SHORT-TERM PROSPECTS IN THE INTERNATIONAL MONEY MARKET

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700050037-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 18
• Document Creation Date: December 20, 2016
• Document Release Date: March 10, 2006
• Sequence Number: 37
• Publication Date: April 1, 1973
• Content Type: IM

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DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
International Finance Series
Short-Term Prospects in the International Money Market
Confidential
ER IM 73-40
April 1973
Copy-No.
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Short-Term Prospects
in the International Money Market
April 1973
The dollar has been relatively strong in international financial markets in recent weeks,
and the Europeans have had little difficulty in maintaining their .joint float. Nevertheless,
the existence of a fixed European currency band is an inviting target for corporate and
financial money managers and speculators.
? Underlying balance-of-payments trends should result in upward pressure
on the mark and French franc in the short-term and downward pressure
on the Scandinavian currencies.
? Any unsettling economic or political news from a band country is a
potential source of speculative pressure.
? Among non-band currencies, the yen will be under moderate upward
pressure in the short term and the Swiss franc and pound sterling under
downward pressure.
? Any substantial change from the present exchange rate by any of these
currencies will have a destabilizing impact on the European band.
On balance, it seems that a successful attack on the European band is inevitable,
probably before autumn. The scenario could strongly resemble that of the attack on sterling
in June 1972.
? Money managers will focus on what they perceive as the weakost currency
in the band, selling that currency in exchange for the strongest band
currency.
? The nation whose currency is under attack will be forced out of the
band after attempting to deflect speculation through central bank support
operations.
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DISCUSSION
The Currency Crises
1. The 12 February dollar devaluation failed to restore money
market stability. Coming only 14 months after the Smithsonian realignment
and only seven months after the sterEng crisis, it further eroded market
confidence in the existing system of fixed exchange rates. The repeated
crises demonstrated the case with which vast quantities of money could
be quickly shifted among major currencies despite strengthened capital
controls. They also showed that the major central banks were either unable
or unwilling to defend fixed exchange rates by absorbing and neutralizing
these flows.
2. Continuing speculative p7essures forced the central banks to
intervene to support the new exchange rate pattern during the week of
26 February - 2 March (see Table 1). On Thursday, I March, the heaviest
intervention in history was required, predominantly in West Germany,
forcing a closing of most official foreign exchange markets. Paris opened
its exchange market on 2 March ? for political reasons ? apparently
Table 1
Central Bank Intervent;on
12 February -2 March 1973
Million US $
12-16 Feb
19-22 Feb
23 Feb 26-27 Feb
28 Feb
1 Mar
2 Mar
Total
Total
+310
-968
+610
+164
+3,567
+400
+4,083
Belgium
+12
+180
....
+192
France
+36
+130
+400
+566
Japan
+310
-7
-18
....
+285
Nether-
lands
+15
+151
+604
+780
Switzer-
land
+5301
+530
United
Kingdom
-25
+20
+15
+10
West
Germany
-943
+7
+2,656
....
+1,720
1. For 21-23 February. An additional $150 million was purchased in the forward market.
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confident that its controls would insulate the franc from speculative
pressures, but it was forced to close within hours after extensive dollar
support was required.
3. Drawings by multinational firms and commercial banks on the
Eurodollar market accounted for the bulk of $12 billion (net) converted
during the recent crises. US commercial banks, according to a Federal
Reserve study, experienced a net outflow of $2.5 billion between 3 January
and mid-March, largely because of foreign bank drawdowns on existing
credit lines. In addition, foreign bank agencies and branches in the United
States report an outflow of $1.2 billion in February, both for their own
and customer accounts. Most of the remaining $8 billion converted is
accounted for by Eurodollar drawings, primarily by foreign banks,
particularly Swiss and to a lesser extent British and German, and by US
and foreign multinationals. Middle East private and official dollar
conversions, primarily by Kuwait and Libya, through the Eurodollar market,
totaled less than $1.5 billion in the January-March period.
4. It was generally recognized after the 26 February - 2 March run
on the dollar that another currency realignment followed by a return to
fixed exchange rates would not ;estore exchange stability. Many Europeans,
however, felt that if the Common Agricultural Policy was to continue
effectively, if intracommunity trade was to be undisturbed, and if the
competitive position of each of the European countries was to be protected,
some fixed relationsnip had to be maintained among the major EC
currencies. Even so, the EC countries could not reach agreement until
mid-March. Finally, at the EC finance ministers' meeting in Brussels on
11 March the EC did announce agreement on a joint float, excluding the
pound and the lira. The plan was presented at the enlarged G-10 meeting
in Paris on 16 March and went into effect on 19 March with the five EC
currencies and the Norwegian and Swedish crowns participating.
Floating Currencies
5. All of the major world currencies are now floating relative to
the dollar. The German mark, Dutch guilder, French and Belgian francs,
and Swedish, Danish, and Norwegian crowns are floating as a unit. The
Canadian dollar has been floating since May 1970, the British pound since
June 1972, and the Swiss franc since January 1973. As part of the
12 February currency settlement the yen and the Italian commercial lira
were also floated. (The financial lira has been floating since Rome
introduced a two-tier exchange market system in January.)
6. A French-German compromise paved the way for the joint EC
float. Bonn, concerned that a unilateral float would erode Germany's
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competitive position within the Community, was the joint float's principal
advocate. The French agreed in principle, but Paris continued to insist on
UK participation in the belief that sterling's weakness would prevent any
significant appreciation of the floating currencies and thereby protect
Europe's competitiveness vis-a-vis the United States. The United Kingdom,
however, insisted on a guaranty of unconditional interest-free support of
the pound by the stronger EC countries if' a speculative run on sterling
ensued. Bonn balked at this demand, which could have resulted in German
assumption of Britain's massive overseas liabilities. To win French approval
of the joint float, however, the Germans did agree to appreciate the mark
by 3%, thereby weakening it somewhat in the eyes of money market
managers and reducing potential upward pressure on the jointly floating
currencies.
7. The participants in the joint float have agreed to keep their
currencies within a 2.25% band which is free to fluctuate relative to the
dollar. The mechanics for maintaining the band arc similar to those used
to maintain the EC Snake in the Tunnel, which is no longer operative.
The countries with the strongest and weakest currencies in the band enter
the market to stay within the band. The country (or countries) whose
currency is at the floor sells the strongest currency (which may have been
acquired by drawing on interbank swap lines) in exchange for its own
currency; the strong currency country uses its currency to purchase the
weak currency. Central banks are believed to have the discretion, as a
protective measure, to intervene before their currencies reach the limits ?
a policy not allowed under the previous intervention arrangement. The
central banks will also intervene, if necessary, to prevent too rapid an
appreciation of their currencies against the dollar.
Market Developments
9. The dollar was firm in moderate trading after official foreign
exchange markets reopened on 19 March (see Table 2). Even disappointing
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Table 2
Currency Movements from Smithsonian Rates
16, 23,30 March, 6 April, and 13 April 1973
Currencies in Euro-
pean float
Smithsonian Rate
(Units per
US Dollar)
Percent Change
16 Mar
23 Mar
30 Mar
6 Apr
13 Apr
Belgian franc
44.82
+13.83
+13.06
+12.08
+11.97
+11.89
Danish crown
6.98
+13.68
+13.04
+12.50
+12.41
+12.52
French franc
5.12
+13.68
+12.59
+12.80
+12.61
+12.59
German mark
3.22
+14.86
+13.97
+13.58
+13.50
+13.79
Netherlands
guilder
3.24
+12.76
+11.89
+10.27
+10.49
+10.30
Norwegian
crown
6.65
+12.63
+12.57
+12.59
+12.47
+12.73
Swedish crown
4.81
+9.14
+7.49
+7.10
+7.01
+6.83
Major independently
floating currencies
Italian lira
581.5
+1.57
+1.17
+0.52
-1.11
-0.92
Japanese yen
308
+19.38
+16.23
+15.82
+16.05
+15.88
Swiss franc
3.84
+18.79
+18.24
+18.57
+18.57
+18.82
United Kingdom
pound
0.384
-5.36
-5.02
4.91
-4.73
-4.73
US trade news for February and reports of a rising German trade surplus
had little adverse impact on the dollar's value. Japan had to sell dollars
to keep the dollar's value from rising too fast. In the face of increased
dollar demand to meet an import payments backlog and special payments
to the United States for nuclear services and equipment, Tokyo sold some
$875 million from 19 March to 13 April. Japanese official dollar purchases
between January and March totaled about $1.4 billion. Official German
reserve data for recent weeks indicate that the Bundesbank also has been
selling dollars. The dollar continues to trade at a substantial forward
discount relative to most major currencies.
10. The mark and more recently the guilder have become the weakest
currencies in the European band. As of 17 April, the mark, weakened by
its additional 3% revaluation, was down about 0.5% from its new central
rate and was near the bottom of the new European band. The Bundesbank
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sold several hundred million dollars in French francs and a much smaller
amount of Belgian francs and Swedish and Danish crowns to keep the mark
within the band. The French and Belgian francs and the Scandinavian
currencies have generally been strong, the French currency recovering with
the Gaullist election victory.
11. Sterling, the lira, and the Swiss franc, the three principal European
currencies floating independently, have behaved dissimilarly. The pound,
helped by tight money conditions in England, has strengthened somewhat.
In Italy, the central bank reported continuing adverse leads and lags and
has intervened moderately to slow the lira's decline. The Swiss franc, which
at one time had appreciated by 25% relative to its old central dollar rate,
weakened somewhat before the official currency markets reopened, but it
still shows the greatest appreciation of any European currency.
12. The generally light currency trading so far indicates that most
traders are taking a wait-and-see attitude. Many who bought marks and
other currencies will hold off their dollar repurchases until they have a
clearer picture of payments trends. The free market gold price has fluctuated
widely in light trading. A sharp rise in the price to $90 an ounce in late
March reflects, in part, a shift by speculators, including Middle Eastern
interests, out of currencies into gold.
Prospects for the Joint Float
13. Independently floating currencies are less subject to attack than
currencies with fixed exchange rates. Money market managers face the risk
that the direction of currency movement will be sharply reverFed as a
consequence of nem, market developments. The adverse consequences of
this are reduced, of course, if the float is coordinated with the currency
floats of other countries which account for a large proportion of the
country's trade, or with which special programs requiring relatively fixed
exchange rates are maintained, as in the case of the EC. The reduction
in risk associated with a float through coordination imposes a cost, however,
inasmuch as the coordination or tying of the floating currencies will
facilitate speculation.
14. The mere existence of a currency band serves as an e..tticement
to money market managers. At the first sign of relative weakness in a band
currency, they will sell that currency in exchange for the strong currency
in the band. The potential rewards from trading are substantially larger
than they would be in the absence of the band, as the managers stand
to gain both from the weak currency's dropping out of the hand and
subsequent depreciation, and from the appreciation of other band
currencies. In the June 1972 pound crisis, for example. the pound, oncr;
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freed from the EC Snake, depreciated 3.7% relative to the dollar during
23-28 June, while the French and Belgian francs, now freed from the
depressing influence of the pound, appreciated 1.3% relative to the dollar.
Speculators consequently stood to gain 5.0% rather than 3.7%.
15. One of the major requirements facing the joint float participants
is the establishment of an adequate reserve pool to defend the band. The
EC Monetary Fund began operation in April but it is not clear what
influence the Fund will have on the joint float. Its initial role will be that
of a clearinghouse ? i.e., a mechanism for the multilateral settlement of
claims resulting from central bank interventions in Community currencies.
It also will administer very short-term financing of member support
operations. In any event its present resources ? $1.8 billion ? are
inadequate to assume central bank functions and maintain the band if
large-scale speculation resumes.
16. More than enough liquid funds are now available in the money
market to force a currency out of the European band. The Eurocurrency
potentially available for speculation in the short term probably totals about
$20 billion. No country participating in the joint float would be willing
to absorb even a quarter of this amount in an effort to defend the band.
Outside of West Germany and possibly France it seems unlikely that any
country would be willing to intervene and purchase even as much as
$1 billion. The Scandinavian countries (Sweden in particular) will be
especially reluctant, because of domestic political opposition and the relative
importance of their trade with countries floating independently, to intervene
to defend the band.
17. Unless some provision is made to control the massive funds
available for speculation, a successful attack on the joint float is inevitable.
The operation of the EC Snake demonstrated that a currency band can
be maintained only in a calm market. In June 1972 a speculative attack
against sterling forced London to float its currency independently, although
the pound at the time was not believed to be substantially overvalued.
Denmark and Ireland also dropped out of the band arrangements as a
consequence of that crisis. Despite a major modification in the agreement
designed to prevent Italy from withdrawing, Rome independently floated
the lira as part of the 12 February currency settlement. (Italy had gone
to a two-tier system in January with a floating financial lira after an
extended period of capital outflow.) Of the original nine participants in
the EC Snake, only France, West Germany, and the Benelux countries have
consistently maintained their membership within the band.
18. New capital controls have been added in France. Sweden, and
the Benelux countries to discourage further speculative inflows. The French
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controls prohibit commercial banks from increasing their net foreign
liabilities and from debiting non-resident accounts for the purchase of
French securities. A 100% reserve requirement on new foreign deposits was
also imposed retroactive to 4 January. Commercial banks in France and
the Benelux countries, following the example of banks in West Germany
and Switzerland, have imposed negative interest charges on non-resident
accounts to cover the costs associated with maintaining a high reserve ratio.
19. The new controls are likely to prove as ineffective in shutting
off speculative flows as the impressive number of capital controls that were
already operating in Europe, although they may further inhibit legitimate
private investment. In the absence of restraints on capital outflows or
Eurocurrency creation, the burden of capital control falls on the strong
currency country. As long as leads and lags remain to be exploited or these
countries permit foreign currency conversion into any domestic asset or
as long as loopholes exist in the administration of the controls by the
commercial banks, currency movements can occur, although controls will
make it somewhat more expensive.
20. An unexpected event -- political or economic ? within a band
country would provide a target currency for speculators. The relative
stability in exchange markets to date reflects partly the fact that money
market managers have not identified a clearly weaker or stronger currency
within the band. The joint float without Italy and the United Kingdom
is clearly more viable than a float that would have included these more
uncertain currencies. All of the present participants in the joint float have
currencies that are generally thought to be strong, and no market consensus
has yet developed over which is relatively stronger.
Short-Term Prospects for Individual Currencies*
21. The short term ? th,! next 3-6 months -- will see a reversal of
some current trends. Balance-of-payments projections for the major
industrial countries indicate that the mark will in the short term again
become a strong currency. The yen and French franc will continue to be
strong. These projections also indicate that the lira will stabilize and the
Canadian dollar will remain stable but that sterling, the Swiss franc, and
the Scandinavian currencies will weaken somewhat. Market behavior, of
course, will also be affected by central bank interest rate and intervention
activity and by money market assessment of currency potential, which is
often based on psychological and/or political factors rather than
balance-of-payments analyses.
? For additional details, by country, see the Appendix.
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22. West Germany and Japan probably will experience trade surpluses
on the order of $2 billion in the second quarter of 1973. There is already
a heavy backlog of foreign orders for German industrial products. Together
with the terms of trade improvement resulting from the mark revaluations,
the export upsurge should produce a second-quarter trade surplus almost
double that reported in the second quarter of 1972. Other items in the
German balance of payments will offset only a notion of the trade surplus.
Seasonal factors and strong import growth will keep the Japanese trade
surplus near $1.6 billion in the second quarter, or slightly less than in the
second quarter of 1972. Moreover, the continuing large deficit on services
and large net capital outflows will enable Tokyo to show a small basic
balance deficit for the quarter and for the first half-year as a whole.
23. Other major industrial nations will exhibit diverse payments
patterns in the second quarter. British success in slowing the wage spiral
is improving the investment outlook and reducing net capital outflows.
Nevertheless, this will merely prevent a trade deficit of record proportions
from producing a record basic balance deficit. A probable record French
trade surplus will be offset by growing invisible outflows. Italy and
Switzerland will show strong basic balance surpluses, but the current high
level of the Swiss franc will probably lead to increasing trade deficits and
payments pressure later in 1973. The Swedish and Danish trade accounts
will also weaken as 1973 wears on.
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APPENDIX
SHORT-TERM PROSPECTS FOR INDIVIDUAL CURRENCIES
Japan
There will be little upward pressure on the yen during the next three
months, but strong upward pressure will develop if the yen is allowed to
float beyond the summer and into the fall. The import payments backlog
that developed in February and March has been met, but the demand for
dollars will remain strong because of especially rapid import growth and
continued large net long-term capital outflows. The only source of possible
exchange market pressure is the short-term capital account. Tokyo is in
a relatively strong position to control capital inflows, but even in Japan's
case speculators have managed to move capital in when they felt the time
was right.
A large trade surplus, about $1.6 billion, is likely in the second quarter,
despite seasonal influences that normally keep the quarterly trade surplus
well below the yearly average. Exports in April-June will increase sharply,
primarily because of the terms of trade effect of the two yen revaluations.
Imports are also expected to continue their rapid expansion because of
the economic boom now in progress. Import licences during the first quarter
of 1973 were up by 67% over the first quarter of 1972.
Continued large net service payments will partly offset the trade
surplus. The services deficit totaled $600 million in the second quarter of
1972, but some decline from this level is likely because of Japan's increased
earning on foreign investments, including reserve assets. Moreover, as a
result of the latest currency change, the Japanese will earn substantially
more from local US military spending. The net service deficit in April-June
will consequently probably decline to about $400 million, resulting in a
current account surplus of about $1.2 billion.
Long-term capital outflows are increasing substantially and will
probably offset the current account surplus in the second quarter. Although
Japanese investors may delay purchasing foreign assets in anticipation of
a further yen appreciation, continued large long-term capital outflows ?
encouraged by Tokyo ? are likely. Outflows will probably average $500
million a month in the second quarter, given existing loan commitments.
This would result in a basic balance deficit of about $300 million. Net
long-term capital outflows probably exceeded $2 billion in the first quarter
this year.
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While strong upward pressure on the yen is not expected in the near
term, the Bank of Japan is prepared to intervene in the market, if necessary,
to prevent any sharp yen appreciation. Tokyo can also hold down the yen
through other devices, including slowdowns in the processing of export
licenses. This procedure was used in late February and could be reinstituted
if necessary. The Ministry of Finance will closely watch the performance
of other floating currencies in assessing how high the yen will be allowed
to appreciate. While the yen float will not be directly pegged to the joint
EC float, Tokyo will attempt to avoid criticism of its own policies by
ensuring that a sufficient margin is maintained between the yen and the
European currencies.
West Germany
Pressures for a further mark appreciation will probably develop by
summer. The large speculative mark holdings resulting from the pNvious
currency crises have kept the mark at or near the bottom of the European
currency band in recent weeks. A growing German trade surplus, however,
will result in renewed money market interest in the mark even if, as seems
likely, the basic balance is only in rough equilibrium. The Bundesbank
probably will intervene to prevent too rapid a near-term appreciation, but
It will not stand in the way of a moderate Lpward float.
A trade surplus on the order of $2 billion is expected in the second
quarter of 1973, compared with a $1.2 billion surplus in the second quarter
of 1972. The export decline in early 1973 was much less than normal.
With economic growth and inflationary pressures continuing to accelerate
in most of Bonn's major trading partners, the flow of foreign orders to
West German industry has increased rapidly. Moreover, there will be a
near-term improvement in the terms of trade resulting from the revaluations.
The current account surplus will probably total only about $150
million in the second quarter despite the large trade surplus. The invisibles
deficit ordinarily increases as the year proceeds. Foreign workers'
remittances grow after the winter months, reflecting the pickup in the
construction industry, where many of them are employed. West German's
deficit on tourist account does not become significant until the summer
months.
The long-term capital account, nearly $4 billion in surplus in 1972,
sbild revert to a small deficit position. The stringent capital controls
introduced last year will continue to reduce the inflow of foreign funds,
especially portfolio investments, which accounted for more than two-thirds
of the 1972 surplus on long-term capital arcount. Indeed, there was a net
long-term outflow of $245 million in October 1972 - January 1973.
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Moreover, rising production costs and shrinking profit margins in the
domestic economy will increase the attractiveness of foreign investment for
Germans, especially now that the revaluations have reduced the mark cost
of such investments.
Franc('
The French franc should remain strong in the near term. Underlying
its strength are continuing large surpluses on trade and currnt accounts
which will be enhanced by seasonal factors in the second quarter. The basic
balance will also be in surplus in the second quarter, but probably will
be in equilibrium for the year as a whcle. With the elections over, new
capital cnntrols in force, and the French interest rates at relatively high
levels, the net inflow of short-term funds will probably resume, although
the inflow will be much smaller than the $660 million inflow in the second
quarter of 1972.
The basic balance surplus in the second quarter of IC, .., should total
about $300 million, or about the same as in the second quarter of last
year. The trade surplus will likely pass the $:00 million mark. Although
French economic growth will result in a rapid rise in imports, exports are
also growing rapidly as French prices remain competitive in world markets.
Increases in workers' remittances abroad and oricial aid disbursements
will probably increase the deficit on services and transfers somewhat. The
current account surplus for the quarter will consequently total about $450
million. Long-term capital outflows probably will be about equal to last
year's second-quarter outflow of about $150 million.
Italy
The commercial lira is expected to stabilize in the coming month.
Seasonal factors will strengthen the lira somewhat, but any significant
appreciation is unlikely, given the negative psychology persisting in the
market Italy will register its usual large current a:count and basic balance
surpluses in the second quarter of 1973. Nevertheless, exporters and
importers fear a further depreciation of the commerLial lira. The financial
lira market will reinan thin and subject to rather volatile movements.
The Bank of Italy is prepared to intervene in the lira market on either
side to maintain the lira at close to its current rate if market pressures
develop. The Italian economy is still sluggish after a two-year recession and
three years of tremendous cost pressures, and the authorities hope that
the global devaluation of the commercial lira will bolster -xport growth
and stimulate the economy. At the s?ime time, because 0! pronounced
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criticism at home, the authorities are unlikely to permit the lira to devalue
much beyond its old Smithsonian central rate.
A trade surplus of about $100 million is expected in the second
quarter, compared with a $200 million surplus in the second quarter of
1972. Exports normally accelerate following the post?holiday lull in the
first quarter of the year, while !m ports expand at a more even pace. Imports,
however, will probably increase somewhat more rapidly than usual this year
because of the pickup OH. Italian economy and the adverse terms of
trade effect or the lira's downward float.
Continued large net service and transfer receipts will augment the trade
surplus, resulting in a current account surplus of about $600 million in
the second quarter ()I 1973. During 1972, service and trrosfer receipts
totaled about $500 million in the second quarter. and they shook, be about
the same in the second quarter this year.
The long-term capital account will probably be in rough balance
through most of the year, while short-term capital outflows will decline.
Long-term outflows increased last year but they probably fell off somewhat
io early 1973. Should they unexpectedly pick up, the Bank of Italy would
encourage state agencies and private interests to borrow abroad, as it has
in similar situations in t!..: past. With numerous capital controls, the dual
market, and the lira floats, short-term capital outflows should abate
somewhat. Nevertheless if speculators feel the time is right, they could
manage to move considerable capital out of Italy.
United Kingdom
Sterling will experience some down wan' prestoe over the next several
months. The basic balance deficit in the sec' )0 quarter will total about
$400 million, or about the same as in the second quarter last year. I.ondoi,
will continue to allow the pound to depreciate in response to the marker
pressure. thereby improving Britain's long-run competitiveness.
A trade deficit of record proportions -- about SIAM million--
expected in the second quarter 4)1 1073. Based on No experience. sterling's
depreciatien will not significantly help the British trade account until late
in 1973. Meanwhile. the adverse terms of trade effects will act to im tease
the value of import... wink a mot: I....., ?.tt e.,11 ttttt ly wit!
boost imports and inhibit export powIli.
The traditional surplus on services and tramicr payments will partly
offset the law trade deficit. These items will probably yield a quarterly
tiurplus of about S450 million. The overall current account deficit in the
12
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CONFIDENTIAL
second quarter of 1 97.1 will oalseittiently total about $1 SO million. The
belsvecii t 'wens's' realignment and its impact oil 111\1%1111e'. is
01111 the 1;1)! Rad(' ,IC!...(111111. As NI111/111%
will'
,
i t 111Cre,Ist? 141W.11(1 Ille second quarter.
hut' flitsh dellcil on 1?Illtictm c"i'itol is expected to (let:toast'
somewhat. A recotd deficit of over Si .0) billion in the second hall 01 I )7.?..
was iissoeiated with the iiiict.rtaiittN? 511114 widinp stolinr. No?v thu the
market has hecome mote stable. long?letni capital movement...shindig return
to mote normal levels. Moreover. the Heath govetimit le, success in xlmv111r!
wage inflation \sill inctease investment incentives ;Aid 'hereby improve the
outlook till the long-teim capital balance,
Swilierland
I lie \VI's% huh \VIII 501114' iloccuisv.util " '1 1 I v,(?,ir,
4)0 he 1.1 e", h1,iiik API'leclaton will ins teaw S?vilierland's esport ins onie
thump, the nesct several months .15 cxictiiig ()flier \ are tilted, 11111 e?port growth
still probabls slosv later III the ye.lt !he es port slosviliissii will lido. an
adierse t (41 the domestic c?imilms as .1 ss hole Imports hosseser.
still continue to grow and SV,II/t11,111(1', LIT rt. (It'll, 0 scull cviuheii
I Ile ci )55 iii iii t lit 0 1.111C II %%III 11.4 IV, uii.1 Intl is in III, TeX,'
in %CI' n t. te4e1Plx? allhoorli the tourist re,eipts and ills esti.,-nt earitinrs
omits moll remain strong Swit;erland Still ionseipientls Inn
ac, omit deli, it for the first time In mans scars I hi c-ssiss tourist
.1 mann foreign e?, lunge earful. 010111,1 not he cirnuhutahhhls alle, led lis
the Ixtflt? ,11a11re Switierland ahead\ ,.ders to a hMil.1 .111,11111Ct
.1k t 11,1?1111Cd 111 hitch t,lii10".... tourist re cwt.. ? Altholirll Ad\ et,c1?
.1114?4 ttih ts Sv,11;iri.itliC% ititlut mit ilutitlS ,t1010.1t?,, v.ititct ? .01.1
lii ti.v.ed in% sthuirilt entititr. ,if (col tr, ,If tI It Alit' &II, ill Ili,
? tiffClit ?'tint chiv,ked small surphis tott
Ik'rui Is \ moth the punt I 11t441,4',414 1144,41
II leafs that it 104itlil11.0 t*Iii,111111111 %I.C.111,-1. mid
111,11 use 4,1 the S,A1,, }Vint is f,,C1,44' 1,11ftt'Ilk S V.1,111t1 utl ti,P4C
.1 1,1,1111,.111s 1111111i1111.11 1,(,41\ 01 441,11114in 01`14.4,14. lii .1115 tut .hut 411,441,441114 4,1
of St itt, Ililli1.1111? .111d 111 de 14'11dilIt
C,,q,11.141
WIT kt't ION. MC Ilkeh In keep the Canadian dollar near riots with
the I S dollar in the near term the Canadian basit balan, e iii 111t'se4'rind
ihiatter ol 1 9-3 will dc,Ime somewhat from the S540 million surpnis m
the se,ond quartet of I 9'2. but the surplus will still be substantial ihe
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Approved For Release 20lit6i0MtNytyp0875R001700050037-5
decline will occur mainly in (.rittadit's balances with Japan and Western
Europe, The bilateral basic balance with the United States will he little
changed. 'llie curtent account deficit will increase. as interest and dividend
remittances are rising, but long-term capital inflows will also grow. The
small decline in rignadat. basic balance surplus together witlt continued
short-term capital outflows will pettnit Ottawa to operate a clean float
without any significant nadian dollar appreciation.
14
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