CURRENT POSTURE BRIEFING FOR SENATE APPROPRIATIONS SUBCOMMITTEE (MCCLELLAN)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000600040025-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 15
• Document Creation Date: December 12, 2016
• Document Release Date: January 31, 2002
• Sequence Number: 25
• Publication Date: June 11, 1975
• Content Type: MFR

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SUBJECT: Current Posture Briefing for SQnate
Appropriations SubcommitteE (McClellan)
The attached material was provided to
0/DDI on 6 June 1975, for use by the DCI in briefing
the Subcommittee. It contains contributions by I/AM,
I/IE, I/JP and I/WE.
Distribution (5-07551)
Orig & 1 - 0/DDI
1 - D OER, DD OER, SA/ER
3 - St/P/C
1 - D/I
1 - I/P,M
1 - I/IE
1 - I/JP
1 - I/WE
25X1A9A
25X1A
25X1A
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DCI CONGRESSIONAL BRIEFING
FOOD AND POPULATION PROBLET~iS
I. Mr. Chairman, I would like to speak briefly of a
problem on which international action is dragging:
how to provide enough food for the world's rapidly
growing population in the developing countries.
A. Population growth in the developing nations,
which have about 75 percent of the world's
peoplE, exceeds projected rags of food
production.
1. Demand there is projected to grow at
3.4 percent per year, while food produc-
tion will grow by only 2.6 percent. ASost
of th9.s mounting demand will come simply
from there beirig more mouths to feed .
2. There are no effective population control
? measures underway to stem growth in the
poor, food-deficit nations.
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A. So far progress has been slow on implementing
resolutions passed at the World Food Conference
for an agriculture development fund, a s,~stem
of international reserves, and a consultative
group on food production and investment in
developing countries.
B. In the meantime, the high costs for energy
will continue tc slow the expanded use of
fertilizer and machinery for boosting crop
yields..
C. Also, unless developing countries t:a}:e measures
to sloca population growth, the, chances of closing
the food gap are remote.
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I3. Indeed, recent US and UN studies conclude that if
past production trends continue, the developing
countries' food deficits wi11 grow larger and
larger.
II. It is widely accepted that if large-scale famine is
to be averted in the long run, the wealthy and poor,
nations must work together by boosting food produc-
tion in the developing nations.
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III. I raise this issue once again, Mr. Chairman,
because as a major surplus food producer US
involvement in.the international food problem
is inescapable, and wit+. grow in the coming
years. Where is also the danger that we and
other nations may become complacent about the
problem if current prospects for a bumper grain
harvest this year are realized.
A. Pressures for food aid and other concess Tonal
help to poor nations may gro;a. in the short run
even if they undertake new production pr ograms.
B. Any system of international grair.~ reserves for
aid and supply stabilization purposes will in-
volve the US if it is to succeed.
C. Future issues facing the US will include the
impact of larger food exports on domestic price
levels, and how to allocate food exports between
the affluent and poor izations..
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DCI CONGP.ESSIONAL BRIEFING'
THE OIL SITUATION
I. Turning to the international oil situation, Mr. Chairman,
I would like to speak briefly of the price, production,
an3 ownership situations, and then com,-nent on a few
repercussions of the extraordinary changes we have
experienced in the past 15 months or so.
IT. First, the price outlook. It nova seems certain that
OPEC will once again hike oil prices effective 1 October.
A. tae believe that the increase will be much smaller
than the $2.00 to $4.00 mentioned in the press --
perha}~s less than .$1.00.
1. The initial increase may well be followed
by a more :substantial rise early in 1976.
2. The size of the increase will be greater if
economic recovery in the OECD countries is
reflected in strong demand for OPEC oil.
III. Until recently the OPEC members were cutting oil
production to maintain prices. Tllis is no longer
A. The long decline in OPEC oil production seems
to have bottomed out in April. Sharp drops in
Saudi Arabia, Nigeria and Ku:aait were offset by
increases in Iraq, Abu Dhabi, Libya, and Qatar.
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B. Continuing inventory drawdowns could keep production
],ocv in the ne};t .few months. This is by no means
certain, however.
1. Concern about future price moves could lead to
slower inventory use.
,_
2. By the end of summer, at the latest, renewed
economic growth and the necessity of rebuilding
stocks should bring about a sharp increase in
demand for OPEC oil.
C. At the same time, the ownership situation is
rapidly changing.
1. Since 1973, several of the producing countries
. have greatly increased their share of ownership
of the oil industry in their countries.
2. This trend is expected to continue in 1975,
' with Venezuela and possibly some P~::rsian Gulf
producers achieving 100 percent participation
during the year.
3. Progress is not as rapid as previously expected,
ho~ti~ever. Qatar and Abu Dhabi are rethinking
their nationalization plans and Saudi Arabia
appears to have relaxed its time table.
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D. At current price and production levels, the OPEC
nations as a group will earn nearly $95 billion
from oil sales in 1975.
1. Those countries earning the largest revenues
are Saudi Arabia (about $26 billion), Iran
(about $20 billion), Venezuela and Nigeria
(about $8 billion each) .
2. Most of the oil producing countries are earning
more money than they can spend this year.
3. The OPEC countries as a whole are expected to
spend just over $50 billion ?f or imports in
1975, leaving an investable surplus of about
$~0 billion.
4. So far they are putting most of these funds
into short-term bank deposits -- mostly in
dollars.
IV. The October price hike will probably not be large
enough to jeopardize renewed economic growth in .the
major countries.
A. The OPEC members have a vested interest in a booming
world economy. The demand for their oil depends
upon it.
B. The non-oil LDCs are beginning to press the oil
producers on this issue. These other LDCs hope that
renewed economic growth will increase demand for
the coitunoditics t'~ey export.
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V, High oil costs, nevertheless, will continue to have a
major impact in 1975.
A. In the industrialized countries, mounting oil
bills are responsible in part for high rates of
inflation and for the stagnation or decline of
their economies.
1. During the first half of 1974, wholesale
prices increased at an annual rate of over
. 30, percent.. P`_ore than one-third of this
increase was attributable to. the direct and
indirect effects of higher crude oil prices.
2. Growing oil bills also accounted for about
one-third of the 15 percent rise in consumer
prices during the period.
3. At the same time, about $70 billion in purchasing
power was shifted ,from the developed countries
to the oil ey:porting countries. This, coupled
? with efforts to control inflation, turne3 the
hoped-for "soft landing" into economic stagnation
in mist industrial countries.
B. High oil prices have also had a major impact on
the balance of payments of the developed nations.
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1. Last year, Canada, France, Italy, Japan,
the United Kingdom, and West Germany saw their
combined trade surplus drop from about $13.0
billion in 1973 to about $1.2 billion.
C. These problems will worsen for the LDCs in 1975.
,.
1. Prices for oil, food, and fertilizer will
remain high and those of manufactured goods
will increase, whereas prices of many LDC
.exports will continue to fall. _
2. The financing of balance-of-payments deficits
will be more difficult because of drawdowns
of international financial reserves and the
exhaustion of private lines of credit.
'3. The LDCs in 1975 will be increasingly dependent
on assistance from the developed countries,
OPDC countries, and inter;~ational financial
institutions.
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BACKUP FOR DCI CONGRL;SSIONAL IIRTEF~'ING
THE EUROPEAN Ec:OP1OM~
I. Inflation in S9estern Europe has eased during the
first four months of 1975 but will remain at historically
high levels throughout the year.
A. In 1974, inflation in the four largest countries
averaged more than three times the historic
average of 4 percent. In the first third of 1975,
inflation decelerated in most European countries
with the notable exception of the United ICingdom.
1. The recession in the developed countries has
sharply reduced demand pressure on prices,
2. Industrial raw material prices have fallen
40~ since their peak in early 1974 as demand
fell and companies .began to liquidate
inventories.
3. The impact of higher oil prices has largely
been passed through wholesale and retail
outlets.
B. Although some further slocaing in inflation probably
will occur over the rest of 1975, price growth
is unlilc~ly to abate to historical levels.
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1. Oil pricers will undoubtedly increase in
September.
? 2. Catch-up wage hikes will bring greater
pressure on manufactured goods prices.
3. Lower rata material prices will be insufficient
to offset higher wages; with profits already
squeezed, industry will try to pass higher
costs on to consumers.
C. The United Kingdom and Italy will again suffer
the highest inflation rates among major European
countries, averaging 18-25 percent for the year.?
West Germany will continue to? enjoy the lo~?~est
rate in the ~9estern developed ~vorld -- perhaps
as low as G percent.
TI. Economic grocath in Europe plunged sharply last year
and is expected to remain depressed during most of
1975. .
A. Real G:vP growth in the major countries averaged
1 3!4 percent in 1974, and output is liicel:y to fall
_slightly in 1975.
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1. West German output declined at an annual rate
of 2.8 percent in the second half~of 1974,
because of restrictive government policies
and falling foreign demand. The decline
accelerated to an annual rate of 6% in the ~-
first quarter of 1975. While private consump-
tion should recover moderately later this year
because of tax cuts, declining investment
and weak foreign demand will contribute to a
small drop ~n GNP. '
.2. Stalian growth in the second Half of 1974
plunged at an annual rate of 7~ in response
to austerity measures. Although the government
has eased its restrictive policy stance
slightly, large inventories and substantial
spare industrial capacity in tine face of
~l~~ci~ consumer demand augur a small decline
in GNP.
3. British GNP declined slightly in 1974, mainly
because of the prolonged coal strike last
winter. This year VNP will probably dip
. slightly as higher taxes cut into consumer
spending and investment declines across the
board.
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4. France grew at an enviable rate of about 4
percent Nast year. Growth probably will slip
to under 2 percent in 1975 -- less than half
of the long-term average but still faster than
in other major developed countries.
B. In late '1974, industrial output in western Europe?
declined at a record annual rate of over 20a.
The pace eased in the first few months of 1975,
but some further declines are expected.
? 1. High unemployment and low capacity utilization
are dampening consumer and .investor
confidence.
2. Inventories rti~nain at excessive levels. ?
3. A sag in foreign demand is compounding the
problem caused by lackluster domestic sales.
C. Unemployment continues to mount.
1. In the four major coun~-ries, the combined
number of unemployed this spring was .60
percent higher than a year earlier.
2. The rise in the jobless rate has been most
severe in West Germany, cahere the number of
unemployed remained above the one million mark
through April -- more then three times the
. long-teLm norm.
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