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September 20, 1973
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C1.41 OI" rZ Eli ' 7,3~or7/moo ~/ Approved For'ReleaCse 2006/04/19 : CIA-RDP81T00875R001500140032-2 Secret 25X1 LAW COPY Return to OS3 1"11079 Hq. S C Economic Intelligence Weekly Secret CIA No. 7801/73 20 September 1973 Copy No. 1 G 0 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 25X1 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 Approved For Release 2006/O4jj ,-ZC1p,~;RDP85T00875R001500140032-2 CONTENTS Page Japan Negotiating Direct Oil Purchase with Iraq I China May Soon Inaugurate International Air Service I Soviet Farm Tractors to Be Sold hi the United States 1 International Monetary Developments 1 Foreign Views on Monetary Reform: The Nairobi Meeting The monetary reform discussions at the annual IMF meeting in Nairobi on 24-28 September are likely to demonstrate that, despite concurrence on some basic principles, wide differences remain. 3 Soviet Hard Currency Payments Position Last year's record hard currency deficit-and another in the offing for 1973?-prompted the USSR to sell large amounts of gold, borrow heavily abroad, and seek long-term solutions to its balance-of-payments problems. Worldwide Grain Developments 5 Outcome of the Tokyo Trade Meeting Multilateral trade negotiations to begin. 6 Chile: The Junta Is Beginning to Come to Grips with the Economic Mess Security and supplies are improving, but the regime still must obtain credits to finance some essential imports. World Iron Ore Developments The major iron ore exporters have begun mutual efforts to improve their bargaining positions against iron ore importers. Publications of Interest Summaries of Recent Publications Comparative Indicators Recent Data Concerning Domestic and External Economic Activity to I Approved For Release 2006/0 gV RWDP85T00R Qp9gAggr1f 9i2-2 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 SE,CRE'1' ECONOMIC INTELLIGENCE WEEKLY Notes Japan Negotiating Direct Oil Purchase with Iraq The Japanese hope to arrange a large contract with Iraq providing for the delivery of 2.00,000 b/d of crude oil for 10 years beginning in 1976 plus 275 million cubic feet per day of liquefied petroleum gas over a 15-year period. In return, Japan is prepared to offer Iraq a $500 million Export-Import Bank loan. During the past year the Japanese have been aggressively lining up long-term supplies of crude oil and already have direct purchase contracts with Abu Dhabi, Saudi Arabia, and Iran. The Japanese, with Baghdad's urging, have been trying to expand their ties with Iraq and ensure their future access to crude oil. In recent months they have gained a part interest in an oil concession and have signed other long-term contracts for delivery of Iraqi propane and butane gas. 25X1 China May Soon Inaugurate International Air Service Recent deliveries of 2 of the 10 Boeing 707s ordered by China in 1972 have set the stage for international service by at least early 1974. Since the beginning of 1973, air accords have been signed with the Scandinavian countries, Canada, Greece, and the United Kingdom, bringing to 21 the number of PRC international air agreements. (UNCLASSIFIED) Soviet Farm Tractors to Be Sold in the United States The Soviet export organization Traktoroeksport will try to sell wheeled farm tractors in the United States by the end of this year. The tractors, to be handled by Belarus Saies of Canada, Ltd., will be offered in the low- to medium-horsepower range and may be priced as much as 15% below comparable US models. Even with attractive prices, Relarus will have to International Monetary Developments The Dutch guilder's recent revaluation, undertaken primarily to dampen domestic inflation, heightened uncertainty in international money markets. The dollar weakened somewhat, as traders shifted into marks and Approved For Release 2006/Ogl fS: ,RDP85T00$ 1?Nligg?2-2 Approved For Release 2006/0 flt f DP85T00875R001500140032-2 Belgian francs in expectation that they would appreciate -- possibly even be revalued -- in the wake of The Hague's decision. Still, the dollar remains significantly stronger than it was in July and early August. Major European central banks are intervening to maintain the joint float, with Bonn and Brussels buying the weaker French francs and Norwegian crowns, and Paris and Oslo selling marks and Belgian francs. The French franc came under articular) heavy pressure on Wednesday. Approved For Release 2006/0Sgf. 'RDP85T00&9 q 844&a?2-2 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 SECRET Foreign Views on Monetary Reform: The Nairobi Meeting The monetary reform negotiations leading up to the annual IMF meeting in Nairobi have brought some agreement on broad principles but little progress beyond that. For the most part, they have been devoted to discussing the US proposal that changes in international reserves be used as a criterion in determining when national economic policies need to be modified. This issue and the conditions for currency convertibility probably will be considered in the reform discussions. Paris, as usual, has been the most outspoken critic of US proposals. The French believe that, while many of the world's financial problems are the result of unsound US policies, Washington wants to place the adjustment burden on other nations. Paris also is determined to block any reforms sponsored by the United States or other nations that would reduce national control over economic policy. Other European nations find solace in parts of the US and French views and will try to mediate between them. The EC, as an entity, will play only a minor role in the reform negotiations. Japan and Canada also are interested in producing an acceptable US-European compromise cn reform. Japan played the arbiter's role at the Tokyo Ministerial meeting. Since the Japanese want to prevent a re-emergence of foreign pressures for further revaluation of the yen, they will join the Europeans in opposing the US adjustment proposal. Ottawa is highly satisfied with its own dollar float and is eager to establish the principle that floating is justified under certain circumstances. The less developed countries may be a contentious element at Nairobi and in the subsequent negotiations. The oil producers want to make certain that their reserve accumulations will not be penalized. The other LDCs are primarily interested in firmly establishing the SDR-aid link. The question of Taiwan's continued participation in the r.MF probably will not arise at Nairobi. Approved For Release 2006/04/18EQK85T00875FI?19N 0J2,2 Approved For Release 2006/04/19: C f2DP85T00875R001500140032-2 S_ 1 Soviet Hard Currency Payments Position* The Soviet hard currency deficit reached a new high of $1.4 billion in 1972 and may rise to $2 billion in 1973. To cover its deficits, the USSR has had to borrow heavily and sell large amounts of gold. Although imbalances of this magnitude are temporary, the Soviets face a continuing problem because of sluggish exports and rapidly rising debt service payments. To increase hard currency earnings, Moscow has been seeking export-oriented joint projects with Western countries. The massive 1972-73 deficits were largely caused by the increase in imports of farm products arising from last year's poor harvest and the growing Soviet demand for quality foods. The 1972 deficit was financed mainly by $1 billion in credits, including for the first time substantial short- anr! medium-term Eurodollar loans. Large sales of gold (150 tons) brought in another $300 million. Gold sales totaled 150 tons during the first half of 1973 and may amount to 150-250 tons (luring the second half. The .proceeds could cover as much as $1.2 billion of the projected 1973 deficit. The remainder will be financed through credits, including $400 million in US Commodity Credit Corporation loans. Although Soviet imports of agricultural products will decline from the record 1972-73 level, pressure on the USSR's hard currency balance of payments will continue. Service payments on the rapidly growing hard currency debt will be about 27% of export earnings this year, compared with only 1 I% as recently as 1967. Unless export growth accelerates, the USSR may feel constrained to reduce its foreign borrowing and imports. To solve this problem, Moscow is acquiring Western technical and financial assistance for projects that are self-liquidating and will result in large net hard currency earnings. Realization of these earnings may take perhaps a decade. Meanwhile, the USSR probably will sell substantial quantities of gold and may have to curtail import growth as well. US-Soviet trade has increased much faster than total Soviet trade with the West in the past two years, largely because of US exports of agricultural products. US machinery and equipment exports are also rising. The United States has extended about $800 million in credits since June 1972 to. help finance these exports. Continuing sales of US grain and US participation in major Soviet projects to develop fuels and raw materials will I,e important factors in increasing US-Soviet trade. Approved For Release 2006/04S EC&&;UDP85T0087U22 4 -i-2 Approved For Release 2006/04/1~111. 1E1k fPP85T00875R001500140032-2 Woridwide Grain Developments A record harvest is still in prospect, even though the Soviet Agriculture Minister expressed concern about the crop If favorable weather prevails for the remainder of the harvest season, 165 million tons of usable grain should be harvested. Production will fall below 160 million tons if Inclement weather reaches the area threshed. The quality of some grain will be low because of wet weather. This problem could lead the USSR to import more milling-juality wheat. At the same time, a 165-million ton harvest would permit the USSR to sell small quantities of feed grains to countries other than its usual customers. Yugoslavia Belgrade estimates that this year's wheat crop was better than expected. The 4.7-million ton wheat harvest was only 3% less than last year's despite a 13% smaller sown area. As a result, wheat imports for FY 1974 are likely to be 300,000 tons, compared with an earlier forecast of 500,000 tons. Australia is projecting 1974 wheat exports at about 8 million tons, compared with an estimated 4.5 million tons this year. Although the harvest does not begin until December, the Wheat Board already has committed 3 million tons to such traditional customers as China, Egypt, Japan, and Chile. The Australians apparently intend to satisfy requirements of their other traditional markets, in -:luding the United Kingdom, Malaysia, and Iran, but are reluctant to make additional commitments until the size of the crop becomes clearer. India, which has purchased little wheat from Australia in recent years, has received no commitment as yet in response to its recent request -or one million tons as soon as possible. Badly burned by its experience in taking over the wholesale wheat trade last spring, the government has decided not to nationalize the wholesale rice trade this fall as planned. Farmer resistance and low government prices for wheat have disrupted normal food grain distribution since April and sharply curtailed government procurement of wheat. The lack of government intervention in rice marketing should ermit a return to more orderly food grain distribution to urban areas. Approved For Release 2006/04/1 c:F~85T00875F ?%W% 3TJ3 Approved For Release 2006/04/19 : CIAA-~R; DP85T00875R001500140032-2 SECRET The "Nixon Round" of Multilateral Trade Negotiations was launched last week when 102 nations unanimously agreed to tile "Declaration of Tokyo," pledging their governments' participation in ta!ks aimed at liberalizing world trade. Many difficult issues remain to be resolved, however, concerning non-tariff barriers, agricultural trade, and safeguards, as well as industrial tariffs. The actual bargaining begins on 24 October in Geneva under the auspices of the newly e;tablished Trade Negotiations Committee. France and various other countries insist that the United States have negotiating authority before substantive talks begin. The French anticipate that the complexity of the talks will cause them to go on beyond 1975. The Tokyo participants managed to agree on compromise language covering the thorny issue of the link between trade and monetary negotiations. Tile EC position that progress in the trade talks depend!, on .progress in the monetary discussions is reflected in the compromise as is the US position that improvements in the trading system are necessary for an improved monetary system. The final obstacle to agreement in the draft was a dispute over special treatment for the least developed countries. Brazil and Colombia refused to accept language in the declaration that stipulated that these countries would receive special treatment, insisting they would go along with this language only if the wording provided that the special treatment would not adversely affect other developing countries. The two Latin American nations capitulated, however, when it was agreed that their interpretation of the issue would be recorded in the proceedings of the conference. Approved For Release 2006/04/' C4'R]&'BP85T00870*0'0 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 S 1?.C R E'1' Chile: The Junta Is Beginning to Come to Grips with the Economic Mess As the security situation continues to improve, the Junta is taking steps to correct distribution snarls. Many essential consumer items are reappearing. Striking truckers have returned to work. All of Santiago's grain mills are now operating on a 24-hour basis. Banks have reopened. Distribution of fuel has resumed. Some mining and manufacturing firms are returning to normal operations. The large El Teniente copper mine reportedly has started producing again. it intends to follow conservative economic policies. All firms taken over illegally will be returned to their owners. Most of the companies taken legally will be divested by the government; the workers reportedly will receive 40%-50% of the ownership, while the remainder will be sold to the public. The copper mines presumably will remain under state control. Copper exports are expected to be nearly large enough to pay for urgent import needs. The Junta will still require new short- and long-term credits both to finance immediate import needs and to begin rebuilding the economy. The Central Bank is in chaos. Chile's disposable assets reportedly are $112 million in gold and foreign exchange, including $30 million earmarked to pay other Latin American Central Banks. Approved For Release 2006/04/19 $EIB2RFj85T00875Rj1 J FA W1273 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 SI'"(liRIt"I' World Iron Ore Developments Major iron ore exporters -- particularly Australia, India, and Brazil -- have begun mutual efforts to improve their bargaining position against iron ore importers. ? In March and June, Australian and Brazilian officials agreed to exchange market information. ? In July the Australian and Brazilian ministers for minerals and energy met in Australia and discussed a joint pricing policy to offset Japanese efforts to play one producer off against the other. ? India is pressing for a fixed price schedule, especially in cooperation with Australia, India's main competitor in the Far East. The impetus for producer cooperation stems from a common desire to counter the strong bargaining power of Japan, the world's largest importer of iron ore. Prices paid by the Japanese under long-term contracts had not increased until recently. Last month, Brazilian and Australian companies finally negotiated a 151%% price increase - far below the 26% increase sought. Although some form of producer cooperation is likely, any agreement probably will exert little pressure on world iron ore prices, in part because Brazil and Australia both plan to expand ore exports sharply. Foreign steel companies, moreover, control most of the iron ore companies, limiting the governments' ability to force price increases. Japan would be most affected by a producers' agreement, since imports supply 98% of Japanese iron ore needs and Japanese steel companies do not own the mines from which they obtain their ore. Foreign government moves to raise ore prices would have less impact on US steel companies - the United States import.,, only 3210 of iron ore requirements, almost entirely from company-controlled mines in Canada and Venezuela. Western Europe, which imports 52% of its needs, would be more affected, although European companies own some foreign mines. 25X1 Approved For Release 2006/04/19S814JRE)iF85T00875RO-Q20 1 5t~1)b032 273 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 S I+',C R Ei' Publications of Interest US-Soviet Economic Agreements Since the Summit (CIA ER INI 73-60, September 1973, Since the May 1972 summit, US firms and the USSR have signed 25X1 contracts and commercial agreements worth 'billions of dollars. iroreign countermeasures to oar Depreciation: A Little-Used Strategy CIA ER 73-58, September 1973, F Foreign countermeasures to offset the impact of the dollar's depreciation on countries' trading positions so far have been minor. The foreign response has been limited to scattered criticism of US policy; a few European and Japanese moves designed to soften and slow the impact, particularly for politically sensitive industries; and in some cases, a tougher stand on trade and monetary reform issues. Reactions generally have been restrained because the effect of the currency changes on the trade performance of the major appreciating currency countries has been small and because burgeoning domestic demand abroad has been adequate to compensate for any losses in foreign sales. US Economic Interests in Africa (CIA ER H 73-3, September 1973, This handbook presents key features of US-African trade, US investment in Africa, and US aid to Africa -- text, detailed statistical tables by region and country, and data sheets for each of 23 African countries that together account for 95% of US trade with Africa. Approved For Release 2006/04/$ P85T0087?Pt 'P$?D OdM Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 UNCLASSIFIED; ,DOMESTIC ECONOMIC INDICATORS Average Annu Growth Pale Sln al'' r . ' Percent Change Laletil from Previous 1Year' Earlier 3 Months Earlier GNP" (Constant Market Prices United States ) Quarter 73 11 0.6 6.4 WHOLESALE PRICES Previous (Industrial) Quarter 2.5 Aug73 0.4 7.6 5.2 Japan 73 11 1.4 13.0 6.9 Aug 73 2.1 17.4 23.4 West Germany 73 11 -1.1 7.2 -4.2 Aug 73 0.4 7.6 7.4 France 13 1 3.3 5.1 13.8 France Jun 73 1.4 13.6 9.1 United Kingdom 73 II 0.7 6,4 2.8 Aug 73 1.0 7.1 13.3 Italy 131 0.8 5.2 3.4 Jun 13 2.3 18.2 23.2 Canada 73 II 0.9 6.8 3.7 Jut, 73 1.8 16.1 15.8 Jul 73 02 5.7 6.3 Jul 73 -0.4 19.2 9.9 Jul73 0.7 11.9 11.0 Jun 73 -2.8 6.7 0 -0.1 7.2 2.5 Jun 73 -1.5 8.9 0 Jul 73 0.8 7.4 Jun 73 0.4 10.4 Jul 73 0.4 9.4 7.0 Italy Jun 73 -1.0 10.2 31.7 Italy Jul 73 0.6 11.8 12.6 Canada Jul 73 0.1 10.7 4.4 Canada Aug 73 1.3 8.3 RETAIL SALES' jCurrent Prices) United States Aug 73 0.3 11.8 12.4 United' States Aug 73 0.4 7.7 6.8 8.2 Japan May '3 0.5 11.9 21.3 15.0 Japan Jun 73 0.8 18.7 29.9 16.1 West Germany Jul 72 -1.8 8.4 6.4 -7.0 West Germany Jul 73 -3.4 9.0 3.1 -21.5 Franco May 13 6.7 5.3 13.4 #.5 France Mar 7C 1.2 12.7 10.4 -2.1 United Kingdom May 7 0.8 9.8 11.1 -14.0 Jul 73 2.3 122 13.0 12.9 Italy Feb 73 9.0 11.5 18.8 24.1 Italy Mar 73 1.0 19.9 18.3 -3.7 Canada Jun 73 0.5 10.4 10.4 -0.3 Canada Jul 73 1.4 13.8 15.0 15.5 Percent Rate of Interest Representative Roles 12 Manths 3 Months 1 Month latest Earlier Earlier Father United States Prime finance paper Sep 14 9.00 4.75 7.50 8.50 Japan Cell money Sep 8 8.50 4.25 8.60 7.50 West Germany Interbank loans (3 months) Sep 7 14.25 5.00 12.63 14.25 France Coll money Sep 7 9.12 3.62 7.62 8.69 United Kingdom Local authority deposits Sep 14 13.13 4.83 7.38 12.75 Canada Finance paper Sep 14 8.83 5.25 6.88 7.88 Euro-Dollars Three-month deposits Sep 14 11.44 6.58 8.75 11.56 UNCLASSIFIED Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2 Avenge Annual (Growth Rote $Into Percent Change Latest Iram Prevloua 1 Year 3 Monlha Period Period 1070 Earlier Earlier EXTERNAL ECONOMIC INDICATORS EXPORT PRICES (US $) United States Japan West Germany France United Kingdom Italy Canada Jul 73 Jul 73 Jun 73 Apr 73 Jul 73 Apr 73 May 73 2.2 1.7 4.7 -0.8 -0.9 0.9 0.7 EXPORT PRICES (National Currency) United States Japan West Germany France United Kingdom Italy Canada Jul-73 1 2.2 Jul 73 1.3 Jun 73 -2.2 Apr 73 -0.4 Jul 73 1.1 Apr 73 2.6 I May 73 0.5 IMPORT PRICES (National Currency) United States Japan West Germany France United Kingdom Italy Canada Jul 73 Jul 73 Jun 73 Apr 73 Jul 73 Apr 73 May 73 1.7 4.0 -1.6 2.4 3.3 3,3 1.4 OFFICIAL RESERVES Latest Period End of United States Japan West Germany France United Kingdom Italy Canada Jul 73 Aug 73 Aug 73 Aug 73 Aug 73 Jun 73 Aug 73 14.0 15.1 37.9 10.3 6.5 6.0 5.6 EXPORTS" g.o.b ) 7.3 12.3 13.2 12.1 10.0 8.2 5.8 10.8 23.3 22.7 15.8 15,1 9.8 10.2 31.5 United States 20.4 Japan 42.8 West Germany 58.0 France 20.3 United Kingdom 24.7 Italy 21.8 Canada IMPORTS' 10.1 5.0 0.1 3.3 12.2 8.5 4,7 10.8 8.0 -0.2 4.8 11.4 10.4 11.4 31.5 17.6 -3.7 6.8 12.2 28.0 21.4 United States Japan West Germany France CumuloUvo? Million US S) Million US S 1913 1072 5,809 Jan-Jul 38,158 27,492 2,880 Jan-Aug 22,632 17,700 0,002 Jan Jul 35,918 26,090 3,169 Jan-Aug 23,451 16,008 2,622 Jan-Aug 18,839 14,742 1,037 Jan-Jun 0,479 8,808 2,071 Jan-Jul 14,054 11,252 (f.o.b.) latest Pnnnd Million US S United States Jul 73 5.762 Japan Aug 73 2,922 West Germany Jul 73 4,007 France Aug 73 3,146 United Kingdom Aug 73 3,010 Italy Jun 73 2,212 Canada Jul 73 1,946 TRADE BALANCE' Latost P United States eriod Jul 73 107 Japan Aug 73 -42 West Germany Jul 73 1,395 France Aug 73 13 United Kingdom Aug 13 -4?S Italy Jun 73 -275 Canada Jul 73 125 19.2 24.0 3.3 5.0 31.7 16.7 8.9 15.1 48.5 3.2 1.0 39.7 49.2 26.6 I Year 3 Months Jun 1970 Earlier Earlier 16.3 4.1 8.8 4.4 2.8 4.7 4.3 13.1 14.0 Japanlronl 16.4 15.9 West GermanylMa k)Ihe 24.6 32.2 France (Franc) pmn(l 10.0 11.0 United Kingdom smrimg 8.1 8.7 Italy (Lira) 6.4 6.3 Canada (Dollar) 6.2 6.1 Latest Punnd Jul 73 Aug 73 Jul 73 Aug 73 Aug 73 Jun 73 Jul 73 US $ - Per Unit Doc 06 0.0038 I 36.48 0.4100 63.09 0.2333 2.4109 0.0018 0.9907 United Kingdom Italy 15.55 -13.61 10.37 7.40 -18.59 23.10 32.32 -11,77 -35.54 -15.88 3.59 Cumulalivn (Million US $1 1973 1972 Jan-Jul 38,861 31,348 Jan-Aug 19,429 11,818 Jan-Jul 28,016 21,286 Jan-Aug 22,638 18,300 Jan-Aug 21,417 15,821 Jan-Jun 10,720 8,092 Jan-Jill 13.055 10,818 Jan-Jul -703 -3.858 Jan-Aug 3,202 5,882 Jan-Jul 7,902 4,813 Jan-Aug 814 808 Jan-Aug -2,7Z8 -879 Jan-Jun -1,241 776 Jan-Jul 835 7 Sep 73 15.95 -1.00 -0.11 32.13 15.79 -0.73 18.49 5.85 0,58 -7.47 -2.04 -0.42 2.73 -0.17 -0.28 -0.71 -0.70 -0.18 Percent Change from 18 art 71 19 Mar 73 7 Sep 73 -9.04 -2.25 0.08 9.08 -2.98 -0.82 15.27 10.23 -0.80 1.45 -0.98 0.93 -21.29 -8.86 -0.52 -14.47 -7.65 -0.07 -2.94 -1.28 -0.15 Approved For Release 2006/04/19 : CIA-RDP85T00875R001500140032-2