ECONOMIC INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000500140034-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 9, 2016
• Document Release Date: March 19, 1999
• Sequence Number: 34
• Publication Date: August 27, 1975
• Content Type: REPORT

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Secret
No i~nr~stl;n Otssc>:-~
Ecoaiomic Intelligence Weekly
Secret
ER EI'~1/ 75-34
27 /lugust 1975
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Warnira Noti~:e
Sensitive Intelligence Sources ~.>ind Methods Involved
NA710NA~ SECURITY INFORMA'f10N
Unauthorized Disclosure Subject to Criminal Sanctions
Claulllyd by 013719
Ex~mp1 from p?neral drela~.l/icallon schrdub
o/ E.O. 11634, ?x~mpllon cafrrporyi
? 56(1), (4), anJ (7)
Automaticallyy d~claullird oni
Do~? Imaouibb to Daamin?
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ECONOMIC I~~"ELLIGENCE WEEKLY
27 Atrrlust 1975
Soviet Grain: Rocont Developments . . ............ . ........ . ... . ... 3
Developed Countries: Caution, Policy Response to Unemployment ... , . , 8
France: Trade Surplus Temporary . . . ............. . ............... 1:i
LDC Payment Position Deteriorates . . ....... . ..... . ........ . . . . . . . 16
Note, Publications of Interest, Siatistics
The Outlook for F~ecor i 1975,176 Worlfl Grain Supplies Flas Dimmed
Considerably Since Jure. Ory growing canditions in the USSR, northern Europe,
the United States, and Canada have cut 40 ;pillion tons from earlier forecasts of
1 billion tons. I~-lstead of a 7% increase over last ~~ear, only 2.8% is now expscted.
This reduction prevents any rebuilding of world grain stocks, estimated at a ret:ord
tow of about 100 million tons on 30 June 1975.
World wheat supplies will be tighter than those for feedgrain. Wheat
production, forecast at 350 million tons, is no larger than a year ago, with most
of the shortfall occurring in *!-~~ USSR and Europe. Massi~re Soviet and East
European import requirements will boost globe! demand for US wheat to a new
high of about 36 mii!ion tons. Exports of thi:; magnitude could occur without
lowering US stocks. :vorid prices will rem~~^ strong because of low world grain
stocks and uncertainty about additional ~ at purchases.
We Now Estimate *.he Soviet Gr^in Crop at 170 Miliion Tons, roughly 50
million tons short of requirements, 5., far this year the USSR has bought 15.3
million tons of grain; confirmation of r~~mored purchases would add another million
tons to the total. Although further purchases are expected, the Soviets will have
to make other adjustments to cope with the shortfall. Most likely they will draw
down stocks, reduce feed rations and herds, and import meat or soybeans as grain
substitutes. In addition, they will reduce their grain shipments to client states.
Moscow has apparently asked East European customers to lock to the West for
all of this years grain imports.
Note: Conuncnts and yuc:ics rcg;:rding the .?conurric Intelligence FNeekly arc wclcorned. They may lx duccted
25X1 A to the Ofrice of I?conomic Rcscarch, Codc 143, lixtcnsion 7555.
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The Volume of Trade in the Seven Major Developed I;ountrios Continued
'Fo Fall Sharply in the Second Cluartor, although more slowly than in early 19?5.
We estimate that the decline in import volume slackened to an annual rate of
10%, from 30% in the first quarter. Export volr:;ne fell 9?m after declining by 14%
in the previous three months. Declining demand outside the Big Seven apparently
was a strong factor in the second quarter export slide.
Trade volume in second half 1975 will stagy ate, at best. Big Seven imports
seem likely to increase slightly as these coon-,~ies begin to recover from their worst
postwar recession. With recovery lagging ire the smaller OECD countries and with
non-oil LDCs facing payments problems, Big Seven exports to outside countries
probably vuill dECline further. The volume of exports to OFEC and Communist
countries will continue to grow, though at a slower pace.
As a result of these volume trends ~rnd less favorable terms of trade, the $17.4
billion surplus recorded by the Biy Seven in January-June will fall substantially
in the second half 1975 -- perhaps by 50%. The exl;ected deterioration in the
trade account is serving as a constraint on reflation efforts. Japan and France in
particular are eager to maintain a favorable trade position; Italy and aritain can
ill afford a renewed round of large deficits.
Monetary Reform Discussions at Next ylleelc's IMF-IBRD Meetings will focus
on quota revisions and the role of gold. The major European countries supp~ri
a plan to increase quotas about one-third by doubling the OPEC quota and by
reducing shares of the developed countries. They also agree in principle that central
banks transact gold among thernsetves at market prices with a provision to prevent
the buildup of central bank gold holdings. Under the European plan, the IMF
would reduce its gold holdings by one-third. Half of it would be sold to support
low interest loans to LDCs and the remainder returned to members at the official
price. Confidential No Foreign Dissem)
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SOVIET GRAIN: RECENT DEVELOPMENTS
Our end oi' August estimate of the Soviet grain crop is 170 million tons,
up slightly I'rorn the l:rcvious fryrecast of 165 million tons.
1'roductiun and Rcqui~~cmcnts
The revision reflects mere the receipt of new information than an improvement
in Soviet grain crop conditions. Recent rai:~s came too late to give much relic:f
to grains, even though t;~oy improved the outlook for potatoes and sugar beets.
I3,;causc this year has been marked by the worst drought in the halt two decades,
:'n estimate of the crop is subja?t to an unusual margin of uncertainty. li~.irthermore,
in times of agricultural difficulties, the Kremlin i~ even more secretive al:~ut
releasing information on crop conditions and yields, even at the local Icvel; inured,
the Soviet leadership has kept thiti year's large grain imports a secret at home.
The shortfall in Soviet production in relation to requirements will be roughly
50 million tons, much more than the world market can provides Since mid-July
the USSR has purchased 15.3 million tans of grain, including 9.8 million tons
from the United Makes. Rumored purchases would boost the total by mere than
a million tons. Moscow continues to search for available grain, having conunissioned
one US-based grain company to snap up any non-US oigin wheat, corn, and barley.
East E~~ropean SiOuation
In addition, the USSR will limit its grain shipments to client states. Eastern
Europe's grain import rerluirements in FY 1970 arc now placed at about 9 million
tons, close to the average four part years. Moscow usaally supplies about one-half
of These requirements; this year, most or all of the So~~iet share probably will
be filled by the Unite] States. Moscow has recently 25X1 C
asked East European governments to look to the West for all oi' this year's grain
imports, with financing to be provided by the USSR. Moreover, Yugoslavia
reportedly is in the market for 1 million tons of wheat, which may b~ destined
for the USSR; both our estimates and Belgrade's own stztements show no domestic
need far such a purchase.
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Purl Capacity
Soviet grain imports arc not constrained by port capacity. nssuming reasonable
schcdulintt, ports in the USSR can handle up l0 36 million tons of? grain imports
a year. 'Total deliveries in 1973 reached 24 trillion tons, two-thirds ol? present
port capabilities, with no !najor delays reported. 'T'he clomcstic transport system
can manage grain shipments of 36 million tons at the cost of diversion of 1?reight
uu?s from other uses and consequent short-term economic disruptions.
Sovicl Options
Lven though the Soviets arc continuing to buy grain, they will have to make
substantial clomcstic adjustments to cope with a large part o!' the shortfall. Moscow
will ch?aw on its small cushion of Stale grain reseives (cstim;ltcd roughly at ]0
1111IIi0n tons) and will take same combination ot? the following steps:
~ reduce the quality of bread (as Khrushchev did following the poor 1963
harvest), with a saving of approximately 4 million tons of grail;
? cut livestock inventories (a ~'/~ reduction would lower the demand for
feedgrains by about 6 million tons);
? reduce feed rations per head of livestock while maintaining the current
livestock inventory, saving up to 13 nullion tons;
?increase meat imports, thus reducing domestic demand for livestock feed
by possibly another -l million tons; and
? import soybeans to stretch feedgrain supplies. (Secret No Foreign Dissem
DEVELOPED COUNTRIES: CAUTIOUS POLICY
RESPONSE TO UNEMPLOYMENT
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Most governments contiltue to grope for an economic
strategy that will be effective in combatting the recession while not ;eopardizing
gains made in controlling inflation and reducing payments deficits.
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~y piny nraisurc, the global slump has fatten a triinful toll in lobs.
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Malian figures, which show only a small rise in unemployment,
mask a substantial amount of hidden unemployment in the form of shc,rt-time
work. With all signs pointing toward a tardy anti slew recovery, the developed
countries, particularly the F?uropcan countries, face the prospect of rising
uirernployment at (cast through the end of I~`75.
Of the six major foreign -?ountries, only Italy has thrown caution to the wind
and embarked on a vigorous program of domestic reflation. Despite rapid inflation
and balance-of-paymcnla problems, Rome has announced a $5.5 billion (3`%, of
GNP) progr~~m of fiscal expansion; it h.~5t~n encouraging an expansionary
monetary t~olicy since early in the year.
France have vocally supported the need for reflation; the measures the tan for
later in the year nonetheless arc mild.
The planned French program of $3.5 billion amounts to Iess than
lf, of GNP, a small stimulus for an economy that is expected to dip ?'/, this
year, compared with a traditional growth rate of more than 5'I,.
The unbridled inflation of recent years has left a legacy of caution among
most pelicymakers, a legacy that continues to moderate all steps toward reflation.
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The Italian Icadcrshih, in
contrast, appears willing to run considerable inflation risks in an effort to spi.u?
recovery. Its new program of fiscal expansion comes at a time when inflation,
though clown considerably Crom last year, rcn~iains high by international standards,
The Paymcrrts Constraint
`I'hc foreign sector is an edually important constraint on policy actions to
spur recovery. Although ]taffy, Britain, (:ranee, anr.l Japan have all made remarkable
progress in improving their payment, balances, these gains arc considered the
transitory product of steep recession. Each worries that more rapid expansion at
home than abroad will ma4:c imports swell faster than exports, leading to a renewal
of unrna ia~5X6 payments deficits.
Paris appear to place the highest priority on maintaining a strong
payments position. rcluctancc to push ahead faster than the United States,
its major trading partner, is moderating the pace of re(7ation. Because French
orthodoxy abhors a payments deficit, Paris is structuring its expansionary policy
to Inlninli'Le the threat to the recently strengthened current account.
Until recently, the major European countries have been content to sit tight,
awaiting a pickup in world demand. With few signs of an upturn on the horizon,
the wait for export-led growth has become ever more frustrating. France and
Germany now are finding mounting support for their view that the stronger
economies must adopt a policy of coordinated reflation.
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Until recently, Paris singly-mindcdly follcywed a policy of cutting int7ation and
curbing payments dclicits. Last year, the government curtailal the growth of bank
credit, worsening the contraction in spending. Although interest rates have cased
sirv;c the I'irsl of the year bealuse of a drop in denuuul for credit, monetary policy
has contint:cd to be restrictive. At the same lime, fiscal policy has clone little
to offset the decline in hrench consumer purchases. 'i'Itis policy of rigid restraint
has met its objectives with notable success, at the cost of a sharp jump in
unemployment. With close to I million Frenchmen out of work, President Giscard
now is worried about the political backlash from unemployment.
Although Paris does not intend to relent in the fight against inl7ation and
COntInUCti to place great weight on maintaining a trade surplus, starting next January
it plans to spend $3.5 billion on pum}~ ,riming measures to add jobs. In September,
Giscard will introduce a budget for the coming fiscal year that deliberately provides
for a deficit, a rare move for any fjrendi government. Giscard hopes that public
pronounccm~_nts will spur private spending and is launching his initiatives with
consider;ihle fsnfare. f-'ranee would prefer to sec a coordinated recovery among
all the developeri countries because it fears that isolated expansion would lead
to a return of p;iyments deficits.
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I'uliliral liressnrrs h;tve I'urcrcl a sharp rrversal of cronontic lutlicy ic; only
in the lass month. Wills thr ('untntnnists nrtkint! slronl! inroads ;tt the hallos hux,
the center-Iel'I 1!overnnu?nl ul' I'ritne Minister Muro has fell contlmllecl to aclultl
a liuli;y of vit!,truus 1'isral exliansion to Itrctlt ult thr salr)!int! cc:ononty. 'I'hc new
Itvcr, oil dcn~;uul shuulcl return to roughly the 1973
Icvel, adding ntorc Ihan ~;SUU million quarterly to the import hill. nn O1'1?(' price
hike of ~; I .SU per h~u?rel would r;cise Ibis figure to ~tiUO million.
Ncl imports of raw materials arc also likely to jump by yearend, possibly by
`~20U million per quarter as businessmen begin to restock for the industrial
rccovcry. Prices of raw nrclcrials also shuulcl firm up as flee industrial world pulls out
of recession.
'I'hc present huge surplus in U?adc in numufactures is almost certain to shrink.
Recent sharl~~ appreciation of the franc, COInbInC(I with above-average domestic
inflation, already has damaged the compclitivcncss of I~rcnch goods. !'- recent survey
confirms that even after shaving export prices an average of 4'/? below domestic
prices, I~rcnch businessmen arc experiencing a substantial price handicap in foreign
markets.
French exports appear more sensitive to domestic econ:mtic conditions than to
foreign developments. Drench busincssntcn appear to favor the home market,
pushing exports less hard when domestic demand is high. 'thus, even if' economic
rccovcry in France only I:ceps pace with the. rest of the world, the Drench trade
balance could suffer. (Confidential) ^
~.DC PAYMENT POSITION DETERIORATES
The payments position of the non-oil LDC's deteriorated rapidly in first half
1975. Cha-tges in ban1: borrowing, aid t7ows, and reserve levels inc.licatc that the
LDC current account deficit increased by ~4-wG billion in January-June. We estim;itc
that the deficit in last half 1974 was about ~ I (~ billion. Gecause the. current level
of LDC borrowing is unsustainable, a cutback in LDC imports is already under
way. "Chun the dclicit in the scconc! half, while still I'ormidablc, will decline, Some
debt rescheduling is inevitable, and exchange holdings will continue to dwindle.
Preliminary statistics indicate that the LIK' trade deficit with the major
developed countries increased x,2.7 billion in first half 1975. Direct informatian
on the 1975 trade and services balances of the LDCs with the rest of tlic world
is not available. We arrived at our estimate of the current account trrnd by
examining the tlow of financial resources to the LDCs in the first half o6 1975.
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Illllion l1S $
2d Ilu1f 1974
l.,t half 1975
l'hangc
Nct bank borrowing in the L)nitcd
Strttcs and the United Kingdom
4.4
9.0
4.fi
Aid flows (concesslonury loons)
G.8
9.0
2.2
IMF net crcdlts
l.t
0.G
-0.5
Reserve drawdowns
1.4
t~.5
-0
'These changes indicate a current accormt balance deterioration of roughly
$5 billion. Information on direct investment and bank Mows from other areas ii;
trot available; we believe changes in these 17ows will not he large encnigh to alter
our estimate by more than y.! billion in either direction.
Bank Borrowing
We cstinrUc, based on data through May, that LUC borrowing from US
conuttcrcial bank;; amounted to ~~ net $5.5 billion in lust half of 1975. nnwng
the larger LDCs, South Korea and Mexico borrowed nearly $500 million each and
Chile about $100 million. Incomplete data for 1975 on LUC borrowing from
commercial banks in London, the other nrrjor market, show a surge of new credits,
perhaps amounting to $3.5 billion net.
Owing to increases in concessionary lending, total aid flows to the Llx's rose
by roughly $2 billion in tint half 1975. OPL'C flows accounted for most of the
increase, growing from $3 billion for the whole of 1974 to an cstinrrted X3.5
billion iri J:.unrary-June 1975. Moslem countries received about 70'%~ of the OPEC
total. We estimate aid from the remainder of the world, mainly from OIsCD
countries, at $5.5 billion, compared with roughly ~5 pillion in second half' 1974.
The rate of IMF lending declined from last years record pace. LUC net
drawings from the IMF were $570 million in i'irst half 1975, compared with $1.1
billion in secon~] half 1974. Tate new oil facility accounted for 80`i.~ of the 1975
total.
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Non-Oil LDCs: Totztl And Not LiatZilitios to US Banks
DILLION US $
ib.4
IV
1973
5089A9 975
22 ~ Totnl
Linltilitiosl
Not
Liabilitios
Ooposits3
7tacludlnp haleness al erase enpeged in "olfehore" bnnlring. Data ere ae of the end of the period,
1Tntnl liehilitiee includes ell ehart end loop mrm ohhgatlone of nnnail IDCe In US henAe.loane to public inetitulione end
private henhe end buainenn, letter olcredil, end berNen' eceepUncee aeeaunt for moat of each tDC obligetione.
~Depoeite include ell short end long-term clelme of puhlie end private enlrtin in nonoil LOCe on US hanks. Time end
demand depeeib end US government eecuririea In custody of US banlre account for moat of each e'-'me.
Despite the increased aid and borrowing, LDC' reserves fell from $30.1 billion
at the end of 1974 to $29.6 billion by May 1975.
Prospects
Aid flows arc unlikely to increase substantially in second half 1975. Any
increases will probably be concentrated in those Moslem countries that received
the bulk of Ol'EC aid in the first half. We expect LDC exports earnings to pick
up moderately as raw material prices start to recover. A substantial increase in
volume, however, will lag the economic upturn in the developed countries by several
months.
LDCs arc under pressure to reduce the size of their current deficits during
the remainder of the year, if only because they cannot con!inue to borrow at
the same rate from US and UK banks. Most of the cut in the deficit will have
to be accomplished by reducing impcrts. LDC governments have already taken
steps to cut back foreign purchases. (Confidential)^
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CM Negotiates Van Contract with I'ol:uu)
Negotiations between General Motors and Poland on ,joint production of light
;;crv~ce vans probably wily result in the largest conlxacl ~.;vcr between a US firm
and Poland. 'fhe proposal $300 Million contract, expected to be concluded by
yearend, calls for GM to provide engineering design for multipurpose van; and
production technology for a new plant to produce IOO,000 vans a year. GM v,~ill
buy back some of the output for sale in Western markets, and Poland will export
many of the vans to CIMA countries. (Confidential)
Publications of L>ttcrest*
Syria: The State of the L'conomy
(I:R IM 75-I5, August 1975, Sccrct No Foreign Dissent)
This memorandum on the Syrian economy highlights the factors that ar~~
expected to sustain the solid economic growth adticvcd since 1909. It describes
the domestic development efforts, which arc being supported by unprecedented
aid from Arab countries.
People's Republic of China: Handbook of Economic h~dicators
(L'?R A(ER) 75-72, August 1975, Unclassified)
This handbook brings together economic estimates for the People's Republic
of China, a country that has not released economic statistics systematically since
19ti0.
~ Copies of these puUlications may be ordered by calling Code 143, lixtension 7234.
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EcoNO~r~ ~~r~IC,~~oRs
Propared by
The Office of Econornic Research
August 27, 1975
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The F,corranrc Indicators provide ~.rp-to-date information on changes
in the domestic and external economic activities of the major non-
communist developed countries. To the -%xtent possible, the F,cononrlc
Indicators arc updated from press ticker and Embass~~ srp~rti~rg, so that
the results arc made available to tlic reader weeks - or .: ,~:. ; ~ mcs months -
beforc receipt of official statistical publications.
Comrncnts and queries regarding the Economic /-rdlcators are
welcomed. They may be directed to the Office of 25X1A
Economic Research, Codc 143, Extension 7402 or 351-7402.
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