INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000400040004-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 60
• Document Creation Date: December 22, 2016
• Document Release Date: June 20, 2011
• Sequence Number: 4
• Publication Date: June 20, 1986
• Content Type: REPORT

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Directorate -srcmt--
Intelligence
ce
Weekly
International
Economic & Energy
DI IEEW 86-025
20 June 1986
Copy 8 3 6
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Secret
International
Economic & Energy Weekly
Late Item Mexico: Preparing for Bold Action on Debt
President de la Madrid continues to set the stage for a unilateral suspension of
foreign debt payments-possibly in early July-should Mexico fail to obtain
an IMF agreement and new international bank loans. The most likely measure
would be a delay in interest payments
Observers see the ouster on Tuesday of Finance Minister Silva Herzog-the
leading proponent of meeting all of Mexico's debt obligations-as another sign
of de la Madrid's toughening attitude. The change in finance ministers
probably indicates that de la Madrid wants to reduce strains in relations in his
economic team and make it easier to obtain a consensus for possible stronger
action. Silva Herzog's removal had long been rumored. He is associated by
many Mexicans with unpopular austerity measures and is viewed by some as
too close to the United States. His successor, Gustavo Petrocioli, has a
reputation as a moderate, experienced technocrat that should enable him to
continue negotiations with the IMF. Nonetheless, he is unlikely to oppose
hardliners in the cabinet, and de la Madrid may see Mexico as gaining an edge
in negotiations with an international financial community unsettled by the
sudden personnel shift.
Negotiations with the IMF are continuing,
Even if an agreement with the Fund is reached
soon, Mexican officials are concerned that the government still may be forced
to draw down foreign exchange reserves-liquid reserves currently total $1.5-
2.5 billion, equivalent to about two months import coverage-to an unaccept-
able level
Absence of movement on an IMF agreement by the end of the month probably
would prompt the government to miss payments due in early July-roughly
$750 million. Such a move would be designed to force the United States and
creditors to develop a nonconditional loan package. Mexico City probably
believes that the threat of even stronger actions will force Washington to
arrange more concessions from Mexico's international creditors.
Secret
DI IEEW 86-025
20 June 1986
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Secret
If de la Madrid were to suspend payments, drably would defend the
action by arguing that. Mexicohas madcap. t];e}oOnomic reforms it can. In
support, officials probably would point to Mexico's liberalizing of trade
regulations, holding the line on wages, raising government prices for food and
utilities, and closing a major public steel complex.
All Latin .American leaders are watching the Mexican financial situation
closely. Latin debtors-particularly Argentina and Venezuela-most likely
will seek concessions similar to any granted Mexico. If Mexico's negotiating
position becomes increasingly hard line and a unilateral payments moratorium
is announced, other debtors could, over time, assume more confrontational
stances with creditors-particularly if Mexico is. seen to be benefiting.
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International
Economic & Energy Weekly
iii Synopsis
1 Perspective-OPEC: Seeking To Reestablish Its Strategy
3 OPEC Economies: Growing Pressure for Adjustments
9 LDCs: Increasing Financing Needs and Sources
13 Brazil's Informatics Law: Challenge to a Protectionist Policy
21 European Community: Strategy for MFA Negotiations
25 Briefs Energy
International Finance
Global and Regional Developments
National Developments
Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence
Secret
DI IEEW 86-025
20 June 1986
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
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Secret
International
Economic & Energy Weekly
Synopsis
1 Perspective-OPEC: Seeking To Reestablish Its Strategy
At next Wednesday's meeting in Brioni, Yugoslavia, OPEC oil ministers are
likely to face problems reconciling their short-term goal of boosting prices to
$17 to $19 per barrel and their longer-term strategy of increasing market
share. Even if the members agree to an overall production ceiling, they still
face the difficult task of allocating individual country quotas.
3 OPEC Economies: Growing Pressure for Adjustments
domestic political tension.
OPEC producers are undertaking economic measures to offset the financial
damage resulting from the fall in oil prices. Budget cutbacks and reduced
government spending will continue to slow economic growth and exacerbate
9 LDCs: Increasing Financing Needs and Sources
individual LDCs solvent.
Aggregate LDC financing needs will jump sharply this year, primarily because
of the deteriorating export prospects of oil-exporting countries. Overall,
creditors will continue to provide the minimum funds necessary to keep
13 Brazil's Informatics Law: Challenge to a Protectionist Policy
easing of restrictions is likely.
Most Brazilians strongly support government efforts to develop a domestic
computer industry by restricting the participation of foreign firms, but
growing opposition from Brazilian businessmen, economists, and top-level
policymakers and US threats of trade retaliation are spurring calls for more
flexibility. Nevertheless, we believe Brazilian economic nationalism, en-
trenched vested interests, and upcoming political elections will militate against
a near-term resolution of the dispute favorable to US interests, although some
up the existing system by tightening management practices.
The near failure of steelmaker Voest-Alpine, Austria's largest company and
flagship of the nationalized sector, has highlighted Vienna's inability to
supervise its mammoth public sector. While the opposition People's Party
hopes that the fiasco will spur some privatization and a coherent reform
strategy for nationalized industry, the government's policy has been to patch
iii Secret
DI IEEW 86-025
20 June 1986
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21 European Community: Strategy for MFA Negotiations
The European Community, long a hardliner on textile issues, is breaking
tradition and favoring a more liberal Multifiber Arrangement (MFA). While
the talks may drag on beyond the 31 July expiration date, the EC believes the
MFA will lye renewed because LDCs are likely to face even more stringent re-
strictions if the MFA is abandoned.
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International
Economic & Energy Weekly
Perspective OPEC: Seeking To Reestablish Its Strategy
individual country quotas.
At next Wednesday's meeting in Brioni, Yugoslavia, OPEC oil ministers are
likely to face problems reconciling their short-term goal of boosting prices to
$17 to $19 per barrel and their longer-term strategy of increasing market
share. Saudi Oil Minister Yamani appears to be pressing for adherence to the
longer-term goal, but seems willing to go along with a temporary production
restraint scheme in the third quarter to meet the price objective. An OPEC
committee will reportedly make recommendations in Brioni for an overall
production ceiling of about 17.3 million b/d in the third quarter compared to
current production of about 18 million b/d. Even if the members agree to an
overall production ceiling, they still face the difficult task of allocating
Nevertheless, much time in Brioni probably will be spent on trying to finalize
third- and fourth-quarter production quotas to raise world prices above the
current $14 per barrel level.
Without an agreement to restrain output and raise prices, Iran will most likely
become increasingly frustrated-Tehran halted attacks on Saudi oil tankers
transiting the Gulf to improve relations with Riyadh and work toward higher
oil prices. If Iran does not get its way, it is likely to resume attacks on Saudi
tankers, and eventually would resort to stronger measures.
1 Secret
DI IEEW 86-025
20 June 1986
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Although the "commitments" OPEC has received thus far from non-OPEC
producers to cut :output wi l provide . a psychol gical boost at Brioni, we doub
that significant additional production cutbacks are likely. Competitive factor
and marketing and pricing problems may have already cut non-OPEC
production by as much as 1 million b/d since yearend 1985. To date, at least''I
seven nvrtaOPEC, nations have indicated'some willingness to cooper`a* nth '
OPEC, and, in what would be a major policy turnaround, Norway has also
said it would considtr ways to help' OPEC firm prices. Few non-OPEC
producers; howeve'; have promised to voluntarily reduce output beyond what
has already `beets cut. Indeed, production in a number of countries has
rebounded slightly as a result of more fldxible pricing and sales arrangements
In addition,enthusiasm for cooperation could wane once non-OPEC produce
discover that third-quarter OPEC production targets have been raised above
the 16.3 million b/d level mentioned at the April OPEC meeting.
Market factors-such as stock levels and speculation-will most likely cause j
continued price volatility over the near term. In our view, there is less than ao
even chance that OPEC can agree unanimously to a production scheme that
would be adhered to, and, without full cooperation, prices will likely remain
weak over the summer months. The expected seasonal rebound in demand
later this year, however, could make it easier for OPEC to allocate roductio9
quotas needed to raise prices to near $20 per barrel.
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OPEC Economies:
Growing Pressure
for Adjustments
OPEC producers are undertaking economic mea-
sures to offset the financial damage resulting from
the fall in oil prices. The cash-surplus Gulf states,
buoyed by a relatively strong foreign asset picture,
are less affected and will be able to continue to
compensate for revenue losses through a combina-
tion of reserve drawdowns and budget cuts. Their
reserve cushion will also enhance their creditworth-
iness should these countries choose to borrow. Some
of the OPEC debtor countries, however, may be
exhausting the borrowing option and may have to
look to creditors for rescheduling or resort to more
countertrade to conserve foreign exchange. For
already debt-troubled OPEC countries, particular-
ly Nigeria and Iraq, few easy options exist. Height-
ened financial pressures and the further slowdown
in GDP growth will add to the existing domestic
political tension. Moreover, we believe the increas-
ing financial strains on some individual countries
will also make it hard for OPEC to agree on or
maintain a production agreement.
We expect the deterioration in OPEC's financial
situation to accelerate in 1986:
? OPEC's current account deficit-totaling be-
tween $10 billion and $15 billion in 1984 and
1985-will approach $40 billion in 1986, accord-
ing to our estimates. Only Kuwait, the United
Arab Emirates (UAE), Nigeria, and Qatar will
remain in surplus.
? Oil export revenues will total only $84 billion in
1986, down more than 40 percent from 1985
levels-the lowest total since before the 1973
price shock. In real terms, oil exports are down
more than 60 percent from 1974 and nearly 80
percent from peak earnings in 1980.
? We estimate OPEC countries-primarily Saudi
Arabia, Libya, and Iran-will draw down $25
billion in official assets by yearend 1986. Kuwait,
UAE, and Qatar will add $5 billion to their
holdings this year, however, because of increased
oil production and further import cuts.
? We estimate imports will be cut about 16 percent
in 1986 in response to revenues and assets. OPEC
total imports have fallen for five consecutive
years, and are now more than 40 percent lower
than in 1981.
Adjusting to Lower Revenues
OPEC producers have made major financial and
economic adjustments to counteract losses in export
revenues since the sharp drop in world oil prices
began in December 1985. In general, these LDCs
have cut government spending by canceling or
scaling back development projects. In addition,
financial support for parastatals has been cut and
consumer subsidies and price supports reduced in
many countries. Efforts also have been made to
increase nonoil revenues through domestic tax
hikes, raising import fees, and promoting nontradi-
tional exports. In most cases, however, these re-
forms will be insufficient to fully balance this
year's revenue losses, and additional adjustments
will depend on the country's financial holdings and
access to foreign credit.
Cash-surplus countries. In Saudi Arabia, Kuwait,
and the UAE, revenue savings from budget cut-
backs will be supplemented with reserve draw-
downs or investment income:
? Saudi Arabia's actions for the remainder of this
year depend on its foreign asset holdings-a
figure currently in question. If liquid assets total
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DI IEEW 86-025
20 June 1986
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OPECt Current Account Balances, 1981-86
Billion US $
1983
1984
19854
19868
Tala1
37.5
-21.8
-21.1
-15.1 '
-9.S
-36.5
Algeria
0.1
-0.2
-0.1
0.1
-1.3
-3.7
Ecuador
-1.0
1.2
-0.1
-0.2
-0.1 '
-0.5
Gabon
0.4
0.3
0
0.6
0.1
-0.2
Indonesijr
-0.6
-5.3
-6.3
-2.1
-2.1
-4.6
Iran
-2.4
6.2
-0.9
-3.8
0.2
-3.0
Iraq'
-17.1
-19.9
-8.8
-4.8
-4.0
-4.0
Kuwait
13.8
4.9
5.1
5.6
5.2
3.8
Libya
-4.0
-1.6
-1.6
-1.8
-0.1
-2.8
Nigeria
-6.2
-7.2
-4.2
0.3
1.1
0.6
Qatar
2.7
1.0
1.2
2.3
1.6
0.8
Saudi Arabia
38.4
-1.0
-16.3
-24.0
-19.9
-22.4
UAE
9.4 `
6.4
6.5
7.4
5.6
1.8
Venezuela
4.0
-4.2
4.4
5.3
3.9
-2.3
^ Estimaked.
$80-100 billion, as Riyadh claims, the Saudis will
dons ue to draw on these funds to meet financial
requ ents. But, if the value is closer to our
esti to of $50-60 billion, we believe there is a
greater chance the Saudis would supplement the
drawjdown of assets with foreign commercial bor-
rowi
Riyadh could
also look internally for funding, either by tapping
domestic savings or encouraging the repatriation
of fiiht capital.
? Bolstered by strengthening foreign payments po-
sitiorls and further cuts in government spending,
Kuwait and the UAE will probably use their
inve4ment income to meet financial require-
ments this' year.. Kuwait, is unlikely to~require
additlal measures this year. While, the UAE
federation should see an increase in total assets,
separately Abu Dhabi may borrow on the local
and international markets if budgetary shortages
appear this year, according to the US Embassy.
Its currency, the dirham, may also be devalued to
boost revenues.
Debtor countries. Most other OPEC members face
tough choices, in large part because substantial
austerity measures already have been taken over
the past few years. Budgets and imports have been
pared for all but essential goods and services. As a
result, debtors must either turn to official and
commercial creditors for new financing or take
more politically sensitive austerity measures to
maintain financial solvency.
We believe Algeria and Indonesia will most likely
meet their financial shortages through increased
commercial borrowing this year, while Venezuela
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OPEC: Foreign Official Asset Holdings, 1981-86
321
322
295
281
274
249
144
153
135
126
106
84
62
69
67
70
74
77
UAE
33
35
35
39
40
Venezuela
13
12
14
14
13
Qatar
8
8
10
11
12
a Yearend data.
b Estimated.
will seek to revise the terms of its February debt
rescheduling agreement:
? Algeria is currently seeking new financing-
letters of credit and suppliers' credits-and is no
longer using cash for most of its trade financing.
We believe additional lending may be limited,
however, because of Algeria's slipping credit rat-
ing. Nonetheless, the Embassy feels a reschedul-
ing will be unnecessary this year as Algiers has a
large foreign reserve cushion. Algiers may also
encourage additional foreign direct investment
and will most likely push for new countertrade
arrangements to conserve foreign exchange.
? We expect Indonesia to draw on nearly $2.0
billion in underutilized commercial loans this
year to offset the effects of lower oil revenues.
Jakarta may also opt to continue to gradually
depreciate the rupiah, draw down deposits held in
local banks, and impose new tax or import rate
hikes. Some private economists believe that Ja-
karta will probably use its sizable foreign ex-
change reserves to maintain the value of the
rupiah at least until August, when it may
devalue.
? Venezuela will try to negotiate revisions to the
$21.2 billion debt deal signed in February, but
talks are likely to be difficult and drawn out.
Caracas has indicated it wants a rescheduling of
$2.3 billion in principal due in 1986-87, interest
rate concessions, and $3 billion in new money.
Although we believe creditors may meet the
rescheduling request, banks are unlikely to come
up with new money or grant interest rate conces-
sions unless Venezuela sets up an IMF or World
Bank program and assumes the debts of two
failed banks-steps the Lusinchi government has
rejected in the past. Caracas has ruled out a
devaluation because the resulting inflation would
have negative political repercussions.
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sterol
Total Exports and Imports,
Saudi FomlglrAsset Value in. Dispute
Exports, f.o.b.
-' Imports, f.o.b.
I I I I I I I I I I I I I
0 1974 75 76 77 78 79 80 81 82 83 84 85186b
Estimerod.
bpmojWeld.
For financially troubled OPEC debtors-Nigeria
and 'aq-few easy options remain:
? Nigeria's rejection of an IMF agreement and
fail#re to obtain a debt rescheduling has pushed
the country to the brink of financial default. We
be
4eve the Babangida government will stop or
slo most of its debt payments in an attempt to
avo dmore import cuts and a politically unac
ble IMF accord. Lenders, however, have
y cut credit lines to Lagos, and even a
un' teral moratorium probably will not totally
off the export revenue decline. Consequently,
ad 'tional import cuts appear inevitable.
Questions have arisen recently as to the net worth
of Saudi foreign asset holdings. Although most
estimates, including our own, place the current
value of liquid reserves at $50-60 billion,
press reports indicate that, through updating and
revising its 1981-84 current accounts and balance
ofpayments, Saudi Arabia 'Pound" about $17
billion in reserves.
The announcement o1'a higher reserve level may
politically motivated-to signal other producers
that Riyadh has the financial means to persevere
with its oil price strategy-and may result from
using a different accounting principle. ff the hold-
ings are based on the current market value of the
asset and not the commonly used, book value, an
appreciation in nondollar assets and US stocks in
the Saudi portfolio may account for the increase i
? Iraq probably will be able to reschedule much of
its $3.0 billion in official bilateral medium- and
long-term debt through agreements with credi-
tors, but so far has faced resistance to the
rescheduling of commercial loans. Creditor banla
have already restricted credit facilities and-cut
exposure in,Iraq because of the crumbling finan-
cial picture and growing arrearages. Because of
the war, Baghdad must make further import and
budget cuts, both of which are likely to be
extremely unpopular.
Libya and Iran alto have few easy options remain-I
ing to negate the decline in oil revenues. With som
of its assets frozen in US banks, Tripoli faces an
I I
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almost unmanageable cash shortage unless con-
sumer imports are cut further or foreign credits are
found. We doubt that Qadhafi will risk cutting
military imports because of his heavy reliance on
security forces for protection. In our view, Tehran
will try to limit adjustments to further nonessential
import cuts. Iran may seek short-term credit fi-
nancing and tap domestic savings this year if
necessary, but will draw down its foreign assets
only as a last resort.
Implications of Reduced Revenues
Budget cutbacks and reduced government spending
will continue to slow economic growth and exacer-
bate domestic political tensions. In addition, the
cancellation of infrastructure and development pro-
jects undercuts longer term economic plans and
hampers efforts to lessen dependence on oil exports.
Liquidating foreign reserve assets lowers future
investment income and can place serious pressures
on the ability of debtors to meet debt-servicing
obligations. In terms of OPEC cohesion, these
financial constraints are likely to seriously under-
mine the cartel's ability to reach or maintain a
production-limiting agreement.
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LDCs: Increasing Financing
Needs and Sources
Aggregate LDC financing needs will jump sharply
this year, primarily because of the deteriorating
export prospects of oil-exporting countries. At the
same time, lower world interest rates are keeping
the needs from rising even higher. Following major
cutbacks in lending from private creditors and the
IMF in 1985, we expect net private lending to
increase this year, largely because of greater use of
new and existing credit lines by oil exporters.
Overall, creditors will continue to provide the mini-
mum funds necessary to keep individual LDCs
solvent.
Surge in Financing Needs
After a slight improvement in the aggregate LDC
current account in 1985, we estimate that the
deficit will jump by more than 50 percent this year
to $50 billion. Although lower world interest rates
have tempered the extent of the current account
deterioration, the benefits have been negated by
continued stagnant commodity prices and limited
industrial country demand for LDC exports. Near-
ly all of the surge in financing needs will be
accounted for by oil-exporting LDCs, which face
export shortfalls as a result of the drop in world oil
prices. Algeria, Egypt, Indonesia, Mexico, Nigeria,
and Venezuela together will experience an estimat-
ed $13.9 billion drop in their current account
balance. For several oil exporters-Mexico, Nige-
ria, and Egypt-the lower oil prices come on top of
already serious domestic economic problems.
Selected LDCs: Billion US $
Current Account Balances a
Algeria
0.1
-1.3
-3.7
Argentina
-2.4
-1.2
-2.3
Chile
-2.1
-1.3
-1.4
Indonesia
-2.1
-2.1
-4.6
Malaysia
-1.6
-0.9
-2.2
Mexico
4.0
-0.5
-2.0
0.3
1.1
0.6
Exclusive of official transfers.
b Estimated.
prices; the latter two are attempting to work their
way out of severe domestic economic problems.
The current account prospects for the nonoil LDCs
will be mixed. South Korea and Brazil are major
beneficiaries of the lower oil prices and interest
rates. Meanwhile, low commodity prices will pre-
vent countries such as Chile and the Philippines
from realizing substantial current account deficit
reductions. The largest deteriorations among major
nonoil debtors will occur in Malaysia, Argentina,
and Peru, all of which were hurt by falling export
In addition to financing the current account, LDC
money needs will be augmented by their desire to
rebuild foreign exchange reserves. During 1985,
the lack of new lending from private creditors led to
drawdowns of reserves by many countries, although
overall reserves registered a small increase. We
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Secret
believe that LDCs will attempt to add some
$5 billion to reserves during 1986, much of which
will be accounted for by the more creditworthy
Asian borrowers and those LDCs with reserve
targ in their IMF-supported adjustment pro-
ara . Without sufficient growth in.private lend-
ing, owever, LDCs may again be forced to,draw
down reserves to obtain higher economic growth.
Dra4eg on All Sources of Funds
LDC !financing efforts continue to be complicated
by th downward trend in bank lending over the
last four years. Net lending from private foreign
credi rs-primarily commercial banks-dropped
to on y $3 billion in 1985. The main reason was a
m ' reduction of short-term credit lines for the
second straight year, largely to financially troubled
Latin] American countries but also to some more
creditworthy LDC borrowers, such as the Asian
eountf ies. In addition, a number of Latin countries
had pprtions of their short-term credits restruc-
turediinto medium-term credits. For 1986, we
ex the current level of short-term lending to be
co
main ed, as lenders have reached what they
d
consi
er
acceptable short-term exposure
MediUm- and long-term lending did increase last
year, but at a slower pace than in 1984. Of the
$11 billion total in 1985, about half could be
categ rized as "involuntary" lending-loans made
in conjunction with IMF-supported adjustment and
restructuring packages. The major LDCs involved
were Argentina, Chile, Colombia, Ecuador, and
IvorylCoast. The remainder of the medium- and
long-term total was accounted for by countries such
as South Korea, Algeria, and Saudi Arabia that
were ble to tap the markets regularly and at
favor ble terms. The picture for 1986 is somewhat
simil r, with continued voluntary lending to Asian
and same of the more creditworthy Middle Eastern
LDC$. Many of the oil-exporting countries will be
more ctive borrowers, both by seeking new loans
as well as drawing down existing unused credit
lines. Involuntary lending also will play a part, with
Mexido most likely being the major recipient.
LDCs: Financing Needs and
Sources, 1984-86
Billion US
Current account deficit
33
32
Increase in reserves
18
Sources
51
Net direct investment
10
10
11
Official loans and grants, net
31
32
34
Private loans, net
10
3
13
Medium and long term
19
11
13
Short term
-9
-8
0
IMF lending, net
5
1
-1
Other net flows a
-5
-13
-2
a Including arrears, capital flight, and
errors and omissions.
With private creditors continuing to restrict their
new lending to LDCs, official creditors are assuni=
ing a greater share of the financing burden. Offi
cial loans and grants continue to increase at a slow
but steady pace, providing LDCs with -theiir only I
consistent stream of inflows'. Official lending,
which accounted for only about one-third of LDC
financing needs in the late 1970s, in recent years
has provided at least 60 percent. We expect official
lending to continue to increase at a slow pace this
year because of developed-country budget restric
tions, which will affect both bilateral assistance ah
contributions to multilateral organizations such as
Direct investment as a source of capital may take
on an enhanced, albeit still small, role this' year.
The amount of net direct investment in LDCs
leveled' off in 1985, but we estimate a slight
increase in 1986. Investor confidence, which has
been shaken by the debt problems of LDCshas nbt
recovered fully, and the countries themselves have li
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Secret
been very reluctant to fully open their doors to
foreign investors. In our judgment, however, a
slight easing of investment restrictions, particularly
in Latin America, will begin to attract some new
investment this year.
On the down side, net lending by the IMF to LDCs
this year is expected to be negative, continuing the
decline in such lending over the past several years.
Repayments to the IMF from loans extended in
1982-84 are accelerating, although the Fund's li-
quidity position still is restricted by the large
amount of outstanding credits. New IMF loan
disbursements will be slow, largely because of the
absence of new loans to Mexico and Brazil, which
previously have been major recipients. The unwill-
ingness of many other LDCs to agree to an IMF-
supported adjustment program also has drawn out
negotiations and slowed the pace of IMF lending.
Outlook Beyond 1986
The prospects for continued economic and financial
problems in the LDCs over the next several years
indicate that creditors will remain reluctant to
increase lending beyond what they consider the
minimum necessary to allow the LDCs to maintain
the flow of interest payments. Short-term, trade-
related credits will be preferred to medium- and
long-term loans because of the lower degree of risk
and the expected growth of LDC exports. Medium-
term lending will continue, although it will be
concentrated in those countries with good credit
ratings that have not experienced debt servicing
problems over the past five years. Nearly all private
lending to Latin America will be done on an
involuntary basis, tied to IMF-supported packages.
The burden will therefore fall on the LDCs to lower
their financing needs by reducing current account
deficits. A number of countries-most notably
Brazil-have been very successful in adjusting
their external accounts through higher exports and
sharply reduced imports. To sustain this progress,
debtors must adjust their domestic economies and
particularly their government budget deficits. Con-
trolling spending and inflation and managing the
exchange rate continue to be the top priorities for
most LDC governments.
ing debtors.
Meanwhile, the global economic environment of-
fers little prospect of large-scale relief for the
LDCs. The IMF forecasts industrial country
growth to be 2.9 percent in 1987, only slightly
higher than the figures for 1985 and 1986, which
will not greatly increase demand for LDC exports.
Moreover, we believe global interest rates will
increase in 1987, adding to an interest payment
burden that already is high for some countries.
There could be a resurgence in commodity prices
but probably not enough to have a major impact for
most LDCs. For oil prices, many forecasters expect
a leveling off and even an increase by 1987, an
outcome that on a net basis would be beneficial to
LDCs because of the severe problems of oil-export-
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Brazil's Informatics Law:
Challenge to a Protectionist Policy
though some easing of restrictions is likely.
Most Brazilians strongly support government ef-
forts to develop a domestic computer industry by
restricting the participation of foreign firms, but a
growing opposition from Brazilian businessmen,
economists, and top-level policymakers and US
threats of trade retaliation are spurring calls for
more flexibility. To defuse a potential confronta-
tion, President Sarney has agreed to discuss future
modifications of Brazil's informatics policy, and
US and Brazilian negotiators are scheduled to meet
in July in Paris to discuss differences. Nevertheless,
we believe Brazilian economic nationalism, en-
trenched vested interests, and upcoming political
elections will militate against a near-term resolu-
tion of the dispute favorable to US interests, al-
The Controversy ...
Informatics Law in 1984.
Brazil has used a variety of protectionist tactics to
develop its economy, and its current informatics
policy is deeply rooted in this tradition. High tariff
barriers and tough import controls have sheltered
its "infant industries" from foreign competition.
Despite high costs and inefficiencies, protectionist
policies have enabled Brasilia to successfully devel-
op its automobile and steel industries. On the basis
of this experience, Brasilia has increased protection
of its fledgling high-technology industries since the
early 1970s culminating in the passage of the
The Brazilian law is vague, but grants to Brazilian
"computer" companies the exclusive right to manu-
facture and sell products in the information indus-
tries. US Embassy reporting indicates that the
legislation now affects every company involved with
the production or distribution of computers-in-
cluding integrated circuits and software. Moreover,
the law is being used to justify protection for
industrial automation equipment and, most recent-
ly, an product with electronic or digital compo-
nents.
Key Events in US-Brazil Informatics Dispute
December 1984 Informatics Law unanimously
passes Brazilian Congress.
June 1985 US-Brazil bilateral consulta-
tions in GATT. No resolution.
September 1985 United States files Section 301
unfair trade practices case.
February 1986 US-Brazil bilateral consulta-
tion in Caracas on Section 301
case. No resolution.
April 1986 Brasilia approves Informatics
Plan.
April/May
1986
May 1986
July 1986
US Secretary of State and Bra-
zilian Foreign Minister ex-
change series of letters.
US Economic Policy Council
announces preparation of retal-
iatory measures.
US Under Secretary of State
visits Brazil to discuss infor-
matics with President Sarney
and Foreign Minister Sodre.
Brasilia agrees to pursue
discussions.
Efforts to set up working group
begin.
Secret
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Scent
The Special Secretariat for Informatics (SEI)-
largely because of the lack of government consen-
sus about the law's coverage-has been allowed
virtual free rein in regulating joint ventures and
direct investment, allocating import quotas, and
lieensjng_technology transfer for the secto
the SEI, a bureaucracy con-
sistin$ of strident economic nationalists, subjects
each flew foreign investment or import proposal to
the " Oational similars" test. It prohibits new multi-
national investment, joint ventures, or imports if
the product can be manufactured domestically, or
if a Brazilian firm promises to produce it.
... Cpoes to a Boil
The $}EI publicly defends its implementation of the
Informatics Law, citing the development of Brazil's
domestic computer industry. In May, it released its
most recent industry survey that indicated that
Brazilian firms over the last four years tripled sales
to $1.1 billion, increasing their share of the Brazil-
ian market for computers and peripherals to 50
perce t. Moreover, domestic firms more than tri-
pled their work force to more than 28,000, provid-
ing now opportunities for college graduates to
engagje in local research and development. The
study also claims that Brazilian computer firms
have ifncreased, local content from 78 to 92 percent
of salts since 1981.
Brazilian private businessmen, however, are in-
y taking exception to SEI's policies. Ac-
to the Consulate in Sao Paulo, many
pro t industrialists-including the country's
leading arms exporter-now state that SEI's poli-
cies are cutting off their access to low-cost ad-
vanced industrial technologies necessary to bolster
their lompetitiveness. For example, Brazilian mini-
compiters currently cost four to 10 times as much
as US products, making systems that embody
dome4ic technology uncompetitive in world mar-
kets, S Embassy reporting also indicates that SEI
is impeding Brazilian firms from modernizing and
develgping new, low-cost products by blocking the
import of high-tech products, parts, machinery, test
equipment, and production controls. Rather than
fight the SEI bureaucracy, these businessmen have
tried to evade restrictions, leading to a $250 million
black market in computers, parts, and electronic
gear, according to the US Embassy.
SEI's market reserve policy is cutting into the
domestic sales of some US multinationals. Bur-
roughs recently shut down a Sao Paulo plant
employing 1,200 people when SEI reserved the
market for bank teller machines to Brazilian firms
and National Semiconductor shut down two into-
grated circuit ;plants when it was unable to import
more efficient production equipment. Westing-
house and Honeywell have ceased manufacturing
products requiring advanced technology in favor 0
simple mechanical products. Despite their griev-
ances, these firms quietly accept such market
losses, according to the US Embassy, fearing diffi-
culty reentering Brazil if they leave completely.
Official demarches and the recent US announce-
ment of trade retaliation, in our opinion, are con-.
vincing Brasilia that Washington is serious about
seeking changes in the. administration of the Infor-
matics Law. US pressure is sparking a spirited
internal political debate. The hardliners-those
pushing for continued strict adherence to SEI's.
line-are composed of an active minority of highly
nationalistic military officers, the leftist parties,
and a few, albeit influential, domestic computer
executives-principal among themSarney's dose
friend Matias Machline. US Embassy reporting
indicates that this group receives backing from the
politically powerful Minister of Science and Tech-
nology Archer and most of the Congress- .one
senator has recently introduceda bill that would
enable Brazil to retaliate against the multinationals
of countries who impose trade restrictions on Bra-
zilian exports. This group--witb.dte aaistmnoc of
the local press that has distorted official state-
ments-has successfully exploited nationalistic sop
timents by portraying Washington as meddling is
Brazil's sovereign right to promote economic devel-,
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Despite the past strength of the hardliners, the
supporters of a more flexible interpretation of the
Informatics Law are now becoming more vocal.
Motivated by fears that the policy is hindering
industrial development and might be extended to
other sectors, a growing number of businessmen
have been lobbying the government to curb SEI's
activities and address US concerns. This group is
receiving backing from some well-known Brazilian
economists, Foreign Minister Sodre, Finance Min-
ister Funaro, and Murillo Mendes, a prominent
member of Sarney's "kitchen cabinet." We believe
these individuals are gaining influence with the
President.
Enter Sarney
According to the Embassy, Sarney has heretofore
been unconcerned with-and largely uninformed
about-the informatics issue.
After receiving several high-level visits, howev-
er, he apparently now desires to avoid a confronta-
tion and engage in discussions aimed at bringing
about a more flexible interpretation of the law,
according to the US Embassy.
Subsequently, Brasilia has agreed to set up a
bilateral working group to discuss the problem, and
the negotiating teams are tentatively scheduled to
begin talks the first week in July in Paris. In
addition, we believe Brasilia will take some con-
crete steps to calm bilateral tensions by easing
some of its protectionist restrictions against foreign
technology. For example, the government has re-
cently dropped its demand that a US aluminum
company use Brazilian process control equipment
in a planned plant expansion. We also believe
Brasilia will soften its protectionist restrictions on
high-tech imports and piggyback on a recent ruling
by a Sao Paulo court that Brazilian copyright law
provides some protection for US software produc-
ers.
Major Concessions Unlikely Before November
congressional elections.
In our view, the computer market reserve policy
will remain a contentious issue in bilateral relations
over the near term. Sarney will remain under
considerable pressure to take a tough stance toward
modifying the Informatics Law even at the risk of
confrontation with the United States. He recog-
nizes that there is broad public support for the
protectionist policy, and that an emboldened leftist
opposition is eager to capitalize on any misstep. If
he were to appear overly accommodating to US
concerns on the informatics issue, we believe he
could face a serious political backlash that would
benefit the leftist parties in the crucial November
Against this political backdrop, we believe Wash-
ington faces the prospect of long and complex
negotiations on the issue. In our view, Brasilia may
seek US concessions on other trade matters in
exchange for more flexibility on the Informatics
Law, a tactic to fend off hardliners and placate
public opinion. Although Brasilia will move for-
ward with discussions, we believe it will not an-
nounce major shifts in its stance until after the
November congressional elections.
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Secret
Austria: Nationalized
Industries on Trial
The near failure of steelmaker Voest-Alpine, Aus-
tria's largest company and flagship of the national-
ized sector, has highlighted Vienna's inability to
supervise its mammoth public sector. Voest-
Alpine's problems seriously tarnished the image of
efficiency that Chancellor Sinowatz sought when
he took office in 1983, and contributed to his
decision to resign this month following Waldheim's
victory in the presidential election. The socialist-
liberal coalition will be hard put to refurbish its
image before the next election, which must be held
by April 1987. Financial aid for Voest-Alpine is
likely to stretch an already taut federal budget, all
but eliminating Vienna's room for fiscal maneuver.
While the opposition People's Party hopes that the
fiasco will spur some privatization and a coherent
reform strategy for nationalized industry, the gov-
ernment's policy has been to patch up the existing
system by tightening management practices.
other commercial enterprises.
The share of nationalized industry in the Austrian
economy is among the largest in the OECD. Aca-
demics, using a broader definition, have estimated
that public-sector industry accounts for about one-
fifth of industrial output and a similar proportion
of the industrial labor force. The government also
owns virtually all of the country's transportation,
communications, and power industries; a number
of state monopolies including alcohol, tobacco, and
salt; the two largest insurance companies; two of
the largest commercial banks; and a host of other
financial institutions. The two nationalized banks
control industrial enterprises accounting for an
additional 14 percent of Austria's overall industri-
al production. The importance of these two banks
is enhanced by their holdings of other banking
firms and by indirect control of a large number of
A Flagship Founders
The Voest-Alpine crisis has been the dominant
topic on the Austrian economic scene this year.
After 10 consecutive years of losses-subsidized by
the government-the company's deficit soared to
$700 million last year. This was almost double the
original projection and equals nearly 45 percent of
the total subsidies handed out to the entire nation-
alized sector since 1980:
Voest-Alpine's subsidiary, Intertrading, set up in
1978 to meet the growing demand by cash-strapped
Third World and East Bloc countries for barter
deals, accounted for most of last year's red ink.
Handling virtually all kinds of raw materials and
finished products, Intertrading rapidly became one
of the world's largest barter companies; its 1984
sales of $6.7 billion outstripped that of its parent
company. Intertrading also moved into oil and
commodity market speculation, however, and,
when oil prices fell, its profits collapsed. Losses in
1985 totaled $225 million.
Other factors causing Voest-Alpine's difficulties
include:
? The collapse of the world steel market in the late
1970s and continuing worldwide excess capacity.
Secret
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I Secret
Voest has made modest efforts to restructure-
reducing its work force from 85,000 to 70,000
sine 1975-but still depends on steel for 42
percent of its sales.
Weak management, resulting from patronage
appointments to the nationalized industries' su-
pervisory boards handed out by the major politi-
cal parties in the same proportion as their
stre*gth "in parliament.
? Poot investments, including an ill-fated steel mill
Z in t United States and a "money-losing project
a,,US company to manufacture scmiconduc-
torsa Voest allso sustained substantial losses from
involvement in construction of Libya's Misurata
steel mill, according to sources of the US
Embassy.
? Insistence by Austrian politicians that several
Voe $t-Alpine factories stay open to preserve jobs.
Goveriesent Response
When the extent of Voest-Alpine's losses became
known, Vienna acted quickly to tighten supervision
of the company, replacing Voest's entire upper
mane mere. Vienna also -agreed to pour $200
millio , in emergency subsidies into Voest-Alpine
and ht charges of criminal negligence against
three former managers of Intertrading.
To rehabilitate Austria's overall nationalized sec-
tor, Chancellor Sinowatz pushed through parlia-
ment $ nine-point program that includes:
? Con$olidating all directly nationalized enterprises
into lone conglomerate under a more active state-
owned holding company.
? Restjructuring of corporate managements to pro-
vide liar greater internal controls and clear fixing
of responsibility at every level.
? Cutting the size of supervisory boards to produce
grealter efficiency in oversight and tying salaries
of top, management to. company performance.
Share of Natiagyzed Industry
in Selected OECD Econonities
Percent of total)
Employees
GNP
Investment
Austria
United Kingdom
8.2
3.5
18.3
Sweden
8.0
3.5
16.6
West Germany
7.9
2.7
12.6
Italy
6.4
33
15.5
Ireland
5.7
3.6
NA
Belgium
5.2'
3.3
15.4
Canada
4.5
3.7
15.7
4.4
25
10.8
4.2
6.5
19.8
1.6
0.9
4.7
? Putting an end to speculation in crude oil.
Subsequent legislation also ostensibly ended the
patronage system. Supervisory board appointments
will now be made by the Minister for Public
Economy, who will bear direct responsibility for the
board's actions. Finally, Vienna also plans to,:aat up
a central trading company that may eventually
take over all international countertrade activities of
government-owned firms.
Outlook for Voest-Alpine
Voest-Alpine's new rationalization plan, to be
ready by the end of June, promises to cut jobs; and
expenditures and to reexamine fully the company's
diversification policy. The steel mill in the United
States will be sold at a loss. Diversification into
electronics will continue but be more focused on
specific areas. In addition, Voest's venture with a
US company to manufacture microchips probably
will be an early victim.
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Austria: Major Nationalized Companies, 1984
Sales
(million US $)
38,094
Steel, engineering, plant construction,
electronics, trading
12,203
1,231
Bleiberger Bergwerks Union
100
1,568
Lead, zinc, chemicals
Wolsegg-Traunthaler Kohlenwerks
22
776
Coal mining
OMV (Austrian National Oil Company)
3,975
7,297
Oil, gas, petrochemicals
Chemie Linz
1,050
6,710
Chemicals, petrochemicals, pharmaceuticals
? At the end of 1984, Voest-Alpine listed 139 companies as
subsidiaries or minority investments.
b 43.6 percent Austrian ownership.
The reforms announced so far should prevent a
repeat of last year's financial disaster, but probably
will not be enough to make Voest a competitive,
profitable company. Consequently, the state hold-
ing company will have to borrow, as it has in the
past, with a government guarantee to handle Voest-
Alpine's losses. Whether Voest can earn sufficient
profits to repay the loans is doubtful, unless major
lossmakers are shut down. Vienna, therefore, is
likely to be called on to fulfill its guarantee out of
the federal budget, which will run a deficit of 4.7
percent of GDP this year.
Employment is likely to be the main stumbling-
block, even though Voest-Alpine's new board chair-
man believes he will have the support of the
Chancellor if confrontations over job cuts erupt
among powerful local politicians or the unions. The
Sinowatz government, for all of its talk of reform
and restructuring, took care to reassure the
100,000 workers in the nationalized industries that
jobs will be protected. In separate speeches to
rallies of Voest-Alpine workers, both Sinowatz and
Public Economy Minister Lacina said that workers
would not be made victims of irresponsible man-
agement and that reform would not leave industries
in ruins. Newly appointed Chancellor Vranitsky
has not yet had an opportunity to address the
nationalized industries' problems, but is a firm
believer in the goal of full employment. However,
his philosophy is that full employment should be
attained through creation of an economic environ-
ment conducive to the operation of healthy, profit-
able firms and not through subsidies to inefficient
or moribund industries.
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Prospects for the Nationalized Sector
Prospects for the nationalized sector as a whole are
similar to those for Voest-Alpine. Although Austri-
an leaders are increasingly aware of the need to
limit government involvement in the economy, en-
coura private-sector initiative, and reduce subsi-
dies, they are still unwilling to take bold action.
The c, rent attempt at management reform is
basi ly an effort to patch up the existing system
and d~es not address the broader issue of what role
the g ernment should play in the economy. The
bigge4t obstacle to serious reform is that Austrian
polic*akers continue to regard job preservation as
their top economic priority.
Whether the new law eliminating proportionality
for su ry board appointments will reduce
party uence in the nationalized industries' man-
agem t is questionable, given the pervasiveness of
party politics in Austrian life. The opposition Peo-
ple's Marty has' criticized the law on the grounds
that the changes will not necessarily eliminate
political patronage in management but will only
restri such patronage to the governing parties.
The p lrty has also been pushing the concept of
limited privatization as an aid to rehabilitating the
natio lined sector. Nonetheless, privatization does
not p y a major role in Vienna's program. To
com to for oil trading losses, the government
has i trusted the state holding company to sell
hol ' that do not fit into its corporate strategy,
but w doubt that this will evolve into a major
Political Implications
The Voest-Alpine crisis has seriously tarnished the image of efficient management that the governing
coalition had sought to project. Reestablishing this
image before the national elections-which must
be held by next April-will be a difficult task.
Meanwhile, the burden of financing growing losses
of state companies is aggravating an already trou-
blesome federal budget deficit. Vienna has down-
played the danger of having to raise taxes before
the 1987 election, but plans for major tax cuts and
tax reforms almost certainly will be shelved indefi-
nitely. Moreover, the government will be left with
virtually no scope for expansionary fiscal policy if
the economy stalls.
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Secret
European Community:
Strategy for MFA
Negotiations
The European Community, long a hardliner on
textile issues, is breaking tradition and favoring a
more liberal Multifiber Arrangement (MFA). The
change in the EC position is a result of signs that
the West European textile industry is getting back
on its feet after years of contraction. Increased
automation, a leaner work force, and production
agreements with LDCs are enhancing EC competi-
tiveness. Nevertheless, the Community is still look-
ing to MFA renewal as protection against low-cost
producers and as a bridge to including textiles in
the GATT. Community strategy during the current
renewal negotiations in Geneva is to position itself
between the United States, which the EC views as
wanting tighter restrictions, and the LDCs, which
seek greater access to developed-country markets.
While the talks may drag on beyond the 31 July
expiration date, the EC believes the MFA will be
renewed because LDCs are likely to face even more
stringent restrictions if the MFA is abandoned.
Textile trade between most importing industrial-
ized countries, including the EC, and most low-
cost exporting countries has been governed since
1974 by the Multifiber Arrangement (MFA). The
agreement currently has 45 signatories and regu-
lates over $60 billion in world textile trade
through bilateral agreements that set volume quo-
tas for various categories of textiles and clothing.
The MFA is a derogation from GATT's free trade
principle. This exception is, in principle, temporary
and is designed to enable importing countries to
restructure their textile sectors while allowing
orderly growth of LDC textile exports. The MFA
has been extended twice, in 1977 and 1981.
? Reducing the number of import quotas and num-
ber of bilateral agreements with textile-exporting
countries.
EC Goals: Loosening the Strings
EC negotiators are seeking a renewal of the MFA
for four or five years in a form similar to the
present one. The EC, which pushed for tighter
restrictions in 1977 and 1981, is now offering
greater preferential treatment to new exporters and
poorer LDCs and no cutbacks for the major LDC
suppliers:
? Increasing textile import quotas above the 1986
levels by up to 1 percent annually for Hong Kong,
Macau, and South Korea; from 4 to 6 percent for
other suppliers depending on the product; and as
much as 7 to 10 percent for the poorest LDCs or
new suppliers.
? Allowing transfers of unused quotas from one
part of the EC market to another if no more than
12 percent of the total trade is affected.
? Returning textile trade to GATT rules after the
next MFA expires.
The EC continues to favor global ceilings for
imports of sensitive products such as cotton and
synthetic fabrics from all MFA suppliers. Although
the Community also wants an antisurge mechanism
to counter sudden rises in imports, it has indicated
to LDCs that the antisurge clause could be exclud-
The EC textile industry has suffered from years of
recession caused by slow domestic economic growth
and import competition. During the period 1976-
84, textile production fell 6 percent and real EC
Secret
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European Community: Selected Textile
Indus Indicators, 1975-84
Labor productivity
Employment
European Community: Tie -
'--
From Third Countries, 19754
Us $
ECUs
I I I I I I I I I, I
0 197.5 76 77 78 79 80 81' 82 83 84 0 1975 76 77 78 . 79 80 81 82 - ;13 84
GDP rose only 2.5 percent per year. Industry
em pl==- is down almost 40 percent with about
700, lost since 1975 and roughly 4,000
firm t of business. Meanwhile, EC imports of
trig ' have steadily increased during the last .
dacad more than tripling in value (ECU terms)
from 975 to 1984, while rising 45 percent in
volumle over the period.
The West European industry is showing signs of,
regal ng competitiveness as investment in new
technnn is boosting its ability to produce high-
qualit fabrics at lower costs. The EC has scrapped
one- f of its weaving capacity and one-fourth of.
its a capacity since 1973 in favor of comput-
er-eoi*rolled machines that, for example, can
change a pattern in 15 minutes where formerly a
highl skilled worker needed 10 hours. Overall,
automation improvements boosted labor productivi-
ty 60 percent from 1975 to 1984.
Production agreements among developed-country
.
and LDC producers are also enabling some EC
countries to ruin competitiveness. In what' is
known as outward processing, developed-country
producers are exporting-cloth or semifinished items
of clothing to low-cost countries for processing into
garments. The finished products are then reexport-
ed to the West European suppliers. West German
firms are the principal users of this scheme, partic-
ularly for items at the low end of the market.
Despite its progress, the textile industry in the EC-
12 still regards imports as a major threat and,
hence, supports renewal of the MFA. Spain and
Greece seek to protect their relatively low-cost
producers from even cheaper sources of supplies
from LDCs. French and Italian textile industry
officials are also dissatisfied with the EC's more
25X1
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Selected Countries: Hourly Compensation
Costs in the Textile Industry, 1983
US $ per hour
United States
West Germany
France
United Kingdom
Italy
South Korea
Taiwan
Hong Kong
liberal attitude toward the MFA and fear the
threat of LDC textile imports to their share of EC
markets. Most of the EC's attention is on South
Korea, Hong Kong, and Taiwan, which have a
distinct advantage in terms of wage costs. The EC
is also becoming concerned about other suppliers as
well. Recently, the EC reached an agreement limit-
ing Turkish imports through 1988. From 1980 to
1984, EC textile imports from Turkey rose nearly
50 percent, more than from any other non-EC
country.
EC MFA Strategy
The MFA renewal negotiations are proceeding
slowly, with a possibility of their lasting beyond the
31 July expiration date. Thus far, the major players
are unwilling to compromise their positions on what
the next MFA should include. All parties favoring
renewal-the industrial countries and major LDC
exporters-would like to see an agreement, fearing
confusion and a surge in protectionism if the MFA
The EC is positioning itself between the LDCs and
the United States in the MFA negotiations, hoping
that US negotiators will bear the brunt of LDC
criticism of developed-country protectionism.
The EC is also seeking to ensure that other indus-
trial nations equally share the burden of low-cost
textile imports. They have resisted assertions that
the United States has taken a "disproportionate"
share of imports, particularly in 1983-84 when the
dollar was strong, by arguing that the dollar's
strength resulted in a sharp rise in all imports, not
just in textiles. Although US textile imports rose at
an average annual rate of 16 percent during 1981-
84, the relative share of textiles in total US imports
only went from 1 percent to 1.4 percent over that
period. The Community is also pushing Japan to
take a more active role in the MFA. Japan has
never been a major participant in the MFA and
historically manages its relations with textile sup-
pliers on an informal bilateral basis. As a result,
Tokyo officially maintains no quotas under the
MFA. The EC argues that their own recent slow
import growth (US $ terms) is a result of poor
domestic economic performance and, until recently,
the undervaluation of their currencies, relative to
the currencies of LDCs that are pegged to the US
dollar.
EC officials are confident that the MFA will be
renewed. They expect the renewal negotiations to
follow the pattern of previous MFAs with little
progress until the deadline approaches. If no agree-
ment is reached by 31 July, negotiations and
current MFA rules will probably be extended at
least through September when a date for beginning
the new GATT round may be formalized. As long
as the MFA is not renewed, major textile importers
will gain some leverage in negotiations with LDCs
expires without a replacement.
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in the upcoming GATT round. EC and other
indUA&W countries could offer more liberal textile
in exchange -for LDC concessions in areas
tra
important to them-services, for example.
The textile exporters---Taiwan, South Ko-
rea, d Hong Kong, for exampic-are pushing
hard MFA renewal, fearing tougher restrictions
withdut an agreement.
ECoficials believe this may be the final MFA,
after which most countries expect textile trade to
be directly by the GATT. Meanwhile,
with heir textile industry on the verge of getting
back its feet, Community members want the
MF renewed to provide continued protection and,
hen additional time for-the industry to improve
its Pition for the t-MFA competitive environ-
ments
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Briefs
Declining Soviet Preliminary estimates of Soviet hard currency oil earnings for the first half of
Oil Revenues the year-about $3.5 billion-are down 30 percent compared with the same
period last year. Although reduced world oil prices are largely responsible,
Moscow's decision to withhold crude oil exports from the market in January
and February also contributed. Increased exports of oil products-whose
prices did not fall proportionately with the drop in crude oil prices-limited the
decline. In recent years, Moscow has sold more than one-half of its annual oil
exports in the second half of the year. Therefore, barring any unexpected surge
or drop in either price or volume, Soviet oil earnings probably will not exceed
$7-8 billion this year. By comparison, Moscow's oil earnings peaked at about
$16 billion in 1983 and were just above $12 billion in 1985.
Pakistan To Ask for According to the US Embassy, a World Bank/IMF delegation will visit
IMF Assistance Pakistan early next month to negotiate a structural adjustment facility loan-
estimated at $48 million-to provide support for further economic reforms and
deregulation measures in the Pakistani economy. If approved, this will be the
first assistance Islamabad has received from the IMF since FY 1983. Local
World Bank representatives foresee no problems with the negotiations because
of Islamabad's recent moves on deregulation-such as reforms in the edible
oil, fertilizer, and rice industries-and its depreciation of the rupee. Future
loans, however, will most likely require Pakistan to address both long-delayed
domestic issues, such as tax reform, and also further devaluation.
Czechoslovakia Czechoslovakia will receive a $100 million syndicated loan from Western
Reenters banks in early July and is likely to borrow on a similar scale again in the fall.
Financial Markets Prague's total syndicated borrowing this year may reach $300 million-
Czechoslovak syndicated loans during all of 1983-85 totaled $150 million. Low
interest rates-Czechoslovakia is viewed favorably by Western bankers be-
cause of its small debt-and increased capital equipment imports from the
West to modernize Czechoslovak industry probably account for the regime's
receptivity to new borrowing. Despite its new foray into the financial markets,
however, Prague remains wary of becoming deeply indebted to Western
bankers and is unlikely to alter its traditionally conservative stance toward
borrowing.
25 Secret
DI IEEW 86-025
20 June 1986
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Global and Regional Developments
OficiOl Development Official Development Assistance (ODA) to LDCs from developed countries,
Assistance to LDCs OPEC, and multilateral institutions moderately increased in 1985 over 1984
levels. Preliminary 1985 data from the Development Assistance Committee
(DAC) of the OECD indicate a 3-percent increase in developed-country aid
from $29 billion in 1984 to $30 billion last year. Bilateral DAC aid rose 12
percent last year, with much of the increase directed to low-income countries
in Sub-Saharan Africa that have almost no access to commercial credit
markets. In absolute terms, the United States recorded the largest expansion
of ODA, followed by West Germany, France, and Sweden. Despite a slight re-
duction from 1984 levels, Norway donated 1.0 percent of its GNP to assist
LDCs, the highest ratio among DAC members. Within OPEC, Saudi Arabia
and Kuwait remained the leading aid donors at about 2.5 percent of GNP, de-1
spite cuts forced by reduced oil revenues. While DAC members have increased)
their annual contributions by 3.5 percent in real terms from 1981 to 1985,
overall ODA to developing countries has remained roughly constant in real
terms throughout the 1980s. The DAC predicts moderate aid increases of 3 tol
6 percent in 1986.
Economic Slump Forecasts by economic consulting firms basically agree with our estimates that
in Key LDC economic growth in key LDC debtors will remain stagnant in 1986. There is
Debtoi s Continues general agreement that real GDP in Brazil, Chile, and Peru will expand by 3
to 5 percent this year. Mexico's real GDP is expected to fall by at least 3 per-
cent. While there is no consensus among the consulting firms' forecasts for the
other debtors, we believe their real GDP will increase marginally at best. The
projected lackluster performance of the key L-DC debtors can be traced
primarily to lower oil prices, which benefit only Brazil, Chile, and the
Philippines.
Key LDC Debtors: Real GDP Growth, 1986
Secret
20 June 1986
Key Debtors 0.5
0.9
0.8
1.0
Argentina -1.9
3.0
0.1
2.0
Brazil 4.9
4.5
3.5
5.0
Chile 2.6
4.0
3.1
2.8
Mexico -2.8
-3.5
-4.4
-3.5
Nigeria 1.0
-7.5
4.4
-3.5
Peru 3.2
5.2
3.7
3.0
Philippines -0.9
-1.3
-0.6
1.5
Venezuela 1.1
0.7
-3.2
-2.0
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Platinum Prices Despite this week's downturn, the price of platinum-a key export of South
Likely To Remain High Africa and the USSR-remains about 50 percent above last year's level.
Spurred by short supplies as a result of this year's strike at South Africa's Im-
pala mines and continued robust industrial and speculative demand, platinum
prices have risen from $265 in June 1985 to nearly $430 an ounce. Prospects
are good that platinum prices will remain high in the near term as uncertain-
ties continue over the political stability of South Africa. Over the longer haul,
platinum prices will be buoyed by the growing use of catalytic converters in
automobiles-the major use for platinum-which accounted for about one-
third of demand in the developed West in 1985. Higher platinum prices are
good news for South Africa, which produces about 85 percent of world
supplies. The USSR, the second-largest producer, should also benefit as higher
platinum earnings partially offset declining oil revenues. However, if the
USSR pushes platinum exports (platinum now sells at about a $90 an ounce
premium over gold), the increased volume could limit the price rise. Moreover,
recycling of platinum, which is economic only at higher prices, will also
probably increase.
New Ownership At its May 1986 meeting, the Preferential Trade Area (PTA), covering 15
Rules for African eastern and southern African countries, modified the requirement that export-
Preferential Trade Area ing companies be at least 51 percent owned by member country nationals to re-
ceive preferential tariff treatment within the PTA. Under the new regulation,
goods produced by firms that are 51 percent or more owned by nationals
receive 100-percent preferential tariff treatment; those that are 41 to 50
percent locally owned get a 60-percent preference; and those that are 30 to 40
percent domestically owned receive only a 30-percent preference.
the new national ownership decision was reached
after Kenya, which provides 20 percent of PTA funding, threatened to
withdraw unless the 51-percent rule was changed. Zambia initially proposed a
five-year suspension of the 51-percent rule to satisfy Kenya's demands.
Ethiopia, a strong proponent of the rule, then offered the sliding scale
compromise. We believe that Kenya will press for further relaxation of the new
ownership rule in the future because of the large number of foreign-owned
manufacturing exporters in Kenya.
Syrian-Greek Truck ferry service between the port of Volos in Greece and Latakia in Syria
Ferry Line reopened last week, following President Assad's directive to reduce tolls and
Reopened fees by over 50 percent. After prolonged negotiations, an agreement was
reached during Assad's visit to Athens in late May. Before service was
abandoned in December, the Syrians were charging each truck on the ferry
more than $1,300-compared with Turkey's $700 toll for trucks crossing
overland. The reopening of the line will reestablish Greece as a major
transshipment point for truck and rail shipments to the Middle East and could
provide a welcome boost for Greek exports. Syrian redtape and the requisite
bribes will dampen the effect of Assad's directive, but Damascus will benefit
from increased access to imports from Eastern and Western Europe and much-
needed hard currency revenues for trucks transiting Syria to Jordan.
27 Secret
20 June 1986
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We* German
Growth Revives
National Developments
Developed Countries
West German economic activity is reviving after a dismal first quarter, when
unusually harsh winter weather was the principal cause of a 1-percent decline
in real GNP. Industrial production and the volume of new orders registered
gains in April of 1 and 4 percent, respectively. Several April business survey
also indicated improvement on both the domestic and export fronts. Although
some forecasters have backed off from earlier projections of 4-percent real
GNP growth this year, the current consensus of about 3.5 percent would sti
place West German growth among the strongest in the OECD. We expect the
economic resurgence to continue long enough to be a strong plus for the
government as the campaign for the January l97 election intensifies this fall.
Madrid Introduces Minister of Economy and Finance Solchaga presented Parliament with a ne
Growth Package package of measures aimed at boosting the current economic recovery. Cuts in
government-fixed prices of gasoline and other oil products have already bee
approved and are expected to increase real GDP growth from 3.0 to 3.5
percent in 1986. Most of the other measures-including tax incentives for ne
individual pension accounts and venture-capital investments, legislation gran
ing easier access by small- and medium-sized firms to the capital markets, a
measures simplifying procedures for setting up new companies-are still
pending approval in Parliament and are not likely to have a big impact on t e
economy this year. Over the longer term, however, they should result in a mo e
dynamic private sector, with improved job-creating capacity. Because many f
the proposals are popular, they should have little trouble getting through
Parliament before the general election on 22 June. Other more controversial
proposals-primarily social security and labor market reform-will probabl
run into trade union opposition. We expect little progress on them until later n
the year.
Lisbon Intends The Silva government has indicated that it wants to divest itself of the
To Privatize Portuguese National Petrochemical Company (CNP) as a first step in efforts
Petrochemical Firm to trim back the public sector. CNP ha$ continually had financial trouble
because of overcapacity, low productivity, high debt service, and poor manag
ment. Total debt is estimated to be $1.3 billion--of which 60 percent is 1orei
debt-and is the highest of any state-owned industrial firm. The decision is
likely to lead to resistance from both organized labor and opposition parties,
who fear that it will lead to a series of plant closures and the elimination of
several thousand jobs. The opposition is likely to try to stop the government by
calling fora vote in the National Assembly on the constitutionality of the
action. Industry experts believe, however, that the government will try to ge
around the constitutional prohibition against -privatization by closing CNP and
modernizing it, and then selling it as a new entity.
Sec*
20 /M+de 1986
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Australian Economic In the last two months, Prime Minister Hawke's Labor Party has lost its
Slump Hurts commanding lead over the opposition Liberal-National coalition in public
Government opinion polls, and economic woes are likely to push the government's standing
lower over the next year. Real GNP in Australia has declined for two
consecutive quarters, according to recently released data. Moreover, the trade
deficit widened to $1.1 billion at the end of April, despite a rise in export
volume. The economic slump is unlikely to bottom out soon. World prices of
Australia's primary exports-coal, wheat, wool, iron ore, alumina, beef,
barley, and sugar-continue to fall; world prices of its imports remain
unchanged. As a result, business investment remains depressed. Trade unions
and the business community are pressing the government to change economic
policy, but Hawke and Treasurer Keating, who is largely responsible for
economic policy making, differ publicly about how to deal with the country's
economic difficulties. Last month, Keating said the nation is in danger of
becoming a "banana republic" unless Australians tighten their belts and
hinted that scheduled wage increases might have to be reduced and tax cuts
postponed. In a speech last week, however, Hawke promised no wage
reductions. According to the US Embassy, many Australians, expecting
Hawke to spell out a government plan for reversing the current recession, were
bitterly disappointed with the reassurances given to the trade unions. Hawke's
credibility and that of his government will continue to suffer unless the trade
deficit begins to close-as Hawke and Keating promised last year when they
defied party traditions and allowed a float of Australia's currency.
Israeli Private-Sector The Histadrut national labor federation and the Manufacturer's Association
Wage Negotiations began negotiations last week on a new private-sector wage agreement to
Begin replace the previous two-year agreement that expired on 1 April. In the
negotiations, Histadrut will press for a higher minimum wage-equal to 50
percent of the average wage-along with an immediate 4- to 5-percent across-
the-board increase. Histadrut, however, is apparently willing to settle for a
smaller immediate increase in wages in order not to upset the government's
economic austerity program. The Manufacturer's Association wants to keep
all blanket increases to a minimum while postponing across-the-board wage
increases-besides already-agreed-to cost-of-living adjustments. The negotia-
tions are likely to drag on well into the summer as both sides are not showing
any sense of urgency.
Less Developed Countries
Colombian Coffee Colombia, the world's second-largest coffee producer after Brazil, will proba-
Situation bly meet its 1986 export goal of 12 million bags and may gain $3 billion in for-
eign exchange earnings this year. The Colombian Coffee Growers Association
estimates that the 1985/86 coffee harvest will yield 11.5 million bags, a
volume similar to last year's. Colombia's coffee stocks are at a record high-
11 million bags-and domestic consumption remains at only 2 million. Bogota
has so far rejected Central American and Mexican pressure to reduce coffee
sales. Coffee export revenues typically account for more than 50 percent of all
legal exports.
Secret
20 June 1986
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Secret , . , .
Ddlattd. Cotton
Prfcspl~dizzw
: d' Inane
Congo ~trgggles ;
With ,austerity
Secret
20 June 1986
of:the~cotwwsector.
permit Cotontchad to continue operations, and temporarily avert the collapse
pendent on cotton-the cotton sector. employs; 40. percent of the country's 5.2
million poption: The US Embassy: reports that,. in an attempt to finance
emergency; support, the, international Development Agency last month an-
nounced its ;intention to invite N'Djamena, to negotiate a $15 million credit
that will, pave-the way for financing a comprehensive medium-term restructur-
ing proJect,? including crop diversification. In the short term, the credit will
production,costs are too high and that the economy in southern Chad is too de-
According to the US Embassy, a significant drop in the world price of cotton
hasbrought-Chad's largest state-owned.enerprise, Cotontchad, to tbo.lWi*of
bankr:uptcy.Cotton revenues account for !85 ,percent of Chad's foreign
oxchange.carningsand approximately. 50 percent of government revenues. The
World,Bank which last month studied the;:ootton sector, concluded that cotton
. still in doubt.
According to the US Embassy, Congo's Council of Ministers, in an attempt to
reach agreement' with the, IMF on a standby arrangement, announced last
month that it intends, to raise agricultural producer prices, eliminate a number
of state monopolies, and revitalize key state enterprises. Congo's current
budget for this year has been reduced from about $915 million to $455 million.
US Emberssy.sourcies report that the deterioration of the government's
financial ix*ition, due to its external debt and-declining oil revenues, is
beginning to affect the private sector-the Congolese Union of Banks recently
failed to make payments to an equipment supplier in France because of
liquidity. shortages. According to the defense attache, parastatals in Pointe-
Noire have fallen up to,three months behind in paying salaria, and expatriate
familieshave left the area over the past few months because of the faltering- ,
economy. and increase in crime. The US Embassy reports that the French and
the World Bank-haze indicated their willingness to provide financial assistance i
as soon. as the IMF accord is signed. Nevdrthdess, Brazzaville's willingness to
follow -through on these austerity measures in the face of public opposition is
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Secret
Djibouti Staves Off President Gouled has responded to a recent French report on Djibouti's fiscal
Budget Collapse problems by ordering a 10-percent across-the-board cut in the government's
operating budget and by adopting several reforms designed to promote
budgetary savings, according to the US Embassy. The French assessment
reportedly maintained that Djibouti's fiscal status is unsustainable and should
be corrected while the government is still solvent. The belt-tightening mea-
sures probably will pull Djibouti through the 1986 fiscal year, and, because
they are limited and are spread evenly throughout the ministries, they are
unlikely to alienate key supporters in the Army and bureaucracy. Djibouti
could face a severe budget crunch in 1987 without increased revenues,
additional foreign aid, or further fiscal reforms. In the likely event that Gouled
does not get enough economic assistance or revenues, he will come under
increasing pressure to trim the bloated government bureaucracy and generous
social welfare programs inherited from the French. Gouled probably will
attempt to postpone significant-and politically risky-reforms until after the
presidential election in 1987, while pressuring France-the country's primary
economic benefactor-to fill any financial gaps.
Changes in Indian New Delhi expects to reduce its projected 1986/87 trade deficit by at least
Oil Purchasing Policy $1 billion by purchasing crude oil at near-spot-market prices instead of
through long-term contracts. India will import at least 300,000 b/d of crude
oil in 1986. Although longer term contracts provide security and predictability
of supply and price, current low oil prices have prompted New Delhi to
increase its purchases from the spot market and negotiate yearly contracts at
close to market prices. New Delhi has already contracted about 125,000 b/d
over the next year from Saudi Arabia, Iran, Iraq, and the United Arab
Emirates, with prices determined on the basis of average monthly market
prices. India also has been negotiating with the Soviet Union, which provides
about 25 percent of India's net crude imports, to reduce its price for about
70,000 b/d of crude oil this year.
Secret
20 June 1986
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Secret
Soviets Like)) The Soviets may buy US wheat for summer delivery
To phase EC wheat stocks are below Soviet quality standards, an
US Wheat the Argentines, Canadians, and Australians do not have sufficient quantities
of high-quality wheat to fulfill Soviet import needs. In addition, US wheat is
now more competitively priced-approximately $ 109 per metric ton compared
with $105 to $108 for comparable Argentine and Australian grain. According
to Embassy reports, the Soviets gave further positive buying signals at the
recent US-USSR, biannual grain consultations in Moscow. Nonetheless, Sovi t
purchases to date in the October/September long-term agreement (LTA) year
total only 153,000 of the current 4-million-ton yearly commitment.
New! Soviet Approaches The US Embassy in Moscow reports that a Danish firm has been approached
to Trade With the West by Soviet officials to participate in a joint-venture arrangement for textile
production in Estonia. The firm would supply modern equipment and exper-
tise, and in return would share in the profits. The Soviets would provide land
plant structure, management, and labor.
Soviet interest in expanding cooperation with Western firms has been growing,
but Moscow apparently is still working out policy. The approach to the Dane s
was probably an attempt to elicit responses from potential partners rather tha
a concrete proposal. The Soviets probably would like to limit the role of
Western experts to technical aspects and to reserve personnel and wage
decisions-important to profit calculations-to themselves. Unless the Soviet
offer a greater role in management, Western'firms will find the joint-venture)
proposals unattractive.
Secret
20 Ju*e 1986
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Secret
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Directorate of
Intelligence
Economic & Energy
Indicators
DI EEI 86-013
20 June 1986
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(703-487-4660). Publications are not available to the public from the
Central Intelligence Agency.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
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
Page
Energy
World Crude Oil Production, Excluding Natural Gas Liquids 8
Big Seven: Inland Oil Consumption 9
Big Seven: Crude Oil Imports 9
Crude Oil Prices 10
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 ILLEGIB
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
Percent change from previous period
seasonally adjusted at an annual rate
United States
2.6
-7.2
5.9
11.6
2.3
0.5
-10.9 5.9 -7.4
Japan
1.0
0.4
3.5
11.1
4.7
-1.0
-2.9 0
West Germany
-2.3
-3.2
0.3
2.4
5.0
France
-2.6
-1.5
1.1
2.5
0.5
-4.9
0
United Kingdom
-3.9
2.1
3.9
1.3
4.6
1.9
-1.1
Italy
-1.6
-3.1
-3.2
3.3
1.2
9.9
12.8 1.2
Canada
0.5
-10.0
5.3
8.8
4.3
-0.1
-22.5
Percent change from previous period
seasonally adjusted at an annual rate
Year
2d Qtr
3d Qtr 4th Qtr 1st Qtr
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
Italy
0.2
-0.5
-0.2
2.8
2.3
5.8
1.0 2.3
Canada
3.3
-4.4
3.3
5.0
4.5
3.2
7.0 5.4
Percent chan
seasonally adj
ge from pre
usted at an
vious period
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
-6.3
0.3
-2.6
West Germany
6.0
5.3
3.3
2.4
2.2
-0.9
-2.0
-1.5
0
France
13.3
12.0
9.5
7.7
5.8
0.8
0.7
1.6
1.8
United Kingdom
11.9
8.6
4.6
5.0
6.1
4.5
0.7
-1.3
0.8
Italy
19.3
16.4
14.9
10.6
8.6
6.1
5.3
3.5
5.6
Canada
12.5
10.8
5.8
4.3
4.0
4.8
2.9
2.7
5.2
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03 : CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
7.5 9.6
2.2 2.4
5
any .6 7.7
7
.6 d.4
ICinodom ,-' - 70.0 1 .6
...;...,.,..a ?, $.4 .9,i.~.
7.5 11.1
Percent ckwjOfAsrts **&w
seasonally adjusted at an a
pbW
l rate
1981
. 1982
1983
1984
1985
1986
1st Qtr Mar Apr May
Hired 'tea b
, .1
6.6
11.2
7.0
9.1
7.9 ?14.8 15.5 25.4,
J on
3.7
;7.1
.3.7
2.8
5.0
7.8 12.9 9.5
cs
G*many
'
1.1
3.6
10.2
3.3
4.4
9.8 44.9 1.9
.12.2
13.9
8.6
tnit
ed
nidom
NA
, NA
13.0
14.7
16.7
9.0 34.8 30.5
11.2
X1.6
15.1
12.3
13.7
t.d
8
,,(p7
10.2
3.2
4.1
i?13.4 1 10.8 -11.8 3.Q
a Oa a bin national currency units.
b Inch M1-A and M1-B.
.., ,~... r. i ., ..
fig::; . 4 , J?2d:aaok
(v3 ~'::
Percent seasonally a
lusted
1981
198,2
1983
1984
1985
1986
Year
4th
r 1st Qtr Mar Apr
9.4
7.4
7.1
6.9
7.0 7.1 7.0 72
2.7
2.7
2.6
2.8
2.6 2.7 2.9
9.2
9.1
9.3
9.0
10.2 9.8 9.0 83
8.6
9.6
10.0
10.0
9.8 9.8 9.0, 4
124
12.4
12.9
12.9
13.1 13.2 13.2 13.3
w,..,..Y,>1.._ .
:..,:10.4.......
..10.7,
.-..i~.0.
.,.....;~,i...,._,.~,..~... ....._ . M.w.?......-.<
,....w
11.9
11.3
10.5
10.2
9.7 9.6 4:d fQ'
? aemployment rates for France are estimated.
2
!? Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
Foreign Trade a
W
United States b
Exports
233.5
212.3
200.7
217.6
213.3
52.4
Imports
261.0
244.0
258.0
325.7
345.3
89.2
32.0
28.9
32.0
28.8
Balance
-27.5
-31.6
-57.4
-108.1
-132.0
-36.8
Japan
Exports
149.6
138.2
145.4
168.1
173.9
47.3
16.3
15.9
15.7
16.7
Imports
129.5
119.6
114.0
124.1
118.0
30.3
10.4
10.4
9.3
9.9
Balance
20.1
18.6
31.4
44.0
55.9
16.9
5.9
5.5
6.4
6.8
West Germany
Exports
175.4
176.4
169.5
171.9
184.3
51.2
18.9
19.1
17.2
21.9
Imports
163.4
155.3
152.9
153.1
158.9
43.8
15.3
15.6
14.1
17.1
Balance
11.9
21.1
16.6
18.8
25.3
7.4
3.5
3.5
3.1
4.7
France
Exports
106.3
96.4
95.1
97.5
101.9
28.8
10.2
10.3
9.9
9.9
Imports
115.6
110.5
101.0
100.3
104.5
29.2
9.7
10.3
10.2
10.6
Balance
-9.3
-14.0
-5.9
-2.8
-2.6
-0.4
0.5
0
-0.4
-0.7
United Kingdom
Exports
102.5
97.1
92.1
93.6
100.9
27.3
9.0
8.8
8.4
9.1
Imports
94.6
93.1
93.7
99.3
103.5
27.6
8.8
9.3
10.2
9.3
Balance
7.9
4.0
-1.6
-5.7
-2.5
-0.3
0.2
-0.5
-1.8
-0.3
Italy
Exports
75.4
73.9
72.8
73.5
78.8
22.5
7.2
8.5
7.7
8.2
Imports
91.2
86.7
80.6
84.4
90.7
26.0
8.8
9.2
8.5
8.2
Balance
-15.9
-12.8
-7.9
-10.9
-11.9
-3.5
-1.6
-0.7
-0.8
0
Canada
Exports
70.5
68.5
73.7
86.5
88.0
22.5
7.7
7.1
6.7
7.4
Imports
64.4
54.1
59.3
70.6
75.7
19.6
7.0
7.0
5.8
6.6
Balance
6.1
14.4
14.4
15.9
12.3
2.9
0.7
0.1
0.9
0.8
a Seasonally adjusted.
b Imports are customs values.
Imports are c.i.f.
a Seasonally adjusted; converted to US dollars at current market
rates of exchange.
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03 CIA-RDP88-00798R000400040004-2
~~V~dw
,b US
Percent cJlionre -
at
l rate
1981
1982
1983
1984
1985
1986
Jan
Feb
Mar Apr
$tate1
9.2
1.5
1.0
1.4
-0.7
-0.3
-11.4
7.3 -2.9
5.5
-0.4
-2.4
0.2
-0.6
24.2
111.0
-5,7
Ma f~erma'
-14.9
48
-3.2
-7,1
0
31,8
60.5
32.7 0.1
-12.0 '
-5.5
-4.8
-2.9
2.5
35.1
34.8
Kingdom
. NA
NA
-6.2
-5.1
2.3
-11.3
-16.0
26.4 6.0
11-6 y
-7.8
-3.0
-4.4
-5.2
-0.3
3.9
-2.0
0.2
-0.4
-3.3
-30.7
14.6
-11.1 24.6
us $
Percent change from preWow
at an a
wj0d
rate
1981
19d2
1983
1984
1983
' 1986
_.. ~,.
Jan
-Feb,
Mar. . Apr,.
'ted'States
3.3
' .?2.0
-3.7
1.7
-2.4
-10.3
-8.7
'-29;9
3
).6
-7.4
-5.0
-2.8
-4.3
16.5
46.8
-06.7
Oennamy
-8.6
-4.7
-5.2
-0.8
-1.5
-0.5
13.3
-2.6 -24.4
-7.8
-7.2
-7.0
-3.8
-0.3
-2.4
18.9
ted 1Linedom
NA
NA
-3.7
-4.5
0.5
-13.6
-2.0
26.2 -3.6
1
-3.7
1.0
8.7
-1.1
0.6
1.0
-2.1
4.0
7.6
2.1 16'.2
d in Part S
4
anitized Copy Approved for Release 2012/01/03
CIA RDP88 0079880004000
400
Declassifie
.
04-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
Exchange Rate Trends
Percent changefrom previouk:period
at an annual rate
United States
10.5
10.6
5.8
9.1
6.3
-31.8 -20.3
Japan
9.3
-5.7
10.4
6.2
6.8
106.4 26.2
,
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
Dollar Cost of Foreign Currency
Japan
2.7
-12.9
4.6
0
-0.3
61.4 33.4
22.8
42.8
West Germany
-24.6
-7.2
-5.2
-11.5
-3.3
41.0 26.1
3.7
19.5
France
-28.7
-20.8
-15.9
-14.7
-2.7
41.0 23.7
-39.1
15.7
United Kingdom
-13.2
-13.4
-13.3
-11.9
-3.0
-0.3 40.3
28.7
19.3
Italy
-32.8
-18.8
-12.3
-15.6
-8.6
40.9 26.2
- 4.7
18.8
Canada
-2.5
-2.9
0.1
-5.1
-5.4
1.1 4.1
13.1
6.4
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
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03 CIA-RDP88-00798R000400040004-2
1 7,
4rk
, .
.
1981
1982
1983
1984
1985
'1986
1st Qtr
Mar
Apr
May
214.0
217.0
232.0
243.0
110.3
109.8
110.7
106.8
NA`
imported,. .
1 world, $ per metric ton)
0 Pelf (E per pound)
Asstfa
112.4
107.4
111.1
101.0
96.6
97.6
96.6
93.5
91.
(Boneless beef,
f.o.b. US Ports)
Uititid
(WbaMa." lel steer beef,
100.0
101.4
97.6
100.9
90.7
87.8
84.2
83.4
85.
midwest nests)
89.8
7443
92.1
106.2.
98.7
95.7
91.0
84.9
Na.
1
1.40
1.32
1.44
1.43
2.01
2.04
1.92
1.7
150
123
148
150
125
116
113
113
117
1t1 low,
;
c .f., m, $ ?'sr metric ton).
72:69
74.48
85.71
63.91'
57.87
53.50
54.00
49.28
46.
Moak "A,.
.
.
US ' .)
_.-?..
...
..
.
Qr
571
445
502
730
501
289
243
242
237
bulk'.
w
;la"MI t'"; 'x
40014
t
o
(S per *Irk tw)
US (No. 2; milled,
632,
481
514
514
484
453
455
440
323
4S c.i.f. Rotterdam)
MW SWR
573
362
339
310
249
236
232
225
221
(WS, trade B
CAI Rottetdsm)
244
287
283
225
218
218
213
21
02 rd10w,
U. Rottiklam, $ per metric ton)
00
507
447
527
727
571
407
369
349
34
(o.b ex-mill,
per metric on)
MII1
252
219
238
197
157
188
193
187
1
c.i.f. Rotterdam
,
per metric ton)
16.93
8.42
8.49
5.18
4.04
5.83
7.07
8.36
T
~Lraw qane, f.o.b.
- -
ea
91.0
89.9
105.2
156.6
90.0
86.4
91.5
91.3
IRA
rma{e M tion (London)
(
:~.'
210
187'
183
182
169
172
166
172
1
r 2. DS.
~
*
RottW&m, $ per metric-ton)
U.
Issisx I (1980-100)
88
78
86
92
81
95
97
98
9
The food hou is compiled by The Ecasonelat for 14 food commodities which enter Istemationaltaade. Commodities are weigh
b11-IF
3~ar mwAng:averages of imports into industrialized countries.
6
d in Part Sanitized Copy Approved for Release 2012/01/03
CIA
RDP88
00798R0004000
400
Declassifie
.
04-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798ROO0400040004-2
Aluminum (? per pound)
Major US producer
77.3
76.0
77.7
81.0
81.0
81.0
81.0
81.0
81.0
LME cash
57.4
44.9
65.1
56.8
47.2
51.4
53.1
52.7
52.8
Chrome Ore
(South Africa chemical
grade, $ per metric ton)
53.0
50.9
50.0
50.0
43.9
40.0
40.0
40,0
40.0
Copper a (bar, 4 per pound)
79.0
67.1
72.0
62.4
64.5
64.5
65.6
65.0 ,
64.4
Gold ($ per troy ounce)
460.0
375.5
424.4
360.0
317.2
342.6
345.7
339.9
342.6
Lead a (0 per pound)
32.9
24.7
19.3
20.0
17.7
16.7
16.6
16.8
11.0
Manganese Ore
82.1
79.9
73.3
69.8
68.4
67.2
67.2
64.8
64.8
(48% Mn, $ per long ton)
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
1.9
1.8
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
Metals week,
New York dealers' price
446.0
326.7
422.6
358.2
291.0
383.1
413.0
416.0
412.0
Rubber (4 per pound)
Synthetic b
47.5
45.7
44.0
44.4
44.1
42.8
41.6
38.5
NA
Natural c
56.8
45.4
56.2
49.6
42.0
41.7
42.0
39.2
40.1
Silver ($ per troy ounce)
10.5
7.9
11.4
8.1
6.1
5.9
5.7
5.2
5.1
Steel Scrap d ($ per long ton)
92.0
63.1
73.2
86.4
74.4
74.0
73.7
73.0
NA
Tina (0 per pound)
641.4
581.6
590.9
556.6
543.2
357.4
329.2
257.9
249.3
Tungsten Ore
(contained metal,
$ per metric ton)
18,097
13,426
10,177
10,243
1,0,656
8,673
8,309
7,752
7,474
US Steel
(finished steel, composite,
$ per long ton)
Lumber Index a
(1980-100)
95
84
Industrial Materials Index r
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. 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 10 types of lumber
whose prices are regarded as bellwethers of US lumber construction
costs.
rThe 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.
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798ROO0400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
at*al Goa Lk"
1A 1~ 4111mammmki
Ilk"
I9i1> .
, 1982
1983
1984
198S.
1986 ?
'
Jan
Feb
Mar Apr
w
N0
'.
4 ci&trlea''. 41602
53.02-
_31 *1!'. _
52;433
38,228
53,691
x,257 -
53,396
38,692
53,757.
39,471
.51,709
10,123
53 03-
arnf
toes 1 86
H276 -`
13,864
14,302'
14,930
.15,083
1"5,070
x,11
:Stately .8,572
t,658
8,680
8,7351
8,O J3
8,942
8,934
8,821
- '" 1,285
1,270
1,356
1,411
1,417
1,480
1,480
1,480 ss ,
7
Kingdom 1,811
2,094
2,299
2,535
2,533
2,734
2,699
'5Ol
518
614
700?.
745
839
870
X17
*
735 ... 91$,
921.,.
14
1,088
1.087
12 ,L
l
N
4
L12G 6 36
633
6,823
7,515
7,845
7,678
7,393
,
7
2,321
2,746
2,666
2,746
2,74
2,510
2,400
2,219
598
665
689
827
874
860
600
H00
C
OW- - 3;117
3;222
3,468
3,942
4,238
4,308
4,393...
~e+
..4,586
OP
22.180
18,901
17,541
17,440
16,117
16,710
17,960
- . =11,910 .. I?,5
erla ON
701
699
638
645
650
550
600 ~ ? , '.6C0
dor 211
211
236
253
280
300
220
300' ;.> a $00
151
- 154
157
152
193
160
160
150 .r a 140'
I
IAN
1,324.
1,385
1,466
1,235
1,200
1,300
1,175 ~G1,42111.
I
1,381
2,282
2,492
2,187
2,258
1,700
2,200
993
972
922 "
:.1",203
1,437
1,680
1,880
14W ' fliw'
r
wait b 947
'663
881
912
862
1,000
,1,100
1,400 .. 1 0.7
Li
bya 1,137
1;183 1,076
1,073
1,
1,100
1,000
900 . - '
tral Zone c ` 370
'317
390-
410
113
300
300
7 .0,
'
*
Wig 1,445
1,298
1,241
1,393
1,44
1,300
1,400 '1;53b' ? 'Irk ,
405
328
295
399-
162'
400
300-
350`'.'':
dl Arabia,b '9.65
6,327 1
, 4,867
4,444
3,
4,200
4,600
4,000
U
E 1,500
1,248
1,119
1,097
1,146
1,165
1,400
1,305 ," :
2, 8
, , t" 3 +
1.781
1;813
1,6J
1,555
1550.
1520 1
"Stria 14,236
14,282
11,405
14,434
14,664
14,286
14,286
14,2116:
U
$SR 11,800
. 11,830
11,864
11,728
11,749
11,350
11,350
11,350
C
i ' 024
1;042 '
-
2,121
2,286
2,
2,496
2,496_
2,496
Oi
ber 411
'
410
420
420'
41
440
440
440
b Ex uding Neutral Zone production; which is shown separately.
is a~amd aquaJlarbmt Swdi Arabia apd.lGuwa~t,
7211
a'.
I
"* Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
Big Seven: Inland Oil Consumption
Year
3d Qtr
4th Qtr
Jan
Feb
Mar
Apr
United States ^
16,058
15,296
15,184
15,708
15,697
15,557
15,748
15,923
16,056
16,188
A5,833
Japan
4,444
4,204
4,193
4,349
4,121
3,839
4,361
4,661
5,046
West Germany
2,120
2,024
2,009
2,012
2,060
2,233
1,993
2,096
2,406
2,141
France
1,744
1,632
1,594
1,531
1,493
1,310
1,569
1,626
2,009
1,525
1,706
United Kingdom
1,325
1,345
1,290
1,624
1,402
1,236
1,298
1,286
1,485
Italy b
1,705
1,618
1,594
1,513
1,516
1,436
1,642
1,718
1,855
1,535
1,495
Canada
1,617
1,454
1,354
1,348
1,344
1,360
1,402
1,346
1,374
1,183
a Including bunkers, refinery fuel, and losses.
b Principal products only prior to 1981.
Big Seven: Crude Oil Imports
United States
4,406
3,488
3,329
3,402
3,216
3,662
3,329
2,993
3,000
3,701
Japan
3,919
3,657
3,567
3,664
3,377
3,619
3,126
4,273
West Germany
1,591
1,451
1,307
1,335
1,284
1,210
1,321
1,225
France
1,804
1,596
1,429
1,395
1,476
1,590
1,430
1,420
1,380
United Kingdom
736
565
456
482
523
518
Italy
1,816
1,710
1,532
1,507
1,462
1,648
Canada
521
334
247
244
283
343
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400640004-2
OF AMSrssela 30.87 34.5* 33.63 29.31 28.70 28.14 2818 ,x.28.09
Sala Price)
28.09 28c06
W Avenge , - NA NA NA ", NA NA , ? , 2714 4 27.3 - 20.67 .16.87
5 3
? F. prices sct by the eoreriment,fi r direct sOW mud, ljc most dear for the W90 4m cunpanY b*,Abeck oil Weighted by the
of uction.
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
OPEC: Average Crude Oil Sales Price
18.67
jjjl.0211.77j88j93
3.39
I
STAT
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2
I Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400040004-2