ECONOMIC INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000500140021-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 9, 2016
• Document Release Date: March 19, 1999
• Sequence Number: 21
• Publication Date: May 28, 1975
• Content Type: REPORT

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Secret
No Foreign IIisseni
Economic Intelligence Weekly
Secret
ER EIW 75-21
28 Moy 1975
0
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!~!ATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject i~ Criminal Sanctions
Claulfted by 01919
Exempt from general declaufffcotion schedule
of E.O. 11652, exemption eategory~
? 58(11 (2), and ((J)
Automatlca~fy declassified nn:
Date Impouyble to Determine
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No 1'oreiFn Dissem
ECONOMIC II'JTELLIC,ENCE WEEKLY
28 May 1975
Norway: Petroleum Policy Softened 3
0?EC Countries: Trends in Investable Surplus . 6
Egypt: Precarious Financial Situation . 8
Brazil: Erasion of Foreign Reserves 10
Nates, Publication of Interest
Guidelines For A Coordinated 'Policy On Raw Materials and establishment
of a high-level grcup to develop formal proposals will be thrashed out by OECD
ministers this week. Although policy reviews by many of the OECD countries are
incomplete, most accept the need to negotiate with the developifig states. The
ministers are expected to renew their pledge to avoid beggar-ttiy-neighbo~? trade
policies. They will also call for "constructive dialogue" with LDCs on such topics
as world food supplies, international commodity pclicies, and LDC access to the
markets of developed countries. The LDCs, sparked by the Algerians, are busy
doing their homework for upcoming meetings of the UNCTAD Committee on
Commodities and the Seventh special Session of the UN General Assembly this
September.
International Monetary Adjustments last week featured a decline in the dollar
against the major European currencies, reflecting expectations of further reductions
in US interest rates. The French franc was strengthened largely by Paris' decision
to reenter the European joint currency float. The weakness of the dollar probably
was responsible for *.he jump in the London price of gold by $7.65.
The Real Money Supply Has Begun To Ex and In Most Indu tr'
25X6 after falling rapidly last year.
25X6
Note: Comments and queries regarding the Economic Intelligence Weekly arc welcomed. They may be duected
to the Office of Economic Research, Cody 143, Extension 7892.
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C1PEC Country Surpluses Are Down. For the first quar~~er or 1975 the
investable surplus is estimated at $13 billion, several billion dollars below the third
quarter peak of 1974. We exn;;ct a surplus for the full year of $4y billion, or
$15 billion less than in 'i974. Reduced demand for OPEC oil and the rapid growth
in OPEC imports explain the decline. (Secret Vo Foreign Diss?m)
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Articles
NORWAY: Norway Economic Indicators
PETROLEUM POLICY SOFTENErJ
Oslo has grudgingly endorsed a
faster pace of petroleum development to
keep up with British activity in the
iVorth Sea. Norway wants to obtain a
fair share of the oil and gzs being found
along the border of the Norwegian and
British sectors; t}lis desire has overcome
its preference for a slower rate of
development, which would prolong
self=sufficiency, lessen inflationary
pressure;, and minimize social and
environmental disruption. Norway
nonetheless will be producing well below
the maximum that recent discoveries
could support.
Oslo now seems likely to allow
petroleum production to rise from the
present 200,000 b/d to 2 million b/d by
1980, including gas equivalent to
500,000 b/d. It initially had hoped to
}cold output to 1.4 million b/d. Most of
the rising outpui will be exported;
current domestic consumption is a mere
1 G0,000 b/d.
Conflicting Pressures
PRICES AND WAGES
Indox:1970=10U
~,,,.~?'"~~lrltnlcsalc Paces
100 ~-I I I I I I I ~
I it III iV I II III IV Jan
1973 1974 1975
UNEMPLOYMENT
Thousand (seasonally adjusted) Percent of Lahor Force
~~' Un/illerl Juh Var:~~nrics
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Norwegian oil policy has been little affected by recent weakness in the. shipping
and si:nbuilding sectors, which normally contrib~.ite 15`Io of GNP and one-third
of current account receipts. The surge in oil-related capital inflows has prevented
appreciable erosion in foreign reccrvcs. Oslo still appears to be more concerned
about handling the future bonanza of oil dollars than about financint; current import
requirements. One effect of the slump in shipping and slupbuilding has been to
ease pressure from the oil boom by releasing workers and allowing s}-~ipyards to
build offshore rigs and tenders.
Opposition to rapid petroleum development remains strong for economic,
social, and ecologrical reasons. The osl boom is blamed for raising the inflation
rate from 7% in 1 S73 to 11 % in 1974 -even though other factors clearly have
contributed to spiraling ;prices -and for aggravating a c}uonic labor shortage. Many
people rear that the luring awry of people from the traditional occupations of
fislung and farming will change Norwegian ~~ciety for the worse. Enviro~imentalists
warn against oil leaks from offshore drilling rigs and pipelines and against air
pollution by refineries. They also charge that construction of huge drilling platforms
is marring the L-:.auty of some fjords. Nationalists simply want to keep as much
of the oil as possible for future use in Norway.
Oil development so far has had few undesirable effects. No major pollution
incidents have xcurred. Investment in the oil and gas industry - wluch made up
13`% of capital spending last year and will continue to rise rapidly -has created
little pressure on credit facilities. Employment in the industry and in supporting
jobs stands at on'.y 30,000 people, 2%~ of the labor force. Tfus number is not
likely to increase much, because emphasis will soon shift from exploration to
extraction, w!uch is less labor-intensive. The needs of other sectors, particularly
services, are more apt to strain labor supply as the oil boom stimulates the domestic
economy. Inflation, while high by lustoric standards, so far has remained well below
the OECD average.
Oslo's recent maneuvers in the tax field reflect political pressures and a shifting
appraisal of what the market will bear. The government first proposed taxes that
would have taken 90Io of profits, Shen backed doom in the face of oil company
protests and enacted a pac};age cutting the government take to 57%-66`~o at current
prices. The initial proposal presumably was designed to placate the Norwegian
electorate and make the final tax schedule more palatable M t'~e companies. The
revised tax arrangement has left Norwegian oil com},etitive internationally and has
elicited a generally posi~;ve response from the companies.
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..::rr-~':.
Norway's Fjords:
Initial construction stases of offshore production platforms that will tower
some 500 feet in completion.
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The Norwegians arc relying l;rimarily on licensing to regulate the pace of
petroleum development. Oslo has leased only 25/0 of the offshore si~~lf south of
62 degrees and has refused to grant exploration licenses until 1977 for the more
promising area north of this latitude. It also is moving to take a more a~~tive role
in every phase of the industry through Statoil, the state-owaed company. Statoil
has the option of buying a 51 `h interest in any field once production has begun
and could use this right to restrict output. (Confidential No Foreign Oissem)o
OPEC COUNTRIES: TRENDS IN lNVESTAfiLE SURPLUS
OPEC countries had an estimated investable surplus of $13 billion in the first
quarter of 1975,* down several billion dollars t7om the third quarter peak of 1974.
We expect a surplus for the full year of $41 billion, or $15 billion less than in
1974. Reduced demand for OPEC oil and the contineing rapid growth in OPEC
imports are the main factors in the decline. (Total OPEC official :islets will amount
to more than $1 10 billion at yearend 1975.)
First Quarter Estimates
The value of OFEC oil exports fell to $25 billion in the first quarter of 1975,
13% below the quarterly average of last year. Because of the decline in world
economic activity and in excess inventories held by the oil companies, export
volume slipped to 25.2 million b/d, compared with 28.2 million b/d in the preceding
quarter. The largest cuts occurred in Saudi Arabia doff 1.6 million b/d), Nigeria
(0.4 million b/d), and the UAE (0.3 million b/d) In addition, the weighted average
price of OPEC crudes dropped slightly as oil companies sought the lowest cost
supplies. A moderate increase in non-oil exports brought total OPEC export earnings
to an estimated $26.6 billion in the first quarter.
Preliminary data indicate that first quarter imports reached $12 billion. The
increase from the previous quarter was small, because (a) import growth was
unusually rapid in late 1974 and (b) price increases moderated. The fastest growing
markets were Iran, Iraq, Algeria, and Nigeria.
'" After deduction of grant-type assistanc~c, which came to $1.4 billion. The term "investable surplus" is
often used elsewhere to include grants.
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The deficit for sen~ices and private transfers continued to shrink bacause
investment incorle grew faster than such costs as freight, insurance, and pay
repatriated by foreign workers. At the same time, grant-type outlays reached $1.4
billion, an unusually high quarterly figure, as a result of Saudi and Kuwaiti payment
of $800 million into the: "Rabat war chest."
We believe that the OPEC states had a current .account surplus in the first
quarter of $11 billion and an investable surplus of $ 13 billion. The difference
reflects the lag between the decline in oil export volume and the decline in cash
receipts for oil. The investable surplus would have peen $1 billion higher if Iran
had not allowed the oil consortium to delay its usual March payment until the
second quarter.
1. If oil prices are raised in the fourth quarter, the value of oil exports will go up, but payments for this
oil will not increase significantly until the begnning of 1976.
2. Includes military.
Outlook for the Remainder of 1975
The OPEC current account surplus is expected to decline by $'L billion more
in the second quarter, to $9 billion. Seasonally lower oil consumption and
continuing drawdown of company inventories should reduce oil exports by at least
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$1 billion. Meanwhile, imports are likely to increase by somewhat morn than
$1 billion, with the rise in investment income offsetting only a few hundred million
dollars of the gair. Because of payments fags, OPEC countries should leave a second
quarter investable surplus of $ I 1 billion.
In the second half, the current account surplus gradually will turn up. Uil
sales will be stimulated as economic growth begins to recover in the developed
countries, since oil inventories will leave been trimmed. OPEC exports of oil
probably will average 25.5 million b/d and revenues will amount to $101 billion
if present prices continue through yearend. If prices are hiked at the start of the
fourth quarter, revenues will rise $2.5 billion for each dollar-per?b=irrel increase.
Actual cash receipts in ~ 975 would be little affected because of lags in oil receipts.
We estimate that OPEC imports in 1975 will reach $54 billion, a 50% increase
compared with a 75% rise last year. The decline is attributable entirely to
expectations of smaller price increases; the growth in volume probably will continue
near the 1974 rate of 33%. The current account surplus for 1975 will hit about
$41 billion, or $29 billion less than in 1974. The expected decline in actual receipts
is onl~~ $15 billion because of lags in oil receipts. This decline is $10 billion greater
than we estimated three months ago because the worldwide recession has proved
more severe than expected and because OPEC imports have increased more than
anticipated. (Secret)^
EGYPT: PRECARIOUS FINANCIAL SITUATION
President flnwar Sadat, walking afinancial/political tightrope, is trying to
sustain present levels of foreign expenditure with short-term borrowing until
additional Arab cash or Western aid is forthcoming.
Economic Headaches
Sadat needs at least $500 million in new aid to finance the prospective current
account deft-.it and to repay long-term loans falling due in 1975. If aid is not
forthcoming, a major adjustment is in prospect. Unable to cut back on debt
repayment without jeopardizing its Western credit rating and its Soviet military
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support, Cairo may be forged to slash imports to austere pre-war levels for the
second half of the year.
Egypt's financial problems began last year when the import bill doubled in
comparison with pre-war years, because of both increased prices and higher volume.
Foreign exchange earnings and Arab aid financed imports until the fall of i 974.
At that time, deepening depression in the West cut demand for cotton and other
income-elastic exports, and the sums promised at the Rabat conference were sharply
reduced.
In the last few months of 1974, Egypt faced abalance-of=payments gap of
about $250 million, which was financed by short-term borrowing. Unwilling to
enforce austerity on a populace whose living standards remained below mid-1960
levels, Cairo has continued to borrow throughout the first 5 months of 1975;
short-term obligations due before the end of next month now exceed $1 billion.
We believe that the banking community is prepared to refinance short-tc, m
obligations that cannot be paid, but interest rates and other penalties arc rising
as Egypt's credit rating weakens. The Sadat government is postponing some
repayments, hoping to obtain the new aid required (a) to discharge uverdue
short-term obligations fully and (b) to maint~~in present expenditure levels.
Political Concessions?
Since the 1973 war, Egypt's l:ivota) position in the Middle East and Sadat's
influence with King Faysal have enabled the President to obtain sufficient foreign
financing without making significant policy concessions to his creditors. He is
relying heavily on the prospect that the Arab summit rtow scheduled for June
will again provide substantial grant aid that is not tied to economic projects or to
political goals.
If he fails to evoke a favorable response from the SUIllllllt, Sadat may still
be able to obtain ,additional cash from Saudi Arabia. The death of Faysal and
the advent of new Saudi leadership have created considerable uncertainty, however,
particularly as to the conditions that might be attached to balance-of=payments
support. No assistance can be expected from the USSR, whose insistence on higher
debt repayments may create a substantial net outflow of funds from Egypt.
Accordingly, Sadat may have. to depend heavily on the West and such new sources
as Iran to supplement aid flows this year. (Secret No Foreign Dissem)^
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Brazil lost nearly $800 million in Brazil Economic Indicators ... .
foreign exchange in the first quarter of
. ~~ ~, .. ~ - Percent change over the same period of previous year
billion, compared with $6.4 billion at
mid-1974. The government eau only
partly staunch the financial hemorrhage
in the remainder of 1975, given the
indifferent prospects for capital inflows ~o
and the difriculties of restraining
imports.
Last years deficit in the basic
balance of payments occurred after six
years of steadily rising reserves. The
current account deficit jumped from
$1.7 billion in 1973 to $6.9 billion in
1974, almost one-fifth of the aggregate
deficit registered by the non-OFEC
LDCs. Deteriorating terms of trade
played only a minor role in tlus
development. Import prices, led by
petroleum, rose 45%; export prices
increased 3510, primarily because of the
booming sugar market and soaring prices
for Brazilian manufactures. While export
volume failed to rise, import volume
grew exceptionally fast. Capital inflows
almost kept pace with the growth in the
trade deficit in the first half of 1974 but
faltered after mid-year.
Brazil will have a large current
account deficit in 1975 despite a
substantial reduction in the trade deficit.
De/lated value of
bank clearing
Value of retail sa/es, Rio
I II nl
TRADE DEFICIT is7a
I II III
Iv I
1975
Iv I
't"~ Industrial co~;sumption of
electric power, Rio, Sao Paulo
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Brazil: Balance of Payments
Sharply reduced econcmic growth helped cut the trade deficit in t!le first quarter
of 1975. Trade deficits for the rest of the year probably will be even smaller
as (a) export volume turns up ;.md (b) imports continue to be restrained by higher
tariffs, administrative controls, restricted import credit, exchange rate devaluation,
and falling raw material prices. Imports were held below $3.0 billion in the first
quarter, in keeping with the t;overnment~s goal Of hlllltlllg imports to the $12.5
billion level of 1974. Because of falling prices for agricultural exports, total exports
in 1975 probably will not exceed $9.5 billion, implying a trade dci'icit of $3 billion.
Meanwhile, higher net interest payments will raise the service account deficit.
The rise in foreign debt of 35% in 1974 means larger interest payments, and the
drop in foreign reserves will reduce interest .receipts by at least 25`I~. Brazilian
officials expect a $3 billion service deficit, compared with $2.3 billion in 1974.
The total current account deficit thus will be close to $6 billion, an improvement
of less than 15'/0 on 1974.
Ca~~ital Account
Brazil would net about $4 billion in medium- and long-term capital this year,
if first quarter results were a reliable indication. Direct investments would make
up about $900 million, and the remainder would come from suppliers, foreign
commercial banks, and multilateral institutions. Under these circumstances, Brazil
would face a basic balance deficit close to $2 billion for 1975, compared with
$1.4 billion in 1974.
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Brazilian officials, however, report that new credits rose sharply in April,
equaling the average monthly rate of 1974. If this rate were sust~~incd, the deficit
would be cut sharply and reserve losses curtailed. A recent decision to allow
foreigners to enter the Brazilian stock market may also attract additional foreign
capital.
Brazil probably would be willing to use its foreign reserves to finance a deficit
of $1.0 to $1.5 billion in its basic balance. If the deficit were to exceed this
level, the monetary authorities could use additional short-term lines of commercial
credit and, reluctantly, draw on the $550 million available to Brazil from the IMF's
oil facility. (Secret)^
US Trade with the USSR: Exports Up, Imports Down
First quarter statistics for US-Soviet trade just released by the Department
of Commerce show US exports in 1975 up by more than $100 million over First
quarter 1974, to a level of $2 ~ 6 million. Exports were led by grain ($ I49 million),
trailed by machunery and equipment ($74 million). For 1975 as a whole, exports
probably will be substantially higher than the $612 million in 1974, with machinery
and equipment the major category. The $20 nulllon decline in imports to $78
million reflected a drop in imports of platinum group metals. A sharp increase
in US purchases of Soviet oil, for example, could easily reverse this downward
trend in imports. (Unclassified)
The USSR plans to market its Fiat passenger cars in the United Stat~;s as
soon as the vehicles can meet US safety and emission standards. Ten Fiats, called
Lada in export trade, presently are undergoing safety and pollution tests in the
United States. If the precedent being set in Western Europe holds, the Soviet cars
will go on sale in the United States at prices well below those of the Italian-made
Fiats. (For Official Use Only)
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Atncricans Brighten the Canton Fair
American attendancc at China's 1975 Sprint Canton Trade rain was the highest
ever - 440 buS111e5Slllen representing 275 US firms. The Chinese moved to
accommodate US buyers by reducing prices on textiles, olTering to upgrade quality
and packaging, guarantecIng immediate delivery on clothing, and denominating
contracts for some commodities in US dollars. US purchases (primarily nonferrous
metals, textiles, and foodstuffs) approached the $40 million record established last
fall. Since only about half of C-S purcl~ases arc normally concluded at the two
fairs, US imports from China should reach $ 150 million this year. Although US
participation was a bright spot, overall attendancc and the volume of business were
below the 1974 tall Fair -the lowest in years. (Confidential)
IndoneSlall fears that increased oil earnings and membership in OPLC would
cause foreign aid flows to dwindle have proved to be unfounded. At their recent
meetinb, the Inter-Governmental Group on Indonesia made new aid commitments
of $900 million, about the same as last year. The IBRD and Asian Development
Bank together have agreed to double their lending to about $500 million. Of the
$400 million in bilateral aid, Japan pledged $140 million and the US $CO million.
Loans -about 90% of total commitments -will entail somewhat harder terms
than in 1974. (For Ofticial Use Only)
Bangladesh Devalues
Bangladesh devalued its currency 36.8`% on 17 May, equating 30 Taka to # 1
sterling. It now expects international agencies and Western donors to provide
additional aid to case the inflationary impact of a measure they had so strongly
recommended. The devaluation (a) permits a reduction in the export price of raw
jute goods, which have been giving way to synthetics; and (b) probably will enable
the government to reduce its subsidy to the jute industry. The money saved on
jute subsidy payments can be used to help maintain the present low prices of
imported goods distributed through the ration system and fund new development
projects. At the same time, the devaluation is not likely to induce a decline in
import volume. (For Ot7icial Usc Only)
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 Soc~ot
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Ueclinc in [icliblc Oil Prices
Worldwide increases in exportable supplies ul' edible oils, a I a lints of depressed
husinesx conditions, have led to sharp price declines from the hilr,h Icvrls of early
October 1974. Unless the inlernalional cconontic tempo should unexpectedly speed
uh or prospects for the US soybean, crop turn Door, the IarE~e supplies will ntcan
further' downward pressure on prices for the rest of the year.
US $ per 'I'on
3 Oct 1974
7 May 1975
Percent
Change
US soybe
(Decatu
ans
r, IIL)
1,093
513
-53
Coconut
oil (IZottnrdam)
935
384
-59
1'ealtnt o
United
ll (C.Lt.
Kingdom)
1,136
759
-33
Sunflowe
(Rotterd
r seed oil
am)
I ,220
G70
~5
1'enrvian
(c.i.f. N
L;uropc)
fish oil
orthwcsr~rn
590
290
-51
Palrn oil
wcstcrn
(c.i.f. North-
Guropc)
812
399
-51
(I~or Official l)sc Unly )
Copper Producers: Oul of Stcp
lairs, one of the four ntcntbcrs ul? the Intcrgovernetcntal ('ouncil of Copper
Exporting Countries, has not fully accepted the Councils agreed I S','S, cutback in
production, scheduled to take el~l?ect on I S ilpril. Instead,I_aire is reported to
be stockpiling IS~~~ of its production.lamhia also has not yet complied with the.
cutback. Peru and Chile arc supporting the cuth..tck publicly hul prob.rbly have
not fully implemented it. Sin~x world copper stocks remain unusually large, little.
increase in prices is likely until an economic upturn in major industrial countries
occurs. (Cor~icdcnlial)
Poland Borrows To Develop Copper 1(esources
Poland has received a $240 million I;un,dollar loan From a consortium of?
Western banks led by Chase Manhattan Bank, Ltd., of London for the development
of copper deposits in the Lubin-Clogow basin. 'I'hc seven-year loan is the largest
ever raised by an i3ast European country on the Eurocurrency markets. terms
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call I'or t spread ol? I-I/2 points above Llte London interbank Talc f?or I?uroclollars -
Ih~~ hi~;hcsl spread ycl acccptecl by an 1?asl I?uropean country. Itt adrJilion, Poland
rccrived a '1.2O million I?xporl-Intporl Bank credit in I~uhru.,ry I97~1 let support
the purchase of? '~,SS million worth ol? atpper procetisinfr, e