INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000100170008-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 43
• Document Creation Date: December 22, 2016
• Document Release Date: October 15, 2010
• Sequence Number: 8
• Publication Date: July 19, 1985
• Content Type: REPORT

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Directorate of
Intelligence
Weekly
International
Economic & Energy
19 July 1985
-?eeret
DI IEEW 85-029
19 July 1985
Copy 8 3 5
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secret
1 Perspective-OPEC: No Solutions in Sight
iii Synopsis
OGI
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Economic & Energy Weekly I 25X1
International
19 July 1985
Saudi Arabia: Threats To Boost Oil Output Unilaterally
NESA
Key LDC Debtors: Lackluster Investment Portends Problems
15 The Sino-Soviet Trade and Cooperation Agreements: A Step Forward
SOYA
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directed to Directorate of Intelligence,
OGI
Energy
International Finance
Global and Regional Developments
National Developments
Comments and queries regarding this publication are welcome. They may be
Secret
DI IEEW 85-029
19 July 1985
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Secret
International
Economic & Energy Weekly
Synopsis
1 Perspective-OPEC: No Solutions in Sight
weekend in Geneva, the near term offers few promising options.
amid an atmosphere bordering on despair. As the ministers gather this
OPEC ministers meet on Monday for the second time in less than three weeks
3 Saudi Arabia: Threats To Boost Oil Output Unilaterally
Shrinking government revenues have forced Saudi officials to consider boost-
ing crude oil production unilaterally. The Saudis hope their threats will prod
other members to agree to a new quota and pricing scheme, but they are
prepared to act on their own.
Key LDC Debtors: Lackluster Investment Portends Problems) 25X1
The high investment growth that powered the economies of the key LDC
debtors during the past two decades may be a thing of the past. The fallout
from this dramatic shift in investment behavior will multiply the economic and
political problems these countries will face during the next decade.F~ 25X1
15 The Sino-Soviet Trade and Cooperation Agreements: A Step Forward) 125X1
China and the USSR signed a $14 billion five-year trade agreement and a sep-
arate economic cooperation agreement-the first such agreements in 20
years-on 10 July as part of Vice Premier Yao Yilin's four-day visit to
Moscow. Although trade levels under the agreement will be a function of
bilateral political ties, transportation problems may be the principal long-term
impediment.
iii Secret
DI IEEW 85-029
19 July 1985
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Secret
International
Economic & Energy Weekly
19 July 1985
Perspective OPEC: No Solutions in Sight
OPEC ministers meet on Monday for the second time in less than three weeks
amid an atmosphere bordering on despair. As the ministers gather this
weekend in Geneva, the near term offers few promising options. Weak oil
demand, rising competition from non-OPEC producers, and internal disarray
continue to challenge OPEC's ability to avert a major price break. OPEC's
falling oil revenues have placed financial pressures on its members and forced
them to compete against each other for oil sales
At the early July meeting, financially strapped Nigeria, Iraq, and Ecuador
bitterly opposed a stopgap plan to reduce every member's production quota by
7 percent. Algeria, Iran, and Libya, who have joined other members in
underselling official OPEC prices through barter deals and discounting,
argued against any adjustment in the official price structure. Such hypocrisy
contributed to an atmosphere of distrust among members, who'were quick to
blame each other for the organization's predicament
A sword hanging over Monday's meeting is the Saudi threat to cease acting as
the organization's swing producer. At the last session, Petroleum Minister
Yamani bluntly warned that Saudi output would be boosted unilaterally if the
members continue to violate established price and production guidelines.
Poorer and more populous OPEC nations have little sympathy for the Saudi's
economic plight, but they realize that a decision by Riyadh to follow through
on its threats would trigger a price war.
Pressure for a downward price adjustment has mounted in the two weeks since
the ministers last met. Mexico lowered its oil prices for the second time in less
than a month, US and Canadian producers have cut light oil prices, and press
reports indicate that Egypt will do the same. According to US. Embassy
reporting, Venezuela-with exports down sharply-is waiting until after the
meeting to announce a badly needed price cut.
OPEC members realize that even concerted action in Geneva will not alter the
gloomy demand outlook for its oil over the next two years:
? Oil consumption will remain steady, while non-OPEC production is expected
to rise by nearly 1 million barrels per day (b/d) this year and about 500,000
b/d in 1986.
? Substitution of other fuels for oil is occurring at a rapid pace, and
conservation efforts continue to improve energy efficiency.
As a result, demand for OPEC oil probably will be only 16-17 million b/d
through 1986, roughly one-half the 1979 level.
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Indeed, some members are seriously questioning the value of remaining in
OPEC, if it means only additional production restraint and declining revenues.
Production discipline is no longer viewed as a short-term sacrifice guarantee-
ing a brighter future, but as a long-term headache with no relief in sight.
While OPEC's most effective course of action would be to cut production
further, an allocation scheme acceptable to all members does not appear
negotiable at this time. The other alternative, price cuts, would be slow to spur
demand and would only increase pressure on revenue-starved members to
violate production quotas. Bolder initiatives-such as a central marketing
organization for OPEC crudes-may be necessary to break the deadlock but
have little support going into the meeting.
In any case,.OPEC lacks the innovative leadership and resolve needed to deal
with its problems. In the unlikely event that members pull together in Geneva,
they will still have little cause to celebrate. Yet, if OPEC fails to act, July 1985
may well mark a de facto dissolution of the cartel as members attempt to solve
their problems individual1 . Even Yamani-once a voice of optimism within
OPEC said following the debacle earlier this month that
the group will cease to be an effective entity over the next six months until
members once again realize that a united OPEC is in their own self-interest.
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Secret
Saudi Arabia: Threats To Boost
Oil Output Unilaterally
Shrinking government revenues have forced Saudi
officials to consider boosting crude oil production
unilaterally if other OPEC countries fail to adhere
to production quotas and official prices. They be-
lieve they are bearing an unfair burden as swing
producer, particularly now that spending cutbacks
are beginning to affect domestic programs. Petro-
leum Minister Yamani has publicly threatened to
boost Saudi oil production if other OPEC countries
continue to "cheat." The Saudis hope their threats
to increase production will prod other members to
agree to a new quota and pricing scheme, but they
are prepared to act on their own if no new agree-
ment is reached and observed.
Riyadh's goal of a $55 billion balanced budget was
unrealistic from the outset. Despite projected
spending cuts of about 14 percent, declining oil
revenues are pushing the red ink to levels that
Saudi officials find unacceptable. Saudi output fell
to an estimated 2.1 million b/d in June, far below
the 3.8 million b/d on which Riyadh's current
budget is based. We believe Riyadh wants to avoid
having to finance a budget deficit much larger than
$10 billion because it has already drawn down its
liquid international assets from $135 billion to $90
billion in less than three years. If crude production
averages 2 million b/d for the fiscal year, at
current prices and spending levels, Riyadh would
face at least a $20 billion deficit.
If the Saudis tried to pare spending by an addition-
al $10 billion, outlays would be nearly 40 percent
below last year's level-an almost impossible feat
for both political and bureaucratic reasons. For the
first time since oil revenues began to decline,
budget cuts are being targeted toward Saudi citi-
zens. Allowances, benefits, bonuses, and other pay-
ments received by civilian employees of the Saudi
Government already have been severely curtailed,
amid loud complaints. Saudi officials are chary of
cutting broader consumer subsidies after seeing the
political disturbances that followed similar cuts in
Morocco, Tunisia, and Sudan.
The Saudis are calculating that the prospect of the
market disruption and downward price spiral that a
unilateral production increase would cause will
induce other OPEC members to maintain better
discipline. The opening gambit came during a
meeting of OPEC's Ministerial Executive Commit- 25X1
tee in early June, in which Yamani read a letter
from King Fahd stating that, if any OPEC member
cheats, they all have the right to do so. According
to the US Embassy, Yamani said that Saudi
Arabia could easily expand production to 4.35
million b/d-its implied quota under the current
OPEC agreement. Ya- 25X1
mani subsequently threatened a 9-million-b/d lev-
There are risks for the Saudis if they unilaterally
boost their production. If quotas are abandoned
and a price war ensues, some industry experts
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indicate prices might initially fall to $12 to $15 per
barrel. Lower prices probably would not be trans-
lated into significantly higher demand-particular-
ly in the short run-meaning little budgetary relief
for Riyadh. For example, at a price of $15 per
barrel and Saudi output of 3 million b/d, Riyadh
would still face a $20 billion deficit in the absence
of any additional spending cuts. At that price, the
Saudis would have to boost output to 5.7 million
b/d to hold the deficit to $10 billion without
cutting spending. Only a smaller price drop or
better demand response would permit the Saudis to
stay within their deficit target.
The Saudis have delayed taking any unilateral
action until after Monday's OPEC meeting. If an
agreement on quotas is worked out then, the Saudis
would probably wait a few months to see how well
it is observed. If no agreement is reached or if an
agreement is promptly violated, the odds are better
than even that the Saudis would boost output
unilaterally.
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Key LDC Debtors:
Lackluster Investment
Portends Problems '
The high investment growth that powered the
economies of the key LDC debtors during the past
two decades may be a thing of the past. After an
unprecedented four-year plunge, investment in
these countries is only now beginning to recover.
Even if this recovery is sustained, we believe invest-
ment growth through 1989 will be slower than in
the past. The fallout from this dramatic shift in
investment behavior will multiply the economic and
political problems-these countries will face during
the next decade. In particular, slow investment
growth will limit their economic recovery, further
aggravating existing political and economic ten-
sions. Sluggish investment growth may also place
additional strain on the international financial sys-
tem by jeopardizing compliance with IMF-support-
ed programs and eroding trade competitiveness.
In general, investment growth in the key LDC
debtors was impressive before the international
financial crisis shattered the two-decade-old trend.
Over the past four years, investment in these
countries declined by nearly $55 billion-a 30-
percent drop. Investment last year was well below
1980 levels in each country. (See foldout on page
13.) In Argentina, investment plunged by nearly 55
percent during the past four years. The investment
slump was severe, but less dramatic, in Chile,
Brazil, Peru, and Mexico. At the end of last year,
their investment stood 25 to 35 percent below 1980
levels. Nigeria, the Philippines, and Venezuela
fared somewhat better, registering investment de-
clines of only 10 percent.
debtors include Argentina, Brazil, Chile, Mexico, Nigeria, Peru,
the Philippines, and Venezuela. Investment refers to gross fixed
investment-investment in structures, machinery, and equipment.
All dollar values and growth rates are based on constant 1980 US
We believe three key factors underlie the recent
investment slump:
? Financing difficulties probably were the major
drag on investment. The pool of funds available
for investment fell by 15 percent during the last
two years. Lower domestic savings and reduced
access to foreign borrowing stifled investment by
either pushing up financing costs or, where inter-
est rate controls exist, causing. a shortage of
funds.
? Economic recession produced an unprecedented
slump in aggregate demand that led to an invest-
ment decline when the expected returns from
investment projects plummeted and internally
generated investment funds dried up.
? Heightened economic and political uncertainty
also contributed to poor investment performance.
Investors found it impossible to gauge the future
returns from projects, and-massive capital flight
restricted the supply of investment funds.
Our analysis indicates that investment in the key
LDC debtors will rebound during 1985-89, but it is
unlikely that investment growth will be high
enough to restore investment to its level before the
international financial crisis. We expect investment
to grow at an average annual rate of 3 to 5 percent 25X1
during the rest of this decade, a dramatic improve-
ment over the average decline of 8.2 percent regis-
tered during the past four years, but well below the
7.3 percent average growth of the 1971-80 period.
Even if these countries sustain investment growth
of 5 percent through 1989, only two-thirds of the
1981-84 investment decline will be reversed.
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Key LDC Debtors: Rankings by Key
Factors Underlying the Investment
Outlook
? Highest
?!
Demand
prospects
Availability
of investment
Stability of
political-
Investment
prospects
? Lowest
funds
economic
system
Argentina
0
0
0
Brazil
0
0
?
Chile
ti
0
0
Mexico
0
0
0
Nigeria
0
0
0
Peru
0
0
0
S
Philippines
0
0
0
Venezuela
.
t~
In our judgment, a modest economic recovery in
the key LDC debtors during 1985-89 will lead to an
investment rebound. Rising aggregate demand
should stimulate investment by increasing the ex-
pected returns from investment projects. We fore-
see minimal improvement, however, in the other
key factors affecting the pace of investment. Slug-
gish domestic savings and limited access to foreign
borrowing suggest that the high cost/limited avail-
ability of investment funds will continue to put a
damper on capital formation. A significant im-
provement in the underlying level of political-
economic stability in these countries also appears
unlikely.
Individual Country Outlooks
Our analysis indicates that investment growth in
the key LDC debtors will vary widely across coun-
tries during 1985-89. We believe Mexico will lead
with investment growth averaging 4 to 6 percent.'
Although problems exist, Mexico's demand pros-
pects and political-economic stability are ranked
higher than those of the other countries. After a
period of harsh austerity, demand is projected by
the major economic consulting firms to grow at an
average annual rate approaching 5 percent. Al-
though opposition parties are gaining strength, the
long tenure of the government party should lead to
relative political-economic stability. Regarding the
availability of investment funds, only Venezuela is
ranked higher. Mexico's banking system is relative-
ly mature and efficient, but inflation, devaluation
fears, and capital flight will continue to dampen
domestic savings and limit the supply of investment
funds
In Venezuela and Brazil, annual investment growth
is likely to average 3 to 5 percent through 1989.
With demand projected to grow at an annual rate
of about 4 percent, the demand prospects of these
countries are relatively good. Venezuela's tradition-
ally high savings rate, low inflation, and relatively
stable currency earned Caracas the highest ranking
for availability of investment funds. Investment
funds may be more scarce in Brazil because of
triple-digit inflation and high devaluation risk.
Given Venezuela's two decades of democracy and
the broad popular and military support for the
constitutional process in Brazil, the future political-
should be relatively stable.
In Peru, Chile, and the Philippines, we believe
investment will grow 2 to 4 percent a year through
1989. Demand prospects are considered fair-GDP
' Projections were developed by ranking each country according to
the key factors that will determine investment growth during the 25X1
1985-89 period-aggregate demand prospects, cost/availability of
investment funds, and the stability of the political economic system.
By examining these rankings, investment growth projections were
assessed and a range of average annual investment growth was set
for each country. Our projections were then compared to, and in
some cases revised in light of, the investment growth forecasts of
outside experts. Given the volatility of investment spending, our
projections should be viewed as benchmarks that indicate the
underlying trend in investment growth. As has historically been the
case, annual investment growth may fluctuate dramatically around
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Secret
Key LDC Debtors: Investment
Growth Outlook
o Indicates projected range, 1985-89
? Indicates average, 1971-80
Mexico
o ?
Venezuela
o ?
Brazil
?
Chile
?
Peru
?
Philippines
?
Argentina
?
Nigeria
?
Key LDC Debtors
_ _ ?
I 2 3 4 5 6 7 8 9 10 11 12
is expected to grow, on average, about 3 percent per
year. Historically low savings in Chile and inflation
and devaluation concerns in Peru and the Philip-
pines should limit the supply of investment funds.
Instability in all three countries should stifle invest-
ment growth. In Peru, the nationalistic, left-leaning
philosophies of President-elect Garcia, the Sendero
Luminoso insurgency, and a history of shifting
economic policies raise serious concerns about
political-economic stability. In the Philippines, a
country with a more stable economic system, the
Aquino assassination, the presidential succession
question, and a growing insurgency have boosted
investor uncertainty. We believe rising opposition
to the repressive rule of President Pinochet will
keep the level of political-economic uncertainty
high in Chile.
Investment growth in Argentina and Nigeria
should be slower than in the other countries, aver-
aging only 1 to 3 percent through 1989. Demand in
these countries probably will be sluggish, expand-
ing at about 2 percent per year, on average.
Historically, low savings have restricted the supply
of investment funds in these countries. This trend
should continue as inflation and devaluation risk
discourage domestic saving and spur further capital
flight. Although Argentina has recently taken bold
steps to reduce runaway inflation, the country's
economic system may remain unstable. Political
stability, however, may improve marginally under
President Alfonsin. If the economy limps along,
Alfonsin may be the first democratically elected
president since 1952 to complete his term. Nigeria,
on the other hand, with a more stable economic
system has dismal political prospects. Lagos is
plagued by divisions in the ruling militar student
dissatisfaction, and regional tension.
Even if investment grows at the highest projected
rates through 1989, only three key LDC debtors
will regain the ground lost since the international
financial crisis. Venezuela, the Philippines, and
Nigeria could have investment in 1989 that is 2 to
15 percent higher than before the crisis. Their full
recovery will be the result of less severe investment
downturns rather than to particularly rapid invest-
ment growth during 1985-89. In contrast, we pro-
ject investment in Argentina will still be roughly 50
percent lower in 1989 than in 1980. Peru and Chile
may regain more lost ground than Argentina, but
their investment should still fall about 30 percent
short of precrisis peaks. Mexico and Brazil should
regain all but about 10 to 15 percent of the ground
lost following international financial problems.
Implications
Recent and projected investment performance in
the key LDC debtors foreshadow a number of
problems. Because investment is required to expand
productive capacity, slow investment growth will
limit their rate of economic growth over the longer
term. On the heels of the drop in living standards
registered recently, any further declines would
aggravate existing social tensions. Slow investment
growth may also impede structural adjustment.
Economic restructuring may require investment
growth well above our projections. Slower structur-
al adjustment could jeopardize compliance with
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Key LDC Debtors: Investment
1970-84
IMF-supported programs and cause international
financial problems and economic inefficiency to
linger over the longer term. Slow investment
growth may also limit the flow of new technologies
to these countries thereby slowing economic growth
and hurting trade competitiveness.
If these problems develop, US relations with the
key LDC debtors could become more contentious:
? There could be increased pressure on Washington
to take these. countries' needs into account during
the formulation of US monetary, fiscal, and trade
policies.
? These countries could press the United States for
increased development assistance. In a cash flow
bind, the United States may be forced into the
role of "lender of last resort."
? If debtor-creditor conflicts arise, the United
States may be caught in the middle; both debtors
and creditors would pressure Washington to sup-
port their positions.
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Key LDC Debtors: Investment by Country, 1970-89a
Billion 1980 US $
Note scale change
Brazil
60
50
40
30
20
10
0 1970
75
80
Venezuela
40
30
84
Mexico
60
50
40
30
20
10
80
89 0 1970
Philippines
10
20
10
0 1970
75
75
89 0 1970
75
80
Argentina
40
30
20
10
84
89 0 1970
Chile
10
ashaded area represents the projected range of investment
during the 1985.89 period, assuming our projected range of
average annual investment growth.
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80
84
84
75
8 0 1970
75
80
80
84
84
Nigeria
40
30
20
10
89 0 1970
Peru
10
89 0 1970
75
13
75
Secret
80
80
Secret
84
89
84
89
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Cooperation Agreements:
A Step Forward
China and the USSR signed a $14 billion five-year
trade agreement and a separate economic coopera-
tion agreement-the first such agreement in 20
years-on 10 July as part of Vice Premier Yao
Yilin's four-day visit to Moscow. Although some-
what of a breakthrough in economic relations,
bilateral trade by 1990 will still only represent less
than 5 percent of each country's total trade. The
cooperation agreement could prove more signifi-
cant in that it will result in direct Soviet participa-
tion in Chinese industrial projects. Together, the
two pacts. provide a framework for continued dia-
logue and improvement in overall political and
economic relations.
Terms Negotiated Until Last Minute
The trade accord reportedly calls for rising levels of
bilateral trade, reaching $3.5 billion in 1990, for a
total of $14 billion over the five-year period. By
comparison, trade conducted during 1981-85 is
expected to total only $4 billion, with this year's
figure projected at $1.6 billion. Unlike the trade
accord, no value was given for the cooperation
agreement, although
USSR participation in Chinese industrial pro-
jects could reach up to $1 billion per year by 1988.
the long-term
trade agreement sets out a general framework
within which annual protocols can be negotiated.
Two types of barter exchange have reportedly been
established. The first-as is the case for trade
now-requires the yearly settlement of accounts.
The second allows the Chinese to pay for imports of
capital goods and technical assistance over a multi-
year period.
The economic cooperation agreement reportedly
involves the Soviet supply of machinery, capital
equipment, and technical assistance to support
China's Seventh Five-Year Plan (1986-90). ~ 25X1
the USSR will 25X1
participate in seven new Chinese development pro-
jects-including two thermal power plants, two
coal mines, and a 1,000 kilometer rail line-as well
as the renovation of 17 existing plants. Several
smaller projects have also been targeted for Soviet
participation. This marks the first time in over 20
years that the Chinese have asked the Soviets for
assistance and technology in the construction of
new plants. During the height of the Sino-Soviet
relationship in the late 1950s, Moscow was involved
in over 200 projects in China~~ 25X1
Soviet deliveries of manufactured goods, chemicals,
raw materials, and transport equipment are also
likely to rise as a result of the new agreement.
Beijing will continue to need imports of such Soviet
metals as nickel and steel alloys. At the same time,
despite recurring problems with quality and tardy
delivery, China will probably want to increase its
imports of timber, industrial chemicals, and fertil-
izers.
25X1
We expect Moscow will seek higher imports of
meat, soybeans, grain-mostly corn-and other 25X1
agricultural products. Similarly, to supplement its 25X1
own production, Soviet imports of wool, cotton,
apparel, and textiles are likely to rise. Finally if the
Chinese can increase their domestic production, the
Soviets also may try to boost their imports of such
consumer electronics as televisions and radios.
Clearly, both sides can benefit from an expanded
economic exchange, but the decision to formalize
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this expansion within a multiyear trade agree-
ment-after a 20-year hiatus-reflects a slow pro-
cess of improving relations since 1980:
? Regular political consultations at the deputy for-
eign minister level.
? A sharp increase in bilateral trade and a resump-
tion of scientific and technical exchanges.
? Low-level nonpolitical contacts at athletic meets,
cultural events, and the like.
Probably the most important of these moves was
the resumption of Sino-Soviet political discussions
in October 1982. Although the six rounds of "con-
sultations" to date have done little to resolve major
political and security issues, the dialogue has,
nonetheless, helped reduce tensions. Moreover, by
expanding various forms of cooperation, as well as
increasing bilateral trade, Moscow and Beijing
have helped repair some of the damage inflicted on
their relationship during the 1960s and 1970s.
Their success in improving relations, in turn, has
demonstrated to other countries that Sino-Soviet
ties are not frozen, even though the two sides
remain deadlocked on the main issues dividing
them.
Besides helping both sides to show some balance in
their ties to the United States, both countries have
individual reasons for signing the new accords. The
Soviets almost certainly look upon the new agree-
ments with China-especially the project assis-
tance-as a means of regaining some of the influ-
ence that they had wielded in Beijing before
relations deteriorated in the early 1960s. Indeed,
a number of
the USSR's top Sinologists believe that there are
Chinese officials who are dissatisfied with the
current leadership's policy of developing close ties
to the West, particularly with the United States.
According to these Soviet experts, many of the
more "hopeful" Chinese cadres were educated in
the USSR during the 1950s, and want a return to
better relations with Moscow or at least a more
balanced approach to the two superpowers.F_~
The Soviets almost certainly have tailored such
remarks to their Western audience. While the
degree of Chinese support is probably not as wide-
spread as the Soviets claim, some Chinese appar-
ently do see increased trade and economic ex-
changes-which are unlikely to evolve into
economic dependencies-as a comparatively safe
way to improve their relationship with the USSR
without compromising on more fundamental politi-
cal issues. Furthermore, the Soviets appear to be
including Chinese who, as Marxist-Leninists, ad-
mire the highly centralized Soviet planning system
(and who have reservations about China's economic
reforms), but who also have serious problems with
many Soviet policies, especially toward China.
Economic Benefits: The Soviet Perspective
In addition to political reasons, both countries had
strong economic incentives to sign the new agree-
ment. Moscow is undoubtedly anxious to boost
imports of agricultural products and consumer
goods from China. Besides reducing shortages and
saving on high transportation costs particularly for
the Soviet Far East, these increased imports also
would provide a boost to the Soviet Long Term
Consumer Goods program that is scheduled to be
unveiled as part of the upcoming 12th Five-Year
Plan.
Another positive aspect of increased trade from
Moscow's vantage is that it will allow the USSR to
acquire through barter goods that would otherwise
require the expenditure of foreign exchange. At the
same time, Moscow will be supplying goods, pri-
marily equipment, which have only limited demand
in the West. Any hard currency savings will be
relatively small, however, in comparison with total
hard currency expenditures. China can probably
supply the USSR with 1-3 million metric tons of
grain-primarily corn-and several hundred thou-
sand tons of soybeans annually for at least the next
few years saving Moscow $200-500 million a year.
Hard currency expenditures for meat-which aver-
aged $350 million in 1981-84-could be cut by
additional purchases from China; in 1984, imports
of meat from China totaled over $100 million.
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The Chinese Side of the Ledger
Increased sales to the USSR will provide China
with an outlet for its growing production of textile
fibers, fabrics, and apparel. Both the United States
and Western Europe have placed restrictions on
imports of some Chinese products-including tex-
tiles and consumer goods-forcing Beijing to
search for alternative markets.
The use of Soviet capital equipment, machinery,
and technical assistance-in addition to raw mate-
rials-will also prove beneficial to Beijing. The
Chinese have apparently decided that, for some of
those factories built originally with Soviet help, it is
cheaper to modernize using Soviet equipment. Al-
though this equipment may not be as technological-
ly advanced as that available from the West, it will
still improve industrial performance. The Chinese
probably also believe that for a number of new
projects-primarily energy-the Soviets can pro-
vide technology that is as good as in the West and
without the expenditure of hard currency.
Given these incentives, we believe the annual trade
turnover goal of $3.5 billion by 1990 is possible.
Nonetheless, even this level by 1990 would still
probably represent less than 5 percent of each
country's total trade.
Although trade levels under the agreement will be
a function of bilateral political ties, transportation
problems may be the principal long-term impedi-
ment. Even now, rail transport is so tight on both
sides that many products are shipped by sea. Port
congestion in both China and the Soviet Union,
however, has also slowed deliveries. China is build-
ing new port capacity to alleviate seagoing freight
delays, but planned improvements to the rail sys-
tem in both countries are not likely to be sufficient
to eliminate major problems
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Soviets Interested in The Soviet Union has narrowed the bidding on deep-drilling rigs for the
US and Canadian Karachaganak gasfield to three US and one Canadian fir
Drilling Rigs The Soviets have been negotiating to purchase
54 land drilling rigs with 7,000-meter-depth capacity with a total value of
$150-200 million. Further negotiations await final Soviet funding approval
which is not likely before late this year. each US
firm could produce the rigs at its own plants or through licensees in Canada,
France, Italy, Finland, or Japan. The decision to limit the competition to US
and Canadian firms probably reflects Soviet recognition that rigs made from
US-designed components are the world's best. If the Soviets opt for a US firm,
they may still insist that the rigs be manufactured outside the United States as
a precaution against US trade restrictions. US companies may also prefer to
produce abroad because of lower manufacturing costs and access to foreign
export credits.
Chinese Offshore The first 18 offerings in China's second round of offshore oil leases drew bids
Oil Developments from 23 firms in ten countries, including at least five from the United States.
No date for awarding leases has been set. Four additional blocs south of
Hainan Island will remain open to bidding until September. Beijing had to
sweeten its terms after blocs auctioned in the first round yielded only one
commercial well. Two other blocs negotiated unilaterally by the Japanese and
the French have also proved commercial. China and Japan have reached basic
agreement to develop commercial production in the Bohai Bay, and will spend
$200 million to produce 9,000 b/d. Initial production is expected in 1987.
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Brazil's Difficult Finance Minister Dornelles believes the differences between Brasilia and the
Negotiations IMF have narrowed sufficiently to permit an early standby agreement,
With the IMF according to US Embassy reporting, but we believe the negotiations that
resumed on Monday could be long and difficult. To pave the way for an
agreement, Brasilia announced measures in early July to reduce by 36 percent
the projected $18 billion public-sector deficit for this year.
the announced cuts were substantially smaller
than those sought by the IMF. Brasilia intends to
request from creditor banks another three-month rollover through November
of debt repayments, suggesting that the government anticipates drawn-out
talks. Dornelles continues to have difficulty selling his austerity proposals
within the Brazilian government. Not only has President Sarney become
increasingly agitated by Fund demands,
but the US Embassy reports that many of the politicians in the
PMDB-the larger of the two parties in the governing coalition-would like
nothing better than to force a break with the IMF.
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Mexican Rising balance-of-payments problems and large budget overruns are pushing
Budget Overruns Mexico out of compliance with IMF targets and may force the government to
seek new foreign loans. Mexico's recent oil price cut averaging about $1 per
barrel, combined with earlier price adjustments and lower export volume, will
reduce 1985 petroleum export earnings by about $1.5 billion from the 1984 25X1
level. Capital flight has doubled and international reserves have dropped by
one-half to approximately $4 billion,
Some officials expect Mexico to ask for $3-5 billion in loans from the IMF and
foreign commercial banks this year, The officials
believe the banks will go along because of Mexico's good payments record. In 25X1
discussion with the IMF, the Mexicans are likely to plead extenuating
circumstances and ask for easier terms; bankers will consider loans only if the
Fund declares Mexico is in compliance with the IMF program.The deteriorat-
ing foreign payments situation will soon force Mexico City to adjust the
exchange rate. This is not likely to prevent financial problems from getting
worse, especially if oil prices continue to drop. President de la Madrid so far
has been unwilling to cut spending enough to bring the deficit near the IMF
targets. While a third round of budget cuts will be made soon, we doubt they 7FX1
Poland's Government Poland and the Paris Club of Western creditor governments signed an accord
Debt Rescheduled on 15 July to reschedule approximately $11 billion in overdue debt over a
period of 11 years, according to press reports. The agreement was initialed
earlier this year, but formal signing was delayed.when Warsaw tried to obtain
new credits from the governments and failed to make required payments on ar-
rears from the 1981 rescheduling agreement. To implement the new accord,
Warsaw is required to sign bilateral accords with individual governments, to
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complete payments on arrears from the 1981 agreement, and to make interest
payments on the rescheduled debt. Poland is unlikely to cover more than half
of the $900 million due to governments if it continues to give priority to
imports and payments to bank creditors. The Poles probably will demand new
trade credits in the bilateral negotiations, but Western governments are
unlikely to commit more than minimum amounts, at best. If Poland fails to
pay, the Paris Club may demand a new private rescheduling that provides for
equal treatment of creditors.
IMF Postpones Morocco's efforts to secure $300 million in IMF loans collapsed last week. The
Loans to Morocco government's failure to conclude its 1983-84 commerical debt rescheduling
agreement with the London Club, large arrears on official debt to Paris Club
members, and poor performance on meeting IMF guidelines this year
prompted the Fund's decision to postpone new assistance until at least
September. Recent promises of large-scale aid from Saudi Arabia and Libya
may be a factor in Rabat's intransigence as well as the favorable terms
Morocco enjoys by prolonging the 1983 short-term credit and rescheduling
arrangements, The problems with the 25X1
IMF preclude any progress on urgently needed debt rescheduling for 1985 and
1986. This latest setback also is likely to spark renewed attacks by opposition
parties who are critical of the government's financial management, bending to
creditor demands, and willingness. to put the burden of austerity on the poor.
Tunisian Financial Tunis is considering a number of measures to stem the rising debt burden and
Stringency Considered the outflow of foreign exchange-foreign exchange reserves of $200 million
cover less than a month of imports. A devaluation of the dinar of 10 to 15 per-
cent is likely by the end of the year to help control import growth. In addition,
cuts in the 1985 budget of up to $100 million are being considered to trim bor-
rowing needs. The US Embassy says the government has not yet approached
the IMF for financial assistance or help with debt rescheduling, but a
continued oil market slump makes such a move likely by the end of 1986. The
current domestic political situation, however, probably will cause officials to
focus on short-term financial juggling rather than on long-term debt planning
and on the difficult choices in subsidies as well as economic liberalization-
especially in agriculture.
Uncertain Future Somalia's failure to meet an IMF performance target criterion that calls for
for Somali the elimination of external arrears is jeopardizing financial liberalization
Standby Agreement efforts and the adjustment program approved earlier this year. Insufficient
foreign exchange income has prevented Mogadishu from retiring overdue
obligations. Earnings have been reduced by Saudi Arabia's continued ban on
imports of Somali cattle, a switch by aid donors from cash to commodity
contributions, contractor claims, and diminishing oil grants. Somali officials,
moreover, claim that the priority given the private sector by the IMF
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payments.
agreement leaves too small a share of export earnings for the government to
meet its official obligations.. The deteriorating foreign payments situation has
eroded Somali confidence in other IMF liberalization measures, such as
privatization of state enterprises and the unification of official and market
exchange rates. Development programs also have been set back as multilateral
donors cut off disbursements in response to Somalia's inability to make
Uruguay's Preliminary The four-month-old Sanguinetti government is counting on an IMF package to
IMF Agreement avoid suspending interest payments. According to press reports, IMF Manag-
ing Director de Larosiere has recently given tentative approval to an 18-
month, $120 million standby arrangement in which Montevideo pledged to
bring its fiscal deficit down from 10 to 6 percent of GDP, to lower inflation to
60 percent from the current 78 percent, and to maintain a floating exchange
rate. We believe that the IMF package is required to keep Uruguay's
financing gap manageable. Based on government estimates, capital inflows
will total 30 percent less then the projected $110 million current account
deficit through December. To cover, the gap, Montevideo is approaching its
foreign commercial banks-which recently agreed to roll over, principal
repayments until the end of September-for $130 million in new money, but
negotiations have yet to begin in earnest. With foreign exchange reserves
virtually exhausted, Montevideo will need to keep a tight lid on imports to re-
main current on obligations.
Stockpiles of
Strategic Metals
Honda Complicates
Canadian-Japanese
Auto Negotiations
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19 July 1985
Global and Regional Developments
China reportedly plans to purchase strategic metals for a stockpile; when
completed, it will rank among the world's largest
plans to liquidate its inventory.
Chinese delegation is contacting metal producers to line up long-term purchase
arrangements. China is the third major foreign country with an expanding
program of stockpiling strategic metals. France has been acquiring materi-
als-reportedly worth $1.5 billion-for the past several years. Japan is
continuing a five-year, public- and private-sector program aimed at acquiring
a 60 days' supply of seven strategic metals. The United States recently scaled
down its stockpile goals, and, in late 1984, the United Kingdom announced
Developed Countries
Honda's decision to export cars to Canada from its US plant further
complicates Ottawa's ongoing negotiations with Japan on an auto import
restraint agreement. In the recent preliminary understanding, Ottawa agreed
to continue the 18-percent limit on Japan's share of the Canadian auto market
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and said it would accept a higher limit if Japan substantially increases its
investment in Canada. Tokyo, however, agreed only to avoid disrupting the
Canadian market and views anything up to 22 percent as meeting this
condition. As a result of Honda's decision, other Japanese automakers are
pressing Tokyo to seek a limit higher than 18 percent in the final agreement.
The others are unhappy at the prospect of Honda increasing its Canadian
market share-which it can do because the US-built Honda cars will not count
against the quota. Meanwhile, to make up for the US-built cars sent to
Canada, Honda apparently plans to ship more Japanese-produced cars to the
United States now that Tokyo has eased its US voluntary restraints. We
believe the final outcome likely will involve an increase in the quota on
Japanese cars in return for a Japanese pledge to modestly boost investment in
Canada.
Canada Not Despite complaints from domestic manufacturers about a surge in imports of
Restraining South Korean Hyundai cars, Ottawa thus far is sticking to its scheduled
Korean Cars January 1987 date for imposing a tariff on LDC autos. Hyundai, which is us-
ing Canada as a test market before beginning exports to the United States, has
seen its Canadian sales soar 270 percent in first half 1985, as compared with
the year-earlier period. South Korea is now behind only Japan in the Canadian
auto market with a nearly 6-percent market share. The Canadian Motor
Vehicle Manufacturer's Association has suggested Ottawa is avoiding action
because it does not want to jeopardize attempts to sell South Korea a nuclear
reactor. Canadian Finance Department officials stress South Korea's willing-
ness to purchase Canadian auto parts, and especially Hyundai's decision to
build a parts plant in Canada, as factors behind Ottawa's decision to delay tar-
iff applications. Canada's resistance to demands to restrict Korean imports
may also reflect the success of Seoul's extensive lobbying of prominent Tory
politicians.
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France Souring on President Mitterrand told Japanese interviewers last week that economic
Economic Summits summits are no longer "fruitful exchanges of views" and that he sees no reason
for France to participate unless they change. Mitterrand's threat that he will
not attend the Tokyo summit next spring is not an idle one. He found the Bonn
summit-where he was generally isolated and seen as unwilling to compro-
mise-particularly distasteful, but he has been complaining for several years
that summits have become too structured and overly orchestrated. Mitterrand
wants more emphasis on exchanging views rather than on winning consensus.
If the Socialists lose the legislative elections next spring, it will leave him
without a mandate and increase the likelihood he will stay home.
Italian Government Italy's five-party coalition government is reviewing its policies with debate
Review Focuses expected to focus on economic problems, particularly the rapidly growing
on Economy public-sector deficit. Last week, Rome raised its 1985 budget deficit forecast
by $5 billion to $60 billion-16 percent of estimated GDP-largely because of
higher unemployment compensation and use of the wage supplement fund. So
far, Prime Minister Craxi has been unable to win coalition agreement on
cutting the deficit, and discussions at the policy review are likely to be divisive.
Treasury Minister Goria, a Christian Democrat, has called for new taxes to
make up the expected revenue shortfall. On the other hand, Republican
Finance Minister Visentini, supported by the Socialists and Social Democrats,
insists that spending must be cut before new taxes can be considered. Craxi an-
ticipates a compromise which may include some new indirect tax measures.
The outcome of the debate will help to determine which portfolios are changed
in the widely anticipated cabinet shuffle later this summer-and will also have
a major influence on the longer run stability of the coalition.
Cut in British Leading British commercial banks lowered their base interest rates to 12
Interest Rates percent on Monday, the lowest level since the height of the pound crisis in Jan-
uary. The banks followed the lead of the Bank of England, which had made a
one-half point cut in its money market dealing rate a few days earlier. The cut
came as a surprise to many British forecasters who had assumed that excessive
money supply growth would prevent any reduction in interest rates. London-
although pleased with sterling's recovery against the dollar-apparently
became concerned that the parallel surge against the West German mark
would threaten export competitiveness. The government also hoped to appease
industry leaders, who recently blamed Thatcher's economic policies for
damaging the recovery and demanded an immediate 2-point reduction in
interest rates. Although industry lobbies and worried or dissident Tories will
continue to press the government to make further cuts in interest rates,
London's overriding concern with inflation makes substantial reductions
unlikely.
Israeli Compromise A nationwide general strike was averted this week when the government and
on Austerity labor leaders from Histadrut agreed on controversial wage compensation
demands, even though negotiations continue over reductions in public-sector
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employment. The accord eliminates wage indexation through September;
instead it awards employees lump-sum payments less than their usual cost-of-
living adjustments. The press reports that the wage talks succeeded in part
because the 14.9-percent inflation rate in June was far below what labor had
expected. The agreement is a political face saver for Prime Minister Peres and
Histadrut leader Kessar, but it is not likely to solve Israel's economic woes.
The government realizes that it needs to implement the rest of the austerity
program it adopted on 1 July-particularly the budget cuts-and eventually
supplement the program with additional tax and monetary reforms. Peres's
latest compromise, however, may weaken his hand in future talks.
New Zealand's According to recently released government statistics, consumer price inflation
Economy in Trouble in June reached 22 percent at an annual rate-compared with 9 percent a year
earlier. The data also show that economic growth has steadily declined during
the last 12 months-the economy actually contracting by 1 percent in first
quarter 1985, as a result of a major shakeout in manufacturing and farming
and a tight monetary policy in the face of rising prices. Nevertheless, unions
are setting the stage for a showdown with the government by demanding
immediate 15- to 20-percent cost-of-living increases. Wellington has pledged
not to award any wage increases until the next round of negotiations in
September-and then to grant only moderate pay hikes in order to promote in-
dustrial restructuring.
Less Developed Countries
USSR and Egypt No resolution of Cairo's repayment of its estimated $2.5 billion military debt
Deadlocked on to the USSR emerged from the Soviet-Egyptian economic talks in Cairo last
Military Debt week, in a week of discussions, the two 25X1
sides were unable to agree on the debt's size or on whether to apply Cairo's
trade surplus funds, now frozen in Moscow, to repayment. Moscow reportedly
rejected out-of-hand Cairo's argument that the size of the debt ought to be re-
duced by the amount Egypt spent on reproducing Soviet spare parts after the
arms cutoff in the mid-1970s and by the rapid depreciation of the equipment.
The Egyptians told the US Embassy that the dispute is delaying implementa-
tion of the trade protocol agreed on in May. Major progress was probably not
achievable; even so Cairo proved to be more uncompromising than expected. It
is clearly unwilling to sacrifice on thorny economic issues for the sake of
improving overall relations. When the talks resume, probably this autumn, the
USSR's desire for closer ties may lead it to consider Cairo's proposal that the
frozen trade surplus be used to modernize Soviet-built plants in Egypt. While
Moscow may allow a small amount for this pur ose, it robably will demand
that most be used to liquidate the military debt~ 25X1
Bolivia Gets Tough The Siles administration's increasingly nationalistic investment policies will
With Foreign Investors intensify economic problems passed on to the next government. According to
US Embassy reports, the government recently canceled exploration rights for
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Shell Petroleum after it postponed oil drilling in light of current economic and
political instability. Shell-the only multinational now exploring for oil in
Bolivia-stands to lose its $22 million investment. In addition, the government
also nationalized the 38-percent US-owned Totoral Mine, the largest tin mine
in Bolivia, alleging fraudulent activities. We believe Siles's moves will worsen
the economy's downward spiral. Current operations would be paralyzed as
foreign managers leave and access to technology and essential imports is cut.
The next administration would also find it more difficult to attract the foreign
investment necessary for economic reconstruction.
Chile Eyes New Export Santiago is considering a major export assistance program to reduce its current
Promotion Measures account deficit. Despite devaluations in March and June, depressed world
demand for copper-which accounts for nearly half of export earnings-
caused Finance Minister Buchi to reduce the trade surplus projection by 30
percent to $700 million. To encourage export diversification, the US Embassy
reports that Santiago is proposing legislation to provide direct incentives to
export industries-including a 10-percent export rebate scheme, increased
export financing, and new export insurance facilities. The Pinochet govern-
ment is drafting this legislation carefully to avoid violating GATT rules
against export subsidies. Although Santiago advocates free market policies, we
believe these proposals indicate a growing state role in directing economic
activity.
Libyan Domestic An increasing number of Libyans in Tripoli are complaining about an
Problems Mount unprecedented deterioration in living conditions
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Shortages of food, water, and electricity have become a way of 25X1
life as a result of spending cuts forced by the slump in oil revenues since 1981.
Two people were killed recently in a melee over bananas and another person
died while waiting in line for shoes, available for the first time in several 25X1
months stenciled graffiti criticiz-
ing the regime has appeared on walls near Qadhafi's residence in Tripoli.
there is an emerging concensus 25X1
among Libyans that Qadhafi's social experiment has failed and that change is
needed. We believe that continued austerity will further erode Qadhafi's
domestic support and exacerbate deep-seated. regional tensions over distribu- 25X1
tion of scarce resources, a condition which heightens prospects for regime-
threatening unrest.
Mozambique Projects Maputo claims it can meet only 60 percent of its grain needs through April
Grain Deficit 1986. The lingering effects ofdrought-especially in the southern provinces-
and the impact of insurgent activity on seed and fuel distribution has severely
reduced domestic production. local production
and foreign aid will provide about 452,000 metric tons of the 750,000 tons of
grain Mozambique requires to feed its 13 million people. Maputo probably will
seek additional food aid from US and other foreign donors to make up the
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Chromite Deposits Deposits of chromite ore on the southwest coast of Greenland have been
in Greenland opened to development, according to Embassy reporting. Although extensive
drilling and core sampling will be required to determine ore quality, a
Canadian mining firm, Greenex, will soon receive a nonexclusive prospecting
license for chromite and other minerals in the region. The Danish Government
said it would welcome interest by US mining firms as well. If exploitable, these
deposits could provide a new, more reliable source of supply for this strategic
mineral. The United States presently depends on imports for about 80 percent
of its chromite needs-with half coming from South Africa. Currently, South
Africa and the USSR provide over 50 percent of world production, and
southern Africa holds 99 percent of the world's known reserves.
Taiwan's Trade Taiwan's 9 July decision to remove the import visa requirement on 3,000
Liberalization products represents only a small concession in its highly publicized plan to
liberalize its trade barriers. The move follows a February 1985 decision which
freed some 5,000 textile and agricultural products from the same import
license requirement. The impact of these moves will likely be minimal, given
the extent to which remaining tariff and nontariff barriers continue to restrict
imports. Taiwan's trade surplus for the first half of 1985 was about $5 billion.
Soviet Interest in. A Soviet trade organization has placed a tentative order with a Japanese
Japanese company for 1 million personal computers for use in schools, 25X1
Microcomputers An initial order, with shipment desired by September, 25X1
for 7,000 to 10,000 units will be evaluated for their suitability. The USSR is
also interested in obtaining TV monitors and printers but would develop its
own software. The Politburo recently endorsed an ambitious computer literacy
program with the long-range goal of placing 10 million computers in schools.
Limitations in their own industry are forcing the Soviets to purchase foreign
computers, at least initially. The computers involved are similar to the Apple
II and are not under COCOM controls. A purchase of this size would be
unusual, however, and Moscow may be holding out the promise of a major pur-
chase to obtain computer production technology or plants-a gambit it has
used with other Western companies. 25X1
Soviet Contract for A US firm reported winning a $12 million contract to modernize a Japanese-
US Chemical built ethylene plant in Nizhnekamsk. The contract calls for replacement of
Equipment some Japanese equipment with newer process technology, instrumentation,
and controls. The plant, completed in 1976, incorporated US technology and
some US equipment. The momentum generated by the recent Joint Commer-
cial Commission meeting and the upcoming summit in November appears to
have improved the commercial environment for US firms. This is the first
sizable Soviet order of US chemical equipment since 1982. Moscow probably
views it as a test of US commitment to expanded nonstrategic trade. The firm
expects to obtain a US export license within two weeks.
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China Cuts Number of Last week State Councilor Gu Mu told
Open Cities that Beijing had decided to cut from 14 to four the number of coastal cities
opened last year under regulations favoring foreign investment. The decision
probably was made at a conference held in late June of mayors of coastal cit-
ies. Gu-one of the main architects of the open cities policy-said financial
controls will be reimposed on the 10 smaller cities. Shanghai, Tianjin, Dalian,
and Guangzhou will remain open cities. The decision to modify the policy,
which has been closely identified with top leader Deng Xiaoping, probably was
made under pressure from conservative leaders, who have increasingly criti-
cized corruption, waste, and inefficiency in the open cities. The reduction-
part of an overall retrenchment in the economy-probably represents Deng's
decision to cut his losses as he prepares for a major party conference in
September. Recent press articles praising the general policy of opening to the
outside world and the fact that Beijing is pushing ahead with controversial
wage reforms indicate that the reformers are determined to keep the basic
program on track.
China's New Japanese China has arranged to borrow $2 billion from a syndicate of Japanese banks-
Commercial Credit led by the Bank of Tokyo-to finance some of the development projects in its
Seventh Five-Year Plan, 1986-90. The loans, which will carry an interest rate
of only 0.25 to 0.375 percentage point over the London Interbank Rate and a
10-year repayment period, can be drawn on for the next five years. This line of
credit replaces a $2 billion arrangement negotiated with Japanese commercial
banks in 1979 that expired unused last month. China is reportedly also seeking
a $2 billion line of credit from Japan's Ex-Im Bank to finance electric power
projects. The Chinese probably will continue to avoid using commercial credit
lines until all available concessional financing is exhausted. They are currently
seeking several billion dollars in export credits from West Germany, the
United Kingdom, France, Italy, Canada, and Austria, in addition to those
from Japan. The Chinese may buy as much as $50 billion worth of capital
goods during the next five-year plan, of which perhaps $10 billion will be
financed with long-term loans. Nevertheless, China will have no problems
servicing its debt, which currently stands at only about $6 billion.
Havana Trying To
Expand Trade With Havana has agreed to establish a joint corporation to promote bilateral trade.
Japan The corporation, to be established in Japan by mid-1987, will encourage
imports of Cuban rum, frozen fruit pulp, and coffee by allowing Japanese
packaging and processing. This would further Cuban attempts to increase
exports to Japan through diversification of products. Bilateral trade volume
has stagnated over the last two years after recovering from a sharp drop in
1982 and early 1983. Although. Japanese exports to Cuba have risen, imports
have declined because of decreased sugar purchases.
Cuba has had difficulty meeting payment schedules for Japanese goods
and aas ordered its ambassador in Tokyo to promote Japanese purchases.
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25X1
25X1
7
25X1
25X1
25X1
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Secret
Secret
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Directorate of
Intelligence
Economic & Energy
Indicators
19 July 1985
DI EEI 85-015
19 July 1985
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This publication is prepared for the use of US Government
officials, and the format, coverage, and content are designed to
meet their specific requirements. US Government officials may
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Economic & Energy
Indicators
Page
Economic Industrial Production
Gross National Product
Consumer Prices
Energy
Money Supply
Unemployment Rate
Foreign Trade
Current Account Balance
Export Prices in US $
Import Prices in US $
Exchange Rate Trends
Money Market Rates
Agricultural Prices
Industrial Materials Prices
World Crude Oil Production, Excluding Natural Gas Liquids 8
Big Seven: Inland Oil Consumption 9
Big Seven: Crude Oil Imports 9
OPEC: Crude Oil Official Sales Price 10
OPEC: Average Crude Oil Official Sales Price (Chart) 11
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Percent change from previous period
seasonally adjusted at an annual rate
United States
2.5
-2.1
3.7
6.8
7.1 1.6 4.2 0.3
Japan
4.1
3.4
3.1
5.7
7.6 2.6 9.6 0.4
West Germany
-0.2
-1.0
1.3
2.6
-7.4 9.8 5.8 -3.1
France
0.2
2.0
0.7
1.6
-1.7 4.7 -0.2 0
United Kingdom
-0.9
1.5
3.4
1.6
-5.6 -1.4 13.2 1.9
Italy
0.2
-0.5
-0.4
2.6
2.6 4.4 -2.3 2.6
Canada
3.3
-4.4
3.3
5.0
3.0 6.7 3.4 3.7
Percent change from previous period
seasonally adjusted at an annual rate
1st Qtr
2d Qtr
Mar Apr May Jun
United States
10.3
6.2
3.2
4.3
3.3
5.8 4.6 2.7
Japan
4.9
2.6
1.8
2.3
2.4
0.6
0.1 2.7 -1.2 4.5
West Germany
6.0
5.3
3.6
2.4
3.7
2.7
5.5 2.0 1.8 -0.9
France
13.3
12.0
9.5
7.7
5.7
6.3
6.7 5.9 6.7 6.4
United Kingdom
11.9
8.6
4.6
5.0
7.0
9.8
12.5 12.1 6.0 5.5
Italy
19.3
16.4
14.9
10.6
10.1
10.6
1.1 11.9 9.3 8.9
Canada
12.5
10.8
5.8
4.3
5.4
2.0 6.4 2.0
United States
2.6
-8.1
6.4
10.7
2.0
2.2
2.2 3.7 -2.9 -1.4
Japan
1.0
0.4
3.5
11.1
-2.6
3.0
-1.0 -15.7 39.0 25.1
West Germany
-2.3
-3.2
0.3
2.4
-4.2
0
0 15.6 16.8
France
-2.6
-1.5
1.1
2.6
-3.0
-24.6
74.8 19.8 -23.8
United Kingdom
-3.9
2.1
3.9
1.0
7.8
5.9
4.7 29.9 7.0
Italy
-1.6
-3.1
-3.2
3.1
7.4
-37.9
174.3 3.7 -42.6 9.2
Canada
0.5
-10.0
5.7
8.7
-1.1
-8.7
-4.9 -2.5 10.5
Percent change from previous period
seasonally adjusted at an annual rate
Annual
2d Qtr 3d Qtr 4th Qtr 1st Qtr
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Money Supply, M-18
Percent change from previous period
seasonally adjusted at an annual rate
United States b
7.1
6.6
11.2
6.9
Japan
3.7
7.1
3.0
2.9
West Germany
1.1
3.6
10.3
3.3
United Kingdom
NA
NA
13.0
14.6
Italy
11.2
11.6
15.3
12.0
Canada
3.8
0.6
10.2
3.3
a Based on amounts in national currency units.
b Including M1-A and MI-B.
Unemployment Rate
1st Qtr
2d Qtr
Mar
Apr
May
Jun
10.9
10.6
5.8
6.0
14.9
21.5
11.1
70:0
-48.2
18.3
1.4
13.2
-9.0
-1.2
0.7
27.8
46.1
31.5
21.4
21.3
2.5
2.9
18.7
-11.7
23.8
2.4
1st Qtr
2d Qtr
Mar
Apr
May
Jun
7.5 9.6 9.5 7.4 7.2 7.2 7.2 7.2 7.2 7.2
2.2 2.4 2.7 2.7 2.5 2.6 2.4 2.5
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Foreign Trade a
Billion US S, fo.b.
United States b
Exports
233.5
212.3
200.7
217.6
55.7
17.9
18.4
17.8
17.4
Imports
261.0
244.0
258.2
325.6
84.4
28.0
28.1
28.3
28.7
Balance
-27.5
-31.6
-57.5
-107.9
-28.7
-10.1
-9.7
-10.5
-11.3
Japan
Exports
149.6
138.3
145.5
168.2
40.3
13.3
12.8
14.2
14.3
Imports
129.5
119.7
114.1
124.1
28.8
9.7
9.5
10.3
9.8
Balance
20.1
18.6
31.5
44.1
11.5
3.5
3.3
3.9
4.5
West Germany
Exports
175.4
176.4
169.4
172.0
41.0
13.7
13.1
14.5
14.6
Imports c
163.4
155.3
152.9
153.1
36.5
12.0
11.6
12.4
12.4
Balance
11.9
21.1
16.6
18.8
4.5
1.7
1.5
2.1
2.2
France
Exports
106.3
96.4
95.1
97.5
22.5
7.6
7.9
8.2
8.0
Imports
115.6
110.5
101.0
100.3
23.6
8.2
8.0
8.7
8.1
Balance
-9.3
-14.0
-5.9
-2.8
-1.1
-0.6
-0.1
-0.4
-0.1
United Kingdom
Exports
102.5
97.1
92.1
93.7
22.7
7.6
7.7
8.5
8.5
Imports
94.6
93.0
93.8
99.2
24.2
7.9
8.8
8.9
8.2
Balance
7.9
4.1
-1.8
-5.5
-1.5
-0.3
-1.1
-0.3
0.3
Italy
Exports
75.4
74.0
72.8
73.6
17.6
6.1
5.9
5.5
Imports
91.2
86.7
80.6
84.3
21.4
7.3
7.2
7.0
Balance
-15.9
-12.8
-7.8
-10.7
-3.8
-1.2
-1.3
-1.6
Canada
Exports
70.5
68.5
73.7
86.8
21.9
7.1
7.5
7.4
7.3
Imports
64.4
54.1
59.3
70.8
18.0
5.9
5.9
5.9
6.0
Balance
6.1
14.4
14.4
16.1
3.9
1.2
1.6
1.6
1.3
a Seasonally adjusted.
b Imports are customs values.
c imports are c.i.f.
West Germany
-6.8
3.5
4.1
6.0
1.7
0.9
0.8
1.2
1.9
United Kingdom
15.3
9.6
3.7
0.9
0.1
0.2
-0.5
0.3
0.9
a Seasonally adjusted; converted to US dollars at current market
rates of exchange.
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Export Prices in US $
Percent change from previous period
at an annual rate
United States
9.2
1.5
1.0
1.4
0.1
4.9
7.4 -6.7 8.8
Japan
5.5
-6.4
-2.4
0.2
-11.9
-8.2
-11.2 93.0
West Germany
-14.9
-2.8
-3.2
-7.1
-18.9
-34.0
4.0 119.9 -2.3
France
-12.0
-5.5
-4.8
-2.9
-12.8
-35.7
26.4
Percent change from previous period
at an annual rate
Annual 4th Qtr 1st Qtr Feb Mar Apr May
United States 5.3 -2.0 -3.7 1.7 -3.3 -10.6 0.1 -7.7 1.4 12.3
Japan 3.6 -7.4 -5.0 -2.8 -8.4 -10.9 4.9 19.2 -7.2
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Percent change
from prev
at an a
ious period
nnual rate
-2.1
7.0
5.8
1.0
-0.2
9.3
-5.1
-6.1
-4.7
-2.1
0.9
11.6
2.5
-2.1
-5.0
-2.5
-10.5
86.6
-9.2
-5.1
-1.6
-3.1
1.3
-11.9
Japan
2.7
-12.8
4.5
0
-19.6
9.9
25.2
0.5
12.5
West Germany
-24.6
-7.2
-5.2
-11.5
-28.0
19.0
53.5
-4.3
14.6
France
-28.7
-20.8
-15.9
-14.7
-26.7
19.6
54.3
-5.5
15.7
United Kingdom
-13.2
-13.4
-13.3
-11.9
-28.6
59.9
207.5
10.5
35.5
Italy
-32.8
-18.8
-12.3
-15.6
-30.3
9.5
45.4
-2.9
14.7
Canada
-2.5
-2.9
0.1
-5.1
-10.5
-5.0
14.3
-9.3
6.7
Money Market Rates
United States
90-day certificates of
deposit, secondary market
16.24
12.49
9.23
10.56
8.76
8.61
9.13
8.61
Japan
loans and discounts
(2 months)
7.79
7.23
NA
6.66
6.55
6.54
6.55
6.55
West Germany
interbank loans
(3 months)
12.19
8.82
5.78
5.96
6.12
5.98
6.35
5.98
France
interbank money market
(3 months)
United Kingdom
sterling interbank loans
(3 months)
13.85
12.24
10.12
9.91
12.98
12.67
13.63
12.67
Italy
Milan interbank loans
(3 months)
Canada
finance paper (3 months)
18.46
14.48
9.53
11.30
Eurodollars
3-month deposits
16.87
13.25
9.69
10.86
9.04
8.74
9.43
8.86
8.61
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Australia
(Boneless beef,
f.o.b., US Ports)
125.2
112.1
108.4
110.7
101.1
100.2
93.3
93
92.4
United States
(Wholesale steer beef,
midwest markets)
104.3
100.0
101.4
97.6
100.9
96.6
88.9 .
89.4
88.1
Cocoa
(? per pound)
113.5
89.8
74.3
92.1
106.2
99.2
94.4
96.1
91.5
Coffee
($ per pound)
1.54
1.28
1.40
1.32
1.44
1.44
1.42
1.43
1.42
Corn
(US #3 yellow,
c.i.f. Rotterdam
$ per metric ton)
150
150
123
148
150
133
133
133
129
Cotton
(World Cotton Prices, "B"
index, c.i.f. Europe, US 0/lb.)
81.70
75.96
62.87
72.86
75.03
.
57.95
55.35
55.13
52.60
Palm Oil
(United Kingdom 5% bulk,
c.i.f., $ per metric ton)
583
571
445
502
730
605
.606
610
556
US
(No. 2, milled,
4% c.i.f. Rotterdam)
598
632
481
514
514
496
496
496
495
Thai SWR
(100% grade B
c.i.f. Rotterdam)
522
573
362
339
310
254
243
250
237
Soybeans
(US #2 yellow,
c.i.f. Rotterdam
$ per metric ton)
296
288
244
282
283
240
236
235
229
Soybean Oil
(Dutch, f.o.b. ex-mil.
$ per metric ton)
598
507
447
527
727
651
658
652
630
Soybean Meal
(US, c.i.f. Rotterdam
$ per metric ton)
257
252
219
238
197
157
147
145,
142
Sugar
(World raw. cane, f.o.b.
Caribbean Ports, spot
prices 0/lb.)
29.03. .
16.93
8.42
8.49
5.18
3.69 .
2.96
2.77
2.74
Tea
Average Auction (London)
(US C per pound),
101.4
91.0
89.9
105.2
156.6
126.9
82.8
75.2
74.6
Wheat
(US #2 '. DNS
Rotterdam c.i.f.
$ per metric ton)
209
210
187
183
182
177
169
171
166
Food Indexa
232
203
167
184
194
176
168
165
166
(1975= 100)
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Major US producer
71.6 '
77.3
76.0
77.7
81.0
81.0
81.0
81.0
81.0
80.8
57.4
44.9
65.1
56.8
49.2
49.3
50.4
47.5
Chrome Ore
(South Africa chemical
grade, $ per metric ton)
55.0
53.0
50.9
50.0
50.0
49.9
44.7
43.2
41.0
Copper a (bar, 0 per pound)
98.7
79.0
67.1
72.0
62.4
62.1
67.6
70.0
65.7
Gold ($ per troy ounce)
612.1
460.0
375.5
424.4
360.0
300.0
319.8
317.5
315.7
Lead a (4 per pound)
41.1
32.9
24.7
19.3
20.0
17.2
17.3
17.1
17.4
Manganese Ore
(48% Mn, $ per long ton)
78.5
82.1
79.9
73.3
69.8
69.6
68.4
68.4
68.4
Nickel ($ per pound)
Metals week,
New York dealers' price
677.0
446.0
326.7
Rubber (0 per pound)
Synthetic b
40.6
47.5
45.7
44.0
44.4
46.6
NA
45.8
NA
Natural c
73.8
56.8
45.4
56.2
49.6
42.0
41.5
41.0
41.6
Silver ($ per troy ounce)
20.7
10.5
7.9
11.4
8.1
5.9
6.3
6.3
6.2
Steel Scrap d ($ per long ton)
91.2
92.0
63.1
73.2
86.4
83.7
NA
70.2
NA
Tin a (0 per pound)
761.3
641.4
581.6
590.9
556.6
501.1
541.3
536.0
556.6
Tungsten Ore
(contained metal,
$ per metric ton)
18,219
18,097
13,426
10,177
10,243
11,515
10,974
10,832
10,195
US Steel
(finished steel, composite,
$ per long ton)
590.2
611.61
617.83
NA
61'7.83
NA
Lumber Index c
(1975=100)
167
159
140
Industrial Materials Index f
184
166
142
152
138
122.7
124.6
124.0'
124
(1975=100)
a Approximates world market, price frequently used by major world
producers and traders, although only small quantities of these
metals are actually traded on the LME.
b S-type styrene, US export price.
c Quoted on New York market.
d Average of No. 1 heavy melting. steel scrap and No. 2 bundles
delivered to consumers at Pittsburgh, Philadelphia, and Chicago.
e This index is compiled by using the average of 1 I types of lumber
whose prices are regarded as bellwethers of US lumber construction
costs.
f The industrial materials index is compiled by The Economist for
18 raw materials which enter international trade. Commodities are
weighted by 3-year moving averages of imports.into industrialized
countries.
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World Crude Oil Production
Excluding Natural Gas Liquids
World
59,463
-;55,827' .53,014., .
52,588.
. 53,827
51,855
53,431
53,684
52,974
53,037
Non-Communist countries
45,243
41,602 38,810
38,228
.39,257
,37,638
39,221
39,474
38,762
38,588
Developed countries
12,859
12,886 13,276
13,864
. 14,302
,14,587
'14,696
14,793
14,692
14,721
United States
8,597
8,572 8,658
8,680
.8,735
8,737
8,911 .
8,968
8,871
8,907
Canada
1,424,
1,285 1,270
1,356.
1,411
1,467
1,450
1,450
1,500
1,450
United Kingdom
9,619
1,811 - 2,094 ,
2,299
2,535
2,728
2,650
2,600
2,660
2,621
Norway
528
501 518
614
700
695
705
755
719
765
Other
691
717 736
915
921
977
980
970
975
978
5,443
6,036 6,633
6,823
7,515
7,682
717,42
7,949
7,792
7,957
Mexico
1,936
2,321 2,746
2,666
2,746
2,634
2,687
2,810
2,711
2,820
Egypt
595
598 665
689
827
890
925
935
916
915
Other
2,9'12
3,117" "3,222?-
'3,468
' 3;942"
4;1'58
41136
4,204
4,165
4,222
OPEC
26,941
22,680 18,901
17,541
17,440
15,369
16,783
1'6,732
16,278
'15,910
Algeria
1,020
803 701
699
638
625
665
690
660
650
Ecuador
204
211 211
236
253
268
277
283
276
280
Gabon
175
151 154
157
152
150
150
150
150
150
Indonesia
1,576
1,604 1,324
1,385
1,466
1,150
1,155
1,152
1,152
1,050
Iran
1,662
1,381 2,282
2,492
2,187
1,800
2,200
2,300
2,097
2,400
Iraq
2,514
; ? 993 972
922
1,203
1,300
1,300
1,300
1,300
1,370
Kuwait b
1,389
947 663
881
912
900
1,000
850
914
800
Libya
1,830?
1,137 1,183
1,076
1,073
.1,000
1,000
1,100
1,034
1,000
Neutral Zone
544
370 317
. 390
'410
460
.- 480
502
481
340
Nigeria
2,058
1,445 1,298
1,241
1,393
1,400
1,680
.1,700
1,590
1,600
Qatar
471
405. 328
295
399
280
280
315
292
260.
Saudi Arabia b
9,631
9,625 6,327
4,867
4,444 ,
. 3,400
3;900
3,700
3,659
3,300
UAE
1,702
1,500 1,248
1,119
1,097 '
' 1,106
. 1,106
1,155
1,123
1,155
Venezuela
2,165
2,108 1,893
1,781
1,813
1,530
1,590
' '1,535
1,550
1,555
Communist countries
14,220
14,238 14,289
14,396
14,417
14,217
14,210
14,210
14,212
14,449
USSR
11,700
11,800 11,830
11,864
11,728
11,407
11,400
11,400
11,402
11,639
China
2,113
2,024 2,044
2,120
2,280
2,390
2,390
2,390
2,390
2,390
Other
407
414 415
412
409
420
420
420
420
420
a Preliminary.
b Excluding Neutral Zone production, which is shown separately.
c Production is shared equally between Saudi Arabia and Kuwait.
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Big Seven: Inland Oil Consumption
Thousand b/d
United States a
17,006 16,058
15,296 '
15,184
15,708
15,813
15,975
15,321
15,345
15,160
Japan
4,674 4,444
4,204
4,193
4,349
5,059
West Germany
2,356 2,120
2,024
2,009
2,012
1,993
2,003
1,815
France
1,965 1,744
1,632
1,594
1,531
1,766
1,713
1;561
1,390
1,288
United Kingdom
1,422 1,325
1,345
1,290
1,624
1,872
2,108
1,599
Italy b
1,602 1,705
1,618
1,594
1,513
1,715.
1,809
1,573
1,368
Canada
1,730 1,617
1,454
1,354
1,348
1,343
1,392
1,244
1,269
a Including bunkers, refinery fuel, and losses.
b Principal products only prior to 1981.
Big Seven: Crude Oil Imports
United States
5,220
4,406
3,488
3,329
3,402
2,545
2,126
2,808
3,401
3,488
Japan
4,373
3,919
3,657
3,567
3,664
3,777
4,053
4,083
West Germany
1,953
1,591
1,451
1,307
1,335
1,419
1,369
1,529
1,242
France
2,182
1,804
1,596
1,429
1,395
1,578
1,538
1,701
1,469
United Kingdom
893
736
565
456
482
534
441
671
Italy
1,860
1,816
1,710
1;532
1,507
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OPEC average b
18.67
30.87
34.50
33.63
29.31
28.70
28.25
28.06
28.10
28.11
Algeria
42? API 0.10% sulfur
19.65
37.59
39.58
35.79
31.30
30.50
30.15
29.50
29.50
29.50
Ecuador
28? API 0.93% sulfur
22.41
34.42
34.50
32.96
27.59
27.50
26.82
26.50
26.50
26.50
Gabon
29? API 1.26 % sulfur
18.20
31.09
34.83
34.00
29.82
29.00
28.35
28.00
28.00
28.00
Indonesia
35? API 0.09% sulfur
18.35
30.55
35.00
34.92
29.95
29.53
28.88
28.53
28.53
28.53
Iran
Light
34? API 1.35% sulfur
19.45
34.54
36.60
31.05
28.61
28.00
28.38
28.05
28.05
28.05
Heavy
310 API 1.60% sulfur
18.49
33.60
35.57
29.15
27.44
27.10
27.41
27.35
27.35
27.35
Iraq ?
35 ? API 1.95% sulfur
18.56
30.30
36.66
34.86
30.32
29.43
28.78
28.43
28.43
28.43
Kuwait
31 ? API 2.50% sulfur
18.48
29.84
35.08
32.30
27.68
27.30
27.30
27.30
27.30
27.30
Libya
40? API 0.22% sulfur
21.16
36.07
40.08
35.69
30.91
30.40
30.40
30.40
30.40
30.40
Nigeria
34? API 0.16% sulfur
20.86
35.50
38.48
35.64
30.22
29.12
28.24
28.37
28.37
28.37
Qatar
40? API 1.17% sulfur
19.72
31.76
37.12
34.56
29.95
29.49
28.48
28.10
28.10
28.10
Saudi Arabia
Berri
39? API 1.16% sulfur
19.33 '
30.19
34.04
34.68
29.96
29.52
28.48
28.11
28.11
28.11
Light
34? API 1.70% sulfur
17.26
28.67
32.50
34.00
29.46
29.00
28.32
28.00
28.00
28.00
Medium
310 API 2.40% sulfur
16.79
28.12
31.84
32.40
27.86
27.40
27.48
27.40
27.40
27.40
Heavy
27? API 2.85% sulfur
16.41
.27.67
31.13
31.00
26.46
26.00
26.50
26.50
26.50
26.50
UAE
39? API 0.75% sulfur
19.81
31.57
36.42
34.74
30.38
29.56
28.52
28.15
28.15
28.15
Venezuela
26? API 1.52% sulfur
17.22
28.44
.32.88
32.88
28.69
27.88
27.69
27.60
27.60
27.60
a F.o.b. prices set by the government for direct sales and, in most
cases, for the producing company buy-back oil.
b Weighted by the volume of production.
c Beginning in 1981 the price of Kirkuk (Mediterranean) is used in
calculating the OPEC average official sales price.
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OPEC: Average Crude Oil Sales Price
3.39
1973 74 75 76 77 78 79 80 81 82 83 84
Annual average
1985
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