INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000400020004-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 58
• Document Creation Date: December 22, 2016
• Document Release Date: June 15, 2011
• Sequence Number: 4
• Publication Date: June 6, 1986
• Content Type: REPORT

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Directorate of
Intelligence
International
Economic & Energy
Weekly
DI IEEW 86-023
6 June 1986
Copy 8 3 4
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Secret
International
Economic & Energy Weekly
iii Synopsis
1 Perspective-Iran-Iraq: The Economic Balance
3 Iran-Iraq: Continued Drive To Expand Oil Export Capability
7 Japan: The Strong Yen as an Election Issue
11 The Falling Dollar Aggravates EC Budget Crisis
15 US Dollar Decline: Uneven Impact Among LDC Exporters
19 Nicaragua: The Shrinking Private Sector
23 Briefs Energy
International Finance
International Trade
Global and Regional Developments
National Developments
Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence
Secret
D/ /EEW 86-023
6 June 1986
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International
Economic & Energy Weekly 25X1
Synopsis
1 Perspective-Iran-Iraq: The Economic Balance
Although financial constraints alone will not prevent either side from continu-
ing the war in the short term, economic factors are playing an increasingly im-
portant role in the war between Iran and Iraq. Over the next 12 months, we be-
lieve low oil prices and the depreciation of the dollar will tip the economic and
political scales in favor of Iran.
Z 3 Iran-Iraq: Continued Drive To Expand Oil Export Capability
Iran and Iraq-both desperate for foreign exchange-continue to add to oil
export capacity even though lower oil prices and the financial strains of war
are forcing cutbacks and cancellation of other energy projects.
7 Japan: The Strong Yen as an Election Issue
We do not expect the strong yen-which has appreciated roughly 40 percent
relative to the dollar since last September-to have a great impact overall on
the ruling Liberal Democratic Party's (LDP) showing in the general elections
scheduled in July. A poor showing at the polls, however, combined with a
deteriorating economy could force Tokyo to reevaluate its long-held policy of
fiscal austerity and to begin to reflate the economy-possibly as early as this
September.
11 The Falling Dollar Aggravates EC Budget Crisis
A predicted European Community budget shortfall this year-equivalent to at
least $2.7 billion-will throw the Community this fall into one of its periodic
fiscal crises. Roughly one-half the deficit is due to the depreciation of the
dollar. Greece and other beneficiaries of regional development funds may
impede institutional reform in the Community if they bear the brunt of the
cuts.
15 US Dollar Decline: Uneven Impact Among LDC Exporters
The sharp depreciation of the US dollar since early last year should boost LDC
exports by reducing the price of these products in overseas markets, but the
impact will vary among LDCs depending on the product mix and destination
of exports, and the level of protectionism in major markets.
iii Secret
DI IEEW 86-023
6 June 1986
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19 Nicaragua: The Shrinking Private Sector
A new wave of government economic and political pressures is choking
Nicaragua's private sector, moving the Sandinistas a step closer to their goal of
taking full state control of the economy.
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International
Economic & Energy Weekly
Perspective Iran-Iraq: The Economic Balance
Although financial constraints alone will not prevent either side from continu-
ing the war in the short term, economic factors are playing an increasingly im-
portant role in the war between Iran and Iraq. Over the next 12 months, we be-
lieve low oil prices and the depreciation of the dollar will tip the economic and
political scales in favor of Iran:
? Arab financial support for Baghdad will probably be lower than it was last
year despite Iraq's poorer economic conditions.
? Baghdad has less flexibility to raise oil output to maintain export revenues.
? Greater diversification and decentralization make the Iranian economy less
vulnerable to fluctuations in the oil market.
? Tehran's greater foreign exchange assets and access to loans give it more
options in dealing with lower oil prices.
The Iraqis will begin to suffer a significant decline in living standards largely
because of Baghdad's crumbling financial position. Iraqi payments problems
will cause banks to stop confirming Iraqi letters of credit, and some exporters
will pull out of the Iraqi market altogether. As a result, Baghdad is likely to
make even deeper import cuts, and reduce government wages, benefits to
families of war dead, and subsidies for food and other necessities
Political risks to the regime will increase as Iraq is forced to abandon the
spending that has so far insulated Iraqis from severe hardships and shored up
political support. We believe much of the dissatisfaction with the new austerity
will focus on Saddam Husayn's leadership. The loss of perquisites could
encourage military officers-already upset by mismanagement of the war-as
well as government officials to challenge Saddam's authority. Potential
dissidents, however, will be restrained by fear that a revolt could hurt Iraq's
war effort and bring about an Iranian victory.
Severe Iranian economic problems in the coming months probably will not
translate into sufficient opposition to force the regime to end the war. Import
cuts will probably provide the knockout blow to Iran's hobbled civilian
industrial sector and worsen unemployment-officially estimated at 15 per-
cent. Lower imports and reduced domestic production will further aggravate
inflation and shortages of food, medicine, and other consumer goods. Never-
theless, there is little immediate prospect for open resistance to the govern-
ment, and the regime can still find enthusiastic volunteers willing to martyr
themselves at the front.
Secret
DI IEEW 86-023
6 June 1986
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If oil prices remain depressed over the next two years, however, or if Iraq
greatly increases its attacks on Iran's economic infrastructure, Tehran will
face tougher choices and may decide to scale down its war effort. Iran will be
unable to offset Iraq's advantage in armaments, and economic problems will
encourage already strong public dissatisfaction with the government's war
policy. Iran's leaders might become more concerned about guaranteeing some
level of long-run economic development. Nonetheless, the regime is likely to
end the war only if its continuation threatens the survival of the regime.
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Iran-Iraq:
Continued Drive To Expand
Oil Export Capability
Iran and Iraq-both desperate for foreign ex-
change-continue to add to their oil export capaci-
ty even though lower oil prices and the financial
strains of war are forcing cutbacks and cancellation
of other energy projects. So far, the war has had
little effect on their oil export projects, despite Iraqi
air attacks and Iranian ground gains in southern
Iraq. Tehran is trying to reduce dependence on
Jazireh-ye Khark (Khark Island) by expanding its
tanker shuttle operation to the southern Gulf, and
by installing new single-point mooring buoys that
would add about 2 million b/d of export capacity
by this fall. Iraq has recently gained Saudi approv-
al for the second phase of the Iraq-Saudi Arabia
pipeline to the Red Sea, which, together with
planned expansion of the pipeline through Turkey,
could more than double Baghdad's 1.5-million-b/d
oil pipeline export capacity by mid-1989. In recent
months, Iraqi exports have been running about 1.4
million b/d, while Iran has boosted its exports by
several hundred thousand b/d to a level of about
1.7 million b/d. Expansion of export capacity is
unlikely to have an immediate impact on the near-
term market, but could put downward pressure on
prices as projects come on stream and world oil
demand and available supplies begin to come into
balance in the 1990s.
Recent War Damage
Periodic air attacks by both sides against oil facili-
ties and tankers have fallen well short of the
systematic campaign needed to shut off crude oil
exports or disrupt domestic refining operations. In
recent activity, Baghdad attacked Tehran's
Shahr-e Rey refinery on 7 May, shutting down the
facility for several weeks.
up to 50 percent of prestrike capacity
has been restored with full capacity possibly avail-
able within two months. Repeated Iraqi attacks
against key oil pumping stations in southwestern
Iran-including the 24 May attack on the Gorreh
booster pumping station that damaged two of the
three pumphouses-are reducing the redundant
capacity of Iran's export system. In addition, Iraqi
attacks have damaged barges being used to install
new tanker loading buoys north of Khark, causing
casualties and hampering construction,
Iraq has continued harassment bombing of Khark
Island and attacks against Iran's Jazireh-ye Sirri
(Sirri Island) shuttle tankers, damaging several
ships in recent weeks, but so far has failed to
significantly affect the level of Iranian exports.
Despite nearly 100 attacks on Khark since mid-
1985, one-half of the 10 T-jetty and the four Sea
Island berths remain in operation. Loading capaci-
ty is estimated at 4 million b/d-about one-half of
prewar capacity, but well above recent export
levels.
Attacks that Tehran's press claimed Iran launched
successfully in May against refining and pumping
facilities near Karkuk in northern Iraq are consis-
tent with the past pattern of Iranian retaliation for
successful Iraqi attacks. We have no evidence
supporting Iran's damage claims, however, and
Baghdad's oil exports apparently are unaffected.
Tehran also stepped up attacks in the southern
Persian Gulf against tankers en route to Saudi
Arabia last month, striking farther south than
previously. These actions have raised insurance
rates and caused shipowners to alter the routes of
partially loaded ships into shallower water, and to
use daytime anchorages near UAE ports. This has
slowed steaming time and further added to costs.
According to US Embassy reporting, one oil com-
pany has set up a two-tanker shuttle system to
minimize the risk of an Iranian attack against its
ships.
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DI IEEW 86-023
6 June 1986
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Iran Adds Flexibility
Although Tehran continues to rely primarily on
Khark Island to export oil, it has assigned a high
priority to reducing dependence on Khark.
Expansion of Sirri Shuttle Operation. To maintain
exports in case Khark is shut down for a short
period, Iran has gradually increased the number of
storage tankers at Sirri Island from two to six,
providing more than 20 million barrels of storage
capacity. In addition, the shuttle fleet has increased
to 15 from the original six. At least four more are
either undergoing repairs or are on standby in case
of additional damage to tankers.
Export Facilities at Ganaveh. Iran is currently
installing three single-point mooring buoys (SPMs)
off the coast of Ganaveh, which, when completed,
could add nearly 2 million b/d to export facility
capacity. Weather and technical difficulties could
delay their completion until early fall. The three
SPMs could handle all Iranian exports at current
levels if Khark were unavailable. Two additional
SPMs may be installed by yearend, which we
estimate would provide total capacity of about 3.25
million b d.
Export Facility at Tehari. Iran recently reversed
an early 1986 decision to construct an additional
export facility in the southern Gulf and to convert a
gasline-IGATII-for oil use from Nurabad to
Kangan. We believe that the project will remain on
hold at least until 1987. After that, it could pro-
ceed, probably in a revised form, perhaps as a new
oil pipeline along the coast to Tehari from the
pump stations at Gorreh. Such a project could add
1-2 million b/d to export facility capacity.
years, and their completion could help enable Iran
to raise oil export levels to more than 2 million b/d.
Other Projects. In response to damage to the
Esfahan and Tehran refineries, Tehran is planning
to build a new refinery at Bandar-e `Abbas in
southern Iran. This would be a turnkey project and
could be completed by 1989, ahead of a refinery
being built at Arak. Payment probably would have
to be made by bartering crude oil. The project
would also add some impetus to plans to build an
oil pipeline-sometime later-southward along the
Gulf that could also be used for exports.
the possibility of export-
ing gas via the IGATI gas pipeline to the USSR,
Turkey, Greece, and Italy.
projects could be fulfilled.
the option of
supplying oil to the Soviets through a new pipe-
line-using the design and right-of-way of a previ-
ously planned but unbuilt IGATII gas pipeline.
Tehran probably is interested in obtaining arms in
exchange for oil or gas. Agreement with the USSR
on these projects is unlikely, however, because the
Soviets are probably unwilling to pay a price high
enough to make the projects economical. Gas
agreements with Turkey, Greece, or Italy are simi-
larly unlikely because they would require major
pipeline construction and take years before such
Iraq's Rebuilding of Export Capacity
Baghdad's effort to restore capacity lost early in
the war has doubled its export capabilities to 1.5
million b/d, but the program is increasing Iraq's
dependence on its neighbors. The success of Iraqi
plans to further increase export capacity to more
than 3 million b/d by 1989 will hinge on continued
cooperation of the Turks and the Saudis.
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Gas Projects. We believe Tehran will proceed with
gas injection projects at Gachsaran and Marun to
sustain production at two of Iran's largest oilfields.
These projects have been in the planning stages for
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Iraq-Turkey Pipeline. Construction began in early
1986 to expand the current 1-million-b/d capacity
of the Iraq-Turkey pipeline to 1.5 million b/d.
Since early in the war, only Karkuk crudes
has been exported to the
Mediterranean port of Ceyhan. The additional
expansion will also connect the export system to
one of Iraq's strategic pipelines, enabling Baghdad
to export crude from the southern oilfields as well
as more crude from Karkuk
Work is expected,to be completed by mid-
1987, but some delays are being encountered.
Iran and Iraq will both have more capability to
export oil, barring more effective attacks on oil
facilities. Their dependence on oil revenues and the
high priority that both Tehran and Baghdad assign
to oil export projects ensure they will be the last to
be abandoned because of financial problems. In the
near term, Iran appears to have a significant
advantage and probably could increase exports to
at least 2.4 million b/d within 30 days if customers
could be found, and recent damage to pumpstations
proves not to be critical. Iraq's export capacity is
unlikely to exceed 1.5 million b/d in the next year
or so unless some arrangements can be reached to
allow greater use of Petroline facilities. By.mid-
1989, both Iraq and Iran probably will be capable
of exporting 3 million b/d.
flows.
Despite the recent increase in attacks on key oil
targets other than Khark Island and the lack of
significant disruption in recent years, the potential
remains high for an escalation of the oil war.
Progress of expansion projects-especially in
Iraq-could intensify Iranian attacks on such tar-
gets such as the Az Zubayr pumpstations. Also, if
Iran continues to press the war on the ground, Iraq
might feel compelled to lash out more aggressively
against Iranian oil export and processing targets,
provoking further retaliation. Meanwhile, Iran con-
tinues to threaten retaliation against Iraq's Arab
allies and could escalate the war by striking less
protected oil facilities in other Persian Gulf coun-
tries, especially if it is unable to disrupt Iraqi oil
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Japan: The Strong Yen
as an Election Issue
We do not expect the strong yen-which has
appreciated roughly 40 percent relative to the
dollar since last September-to have a great im-
pact overall on the ruling Liberal Democratic
Party's (LDP) showing in the general elections
scheduled for July. The economy, while slowing,
shows few signs of plunging into a sharp recession
that could hurt many LDP Dietmen. Nonetheless,
for some junior legislators in districts with high
concentrations of now less competitive export in-
dustries, the yen appreciation could damage their
reelection chances. If other factors, such as a failed
campaign strategy, bring a poor showing at the
polls, however, a deteriorating economy could force
Tokyo to reevaluate its long-held policy of fiscal
austerity and to begin to reflate the economy-
possibly as early as this September.
Mixed Signals on the Economic Front
Simultaneous lower and upper house Diet elections
are scheduled for 6 July. As a result, political
observers in Japan are trying to assess what impact
economic conditions will have on the LDP's show-
ing. Such assessments are complicated by the un-
certain near-term outlook for the economy. Neither
unemployment nor the number of bankruptcies has
risen substantially since the yen began its rapid
ascent in September. Indeed, the number of bank-
ruptcies has shown a downward trend for more
than a year.
MITI
officials admit, however, that bankruptcies are
likely to increase near the end of this year.
Japan: Selected Indicators of
Manufacturing Output
I I I I I I 1 1
90 1984 85 86
Capacity
utilization
Overtime hour
index
Inventory to
shipment ratio a
At the same time, there are signs that the yen's
strength is causing the economy to slow:
? Industrial production in April fell from last year's
level, the first such yearly drop in 38 months.
? Industrial inventories in January-March 1986
stood at a record high. The ratio of inventories to
sales also registered its fourth straight quarterly
gain.
? The index of overtime hours worked has declined
in four of the past five months.
? The size of firms going bankrupt is increasing.
Secret
DI 1EEW 86-023
6 June 1986
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Impacts of a Strong Yen and Lower Oil Prices
on Selected Japanese Industries
Consumer
electronics
Company profits will decrease Price of plastics-increasingly used to
as firms raise prices to counter reduce weight-will fall, cutting costs.
yen rise. Lower gasoline prices may boost
domestic sales of cars, but demand in
oil-producing countries will decrease.
Shortrun profits from exports of Little impact on industry.
video tape recorders and
audio equipment will be hurt.
International competitiveness Oil-producing countries may cancel
will suffer. projects.
Volume of exports probably will not
fall, but profits are likely to decrease.
Competition will keep price hikes low;
exporters will suffer from reduced
profits.
Steel Although strong yen reduces Industry will not benefit because oil- A drop in both direct and indirect
material costs, international producing countries probably will exports will cut profits.
competitiveness may be hurt. reduce purchases from Japan.
Yen will also cut demand by
domestic plant and shipbuilding
industries.
Gas and electric
utilities
The dollar cost of raw materials Material costs will be lower.
will be lowered.
Oil refining The cost of crude oil will be Raw material costs will be reduced.
reduced.
Industry will return 70 percent of $7.8
billion in windfall profits to consumer
and industrial users, in the form of rate
reductions. Remainder of windfall to
be reinvested.
Oil companies will gain about $4.8
billion in windfall profits and probably
will not pass lower costs on to
consumers.
The mixed economic signals suggest falling oil
prices have helped ease the yen's impact on growth.
Although most private Japanese forecasters believe
the official growth projection of 4 percent for fiscal
1986 (1 April-31 March) cannot be reached, few
expect a sharp slowdown.
F---
Our econometric model of Japan indi-
cates that, at a yen/dollar rate of 160 and with $18
per barrel oil, real growth will reach about 3
percent in 1986, compared with the US Embassy
forecast of 2 percent.
Political Fallout: Probably Limited
Short-term economic conditions have traditionally
played only a limited role in determining the results
of the lower house elections, which are politically
more important than the upper house races. Politi-
cal specialists believe most voters still view the LDP
as the party best equipped to manage the economy,
regardless of the conditions prevailing at election
time. Rather than being shaped by specific eco-
nomic issues, the LDP's showing tends to be deter-
mined by less tangible factors, such as voter turn-
out, and by the party's choice of election strategies.
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Per Capita Exports by Prefecture-
Greater than 1,000
500 to 1,000
0 to 500
0 100 200
0 100
300 Kilometers
rl
200
300 Miles
0
A0,
a_,y ....plea 0y
Soviet Union
since 1945,
claimed by Japan
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The number of candidates officially endorsed by
the LDP is a case in point. According to the US
Embassy, the party believes it will do poorly this
year if it backs more than 320 candidates-cur-
rently more than 400 candidates are looking for
LDP endorsement.
Even if short-term economic factors are, in general,
not key to the elections' outcome, the loss of even a
few seats could make it difficult-and perhaps
impossible-for the LDP to capture a "stable
majority" of 271 seats in the lower house-large
enough to control all the legislative committees.
Indeed, in three of the last four elections, the party
has had difficulty even securing a simple majority
of 256 seats. Recent political polls indicate the
party may take 258 to 268 seats in the lower house
election.
Districts with export-dependent industries that
have been harmed by the yen appreciation are
potential problems for the LDP. In particular,
small and medium-sized firms-traditional LDP
supporters-have been hardest hit so far. These
companies-each on average with less than
$500,000 in capital and fewer than 300 employ-
ees-provide three-fourths of the jobs in Japan's
manufacturing sector and compose the bulk of such
industries as leather, pottery, and textiles. Small
business directly accounts for only 13 percent of
Japan's exports. Nonetheless, many smaller firms
are suppliers for the major companies that domi-
nate Japanese overseas sales. As the larger compa-
nies have reacted to the strong yen by cutting
production and forcing suppliers to cut prices, the
smaller firms' sales and profits have fallen.
Implications for Fiscal Policy
In an attempt to defuse the yen as a campaign
issue, the LDP has publicized a proposed $17.6
billion supplemental budget, to be tabled in the fall
Diet session. The figure represents only a 6-percent
boost over the budget for the current fiscal year,
but it would be the largest supplemental budget
ever introduced. Full implementation, however, is
uncertain.
For his part, Prime Minister Nakasone has already
hedged his promise to support this large supple-
mental budget, stating that additional fiscal mea-
sures must not endanger Japan's goal of ending
most deficit financing by 1991. We doubt this is
Nakasone's final word on the matter. The Prime
Minister may become more tolerant of large-scale
pump-priming budget measures if recent cracks in
the consensus on fiscal restraint widen. Key busi-
ness leaders-who in the past have been among the
principal advocates of fiscal restraint-are already
worried that the strong yen's toll on growth and
profits will be so high that economic reflation may
be necessary, even if it means future tax hikes.
shita, is a firm advocate of fiscal austerity.
Japanese commentators have long considered
3-percent growth to be the politically acceptable
minimum for the LDP. The ability of Japan to
maintain that rate in the face of an exchange rate
in the 160 to 170 range will be the key determinant,
in our view, of whether the current budget austerity
drive is scuttled. Another important but less pre-
dictable factor will be the attitude of the LDP
president, and hence Japanese prime minister, cho-
sen in the fall. Nakasone's current-and, under
existing LDP rules, last-term as party president
ends in October and at least one of the leading
contenders to replace him, Finance Minister Take-
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The Falling Dollar Aggravates
EC Budget Crisis
A predicted European Community budget shortfall
this year-equivalent to at least $2.7 billion'-will
throw the Community this fall into one of its
periodic fiscal crises. Roughly one-half of the defi-
cit is the result of the depreciation of the dollar.
The actual shortfall could be almost $1 billion
greater because world agricultural prices are likely
to fall as a result of the new US effort to subsidize
agricultural exports. The Community can finance
only $2.3 billion of the gap by boosting to the
maximum the value-added tax (VAT) contributions
of member states. The remainder must come from
spending cuts, probably in nonagricultural areas
such as regional development and research pro-
grams. As a result, the Community is likely to
approach the United States to seek market-sharing
arrangements for agricultural exports to minimize
the impact of price drops on the budget. Internally,
Greece and other beneficiaries of regional develop-
ment funds may impede institutional reform in the
Community if they bear the brunt of the cuts.
Factors Influencing the Crisis
Roughly one-half of the expected deficit stems
from the EC Common Agricultural Policy (CAP).
About $1.4 billion in extra agricultural spending is
the direct result of the depreciation of the dollar
relative to the ecu and an aggressive EC farm
export strategy to dispose of its vast stockpiles of
surplus production. EC commodities are sold on the
world market in dollars, and the exchange rate
assumed for the 1986 budget was about 15 percent
above the current rate. As a result, the Communi-
ty's export refunds have had to rise to cover the
widening gap between the world price-as ex-
pressed in ecu-and the internal EC price. The rest
of the shortfall comes from unfunded commitments
of previous years, a larger-than-expected rebate for
the United Kingdom, and faster-than-expected
spending of EC funds by Spain and Portugal.
Provisions of the 1985 US Farm Bill may raise EC
export refunds later this year-perhaps by another
$1 billion-and put even more pressure on the
budget by lowering world prices. Thus far world
prices have not been a significant factor, but the
Department of State estimates that lower US
support prices already in effect and increased ex-
port subsidies mandated by the bill could reduce
world wheat and corn prices 30 percent or more
and keep them at that level until 1990. The EC
Commission's plans for reducing EC agricultural
stockpiles through even larger export subsidies will
also p essure on world commodity
prices
Options To Resolve the Crisis
A supplemental budget to deal with the fiscal gap
will probably not be acted upon until some time this
fall, when budgeted funds will be virtually exhaust-
ed. It will probably increase member state VAT
contributions to the maximum level and cut nonag-
ricultural spending on research, social and regional
development, and job creation. The Commission
also has the frequently used-though technically
illegal-option of charging above-ceiling expendi-
tures against the next year's budget, or stretching
out payments over several years. Because of the
enormous political power of the farm sectors in the
member states, EC agricultural spending has never
been cut. For example, in April EC agriculture
ministers claimed to have frozen EC farm prices
for the next marketing year. In practice, however,
because of the recent realignment of the European
Monetary System, the "freeze" in ecu terms actu-
ally means price increases of between 1.5 and 18
percent in national currency terms for all countries
except West Germany and the Netherlands.
Secret
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Secret
US Dollar: Average Value Against
the ECU, 1983-86
Another increase in the maximum share of member
country VAT receipts turned over to the Communi-
ty, however, is unlikely. The current 1.4-percent
ceiling came into effect only last January and was
described then as a medium-term solution to a
budget dispute concerning the UK rebate and the
need to boost revenues available to cover the in-
creased spending associated with the addition of
Spain and Portugal. Any increase in the VAT
ceiling requires ratification by all member state
parliaments. Britain and West Germany-the
strongest advocates of fiscal restraint because of
their position as net contributors to the EC bud-
get-are firmly against raising the VAT ceiling
until at least 1988. Advance budget estimates
prepared by the Commission indicate that the
ceiling will have to be raised to 1.6 percent in 1988
to meet the growth in spending as Spain and
Portugal become integrated into the CAP.
Implications
Persistent deficits and the need for spending re-
straint have made the budget the main forum for
policy debate over the future of the Community.
Moreover, the budget crisis will divert EC decision-
makers' attention from other issues and create
dissension among the member states. The Commu-
nity will be forced to weigh carefully what new
policies and programs it thinks it needs and can
afford. It seems likely that the spending cuts on
research, high technology, and industry will frus-
trate the EC efforts to establish a broader EC role
in supporting European industrial competitiveness.
An ambitious $9.5 billion research program pro-
posed by the Commission for 1987-91 has already
been shelved until at least 1988 at the suggestion of
West Germany because of the lack of funds.
A Community embattled over budgetary priorities
will find it increasingly difficult to match the new
US export subsidies mandated by the Farm Bill
and could feel threatened with a loss of its world
market share. The Community under these circum-
stances is likely to seek some kind of an accommo-
dation with the United States on the use of export
subsidies and will probably try to set up market-
sharing arrangements. The EC is faced with having
to spend more and more on export subsidies to get
rid of its surplus production in a world market of
falling prices, partially caused by other exporters
using subsidies. Nonetheless, this is a cheaper
solution than long-term storage of these stockpiles.
Agricultural Commissioner Andriessen recently
proposed a surplus disposal program for butter,
beef, and other products costing more than $1
billion, to be paid for only with the proceeds of the
proposed tax on grain production and other savings
on the Commission's commodity management
practices. Serious budget pressures over the long
term-especially as Spain and Portugal come un-
der the CAP-will probably encourage incremental
reforms of the CAP. Member states acquiesced in
the 1984 reforms of the CAP largely because of the
budget crisis of that time.
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European Community: Total Spending,
1980-86
EC: Budget Expenditures by Type, 1986
Aid and development 3.5
Administration 4.8
Repayments -
and reserves 9.5
Structural -
policies 16.8
Tensions between the richer northern countries and
poorer Mediterranean countries of the Community
are likely to increase because of the budget
changes. CAP spending is disproportionately ori-
ented to northern products such as wheat and milk,
while the spending most likely to be cut, the social
and regional funds, goes mostly to the Mediterra-
nean countries. The southern countries are thus
much more in favor of raising the VAT ceiling to
provide additional revenues than the,guardians of
fiscal restraint in the north, the United Kingdom
and West Germany.
Cuts in regional development funds could encour-
age the poorer Community countries-Greece, per-
haps joined by Spain, Portugal, and Italy-to
withhold their cooperation in the complex task of
creating a completely free internal market by 1993.
Greece made its acceptance of recent institutional
reforms, designed to speed progress toward the free
Agricultural
price support
63.1
internal market, conditional on making explicit in
the Treaty of Rome that the goal of the social and
regional funds is to promote the convergence of
member state economies. Greece sees resource
transfers from the EC as one of the primary
benefits of its membership and has tenaciously
fought for higher funding in the past.
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US Dollar Decline:
Uneven Impact Among
LDC Exporters
The sharp depreciation of the US dollar since early
last year should boost LDC exports by reducing the
price of these products in overseas markets, but the
impact will vary among LDCs depending on the
product mix and destination of exports, and the
level of protectionism in major markets. We believe
that the largest foreign sales gains most likely will
be realized by Asian NICs and Brazil, while the
impact on less diversified LDC exporters will be
much smaller.
US Dollar Exchange Rate, 1980-86a
Sharp Dollar Depreciation
Since reaching its peak in February 1985, the US
dollar has sharply depreciated against most major
industrial country currencies. In the past 15
months, the dollar has dropped about 35 percent
against the Japanese yen. Substantial declines-
ranging from 30 to 35 percent-have also been
recorded against the British pound, the French
franc, and the West German mark.
The dollar depreciation should make LDC exports
more competitive in overseas markets in Japan and
Europe. The impact on individual countries, howev-
er, will depend in part on the product mix and
destination of exports. We believe commodity ex-
porters are unlikely to do as well as exporters of
manufactured goods:
? Most commodities are priced in US dollars,
which implies that the dollar depreciation will
increase demand for LDC commodity exports to
Western Europe and Japan but not to the United
States-the largest export market for many
LDCs, especially in Latin America.
? Exporters of commodities, including oil, face
oversupply conditions in many markets. Demand
should rise as a result of the dollar drop, but the
impact of higher demand on world prices is likely
to be minor.
a Trade-weighted against 15 OECD currencies.
b Estimated.
IV 86b
? In contrast, the decline of the dollar has increased
the competitiveness of LDC manufactured goods
in developed-country markets, particularly for
those LDCs whose currencies are closely tied to
the dollar. South Korean exports to Japan have
risen sharply in the past few months, in part
because of the 30-percent depreciation of the won
against the yen. Similar, but smaller, gains are
likely to occur in trade between LDC manufac-
tures exporters and West European countries.
Regional Impacts
In our opinion, Asian NICs and Latin American
countries such as Brazil will benefit the most from
the decline of the US dollar. On the other hand, the
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LDCs: Exports by Destination and
Commodity Type a
United States
Other developed
Rest of world
Commodities
Fuels
Manufactures
Other
impact on most African LDCs will be smaller.
Asian LDCs. In our judgment, Asian LDCs as a
group are in the strongest position to gain from the
dollar drop, with the greatest benefits accruing to
countries with a strong manufacturing base, such
as South Korea, Hong Kong, and Taiwan. More-
over, the competitive position of Asian manufac-
tures exporters, especially in Japanese markets, has
been considerably strengthened by the fact that
most of their currencies are tied to the dollar. The
appreciation of the yen is already costing Japan
part of its overseas market share, as other East
Asian exporters such as South Korea and Hong
Kong displace Japanese exporters of textiles and
electronics to Western Europe,
Regional commodity exporters such as the Philip-
pines and Thailand are likely to realize fewer
benefits from the dollar drop because of the con-
tinuing commodity glut and external factors, such
as the negative impact of the US farm bill on Thai
rice exports. Gains for Indonesia and Malaysia also
will depend on conditions in the oil market.
Latin American LDCs. The impact of the dollar
drop will vary among Latin American LDCs, but
we believe that Brazil will derive the greatest
benefit. The country dominates Latin American
trade-accounting for one-third of regional ex-
ports-and is the area's only significant exporter of
manufactured goods. In addition, Brazil's higher
quality commodity exports-including coffee, co-
coa, iron ore, soybeans, and feed-find ready over-
seas markets. The size of Brazil's export sector and
the comparatively broad export base ensure that
the country will remain competitive among Latin
a Based on partner country data for 1984.
b Includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador,
Mexico, Paraguay, Peru, and Venezuela.
c Includes South Africa.
American exporters.
Other nations in the region have a less diversified
export base; in most of these countries, commod-
ities account for over 80 percent of export revenue.
As a result, the impact of the dollar drop on export
growth is likely to be smaller. Argentina's fledgling
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manufacturing sector could receive a boost, al-
though commodity exports-mainly corn, feed, and
soybeans-to Western Europe and Japan face
strong competition from other developing countries.
Chile and Colombia could benefit from higher sales
of raw materials, although gains will be modest
because of continued oversupply conditions. The
immediate impact of the dollar's decline on Mexico
and Venezuela-which derive over 70 percent of
export earnings from petroleum sales-is likely to
be positive, but longer term gains will depend on
the oil producers agreeing to curb output.
Sub-Saharan Africa. We believe the impact of the
dollar drop will be greatest for South Africa-the
dominant exporter in the region-and for the larg-
er, more developed commodity exporters that are
able to compete with other LDCs. However, a
variety of factors put most other Sub-Saharan
African countries in a poor position to benefit from
the depreciation of the dollar:
? Sales of commodities and fuels account for all but
a small share of exports, while manufacturing is
woefully underdeveloped in nearly all Sub-Saha-
ran African countries. In addition, African ex-
porters of commodities such as copper and coffee
face strong competition from other LDCs.
? Trade is heavily concentrated, with five coun-
tries-Ivory Coast, Kenya, Nigeria, Senegal, and
South Africa-accounting for two-thirds of Sub-
Saharan African exports. South Africa alone
accounts for over 60 percent of the region's
exports of manufactured goods.
? Misguided domestic policies-including overval-
ued exchange rates and low producer prices-
discourage the development of export sectors and
sharply reduce the effect of the dollar's decline on
export growth.
? Slow real GNP growth in Western Europe-
Sub-Saharan Africa's largest market-is likely to
erode the benefits of.the dollar drop.
Possible Limits to Export Gains
The extent of LDC export gains also will be
influenced by the response of Western Europe and
Japan to the loss of trade competitiveness resulting
from the decline of the dollar. In the short run,
European and Japanese markets are likely to ab-
sorb higher imports from the United States and the
LDCs, with a negative impact on economic growth.
Given the conservative nature of European econom-
ic policies, high unemployment, and the resulting
pressures for protectionism, a continuous influx of
LDC products into these countries is unlikely.
Moreover, Japan probably will increase imports
from the United States, rather than from LDCs, as
a means of reducing the high bilateral trade sur-
plus. The Nakasone government already is under
strong domestic pressure to stem the appreciation
of the yen as export markets contract. Therefore,
the potential for export gains could be limited,
despite the increasing competitiveness of LDC
products in industrial-country markets.
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Secret
Nicaragua: The Shrinking
Private Sector
A new wave of government economic and political
pressures is choking Nicaragua's private sector,
moving the Sandinistas a step closer to their goal of
taking full state control of the economy. Increasing
confiscations and new licensing, credit, price, and
market restrictions are forcing a growing number
of farmers, industrialists, merchants, and profes-
sionals out of business. At the same time, Sandinis-
ta intimidation of private-sector associations is
causing some business and professional leaders to
give up active opposition to regime policies. While
all indicators point to the ultimate demise of the
private sector, we believe the Sandinistas-support-
ed by the Soviet Bloc-will continue to move
slowly, masking their intentions through continued
lipservice to a "mixed economy." A quicker purge
would risk an even faster loss of Western political
and economic support, and a more rapid flight of
still important technical and managerial skills.
Creating a Socialist State
While the Sandinistas still publicly claim that the
private sector will always have a role,
this is only a tactical
accommodation until full centralization of the
economy can be established. This goal was first
identified shortly after the 1979 revolution
set government poli-
cy as the "elimination of the traitorous bourgeoi-
sie ... once the private sector ceases to be of
their long-
range strategy continues to call or -thee-eventual
disappearance of private enterprise and complete
state domination of the economy,
the Sandi-
nistas tolerate private business because it allows
them to project a moderate international image,
Nicaragua's economy is in shambles. Real GDP
has fallen steadily and is now one-fourth below
prerevolution levels, while per capita GDP has
fallen by nearly half. Inflation is skyrocketing and
will likely hit 400 percent this year. The steady
decline in exports has produced unprecedented
balance-of-payments deficits, and red ink in the
current account will likely reach nearly $1 billion
this year. Foreign exchange shortages are squeez-
ing imports, despite increasing Soviet Bloc aid, and
the Sandinistas are largely ignoring service on
their $6 billion foreign debt.
The May 1985 US embargo is further hurting
Managua's economy by undercutting the produc-
tivity of its US-origin capital stock by denying
Managua access to spare parts. The US Embassy
reports growing public distress over widespread
food shortages, deteriorating transportation, and
declining public services as the consumer is caught
between the vise of declining production and an
ever-increasing allocation of resources to the war
effort.
and because the Sandinistas still need private tech-
nicians and managers to prevent an even steeper
decline in economic activity.
economic decisions.
To date, the Sandinistas have made substantial
progress toward state control. We estimate the
private sector now accounts for just 40 percent of
economic output, compared with 90 percent before
1979. The actual centralization of the economy is
much greater because the Sandinistas have also
enacted a wide variety of indirect controls, which,
in many cases, mandate virtually all private-sector
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Secret
Taking Control of Agriculture
Managua's increased pressure on the private sector
has been perhaps most evident in the farm sector.
The Sandinistas' first land expropriations were
confined to those belonging to Somoza and his
associates. In 1981, they enacted their Agrarian
Reform law that extended legal expropriations to
large or inefficient estates. Last January, Managua
revised the Agrarian Reform Act, formalizing the
existing practice of confiscation without "legal"
cause. Two weeks after the revision, the Minister of
Agriculture announced that the concept of private
property had been "superseded" in Nicaragua, and
that "exclusive property (ownership) in perpetuity,
now does not exist for us in this country."__~
For 1986, Managua has announced that 400,000
hectares of farmland-representing more than 10
percent of all arable land-will be taken over for
redistribution to state farms, cooperatives, and
peasants. These actions would bring total confisca-
tions to about 60 percent of all arable land since the
revolution. In late April alone, at least 21,000
hectares, including some highly efficient farms,
were confiscated
Stiff credit and foreign exchange controls have
further undercut private landowners. The national-
ized banks now provide less than 20 percent of their
loans to the private sector, down from 90 percent
before the revolution, according to IMF statistics
Moreover, official Nica-
raguan figures show that interest rates charged the
private sector are substantially higher than those
for the public sector. Even then, access to shrinking
credit and hard currency needed to import machin-
ery, fertilizers, and seed is usually limited to farm-
ers willing to support government polic
Marketing and price controls further constrain
private initiative. Farmers now must have their
crop plans approved before planting, and can only
sell their produce to the state at set prices, which, in
many cases, are below production costs. Recent
farmer protests against Sandinista agrarian policies
have only led to new government threats of seizures
and tighter credit for those not willing to cooperate,
according to US Embassy reports.
Squeezing Industry, Merchants, and Professionals
Managua is also continuing to intervene in and
restructure what remains of its nonfarm private
sector. Shortly after Somoza's fall, the Sandinistas
nationalized all domestically owned banks, insur-
ance companies, mines, forests, fisheries, and for-
eign commerce. They also took over most construc-
tion and transportation activities and put about
one-third of all manufacturing and domestic com-
merce under state control through expropriations.
In addition, Managua used its financial and com-
mercial power to rein in businesses not yet national-
ized by selectively denying access to credit, raw
materials, foreign exchange, markets, and man-
power
During the past six months, the state has taken
various initiatives to firm up its control. In the
industrial area, Managua is using substantially
increased financial regulations, a new agency, and
expanded public enterprises to tighten its grip. New
policies announced last February require practical-
ly all business transactions be paid by check,
severely limiting the amount of cash that can be
held. To ensure compliance, government bank audi-
tors were given unprecedented access to business
records. the Sandi-
nistas are setting up the Center for Small Industry
(CNPI), which will have direct responsibility for
licensing small industries. Politically acceptable
companies will reportedly be given preferential
access to raw materials, while all businesses will be
subject to production quotas and price controls
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Secret
managed by CNPI. In addition, Managua has
recently announced the formation of a state-owned
lubricant company that will provide products previ-
ously supplied by the foreign-owned refinery.
Merchants appear to have become a special target
in recent months. Last December, the Ministry of
Internal Commerce (MICOIN) announced that
only retailers and wholesalers who had been operat-
ing for at least five years would have their licenses
renewed. This regulation forced out of business
thousands of merchants who had been in direct
competition with state stores stocking Soviet Bloc
goods, according to US Embassy reports. During
May, the Sandinistas tightened commercial con-
trols by replacing private perishable food wholesal-
ers with a new state company, and by taking over
the country's last independently owned supermar-
ket chain. At the same time, the Sandinistas virtu-
ally closed shop for private merchants who had
been importing $100 million worth of consumer
goods annually in recent years, when the govern-
ment hit them with increased import taxes of up to
14 times the previous rate.
Professionals are also feeling the squeeze. In mid-
May, the Sandinista press announced new controls
over health services, including price ceilings for
doctors in private practice. In addition, the regime
now requires new doctors to serve their internship
for the state wherever required or be subject to
court martial. Other reports indicate that similar
controls are being placed on lawyers and other
professionals.
Reining in Private-Sector Organizations
Private farm, business, and professional associa-
tions are also feeling the growing power of state
political pressures. Private-sector organizations re-
port severe staffing problems because of Sandinista
harassment. Arbitrary arrests, confiscations, sur-
veillance, and passport cancellations have caused
some private-sector officials to resign from associa-
tion staffs and forced others to cut private deals
with the government rather than openly oppose the
Sandinista regime, according to Embassy report-
ing.
The Sandinistas are also using state bureaucracies
and party cadres to undercut the private sector.
The new CNPI organization, for example, is re-
portedly designed to take over many of the func-
tions of the private-sector associations. The neigh-
borhood Sandinista Defense Committees were also
recently authorized by government decree to moni-
tor private-sector compliance with price and mar-
ket regulations.
We are convinced by Sandinista rhetoric and the
tough new controls that Managua will continue to
reduce-and ultimately eliminate-the role of the
private sector in the economy. This process, howev-
er, will probably take at least the rest of this
decade, as Managua slowly and with difficulty
seeks to replace private-sector skills and Western
financial aid. From the domestic production stand-
point, agriculture and industrial training programs
sponsored by the Soviet Bloc and on-the-job experi-
ence are beginning to produce more competent
state economic managers, but the private sector
continues to provide critical technical and manage-
rial skills that cannot be replaced in the short term.
The longevity of the private sector will also depend
on Soviet Bloc willingness to underwrite the trans-
formation. Sandinista assurances of a private-
sector role in the economy encouraged Western
countries to provide $1 billion in financial support
during their first three years in power. Since then,
Western financing has slipped, as many countries
have become disillusioned with the regime. Even so,
Sandinista lipservice to its "mixed economy" has
encouraged Western countries to provide over $200
million annually in recent years, and probably will
bring in about $150 million in 1986. As Western
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Secret
aid has fallen, the Soviet Bloc has taken up the
slack, but Moscow and its allies have encouraged
the Sandinistas to maintain as much Western
financial support as possible. Over the longer run,
we believe that Western aid will continue to decline
and that Moscow will accept the increasing burden
of supporting the Sandinistas. The cost of support-
ing the regime, compared with Soviet aid to other
Third World countries, is still relatively low consid-
ering the high political benefits Moscow receives.
Moreover, greater dependence on the Soviet Bloc
will probably speed up the centralization of the
economy.
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Secret
Energy
New Norwegian The Norwegian state oil and gas company, Statoil, announced this week its
Natural Gas Sales largest gas sales contract ever-a 27-year deal beginning in 1993 with a
consortium of French, West German, Dutch, and Belgian buyers worth $60
billion at current prices. The agreement calls for peak annual deliveries of 16
billion cubic meters (bcm) from the Troll gasfield, and 4 bcm from Sleipner.
Prices for the delivered gas will be set in the mid-1990s and, according to press
reports, Oslo is counting on world oil prices-which directly influence the price
of gas-of at least $20 a barrel for the deal to be profitable. Declining oil
prices have already resulted in oil and gas revenues as a share of total
government revenues dropping from 20 to about 14 percent, and the substan-
tial tax relief necessary for private companies involved with Statoil-if
granted-is likely to reduce the share below 10 percent. Oslo has indicated it
will issue new tax proposals in August or September and the companies have
until 15 September to fully commit to the deal. Even if oil prices rise, the
quantity of gas involved represents less than one-third of the combined reserves
of the two fields. The new agreement diminishes the potential for futher Soviet
penetration into the West European gas market, an important policy factor in
this deal.
Egypt Resumes The Egyptian General Petroleum Corporation (EGPC) resumed export sales in
Oil Export Sales May, according to US Embassy sources. Liftings averaged only 79,000 b/d,
however, compared to an export potential of 250,000 to 300,000 b/d. Egypt's
export sales during the first quarter of 1986 decreased dramatically-perhaps
by more than half-largely as a result of its uncompetitive pricing policy.
GPC sales require approval from the
Egyptian Government's Petroleum Pricing Committee, whose slow-paced
deliberations prevent Egypt from responding quickly to pricing changes in
today's highly volatile and competitive oil market.
Sudan Reducing Sun Oil Company, the second largest foreign oil company in Sudan, is stopping
Oil Exploration oil exploration and reducing its staff. According to the US Embassy, Sun has
drilled three holes in the past year, and only one showed traces of oil. The com-
pany reportedly feels that oil prices would have to rebound to $20-22 per barrel
23 Secret
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Secret
Vietnam Nears
Oil Production
sometime in 1987, probably to fulfill its concession agreement
before resuming exploration. The Embassy also reports that Chevron, the
largest foreign investor in Sudan, has sharply reduced its staff and investment.
Reduction of the expatriate staff may also be in response to security concerns
in the country, although Sun has maintained a low profile in Sudan and enjoys
fairly good relations with the government. Sun plans to drill another well
Vietnam has recently moved one step closer to oil production.
the previously identified single-point
Debt Rescheduling
Update on Iraq
Secret
6 June 1986
Soviets could face delays in pipeline construction.
mooring buoy is part of a floating production, storage, and offloading system
(FPSO). This buoy is now attached to a tanker that has had some equipment,
possibly for oil production, mounted on deck. Although it appears that the oil
production and storage facilities are nearly ready, we believe Vietnam will not
begin oil production for at least the next few months. None of the equipment
necessary to construct the pipeline from the Bach Ho field to the FPSO has
been observed, and with the typhoon season upon them, the Vietnamese and
lending from them.
Iraq is making some progress in rescheduling foreign debts to major trading
partners but continues to miss payments to Western banks. Japanese firms and
the West German Government have agreed separately to reschedule several
payments due this year. The similar repayment terms in both agreements
suggest that Iraq is bowing to pressure from Bonn and Tokyo to reschedule
payments to its major creditors on similar terms. Baghdad so far has been un-
successful in rescheduling commercial bank debts-largely overdue payments
on letters of credit. Baghdad has exhausted the
good will of many Western banks and is unlikely to obtain new short-term
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Ivory Coast
Rescheduling
Moves Forward
Ivory Coast and its commercial bank creditors late last month initialed a
multiyear rescheduling of about $1 billion of the country's $2.9 billion
commercial debt
Creditors expect
final signing of the accord in late July, with the deal becoming effective this
September. The rescheduling is contingent upon Ivorian compliance with IMF
and World Bank economic programs and on a similar Paris Club rescheduling
of official debts. New Fund and Bank programs will become effective soon, but
some Paris Club creditors may be reluctant to grant a comparable multiyear
rescheduling, according to US Embassy reports. A multiyear accord is viewed
by the Paris Club as the final stage of restoring a debt-troubled country's
creditworthiness
Romania Bankers have denied Romania's request for relief from the repayments due
Maneuvering on Debt over the next three years on the 1982 debt rescheduling agreement but agreed
to reschedule the $260 million due this year,
By requesting a multiyear rescheduling,
until the rescheduling is accomplished.
Romania is not only probing the banks for willingness to extend debt relief but
also may be admitting that its financial obligations in 1987 and 1988 will
exceed its resources. The 1986 rescheduling will take several months, and
banks may yet reconsider a multiyear arrangement. The Romanians also
recently requested the Bank of Tokyo to lead a new loan syndication,
according to the US Embassy in Bucharest. The banks probably will hold off
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East German East Germany will not borrow on international financial markets for the rest
Borrowing Plans of 1986, according to the vice president of the East German Foreign Trade
Bank, because of its success in reducing debt and the recent restructuring of its
maturities. The official told the US Embassy that, although lower world oil
prices were cutting oil product export receipts, East Berlin has $1.2 billion in
untapped credit lines and will continue to run trade surpluses. East Germany
also had reserves of at least $6.5 billion at yearend 1985, according to Bank for
International Settlements statistics.
We
believe that East Berlin will boost imports of capital goods somewhat to
support its 1986-90 investment goals, and that its trade surplus this year may
fall somewhat from the estimated $790 million of 1985. However, East
Germany is the most creditworthy country in Eastern Europe and probably
will have little trouble obtaining funds when it chooses to resume borrowing.
EC Support The EC Commission, concluding that the European Community is a
for Services "superpower" in services trade, has abandoned its initial doubts and become a
in Trade Round firm proponent of including services in the new GATT round. Commission
officials believe the EC is especially strong in banking, information technology,
and advertising and are encouraging producers of services to help the
Commission develop its priorities for the negotiations. According to US
Embassy reporting, the Community's strategy is first to ensure services are on
the new round agenda, then to decide which specific services to include. The
shift in the Commission's position follows growing support among individual
EC members on this issue, especially France and the United Kingdom.
New Andean Pact The members of the Andean Pact (Bolivia, Colombia, Ecuador, Peru, and
Trade Liberalization Venezuela) have agreed to liberalize trade on the basis of a new quota system.
This subject had been one of the Pact's most contentious issues. Ecuador, the
strongest critic, previously maintained that liberalization would only benefit
Colombia, Venezuela, and Peru, but agreed to support an initiative that
provides for reciprocal benefits. The new trade program requires each country
to allow limited importation of 30 to 50 products that had been banned to pro-
tect domestic producers. The program will be reviewed after three years.
Under the new agreement, Ecuador, for example, would permit limited
imports of Venezuelan, Peruvian, and Colombian petrochemical and metallur-
gical products, but would benefit by exporting Ecuadorean chocolate, large
kitchen appliances, fish meal, and wooden goods. Pact members have agreed
that, because of Bolivia's current economic woes, its exports will not be bound
by the new quota system.
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Global and Regional Developments
Tokyo Signs Tokyo recently signed the long-awaited agreement on the yen loan package,
Philippine Aid delayed since the Philippine election turmoil in February. The package
Agreement reportedly includes seven of the original 11 project loans totaling $95 million
and another $91 million in commodity loans, which indirectly could be used
for Philippine budgetary support.
USSR Agrees to According to US Embassy reporting, Moscow apparently accepted Angola's
Angolan Debt Relief request for debt relief and relaxation of export obligations during Angolan
President dos Santos's recent visit. However, oil prices and the burden of the
civil war have left Angola unable to fulfill debt repayment terms and bilateral
trade agreements. The National Bank of Angola has lobbied extensively to
renegotiate its foreign debt of approximately $3 billion, about half of which is
owed to the USSR. Angola has attempted to arrange debt moratoriums or
repayment in petroleum rather than hard currency. The moratorium by the
Soviet Union-Angola's largest creditor-will ease Angola's credit difficul-
ties, strengthen bilateral ties, and mitigate the threat of default to Luanda's
Western lenders.
UN Special Session The UN Special Session resolution last weekend that endorsed an African
on Africa five-year program for economic recovery probably has improved the climate
for a continued economic dialogue between Africa and the international
community. International support is crucial to the recovery program, which
calls for $128 billion in financing of which $45 billion would be required from
external sources. While the session agreed that increased economic support for
Africa was necessary, the small number of specific commitments by individual
donor countries was disappointing to many African delegates. According to
press and US diplomatic reporting, Canada offered to place a 15-year
moratorium on Africa's debt repayments, and Italy is considering a debt
moratorium, restructuring, or rescheduling. No creditor country agreed to the
debt writeoffs that the African group sought. On the basis of a wide variety of
reporting, most Western donors believe that African countries should make
more efficient use of available internal and external resources, while imple-
menting economic reforms that will promote economic recovery.
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National Developments
Developed Countries
Tokyo Urged Echoing recommendations issued in April by the Maekawa commission,
To Increase Japan's Industrial Structure Council-an advisory group to MITI Minister
Overseas Investment Watanabe-recently submitted a report urging Tokyo to promote increased
overseas investment to ease trade frictions stemming from Japan's persistent
trade surpluses. The panel proposed improving information flows and enacting
tax incentives to stimulate such activity. Although press reports indicate that
MITI plans to formulate new policies for the fiscal year beginning next April
based on this report, it must first overcome opposition from several quarters.
The powerful Finance Ministry will probably oppose large amounts of
spending to stimulate overseas investment. The council's prediction that
expanded investment abroad may cost over 500,000 jobs in Japan by the end of
the century is likely to further complicate MITI efforts.
Japan's Japan's new Key Technology Research Center-the joint MITI and Ministry
Key Technology Center of Posts and Telecommunications (MPT) program to fund industrial R&D-
Funds Projects recently announced a series of projects it will sponsor. The center will provide a
large chunk of equity funding to a newly formed 13-firm R&D company to de-
velop optoelectronic integrated circuits. This program replaced the MITI-
sponsored program that ended in 1986. The center will hold a 70-percent
equity position in a joint space laboratory being formed by six Japanese
electronics companies. It will also fund and operate four cooperative research
labs specializing in advanced communications applications, and fund 25 long-
term joint research projects with private industry in electronics, biotechnology,
communications systems, and software. The center, originally designed to
promote basic R&D in industrial technology, appears to have expanded its
scope to include development of technologies with near-term commercial
potential.
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Secret
London Blamed for Britain's National Institute of Economic and Social Research (NIESR)
Slow British Growth forecasts 1986 economic growth of only 1.9 percent-more than a full point
in 1986 below the Treasury's estimate-and puts the blame on government policy. The
institute argues that fiscal policy is too restrictive and that London's deliberate
effort to keep interest rates high to protect sterling is damaging investment.
While interest rates have dropped substantially since the sterling crisis of
January 1985, they remain high by international standards. The NIESR
expects the high rates and the sharp drop in North Sea investment caused by
low oil prices to slow overall investment growth to 0.1 percent this year. With
first-quarter GDP growth estimated at an annual rate of only 2 percent, we be-
lieve the NIESR's forecast probably is more realistic than the government's.
The best hope for an upturn in late 1986 comes from consumer spending,
which is expected to benefit from two recent mortgage rate cuts and lower in-
flation. Nonetheless, overall growth will not be sufficient to put a significant
dent in Britain's 13.2-percent unemployment rate.
Italian Stock The Milan stock market index plunged 20 percent last week before recovering
Market Tumbles somewhat as foreign institutions and small domestic investors sold heavily in
response to rumors of a new capital gains tax. There is speculation that the
government deliberately started the rumors to dampen investor enthusiasm.
Several times this spring, Treasury Minister Goria cautioned that rapid gains
were making the stock market unstable and that a large correction was
overdue. The Milan index doubled in 1985 and nearly doubled again in the
first five months of this year. The introduction of mutual funds in Italy,
economic and political stability, and private investor interest in the booming
market have created a huge demand on an exchange where very few
companies are actively traded.
Increased Foreign Spain's campaign to attract foreign capital is continuing to bear fruit. Total
Investment in Spain foreign investment increased by almost one-third in 1985-led by a 150-
percent jump in portfolio investment-and preliminary figures indicate that
the trend is continuing in first quarter 1986. We believe the good results partly
reflect Spain's entry into the European Community and the government's
victory in the NATO referendum, which have increased investors' confidence.
As an EC member, Spain also has become more attractive to US and Japanese
firms looking for easier access to the lucrative European market. Finally,
Spain liberalized regulations on foreign investment last year and is preparing a
decree this year that will remove restrictions on most major sectors, including
mining, insurance, petroleum refining, air transport, and shipping.
Norwegian The new minority Labor government wants to raise taxes and cut spending to
Labor Government compensate for falling oil prices that could lower government revenues by over
Proposes Austerity 10 percent this year and turn last year's $3 billion current account surplus into
a $4 billion deficit. While the opposition Conservatives agree on the need to
tighten fiscal policy, the government will have to compromise to obtain passage
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Secret
of the measures. The Conservatives will oppose some of the new taxes and
want larger spending reductions-parliament's rejection of their austerity
package in April triggered the collapse of their center-right coalition. The
opposition is pleased to watch the Labor Party struggle with the same
economic problems.
New Turkish Law Turkey last week took another important step toward implementing Prime
on Privatization Minister Ozal's free market policies and shrinking the state's large economic
role when parliament passed a bill authorizing the sale of the state economic
enterprises (SEEs) and abolishing the government's monopoly on tobacco
production.
Ozal's government already has made some moves toward privatization,
including the selling of revenue shares in the Bosphorus Bridge and two
hydroelectric dams. The selling of state assets is likely to proceed at a slow
pace, however, because of the procedural obstacles and entrenched bureaucrat-
ic resistance.
Less Developed Countries
Brazilian Court A Sao Paulo state court ruled that computer software is protected by Brazilian
Rules on Software copyright law, according to the US Embassy. The ruling is supportive of US
Copyright Protection policies to increase the level of protection afforded to owners of intellectual
property. The court's decision paves the way for US companies to prosecute
Brazilian firms that have copied their computer programs-estimated to cost
US firms $35 million annually, according to an industry study. In addition, it
now will be more difficult for Brazilian Government agencies to implement
preconditions for copyright protection under the national informatics policy.
The decision also makes it more difficult for Brasilia to pass a separate
software bill offering less protection. On the negative side, the court decided
that copyright protection did not extend to read only memories that a US firm
was seeking to protect.
Tensions Over Brazilian President Sarney is reacting to political challenges to his ambitious land
Agrarian Reform reform program. Last week he replaced his land reform minister, who was
dissatisfied with the program's slow pace, with a member of the ruling party's
left wing. a national landowners organization is
using force to intimidate reform proponents and that leftist groups are urging
seizures of land by violence. While naming a leftist as the new minister may
mollify critics temporarily, Sarney probably will have to accelerate the
redistribution of government land to prevent leftist parties from using the issue
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in congressional elections this November. Sarney fears offending sensitivities
in the newly democratic climate and so may be reluctant to order the military
to ensure rural peace. Nevertheless, he will step up political and police pressure
on landowners and leftists to stop disrupting the program.
Inflation Likely Consumer prices rose 3.3 percent in May according to the government,
To Accelerate marking the second consecutive month of reduced inflation-in March, prices
in Peru had risen 5.3 percent. We doubt this trend will continue, however, given the
expansionary bias of the economic program announced in February and the
large wage increases granted to 700,000 public workers on 1 June. Some
teachers received hikes in excess of 100 percent, and most other workers
obtained gains of 25 to 30 percent. Many observers predict that the public-sec-
tor deficit will exceed 11 percent of GDP this year compared with 4 percent in
1985, and the government probably will have to resort to the printing presses
to finance it.
New Algerian Efforts According to the US Embassy, Algiers is reducing the number of foreign
To Cope With technicians and is restricting access to work and residence permits to ease the
Lower Oil Revenues pressure on its foreign exchange position. One work permit for a longtime US
resident has been rescinded and several others have been renewed for only a
few months. Entire technical assistance contracts also are being canceled. As a
result, the Italian expatriate community in Oran has dwindled to 700 from
2,000 only 18 months ago. Embassy sources report Algeria is also seeking
concessional financing from the United States and other Western govern-
ments-almost certainly a response to difficulties in lining up commercial
loans on terms acceptable to the government. These new steps, coming on top
of tough austerity measures, reflect the Bendjedid government's deepening
concern over deteriorating economic conditions and the need to convey to both
domestic and foreign audiences that Algiers is doing what it can to head off a
major financial crisis.
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Secret
Indonesian Cotton According to US Embassy reporting, Jakarta's recent decision to grant PT
Import Monopoly Cerat Bina Textile Indonesia (CBTI) exclusive cotton import rights is already
having a detrimental impact on the beleaguered textile industry. In our view,
this is symptomatic of the government's failure to respond effectively to the fi-
nancial strains caused by the decline in world oil prices. In addition to
reportedly forcing up the cost of raw cotton to textile mills by 25 percent, the
established textile firms-which have controlling interest in CBTI-are in a
position to squeeze their competition by controlling distribution of this raw
material. According to the US Embassy, the move has even provoked criticism
within the government. The Ministry of Research and Technology
for example, has condemned the decision, predicting that the CBTI
monopoly will further frustrate the development of an internationally competi-
tive textile industry.
Hong Kong Passes Hong Kong's Legislative Council on 28 May approved changes in the
New Banking territory's banking regulations that may survive China's resumption of
Regulations sovereignty over Hong Kong in 1997. Within three months, Hong Kong banks
will face additional audit and disclosure requirements and a new capital
adequacy test to limit risk and help assure solvency. In addition, the Banking
Commissioner will have more power to veto appointments to bank boards, limit
voting rights of shareholders, and halt business practices he deems unwise.
Some Hong Kong economists, however, complain that the new bill does not go
far enough. They favor scrapping the territory's interest rate cartel that allows
the Hong Kong Association of Banks to determine deposit rates-currently set
around 3 percent-which they argue shelters inefficient local banks. Some
economists also advocate establishing a central bank to control the domestic
money supply and instituting deposit insurance. The government, however,
opted for only those changes it knew would be acceptable to a broad range of
interests in the industry.
Mexico Liquidating The government's recent decision to shut down the state-owned Fundidora
Parastatals steel complex-one of the three largest state-owned steel companies-is
proving highly controversial. Fundidora's outstanding debts were $380 million
and losses last year totaled $48 million. The move has had a devastating
impact in Monterrey, costing some 60,000 jobs, according to the US Embassy.
In reaction, there have been large demonstrations opposing the government's
action. This marks the first shutdown of a major parastatal. Although the de la
Madrid administration has been under pressure from international creditors to
sell parastatals and to cut public spending, the closing of the steel complex
probably does not portend major structural changes in the Mexican economy.
Given the popular backlash against the decision as well as Mexico City's
strong desire to avoid exacerbating its unemployment problems, the action is
unlikely to establish a precedent for widespread closure of other parastatals.
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Secret
Secret
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Directorate of
Intelligence
Economic & Energy
Indicators
DI EEI 86-012
6 June 1986
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This publication is prepared for the use of US Government
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Requesters outside the US Government may obtain subscriptions to
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or: National Technical Information Service
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Energy
Economic & Energy
Indicators
Industrial Production
Gross National Product
Consumer Prices
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
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Percent change from previous period
seasonally adjusted at an annual rate
United States
2.6
-7.2
5.9
11.6
2.3
2.9
-9.1
-7.4
1.9
Japan
1.0
West Germany
-2.3
-3.2
0.3
2.4
5.0
23.4
-3.4
France
-2.6
-1.5
1.1
2.5
0.5
0.0
9.5
0.0
United Kingdom
-3.9
2.1
3.9
1.3
4.6
8.1
15.4
-1.1
Italy
-1.6
Canada
0.5
-10.0
5.3
8.8
4.4
-0.8
8.2
Percent change from previous period
seasonally adjusted at an annual rate
United States
2.5
-2.1
3.5
6.5
2.2
1.1
3.0
0.7
3.7
Japan
4.1
3.1
3.3
5.0
4.6
5.8
3.0
7.2
West Germany
-0.2
-1.0
1.5
3.0
2.4
6.8
6.8
-0.2
France
0.2
1.8
0.7
1.5
1.3
3.1
3.7
2.1
United Kingdom
-1.4
1.9
3.4
2.6
3.3
6.8
-0.7
2.2
Canada
3.3
-4.4
3.3
5.0
4.5
3.2
7.0
5.4
Percent change from previous period
seasonally adjusted at an annual rate
United States
10.3
6.2
3.2
4.3
3.5
1.4
-5.0
-3.3
Japan
4.9
2.6
1.8
2.3
2.0
0.0
-6.3
0.3
-2.6
United Kingdom
11.9
8.6
4.6
5.0
6.1
4.6
1.0
-1.0
Canada
12.5
10.8
5.8
4.3
4.0
4.8
3.0
2.4
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Money Supply, M-1 a
Percent change from previous period
seasonally adjusted at an annual rate
1st Qtr
Mar
Apr
May
United States b
7.1
6.6
11.2
7.0
9.1
7.9
14.8
15.5
Japan
3.7
7.1
3.7
2.8
5.0
7.8
11.6
West Germany
1.1
3.6
10.2
3.3
4.4
9.8
44.9
1.9
France
12.2
13.9
10.0
.7.8
8.6
United Kingdom
NA
NA
13.0
14.7
16.7
9.0
34.8
30.5
Italy
11.2
11.6
15.1 .
12.3
13.7
Canada
3.8
0.7
10.2
3.2
4.1
-13.4
10.8
-8.4
2.4
a Based on amounts in national currency units.
b Including M1-A and MI-B.
Unemployment Rate a
United States
7.5
9.6
9.4
7.4
7.1
6.9
7.0
7.1
7.0
Japan
2.2
2.4
2.7
2.7
2.6
2.8
2.6
2.7
2.9
West Germany
5.6
7.7
9.2
9.1
9.3
9.0
10.2
9.8
9.0
France
7.6
8.4
8.6
9.6
10.0
10.0
9.8
9.8
9.9
9.9
United Kingdom
10.0
11.6
12:4
12.4
?12.9 ?
12.9
13.1
13.2
13.2
Italy
8.4
9.1
9.9
10.4
10.7
11.0
11.5
Canada
7.5
11.1
11.9
11.3
10.5
10.2
9.7
9.6
9.6
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Foreign Trade a
Billion US S,l.o.b.
United States b
Exports
233.5
212.3
200.7
217.6
213.3
52.6
?52.4
Imports
261.0
244.0
258.0
325.7
345.3
84.6
89.2
32.0
28.9
32.0
Balance
-27.5
-31.6
-57.4
-108.1
-132.0
-32.0
-36.8
Japan
Exports
149.6
138.2
145.4
168.1
173.9
43.6
47.3
16.3
15.9
15.7
Imports
129.5
119.6
114.0
124.1
118.0
29.2
.30.3
10.4
10.4
9.3
Balance
20.1
18.6
31.4
44.0
55.9
14.4
16.9
5.9
5.5
6.4
West Germany
Exports
175.4
176.4
169.5
171.8
184.3
48.7
51.3
18.7
18.7
17.5
Imports c
163.4
155.3
152.9
153.1
159.0
41.7
43.9
15.2
15.4
14.3
Balance
11.9
21.1
16.6
18.8
25.3
6.9
7.4
3.6
3.3
3.2
France
Exports
106.3
96.4
95.1
97.5
101.9
26.2
28.8
10.2
'
10.3 ...
9.9
Imports
115.6
110.5
101.0
100.3
104.5
27.0
29.2
9.7
10.3
10.2
Balance
-9.3
-14.0
-5.9
-2.8
-2.6
-0.8
-0.4
0.5
0
-0.4
United Kingdom
Exports
102.5
97.1
92.1
93.6
100.9
25.8
27.3
9.0
8.8
8.4
Imports
94.6
93.1
93.7
99.3
103.5
26.4
27.6
8.8
9.3
10.2
Balance
7.9
4.0
-1.6
-5.7
-2.5
-0.6
-0.3
0.2
-0.5
-1.8
Italy
Exports
75.4
73.9
72.8
73,5
78.8
20.3
22.5
7.2
8.5
7.7
Imports
91.2
86.7
80.6
8414
90.7
21.4
26.0
8.8
9.2 .
8.5
Balance
-15.9
-12.8
-7.9
-10.9
-11.9
-1.1
-3.5
-1.6
-0.7
;-0.8
Canada
Exports
70.5
68.5
73.7
86.5
88.0
21.8
22.5
7.7
7.1 .
,,,6.7
Imports
64.4
54.1
59.3
70.6
75.7
19.6
19.6
7.0
7.0
5.8
Balance
6.1
14.4
.14.4
.15.9
12.3
2.2
2.9
0.7
0.1
0.9
a Seasonally adjusted.
b Imports are customs values.
Imports are c.i.f.
United States
6.3
-8.1
-46.0
-107.4
-117.7
-36.6
'6.9
20.8
35.0
49.2
16.0
1.9
3.9
6.9
7.9
West Germany
-6.8
3.3
4.3
6.7
13.8
7.4
1.9
2.9
2.1
France
-4.7
-12.1
-4.9
-0.8
0.6
0.8
Italy
-8.6
-5.7
0.6
-2.9
Canada
-5.0
2.1
1.4
1.9
-1.9
-0.9
a Seasonally adjusted; converted to US dollars at current market
rates of exchange.
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 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
Export Prices in US $
Percent change from previous period
at an annual rate
United States 9.2 1.5 1.0 1.4 -0.6 0.0 -11.4 7.9
Japan
West Germany -14.9 -2.8 -3.2 -7.1 0 31.8 60.5 32.7 0.1
United Kingdom NA NA -6.2 -5.1 2.3 -11.3 -16.0 26.4 6.0
Canada 3.9 -2.0 0.2 -0.4 -3.5 -32.3 21.3 1.9
Percent change from previous period
at an annual rate
United States 5.3 -2.0 -3.7 1.7 -2.4 -9.7 -6.8 -31.5
Japan
West Germany -8.6 -4.7 -5.2 -4.8 -1.5 -0.5 13.3 -2.6 -24.4
Canada 8.7 -1.1 0.6 1.0 -2.1 4.0 6.5 -4.0
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 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
Exchange Rate Trends
West Germany
-2.1
7.0
5.8
1.0
1.7
9.3
4.0
France
-5.1
-6.1
-4.7
-2.1
2.7
8.0
2.0
United Kingdom
2.5
-2.1
-5.0
-2.5
2.0
-36.3
2.5
Italy
-9.2
-5.1
-1.6
-3.1
-3.8
8.6
4.2
Canada
0.3
0.2
2.3
-2.3
-3.6
-8.9
-5.6
West Germany
-24.6
-7.2
-5.2
-11.5
-3.3
41.0
26.1
3.7
27.7
France
-28.7
-20.8
-15.9
-14.7
-2.7
41.0
23.7
-39.1
24.2
United Kingdom
-13.2
-13.4
-13.3
-11.9
-3.0
-0.3
40.3
28.7
27.9
Italy
-32.8
-18.8
-12.3
-15.6
-8.6
40.9
26.2
- 4.7
27.0
Money Market Rates
United States
90-day certificates of
deposit, secondary market
Japan
loans and discounts
(2 months)
West Germany
interbank loans
(3 months)
France
interbank money market
(3 months)
United Kingdom
sterling interbank loans
(3 months)
Italy
Milan interbank loans
(3 months)
Canada
finance paper (3 months)
Eurodollars
3-month deposits
Percent change from previous period
at an annual rate
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 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
Agricultural Prices
Bananas
Fresh imported,
(Total world, $ per metric ton)
Australia
(Boneless beef,
f.o.b. US Ports)
United States
(Wholesale steer beef,
midwest markets)
Cocoa (? per pound)
89.8
74.3
92.1
106.2
98.7
95.7
95.5
91.0
84.9
Coffee ($ per pound)
1.28
1.40
1.32
1.44
1.43
2.01
1.95
2.04
1.92
Corn
(US #3 yellow,
c.i.f. Rotterdam, $ per metric ton)
150
123
148
150
125
116
115
113
113
Cotton
(World Cotton Prices, "A"
index, c.i.f. Osaka, US 0/lb.)
Palm Oil
(United Kingdom 5% bulk,
c.i.f., $ per metric ton)
US (No. 2, milled,
4% c.i.f. Rotterdam)
632
481
514
514
484
453
455
455
440
Thai SWR
(100% grade B
c.i.f. Rotterdam)
573
362
339
310
249
236
237
232
225
Soybeans
(US #2 yellow,
c.i.f. Rotterdam, $ per metric ton)
288
244
282
283
225
218
217
218
213
Soybean Oil
(Dutch, f.o.b. ex-mill,
$ per metric ton)
Soybean Meal
(US, c.i.f. Rotterdam
$ per metric ton)
Sugar
(World raw cane, f.o.b.
Caribbean Ports, spot prices-0 per pound)
Tea
Average Auction (London)
(0 per pound)
Wheat
(US #2. DNS
c.i.f. Rotterdam, $ per metric ton)
a The food index is compiled by The Economist for 14 food commodities which enter international trade. Commodities are weighted by 3-
year moving averages of imports into industrialized countries.
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 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
Major US producer
77.3
76.0
Chrome Ore
(South Africa chemical
grade, $ per metric ton)
Copper a (bar, Q per pound)
79.0
67.1
72.0
62.4
64.5
64.5
63.8
65.0
Cold ($ per troy ounce)
460.0
375.5
424.4
360.0
317.2
342.6
338.9
345.7 339.9
Lead a (0 per pound)
32.9
24.7
19.3
20.0
17.7
16.7
16.7
16.6 16.8
Manganese Ore
(48% Mn, $ per long ton)
82.1
79.9
73.3
69:8 ,
68.4
67.2
67.2
67.2 ,,. 68.4
Nickel ($ per pound)
Cathode major producer
3.5
3.2
3.2
3.2
3.2
3.2
3.2
3.2 3.2
LME Cash
2.7
2.2
2.1
2.2
2.2
1.8
1'.8 _
_1.9' 1.8
Platinum ($ per troy ounce)
Major producer
475.0
475.0
475.0
475.0
475.0
475.0
475.0
475.0 475.0
446.0
326.7.
422.6.
358.2.
291.0
383.1
373.8
413.0 __ 416.0
Synthetic b
47.5
45.7
Natural C
56.8
45.4
56.2
49.6
42.0
41.7
42.5
42.0 39.2
Steel Scrap d ($ per long ton)
92.0
63.1
73.2
86:4
74.4
74.0
75.0
73.7 NA
Tin a (Q per pound)
641.4
581.6
590.9
556.6
543.2
357.4
385.6
329.2" 257.9
Tungsten Ore
(contained metal,
$ per metric ton)
18,097
13,426
10,177
10,243
10,656
8,673
8,745
8,309- 7,752
,1.
US Steel
(finished steel, composite,
$ per long ton)
543.5
567.3
590.2
611.6
617.8
551.2
551.2
551.2, NA
Zinc a (Q per pound)
38.4
33.7
34.7
41.5
35.4
28.5
27.6
28.4 29.8
114
105
103
100
99
114 ?S. 129
Industrial Materials Index f
85
71
(1980= 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. As of February 1986 tin
prices from the Penang market.
b S-type styrene, US export price.
c Quoted on New York market.
d Average of No. I 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 10 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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 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
World Crude Oil Production
Excluding Natural Gas Liquids
1981
1982
1983
1984
1985a
1986-
Year
3d Qtr
4th Qtr
Jan
Feb
World
55,837
53,092
52,633
53,691
53,356
52,373
55,015
53,757
Non-Communist countries
41,602
38,810
38,228
39,257
38,692
37,588
40,707
39,471
40,423
Developed countries
12,886
13,276
13,864
14,302
14,730
14,643
14,958
15,083
15,070
United States
8,572
8,658
8,680
8,735
8,933
8,954
8,933
8,942
8,934
Canada
1,285
1,270
1,356
1,411
1,457
1,444
1,476
1,480
1,480
United Kingdom
1,811
2,094
2,299
2,535
2,533
2,399
2,607
2,734
2,699
Norway
501
518
614
700
785
823
870
839
870
Other
717
736
915
921
1,022
1,023
1,072
1,088
1,087
Non-OPEC LDCs
6,036
6,633
6,823
7,515
7,845
7,922
7,888
7,678
7,393
Mexico
2,321
2,746
2,666
2,746
2,733
2,738
2,721
2,510
2,400
Egypt
598
665
689
827
874
890
856
860
600
Other
3,117
3,222
3,468
3,942
4,238
4,294
4,311
4,308
4,393
OPEC
22,680
18,901
17,541
17,440
16,117
15,023
17,861
16,710
17,960
Algeria
803
701
699
638
645
616
660
650
550
Ecuador
211
211
236
253
280
282
287
300
220
Gabon
151
154
157
152
153
153
160
160
160
Indonesia
1,604
1,324
1,385
1,466
1,235
1,203
1,286
1,200
1,300
Iran
1,381
2,282
2,492
2,187
2,258
2,335
2,301
1,700
2,200
Iraq
993
972
922
1,203
1,437
1,482
1,666
1,680
1,880
Kuwait b
947
663
881
912
862
800
899
1,000
1,100
Libya
1,137
1,183
1,076
1,073
1,069
933
1,234
1,100
1,000
Neutral Zone c
370
317
390
410
355
306
391
300
300
Nigeria
1,445
1,298
1,241
1,393
1,464
1,214
1,686
1,300
1,400
Qatar
405
328
295
399
302
312
312
400
300
Saudi Arabia b
9,625
6,327
4,867
4,444
3,290
2,564
4,067
4,200
4,600
UAE
1,500
1,248
1,119
1,097
1,146
1,193
1,242
1,165
1,400
Venezuela
2,108
1,893
1,781
1,813
1,621
1,630
1,670
1,555
1,550
Communist countries
14,235
14,282
14,405
14,434
14,664
14,785
14,308
14,286
USSR
11,800
11,830
11,864
11,728
11,749
11,866
11,367
11,350
China
2,024
2,042
2,121
2,286
2,496
2,504
2,521
2,496
Other
411
410
420
420
419
415
420
440
- Preliminary.
b Excluding Neutral Zone production, which is shown separately.
c Production is shared equally between Saudi Arabia and Kuwait.
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 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
Big Seven: Inland Oil Consumption
United States
16,058
15,296
15,184
15,708
15,697
15,557
15,748
15,923
16,056
16,188
15,833
Japan
4,444
4,204
4,193
4,349
4,121
3,839
4,361
4,661
5,046
Italy b
1,705
1,618
1,594
1,513
1,516
1,436
1,642
1,718
1,855
1,535
Canada
1,617
1,454
1,354
1,348
1,344
1,362
1,400
1,359
Including bunkers, refinery fuel, and losses.
b Principal products only prior to 1981.
Big Seven: Crude Oil Imports
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 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
Year 4th Qtr 1st Qtr Mar Apr
OPEC Average a 30.87 34.50 33.63 29.31 28.70 28.14 28.15 28.09 28.09 28.06
(Official Sales Price)
F.o.b. prices set by the government for direct sales and, in most cases, for the producing company buy-back oil. Weighted by the volume
of production.
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 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
Average Crude Oil Sales Pricea
US $ per barrel
34.50 33.63
30.87 29.3128^70
F--1 27.16
III^2911_02 11.77 12.88 1 12.93
1.39
1973 74 75 76 77 78 79 80 81 82 83 84 85
M NO V M
r~ _ 10 r
10
N
'The 1973 price is derived from posted prices, 1974-84 prices
are derived from OPEC official sales prices, and beginning
in 1985. prices are a measure of average world sales prices.
STAT
Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4
Declassified in Part - Sanitized Copy Approved for Release 2011/12/12 : CIA-RDP88-00798R000400020004-4