caribbean refinery has scrapped its plans and is now looking for an East
Coast site.
Possible GM Participation in GDR-Czech Car Project
To the surprise of the East Germans, General Motors has expressed
an interest in participating in a joint automobile-manufacturing venture
between the GDR and Czechoslovakia. GM told the East Germans that a
proposal would be made when detailed specifications of the car are available.
Production is planned to begin in 1980, with East Germany making gear
boxes and front axles and Czechoslovakia producing engines and rear axles.
If GM submits a proposal, it will offer to design and equip a body plant.
In return, GM will receive a portion of the finished product for export.
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ri
Million Bags
100
25X1
Averaqe Spot Price for Coffee
(Santos 1,14, New York)
US Cents Per Pound
100
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Articles
World Coffee Prices Expected to Rise Further
World coffee prices - now at an 18-year high -- should jump further
when the market learns that Brazil's 1973 crop will be even poorer than
previously expected. Because of frost damage, excessive rain, and leaf rust
disease, the harvest now under way probably will total only 12 million
to 14 million bags. This crop is about one-half of normal Brazilian output
and considerably below the 16 million to 18 million bags previously
forecast. Expected supply shortages already have boosted current coffee
prices more than 35% above the 1972 average.
Brazil's production this year will fall at least 13 million bags short
of total requirements for export and domestic consumption. Because Brazil
has been drawing heavily on government coffee stocks for several years,
they now amount to only 14 million bags, compared with 70 million bags
in the mid-1960s. These stocks will fall to critically low levels by next
June - the end of the current coffee year - even though Brasilia can be
expected *a draw on private inventories and import coffee to help meet
requirements.
Other producers will be hard-pressed to cover the shortfall in Brazil's
crop, which normally supplies more than one-third of the world's coffee.
Production outside Brazil is not expected to increast much this year, and
government stocks in other exporting countries stand at a mere 6 million
bags or so. Just to maintain current consumption levels, world coffee stocks
may have to be cut from their already inadequate level of 20 million bags
to less than 10 million bags by mid-1974.
Stocks probably will remain at extremely low levels for several years,
buoying up coffee prices throughout the period. Although Brazil has been
expanding coffee plantings since 1969, production cannot recover
sufficiently to permit much stock rebuilding until 1975 at the earliest.
Moreover, the spread of leaf rust, which hit this year's crop harder than
expected, could delay recovery. Substantial stock rebuilding by other
producers also appears unlikely in the years just ahead. As long as inventories
remain small, world supplies will be extremely vulnerable to crop failure
in any major producing country.
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Worldwide Grain Developments
The continued delay in the harvest as a result of poor weather is
introducing increasing uncertainty in the outlook for Soviet grain
production. By 30 July, threshing had been completed on less than 20%
of the area sown to grains, compared with a long-run average of 26%. A
revised grain production estimate will be included in the next week's issue
of the EIW.
Since mid-June, New Delhi has purchased about 1.5 million tons of
wheat and coarse grains, principally from the United States, according to
the India Supply Mission in Washington. This quantity is still far short of
the 4.5 million tons that it hopes to obtain before th-. fall harvest begins
in late October. Meanwhile, India is experiencing another erratic monsoon.
Below-normal rainfall has been reported in some important foodgrain
producing areas in the southeast; drought since late June in two northern
states has caused substantial damage to recently planted crops. Because the
current monsoon season lasts through September, it is still too early to
forecast the fall harvest.
Bangladesh- USSR
Last week the USSR signed an agreement that will provide Bangladesh
with 200,000 tons of wheat immediately. Dacca is supposed to repay the
Soviets with an equal amount of foodgrains before March 1974. The US
embassy in Dacca has learned that the wheat being supplied by the Soviets
was purchased from Canada and Australia, not from the United States as
reported earlier.
25X1
25X6
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Officials are predicting a bumper harvest of high-quality wheat. If the
estimated. crop of 4.1 million tons is achieved, Hungary could export
300,000 to 500,000 tons in FY 1974, up from about 200,000 tons last
year.
Officials are estimating the wheat crop at 4.4 million to 4.9 million
tons, compared with 4.2 million tons forecast earlier. If the crop is this
large, Yugoslavia should be able to cut imports below the 600,000 tons
Because of an extended drought, wheat yields have been reduced and
the corn crop is threatened. As a result, wheat import requirements in
FY 1974 are likely to be double last ,ear's estimated 40,000 tons.
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Plans to Strengthen the EC Computer Industry
Siemens of West Germany, Compagnie Internationale pour
1 Informatique of France, and Phillips of the Netherlands have agreed to
put their computer production, sales, and service organizations under the
control of a new jointly owned company, Unidata. The merger is widely
supported in European government circles because of concern about IBM's
domination of th,. computer market.
Proposed EC policy on the computer industry has been outlined in
a draft memorandum to be submittea soon to the full EC Commission.
The basic aim is to increase substantially the share of the EC market held
by European firms. The methods proposed in the memorandum include
cartelization of European computer firms, government procurement
practices that would favor them, developme,'t of exclusive EC technical
standards, government subsidization of the industry, and the limitation of
US firms to minority positions in US-European joint ventures. Such
measures would be detrimental to US interests and appear to be in conflict
with the Treaty of Rome's Article 58, which calls for equal treatment for
all con.~panies incorporated in an EC member state.
The Community is unlikely to adopt a policy incorporating all of these
proposals. But, many European officials clearly are dissatisfied that so
important an industry is dominated by a foreign firm, and reactions to
the proposed policy have been generally favorable in the member capitals.
France, West Germany, and the United Kingdom already pursue some
measures that are similar, in varying degrees, to the proposed ones.
The ability of a company such as Unidata to expand the Community's
share of the European computer market depends heavily on the willingness
of its national units to cooperate closely. To gain much ground against
IBM, even during the long term, Unidata would have to develop or acquire
a relatively independent technology and build a comparable reputation for
providing high-quality service and software.
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Chinese Petroleum Exports to Expand
China recently has purchased more than 100 onshore drilling rigs from
Romania and three offshore rigs from Japan. Purchases of oil exploration
equipment from the United States and Canada are imminent. These
transactions, along with current improvements of petroleum handing
facilities at North China ports, demonstrate Peking's interest in expanding
petroleum output and could lead to a sizable expansion of crude oil exports
in a few years.
Previous projections of Chinese crude oil output and consumption
needs pointed to exports of about 10 million tons in 1975. Japan, which
currently imports more than 200 million tons annually, wil; continue to
be the main customer. Earlier this year Peking agreed to supply the Japanese
with 1 million tons of crude oil in 19'/3, with possibly 3 million tons to
follow in 1974. Additional quantities would be welcomed by the Japanese.
Although the purchase of offshore rigs reveals a heightened interest
in offshore exploration, the Chinese apparently are in no hurry to develop
offshore deposits. For some time, increases in production will come from
further development of onshore deposits. This fact and China's reluctance
to accept foreign participation in its economic undertakings lie behind the
continuing refusal of Japanese and US proposals for joint offshore
exploration.
Crude oil, nevertheless, remains attractive as a source of foreign
exchange to help pay for China's rising imports. At current export prices,
10 million tons of crude oil would be worth almost $300 million. By the
late 1970s, still larger exports at higher prices should make oil raven more
important in Chinese export earnings.
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EC Efforts to Hammer Out a Common Energy Policy
Recent proposals of the European Community's Energy Commission
reflect fears of further dislocations arising from increased US demand for
oil products. The proposals would increase Community influence over the
member countries' petroleum affairs.
The most important proposal would establish a committee to
^oordinate all petroleum marketing activities within the Community. The
committee would be empowered to hold discussions with member
governments on oil supplies and with oil companies on imports, exports,
stocks, sources of supply, prices, investments, negotiations with producing
countries, and operations within the EC. Although its decisionmaking
authority would be very small, the committee could have substantial
influence in encouraging compromises and coordinating policies. The
Commission also proposed extending crude oil import regulations to cover
refined products and broadening the system of national export licenses to
cover both crud' oil and products.
Although some proposals were written with the United States in mind,
the clauses dealing specifically with non-EC consuming countries are
moderate in tone. They merely recommend more energy-related research
and increased consultation. The proposals also recommend exploring the
possibility of cooperative arrangements with the major oil-exporting states.
The EC Council will take up the Energy Commission's proposals at
its next scheduled meeting in October. Although modifications are probable,
Commission officials hope that the main points will be approved essentially
as written.
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DOMESTIC ECONOMIC INDICATORS
Average Annual Average Annual
Growth Rate Since Growth Rate Since
'
Percent Change
Percent Change
Letest from Previous 1 Ynr 3 Months Latest from Previous 1 Year 3 Months
Period Period 1970 Earlier Earlier Period Period 1970 Earlier Earlier
GNP'
(Constant Market Prices)
United States
73 II
6.4
WHOLESALE PRI
Previous (industrial)
Quarter
2.5 United Slates
CES
Jun 73
7.7
14.8
Japan
73 I
18.0
15.2 Japat;
Jun 73
13.6
11.4
West Germany
73 1
5.8
23.6 West Germany
Jun 73
6.7
6.8
France
73 1
3.8
8.2 France
Apr 73
12.0
20.2
United Kingdom
73 I
7.1
6.2 United Kingdom
Juc 73
6.2
3.7
Italy
73 1
5.2
3.4 Italy
Apr 73
12.1
18.7
Canada
73 I
8.0
12.1 Canada
Apr 73
13.5
22.4
United States
Jun 73
9.6
6.1 United States
Jun 73
5.9
8.3
Japan
May 73
19.4
23.3 Japan
May 73
10.9
28.2
West Germany
May 73
7.8
-4.3 West Germany
Jun 73
7.9
8.5
France
May 73
10.8
10.7 France
May 73
7.2
8.9
United Kingdom
May 73
9.2
3.5 United Kingdom
Jun 73
9.3
13.3
Italy
May 13
8.8
51.7 Italy
Jun 73
11.4
14.5
Canada
May 73
10.3
7.5 Canada
Jun 73
8.1
11.4
(Current Prices)
United States
Jun 73
-0.B
11.0
12.1
-6.1 United States
Jun 73
1.2
7.8
7.4 10.3
Japan
Mar 73
4.0
12.9
24.8
45.2 Japan
Apr 73
3.8
19.9
34.0 48.9
West Germany
Mar 73
-5.7
9.1
5.9
14.2 West Germany
May 73
-4.2
10.2
8.4 -13.6
France
Mar 73
4.1
6.3
7.0
6.7 France
Mar 73
0.8
12.5
10.0 -3.4
United Kingdom
Apr 73
-7.2
9.6
11.2
-3.0 United Kingdom
Apr 73
2.2
12.2
131 191
Italy
Feb 73
9.0
11.5
18.8
24.1 Italy
Feb 73
2.1
20.1
18.7 21.5
Canada
May 73
-3.0
10.5
10.5
1.6 Canada
May 73
2.3
14.1
17.5 20.3
12 Months 3 Months I Month
Representative Rates Latest Earlier Earlier Earlier
United States
Prime finance paper
Jul27
9.13
4.75
6.75
7.63
Japan
Call money
Jul21
7.25
4.25
5.92
6.83
West Germany
Inlurbank loans (3 months)
Jul27
14.25
4.50
NA
13.75
France
Call money
Jul 21
8.00
3.50
7.62
7.62
United Kingdom
Local authority deposits
Jul 13
6.38
4.36
7.42
7.38
Canada
Finance paper
Jul 27
7.50 5.00
5.88
7.00
Euro-Dollars
Three-month deposits
Jul 27
11.19 5.69
8.25
9.06
2 Aug 73
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EXTERNAL ECONOMIC INDICATORS
Average Annual
Growth Rate Since
Percent Change
Latest from Previous 1 Year 3 Months
Period Period 1870 Earlier Earlier
EXPORT PRICES
EXPORTS'
(US$)
(f
o
b
)
United States
May 73
6.3
13.7 18.9
.
.
.
United States
Jun 73
5,778
Jon-Jun
32.289
22,986
Japan
May 73
11.9
20.7 64.0
Japan
Jtln 73
2,854
Jon-Jon
16,626
13,068
West Germany
Apr 73
10.9
13.0
64.5
West Germany
Jun 73
5,088
Jon-Jun
29,916
22,498
France
Mar73
12.8
20.8
70.4
France
Jun 73
3,135
Jan-Jon
16.982
12,821
United Kingdom
May 73
10.4
8.2
34.7
United Kingdom
Jun 73
2,512
Je .-Jun
13,636
11,718
Italy
Mar 73
8.1
8.1
30.4
Italy
May 73
1,788
Jan-May
7,542
7,352
Canada
Apr 73
8.0
12.5
32.8
Canada
May 73
2,009
Jan-Ma
y 9,831
7,949
EXPORT PRICES
(National Currenc
)
IMPORTS'
) Lalesl
(f
o
b
y
.
.
.
Prnod 1972
United States
May 73 3.1
13.7
18.9
United States
Jun 73
33.099
25,114
Japan
May 73 1.3
4.8
13.5
Japan
Jun 73
2,732
Jan-Jun
13.765
8,719
West Germany
Apr 73 0.7
1.3
4.2
West Germany
Jun 73
4,('39
Jan-Jun
23,406
18.305
France
Mar :'3 1.5
8.3
12.3
France
Jun 73
3,038
Jon-Jun
16,370
12,371
United Kingdom
May 73 0.6
9.6
15.3
United Kingdom
Jun 73
2,867
Jon-Jun
15,523
12,231
Italy
Mar 7: 0.9
6.5
24.1
Italy
May 73
2,118
Jan-May
8.508
6,774
Canada
Apr 73 1 3.6
13.0
33.4
Canada
May 73
I 1,906
Jan-Mai
9,110
7.521
IMPORT PRICES
(National Currency)
TRADE BALANCE"
Cumulatic' IMilhnn US SI
Latest
b
/L
b
.
o.
(f.o.
)
Peanut Millinn liS S 1973 1972
United States May 73
1.2
1 9.9
17.4
43.1
United States
! Jun 73
-15
Jan-Jun
-810
-2,128
Japan May 73
2.5
2.8
14.1
13.2
Japan
! Jun 73
122
Jan-Jun
2,862
4.349
West Germany Apr 73
' 1.3
0.3
7.2
5.3
West Germany
Jun 73
1,059
Jon-Jun
6,507
4,193
France Mar 73
1.9
2.5
0.4
-18.3
France
Jun 73
97
Jan-Jun
612
449
United Kingdom May 73
3.5
11.1
28.1
38.8
United Kingdom
Jun 73
-358
Jan-Jun
-1,887
-515
Italy Mar 73
3.4
7.5
14.0
35.?
Italy
May 73 -353
Jan' May
-966
578
Canada Mar 73
3.4
4.0
6.2
18.4
Canada
May 73 103
Jan-May
721
428
1 Year 3 Months
End at June 1970 Earlier Earlier
United States
May 73
' 14.0
16.3
13.3 ' 14.0
Japan (Yen)
0.0038
36.50
15.98
-0.97
-0.08
Japan
Jun 73
15.2
4.1
15.8
18.1
West Germany (Deutsche
M
k
0.4346
72.87
40.06
22.73
0.30
West Germany
May 73
32.2
8.8
19.9
29.5
ar
)
France (Franc)
0.2465
22.09
25.19
11.84
-0.28
France
Jun 73
10.2
4.4
9.4
11.2
Pntnnl
United Kingdomsierhng,
2.5075
-10.14
-3.76
1.89
-1.28
United Kingdom
Jun 73
7.0
2.8
8.9
8.0
I!aiy (Lira)
0.0017
7.31
-0.12
-2.94
-0.06
Italy
Apr 73
6.4
4.7
6.5
5.8
Canada (Dollar)
1.0000
8.41
0.22
0.23
-0.11
Canada
Jun 73
5.9 1
4.3
6.2
6.0
TRADE-WEIGHTED
EXCHANGE RATES
As of 27 Jul 73 . Percent Chance from
Dec 66 18 Dec 71 19 Mar 73 20 Jul 73
United States
-20.65
-11.01
-4.18
0.20
Japan
22.50
8.63
-3.42
")5
West Germany
35.35
18.12
13.02
U.39
France
-9.58
3.68
1.23
-0.22
United Kingdom
-34.12
-19.86
-5.41
-1.33
Italy
-23.04
-21.74
-14.82
0.04
'Seasonally Adjusted
Canada
3.86
-2.68
-1.00
-0.04
2 Aug 73
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