INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000400080005-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 58
• Document Creation Date: December 22, 2016
• Document Release Date: July 13, 2011
• Sequence Number: 5
• Publication Date: July 18, 1986
• Content Type: REPORT

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Directorate of
Intelligence
Weekly
International
Economic & Energy
18 July 1986
Secret
DI IEEW 86-029
18 July 1986
copy 8 2 6
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Secret
Economic & Energy Weekly) 25X1
International
iii Synopsis
1 Perspective-LDC Debt: A Quietly Emerging Swap Market
3 Third World: Limited Economic Prospects
n 7 China: Reformers Pressing Ahead
13 Cuba: Growing Foreign Financing Problems
19 Belgium: Deficit Politics
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directed to Directorate of Intelligenc
Energy
International Finance
International Trade
Global and Regional Developments
National Developments
Comments and queries regarding this publication are welcome. They may be
Secret
DI IEEW 86-029
18 July 1986
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International
Economic & Energy Weekly
Synopsis
Perspective-LDC Debt: A Quietly Emerging Swap Market
Creditors and debtors are increasingly active in a growing but often secretive swap
market for LDC debt in which banks sell or swap troubled LDC loans at less than
their face value. Some observers believe this could lighten the LDC debt burden,
but, in our view, both creditor and debtor reluctance to use these techniques will
limit the overall impact. 1 -1
a 3 Third World: Limited Economic rrospects 25X1
During the last six years, the LDCs' economic performance has deteriorated
markedly. Although world economic conditions are becoming more favorable-oil
prices, inflation, and interest rates are declining-we believe a number of factors,
particularly heavy debt burdens, reduced lending flows, and weak world demand,
cloud the prospects for a strong LDC economic recovery.
opportunities to advance their programs.
The 1986 slowdown in Beijing's economic reform program is most likely a
temporary phenomenon. More stable economic growth, slower inflation, and
political setbacks for key conservative opponents have given reformers new
13 Cuba: Growing Foreign Financing Problems
Moscow has refused increased hard currency assistance.
Cuba is experiencing its worst financial difficulties since it began rescheduling its
hard currency debt in 1982. Western creditors have insisted on major import cuts
before considering requests for rescheduling of debts falling due in 1986-87 and
19 Belgium: Deficit Politics
iii Secret
DI IEEW 86-029
18 July 1986
goals will make the task more difficult and threaten coalition stability
Belgium's large public-sector deficit-12 percent of GNP in 1985, one of the
highest in the OECD-probably will dip to only about 10 percent this year-well
above the government's 8-percent target. Further delay in reaching debt reduction
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International
Economic & Energy Weekly
LDC Debt: A Quietly Emerging Swap Market
limit the overall impact.
Creditors and debtors are increasingly active in a growing but often secretive swap
market for LDC debt in which banks sell or swap troubled LDC loans at less than
their face value. Some observers believe this could lighten the LDC debt burden
but, in our view, both creditor and debtor reluctance to use these techniques will
maining loans to that borrower.
Bankers, frustrated by the current approach to debt problems, are expanding their
use of swaps to limit risks, reduce exposure to a given country, and strengthen their
balance sheets. For some smaller banks, swaps have provided an opportunity to
eliminate LDC exposure completely. For others, it has offered a means to
concentrate or consolidate loans within a preferred geographic region. West
European banks and the smaller US banks are particularly active in this market.
The larger US banks, however, are constrained by accounting standards that
require a bank that sells a portion of its debt at a discount to write down its re-
loans, and 75 cents for Brazilian loans.
Approximately $3 billion in international loans will be traded at a discount this
year Purchase prices for debt range from about
10 cents on the dollar for Nicaraguan debt to 87 cents for Colombian exposure.
Other price examples include 25 cents for Peruvian loans, 58 cents for Mexican
One of the most significant factors in the expansion of the swap market has been
the debt-to-equity programs instituted by debtor countries including Brazil, Chile,
and Mexico. In such schemes, a bank sells debt at a discount to a multinational
corporation or private investor who transfers it to the debtor country for redemp-
tion near or at full face value in local currency or government paper; the proceeds
are then used to purchase equity in local businesses. These arrangements benefit
the debtor country by reducing its external debt level and lowering the accompany-
ing interest payments. It may also serve as a stimulus for additional foreign
investment:
? Chile's schemes for converting debt into equity could reduce its external debt by
over $500 million by next year.
? Mexico has just developed a system to handle the swapping of public-sector debt
for equity in private Mexican companies.
LDC's central bank in return for specified goods.
The swap market also is being stimulated by the increased use of a debt-for-
exports scheme. Under such a plan, a company seeking to import goods from an
LDC would purchase some of the LDC's debt at a discount and exchange it at the
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DI IEEW 86-029
18 July 1986
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Although offering relief to both sides, we believe swaps provide only a marginal so-
lution given total LDC debt of roughly $900 billion. Some observers doubt that
there would be enough buyers for large-scale debt purchases unless the loans are
substantially marked down, and they doubt commercial banks would be willing to
take the resulting losses. Nonetheless, if the market for discounted paper continues
to grow, regulators could force the banks to value their entire loan portfolios at the
lower market rate.
In our judgment, bankers are worried that a growing recognition that LDC debts
are not worth par value could lead debtor countries to argue that their obligations
to creditors should be correspondingly adjusted downward. For example, Mexico
might argue that, with the market price of their debt only 58 cents on the dollar,
their debt obligations should only be $58 billion, rather than the $100 billion they
actually owe. Alternatively, debtor countries may buy back more of their own
debt-through third parties-at deeply, discounted rates. Thus, we believe bankers
will continue to downplay their participation in this emerging market.
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Third World: Limited
Economic Prospects
During the last six years, the LDCs' economic per-
formance has deteriorated markedly. After averaging
5.5 percent a year in 1973-79, annual real GDP
growth dropped to roughly 3 percent during 1980-85,
where it is projected to remain this year. Although
world economic conditions are becoming more favor-
able-oil prices, inflation, and interest rates are de-
clining-we believe a number of factors, particularly
heavy debt burdens, reduced lending flows, and weak
world demand, cloud the prospects for a strong LDC
economic recovery.
Factors Constraining LDC Economic Performance
In our judgment, one of the more onerous economic
constraints confronting the LDCs is their burdensome
financial problems. In 1985, aggregate LDC external
debt reached $850 billion, and, according to several
estimates, is likely to top $900 billion this year. The
ratio of debt service to exports of goods and services,
for example, has risen from roughly 15 percent in
1980 to over 22 percent in 1985.
The LDCs' economic outlook is further complicated
by the reduction in the net flow of financial resources
from Western and OPEC sources. Between 1970 and
1981, these capital flows steadily increased from
$20 billion to almost $110 billion. This trend, howev-
er, shifted in 1982-85 when official flows stabilized
and private flows began to decline. In fact, the
increased debt service burden and reduced inflow of
financial resources has led to a net outflow of funds.
We believe most of the financially troubled LDCs
currently are caught in a vicious circle as the demands
of debt service crowd out money available for domes-
tic investment, thus making it difficult to stimulate
economic growth.
Another factor negatively affecting the LDCs' growth
prospects is the changing nature of world trade as
compared with the 1960s and 1970s when the LDCs
registered high rates of economic growth. In
particular:
? Weak World Demand for LDC Exports. Between
1965 and 1975, when the LDCs registered some of
their highest rates of export growth, the industrial
countries' average annual real GDP growth was
about 4 percent. This has since fallen to below
3 percent, and world demand for LDC exports has
declined. According to private and official forecast-
ers, the industrial countries' economic performance
will remain sluggish throughout the remainder of
the 1980s, depriving the LDCs of a major source of
demand for their exports.
? Falling World Commodity Prices. A significant
change has occurred in the composition of the LDC
exports. Manufactures have expanded from slightly
over 15 percent of their total nonoil exports in 1965
to more than 55 percent in 1984, but this trend
reflects a significant decline in world demand for
nonoil primary commodities. In all, nominal com-
modity prices have fallen by over 25 percent from
their peak in 1980. Moreover, many experts believe
that continued weak demand and abundant supplies
will push commodity prices to historically low levels
in the next several years.
? Industrial Country Protectionism Persists. Since
the mid-1970s, industrial countries have reacted to
their own slower economic growth and rising unem-
ployment by trying to protect their industries from
LDC penetration of their markets. As a result, the
LDCs' access to industrial-country markets has
been restricted by greater use of orderly marketing
arrangements, import quotas, and tightening of
preferential trade arrangements. According to the
IMF, the most severe protectionist pressures in the
period since 1974 have come in textiles and clothing,
Secret
DI JEEW 86-029
18 July 1986
I
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LDC Economic Prospects: Structural Barriers
Mounting Aggregate LDC External Debt
Billion US $
Weak World Demand for LDC Exports
Billion US $
Declining Importance of LDC Commodity Exports
Billion US $ i
? Foodstuffs
M Raw materials
? Manufactures
ftw
Rapid LDC Population Growth
Billion persons
LDCs
Developed countries
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footwear, electronics, and chemicals-industries
from which many LDCs are launching their manu-
factures export drives.
? Heightened LDC Protectionism. The industrial
countries are not alone in trying to protect their
domestic industries. The LDCs themselves are in-
creasingly erecting trade barriers to protect ineffi-
cient or domestically important industries, and to
avoid making adjustments to economic policies that
are painful, but which are needed to promote
growth and make their economies operate more
efficiently.
? Increased Trade Competition. In the 1980s compe-
tition among LDCs for access to the industrial
countries' markets has intensified. This competition
has been accentuated by the emergence of a number
of low-cost producers such as Hong Kong, South
Korea, Taiwan, and China, as well as the financially
troubled LDCs, such as Brazil and Mexico, which
are more aggressively promoting their exports to
generate the revenue they need to repay their debts.
In addition to issues such as debt and trade, we
'believe the LDCs' economic prospects are also affect-
ed by their continued rapid population growth. Ac-
cording to World Bank estimates, the LDCs' share of
world population will increase from 75 percent in
1980, to 80 percent in 2000, and to 85 percent by
2050. The challenge to the LDCs is to generate a
sufficient number of jobs to absorb their rapidly
growing populations into productive employment.
This rapid population growth will also require that
LDC governments provide adequate health care, edu-
cational and transportation services, as well as to
ensure an adequate supply of food and energy. Com-
bined, these demands of a rapidly expanding popula-
tion will impose a significant drag on the growth of
the LDCs' economies.
We believe there are several indications that world
economic conditions are becoming more favorable and
may be a stimulus to the LDCs' future economic
performance. Oil prices are way down. Inflation is
declining sharply. Interest rates are falling. Exchange
rates have moved into a much more sustainable
configuration, and substantial adjustment of trade
and current account balances is under way.
The LDCs cannot assume that their economies will be
propelled by the factors that contributed to their high
rates of economic growth during the 1970s. The
evolving structure of the world economy means that
they will have to adopt new, flexible policies for
economic development such as a greater role for the
private sector, realistic exchange rates, agricultural
reform, and a more favorable investment climate.
Some LDCs such as the newly industrializing coun-
tries of Hong Kong, Singapore, South Korea, and
Taiwan probably will be able to capitalize on the
improvements in the world economic environment.
We believe the economic prospects of most LDCs,
however, will depend on their ability to respond to the
changes that are occurring in the structure of their
own and the world economy-their burdensome fi-
nancial problems, the changing nature of the world
trading environment, and their population growth.
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China: Reformers
Pressing Ahead
The 1986 slowdown in Beijing's economic reform
program is most likely a temporary phenomenon.
More stable economic growth, slower inflation, and
political setbacks for key conservative opponents have
given reformers new opportunities to advance their
programs. This summer Beijing has aggressively
launched experiments designed to test the influence of
market forces on enterprise fundraising, the allocation
of capital, and labor mobility. In June, China's Na-
tional People's Congress Standing Committee debated
an enterprise bankruptcy law. While the scope of
these new experiments has been limited so far to
selected enterprises and particular cities, Chinese
leaders appear to be building momentum toward an
announcement of the next phase in the reform pro-
gram-possibly including new price reforms-before
the end of the year.
for renewed reform efforts. Although seemingly
strong last fall, conservative critics of reform recently
have suffered some serious setbacks. Aggressive inves-
tigations into the illegal activities of the children of
senior officials have damaged the reputations of sever-
al key opponents of reform, and recent discussions in
the Chinese media about interference in factory deci-
sion making by low-ranking party officials reflect
Beijing's determination to attack reform critics at all
levels. In addition, reformers have won a lively debate
on the applicability of Western economic theories to
China's development strategy, and conservative ideo-
logues have been forced to lend support publicly to the
study of Western philosophy, economics, and human-
ities in Chinese universities. Some reformers appar-
ently have felt confident enough recently to argue that
greater democracy within party and state organs is
necessary if economic reforms are to achieve their
maximum benefits.
Last year the Hong Kong media reported that party
conservatives took advantage of numerous economic
problems-such as skyrocketing investment spending,
soaring inflation, a burgeoning trade deficit, and
declining foreign exchange reserves-to criticize
Deng Xiaoping and his reform coalition for economic
mismanagement, and to press Deng to slow the pace
of reform. Beijing announced in January that 1986
would be a year of adjustment and consolidation in
the reform program. We believe that reformers or-
dered this pause, apart from conservative pressure,
because they recognized the need to slow growth and
improve macroeconomic control techniques before
further decentralizing economic decision making. In
addition, Beijing probably wanted to use the pause to
allow Chinese economists to form a concensus on
what the next steps in the reform program should be.
same period last yeas{
Beijing's success in throttling back an economy that
was racing out of control last year also has opened the
way for new reform experiments. Measures enacted
last year have slowed excessive industrial growth,
runaway capital spending, and inflation-key subjects
of conservative criticism in the past. Official statistics
indicate that industrial output increased at a
4.9-percent annual rate during first half 1986, com-
pared with the unusual 23-percent rate registered a
year earlier. Capital construction grew at an annual
rate of 9.5 percent during the first quarter-faster
than Beijing wanted, but only one-fourth of the rate
experienced last year. In addition, preliminary first-
quarter statistics indicate that prices are rising more
slowly .than during the last half of 1985. The trade
deficit is the most serious problem this year and was
apparently little changed in the first quarter from the
Political Gains by Reformers
Victories this spring by Deng and the reformers in
high-level infighting apparently have cleared the way
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DI IEEW 86-029
18 July 1986
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The Ma Ding Controversy
A 30-year-old philosophy professor writing under the
pseudonym Ma Ding touched off a sharp public
debate over the relevance of Western economic theo-
ries to China's economic reforms by publishing an
article titled "Ten Major Changes in China's Eco-
nomics" in a party newspaper last November. The
scholar argued that "no ready answers can be found
in Das Kapital" to guide the development of a modern
socialist economy and that "Chinese economists must
free themselves from Marxist books ... and found a
new branch of economics. " Ma also argued that
Chinese economists must study the writings and
experience of Western theoreticians, including Keynes
and Samuelson. In an editorial on 19 December, a
left-leaning Chinese-language newpaper in New York
with connections to the PRC criticized the Ma Ding
article for presenting the view that Marxist political
economy has lost its vitality. This past March, senior
conservative ideologues apparently tried to use the
New York editorial as the basis for stifling discussion
of how Western economic theories could be used in
China's development and attacked reform policies in
general. According to the Hong Kong press, senior
leaders-including Deng Xiaoping-ordered the
ideologues to cease their attacks. Reformers respond-
ed with a flood of articles extolling academic free-
dom and supporting economic debate as necessary to
advance modernization. By May, the swell of support
for open discussions of economic theories forced the
same ideologues who tried to cut off the debate to
acknowledge publicly the need to study Western
concepts.
The slowdown in economic growth resulted largely
from credit restraints and cuts in state construction
projects. Policies limiting the imports of electronic
components and automobile parts apparently have
reduced growth rates in finished goods industries.
Chinese officials also have indicated that the slow-
down has been caused by "subjective" factors-such
as complacency on the part of managers because of
last year's strong performance, and worker dissatis-
faction caused by central efforts to limit wage and
bonus increases this year.
Although the Chinese press chronicled complaints this
spring by government officials who were dissatisfied
with the poor performance in the energy sector and
thought that industrial growth had fallen too low, we
believe the economy is likely to come close to achiev-
ing the target of 8-percent industrial growth set early
this year. The recent 13.5-percent devaluation of
China's currency, moreover, probably will boost ex-
port performance by the end of the year.
Broadening the Role of Market Forces
Although Chinese leaders remain concerned that the
economic problems experienced last year may re-
emerge, Beijing is encouraging a wide-ranging debate
among Chinese economic advisers over what the next
steps in the reform program should be. We believe a
consensus is emerging that China should rely on more
markets to allocate goods, capital, and labor, and
Beijing has promoted experiments this summer de-
signed to test the impact of market forces on enter-
prise fundraising and labor mobility.
Goods Markets. In the past, local governments pre-
vented enterprises in other regions from competing
with factories in their own jurisdictions. This protect-
ed local revenues and prompted the development of
enterprises that manufactured all components re-
quired in the production of the finished product.
Beijing now is urging all localities to remove artificial
barriers to commerce and is promoting the develop-
ment of specialized enterprises to serve broader geo-
graphic areas.
Enterprise Fundraising. Reform economists are call-
ing openly for the establishment of a capital market in
China. Since April, enterprises in five Chinese cities
have been allowed on a trial basis to issue shares to
individuals and other businesses. Shares owned by
individuals may be resold, given away, inherited, or
mortgaged-but are not traded in organized markets.
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China: Selected Economic
Indicators, 1982-86
a Excluding the output of village industries.
b Half-year output at an annual rate.
c Including the output of village industries. The growth rate would
be 3 percent if the output of village industries is excluded.
d Spending by state-owned units.
First-quarter spending at an annual rate.
rCIA estimates.
s End of March foreign exchange holdings.
Percent change
(except where noted)
Labor Practices. US Embassy and press reports indi-
cate that Beijing plans to implement gradually a
nationwide unemployment insurance system begin-
ning this month, while simplifying the procedures
enterprises must go through to fire unproductive or
surplus workers. Beijing also apparently will step up
efforts to phase out the "life-tenure" employment
system under which workers are given jobs for life and
paid salaries that do not depend on individual produc-
tivity. According to press reports, Beijing will allow
enterprises to hire an increased share of workers
under fixed-term labor contracts-making it easier
for factory managers to adjust the size of their work
forces according to production needs. Under experi-
mental labor policies in one Chinese city, 95 percent
of workers recently hired were given labor contracts.
A further indication of renewed reform momentum
this summer is that Chinese leaders have drafted and
are debating China's first enterprise bankruptcy law.
By providing lenient terms under which unprofitable
state enterprises can receive government support to
reorganize their operations, the law appears designed
to prod enterprises to improve performance-rather
than to shut down large numbers of firms. Neverthe-
less, it is an important step in furthering market
accountability in China. In 1985 enterprise manag-
ers-convinced that Beijing would bail them out
regardless of losses and inefficiency-took advantage
of greater decisionmaking authority by excessively
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Experiments with industrial reforms have been under
way in China since 1979, but the pace and scope of
implementation accelerated after the urban reform
program was ratified by the Communist Party in
October 1984:
? Reduced Central Planning-Only about 60 major
industrial products, such as steel, petroleum, and
chemicals, remain under mandatory state produc-
tion quotas. Although many enterprises still must
meet production plans established by departments
and local governments, reformers want to use eco-
nomic incentives increasingly to guide enterprises
toward general production targets.
? Increased Enterprise Autonomy-Enterprises can
retain a larger share of their revenues, and manag-
ers have more leeway to develop production plans
and decide how to use retained earnings. Enter-
prises now have the right to sell overquota industri-
al production at prices above state-set levels. Last
year, some industrial enterprises, on a trial basis,
were allowed to adjust wages upward or downward
on the basis of profits earned. Exporting
increasing capital construction and worker bonuses.
This year the government signaled its intention to get
tough by publicizing the results of an experimental
bankruptcy regulation in one Chinese city, which will
close down an unprofitable state-owned enterprise in
August and auction off its assets to meet its debt
obligations.
According to press reports, the bankruptcy law
sparked a sharp debate when the State Council in
June submitted it to the National People's Congress
Standing Committee for deliberation. Some commit-
tee members argued that China is not ready for a
bankruptcy law-pointing in particular to the irratio-
nal price system that obscures enterprise efficiency by
forcing some factories to sell their output at prices
significantly below market levels. Implementation of
the law also is likely to meet strong resistance from
firms are allowed to retain a portion offoreign
exchange earnings for their own use, and a few
state enterprises have been granted independent
authority to sign contracts for technology deals
and joint ventures.
? Price Reforms-Beijing took a cautious approach
to price reform last year. The key reform imple-
mented was the removal of controls on retail prices
of vegetables, meat, and other nonstaple farm prod-
ucts. Beijing also removed price controls on sewing
machines, watches, and some brands of bicycles,
and-to encourage greater use of highway trans-
port-raised short-haul railroad rates for passen-
gers and freight.
? Increased Use of Monetary and Fiscal Policies-
Since 1979 Beijing has strengthened the powers of
its central bank while increasing the range of
indirect credit controls that the bank can use.
Beijing implemented a tax system for enterprise
revenues during 1983-84, and is now considering
replacing some direct taxes on firms with indirect
taxes, such as value-added taxes.
local officials who fear the economic-and political-
costs of unemployment when enterprises close. Other
officials have stated, however, that Beijing will pro-
mulgate the law within a year.
One of the controversial issues being debated this
summer is price reform-which is crucial to the
success of the overall reform program. Despite the
success of most management reforms, Chinese offi-
cials have complained that many firms that benefit
from high state-set prices have taken advantage of
increased autonomy to reap large profits, even though
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their production efficiency is low. While some eco-
nomic advisers are pressing for implementation of new
price reforms, Chinese leaders-remembering last
year's surge in inflation when some price controls
were eased-are reluctant to proceed until they are
convinced that prices have stabilized.
Beijing ultimately plans to establish a more rational,
three-tiered price system. Prices of key products will
still be set by the state, but at levels that better reflect
relative scarcities in the economy. Prices of many
other products, including most manufactures, will be
allowed to fluctuate in response to market conditions
within bounds set by the state. Supply and demand
alone will determine the prices of some consumer
goods and overquota production of most industrial
goods.
So far, experiments testing the impact of market
forces on capital and labor allocation have been
limited to selected enterprises in a few cities-and
discussions of bankruptcy and new price reforms have
not gone much beyond rhetoric. Nevertheless, reform
leaders clearly are building momentum, and we be-
lieve they will move ahead with key reforms in late
1986 or early 1987 if Beijing can maintain economic
stability in the next six months
By broadening the reform program, Beijing could
reduce many of the inefficiencies in the economy, but
it also risks renewed economic instability:
? Increased enterprise authority to raise money by
issuing shares would promote capital formation, but
could also reduce Beijing's control over the direction
of investment.
? Reforms in labor policy and enterprise bankruptcy
would spur increases in managerial efficiency and
labor productivity while risking heightened social
tensions that would accompany increases in
unemployment.
? Price reform would allow increasingly auton-
omous enterprises to base production decisions on
rational signals-promoting more efficient use of
resources-but would threaten greater inflation in
the short run.
Although the economic reforms mark a sharp depar-
ture from Soviet-style central planning, they are not
designed to transform China into a capitalist econo-
my. Even if the reforms are implemented fully, the
state will continue to control the large industries, and
a high percentage of production will still fall under
the mandatory plan. Moreover, Beijing will still allo-
cate a large share of investment, limit labor mobility,
and maintain extensive control over banking and
foreign trade.
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Cuba: Growing Foreign
Financing Problems
scapegoat.
Cuba is experiencing its worst financial difficulties
since it began rescheduling its hard currency debt in
1982. Faced with declining export earnings, Havana
has almost totally exhausted its hard currency re-
serves and increasingly resorted to expensive short-
term borrowing. Western creditors have insisted on
major import cuts before considering requests for
rescheduling of debts falling due in 1986-87, and
Moscow apparently has refused increased hard cur-
rency assistance. Havana has not yielded to creditor
demands and unilaterally suspended interest pay-
ments on both its official and commercial debt coming
due in early July. Fearing that cuts in Western
imports would further slow production and fan domes-
tic discontent, Cuban economic planners appear to
hold unrealistic expectations for a surge in nontradi-
tional exports and modest import substitution efforts.
As pressures build, President Castro could again
allow many of the disgruntled, unemployed, and
imprisoned to leave the country and could even re-
nounce at least some of Cuba's hard currency debt in
an attempt to turn the creditors into a collective
The Evolving Crisis
head off popular dissatisfaction.
Despite Castro's announced plan to limit import
spending, hard currency imports grew by at least
7 percent in 1985. Havana was forced to purchase
sugar in Western markets to meet its export obliga-
tions to Moscow, while controls on imports of produc-
er goods were eased to stimulate the economy and
According to official Cuban financial data, Cuban
hard currency export earnings could not match the
increase in imports last year. A sharp drop in world
sugar prices, weather damage, and the diversion of
sugar exports to the Soviet Union contributed to a
34-percent drop in Cuba's hard currency sugar earn-
ings. Despite Cuba's energy conservation measures,
falling energy prices toward the end of last year cut
Cuba's income from the resale of Soviet oil-its
largest foreign exchange earner-by 5 percent. Start-
up delays, planning and distribution problems, agri-
cultural disasters, and the continued impact of the US
trade embargo also were cited by Cuban officials as
major factors retarding the growth of hard currency
exports last year.
Early indicators point to a continued hard currency
trade deficit in 1986. In particular, Cuban planners
estimate that plunging world oil prices will cut hard
currency oil reexport earnings in half. Meanwhile,
damage from Hurricane Kate last November will cut
sugar production from 8 million metric tons last year
to about 7 million tons this year. In addition, Havana
signed a large number of fixed-price contracts before
the recent rebound in world sugar prices. Cuban
officials estimate that hard currency income from
sugar will fall by more than $50 million this year.
Finally, Cuban efforts to develop new export products
and markets have made little progress because of
Cuba's well-documented problems with quality con-
trol and transportation, its limited technological base,
and foreign exchange shortages
Havana emphasized
the "impossibility" of reducing imports because a
large part of Cuba's imports has already been con-
tracted for and, that doing so, would cut Cuba's
production of critical exports. Havana drew down its
foreign exchange reserves from $248 million-or
about two and a half months of import coverage-at
the beginning of this year to about 2 weeks' import
coverage by May, according to press reports. The
recent flurry of short-term commercial borrowings by
Havana suggests that Cuba continues large import
purchases. Official Cuban statistics reveal that short-
term commercial credits tied to imports now account
for more than 30 percent of Cuba's more than
Secret
DI /EEW 86-029
18 July 1986
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Secret
Cuba: Hard Currency Balance of Payments
Current account
359
239
-239
-153
-362
Trade balance
727
511
82
73
-100
Exports
1,627
1,431
1,283
1,356
1,125
Sugar
765
305
283
187
137
Oil reexports
309
577
574
547
273
Imports
900
920
1,201
1,283 c
1,225
Net services and transfers
-368
-273
-321
-226
-262
a Preliminary
b Projected.
c According to the US Interests Section, the consensus among
foreign observers in Havana is that this figure is understated.
$3.5 billion debt. In addition, the appreciation of key
Western currencies against the US dollars Havana
earns for sugar and oil sales has raised Cuban import
costs and increased its debt servicing expenses-
despite the recent fall in interest rates.
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Apparently having dug in its heels against the severe
import cuts demanded by its creditors, Havana hopes
to ease the foreign exchange crunch with several
modest adjustments:
Cuba is pressing
its Western suppliers to barter goods for Cuban
exports, primarily sugar.
? In a move toward greater import substitution,
Havana recently called for the collection of scrap
metal, paper, and textiles, according to the Cuban
press.
? To support dwindling foreign reserves, the National
Bank of Cuba is attempting to salvage precious
metals by establishing specialized stores to ap-
praise and purchase gold and silver coins and
jewelry from Cuban citizens, at world market prices
according to the Cuban press. Western press reports
that the gold mine on the Isle of Youth, closed for
the past 25 years, has been reopened.
So far, Moscow apparently has refused to bail Ha-
vana out of its current financial crisis and may even
be relishing Western creditor demands of financial
discipline from its spendthrift client. The Soviet
Union apparently is holding firm on its refusal earlier
this year to significantly increase hard currency assis-
tance to Cuba and
agreed to no major new capital investment
projects in Cuba during the 1986-90 plan. More
recently, according to US Interests Section sources,
Soviet officials in Havana said that Moscow denied
Cuba's request to reduce sugar deliveries to the
USSR.
Capping hard currency assistance to Havana would
be in line with Moscow's previous criticisms of Ha-
vana's economic mismanagement and wasteful hard
Cuba has begun a
program to expand exports of Cuban-made tobacco
products, leather goods, rum, seafood, and other
goods to Mexico for repackaging and eventual
resale to the US market in violation of the US trade
embargo.
? Havana is looking to the resale of Angolan and
Libyan oil-some of which is received as payment
for Cuban construction services-but the depressed
world oil market has dimmed its hopes for large
profits.
Cuba.
In the end, financial stringencies probably will force
Havana to yield more to Soviet pressures to substi-
tute often inferior Soviet Bloc goods for hard curren-
cy Western imports. At the same time, the trickle of
Western consumer goods into Cuba is likely to slow
further unless the transactions can be funded profit-
ably by the state, as with the government-operated
catalog sales scheme where Cuban exiles pay the
state exorbitant prices in hard currency to purchase
consumer goods for their friends and relatives in
currency spending
It also would help ease Moscow's own hard
currency difficulties resulting largely from declining
oil production and low energy prices. We believe
Havana will lobby Moscow to reverse its position, but
we expect the Soviets would comply only as a last
resort if Havana is unable to strike an agreement with
Western creditors. Even then, we believe Moscow
would require tough austerity measures as a price for
the aid.
Castro, who sometimes acts on impulse, may see
several political benefits from some kind of debt
moratorium. It would allow him to use Western
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Secret
Cuba's Hard Currency Creditors
at the End of 1984
Million US $ Cuba: Hard Currency Foreign Debt Million US $
Official
Debt
Private
Debt
Total
Debt
Total debt disbursed a
1,748
1,679
3,427
Paris Club creditors
1,157
1,006
2,163
Japan
261
230
491
Spain
299
111
410
France
199
167
366
United Kingdom
87
123
210
Switzerland
22
106
128
Italy
83
27
110
Canada
29
54
83
Sweden
57
20
77
Luxembourg
1
68
69
Netherlands
23
42
65
31
16
47
Belgium
35
7
42
Denmark
19
2
21
Other
591
673
1,264
Argentina
329
3
332
5
22
27
The Bahamas
23
23
Yugoslavia
10
9
19
Oil-exporting coun-
tries and others
247
616
863
a Differences between this data and that in Cuba: Hard Currency
Foreign Debt result from discrepancies in the Cuban sources.
Total debt disbursed
3,148
3,236
3,374
3,552
Bilateral official debt
1,505
1,546
1,781
1,823
Government-
insured export
credits
1,238
1,291
1,556
1,632
Multilateral official
debt
21
29
19
20
Commercial debt
1,621
1,660
1,574
1,709
Financial institu-
tions
1,566
1,548
1,316
1,310
At this point, however, hints of debt repudiation
probably are designed to extract additional conces-
sions from the Western lenders who want to maintain
a chance of eventual repayment. Castro almost cer-
tainly realizes renunciation would effectively freeze
Cuba's access to foreign currency inflows, and, with
little or no foreign reserves remaining, Cuban plan-
ners would face an impossible task in trying to
push for Third World debt repudiation and Moscow's
likely displeasure with such a move, we question
whether the possibility of enhancing his political
matntatn t
h l
e
evel of Western tmports needed to
support domestic production. On the basis of the
lukewarm reception Castro received last year in his
creditor nations as a collective scapegoat to justify image would, in Castro's eyes, outweigh the cost
sharply increased austerity, and he may also believe associated with a cutoff from Western lenders.
such a move would regain some prestige lost last year
when he was criticized by some Third World leaders
for not following his own calls for debt renunciation. The Emigration Safety Valve
The continuing stream of
hard currency imports, despite the near elimination of
foreign reserves, may indicate that Havana is stocking
its shelves with critical Western goods in case the
decision is made to cut ties to Western lenders.
Another surge in Cuban emigration is a distinct
possibility as the regime struggles to provide an outlet
for the disgruntled, unemployed, and imprisoned cur-
rently taxing limited state resources. We believe
Havana probably is looking for ways to increase
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Secret
emigration to its Latin neighbors as well as the United
States. In addition to legal emigration, Cuba may also
be inclined to release political prisoners if Washington
will allow them to come to the United States. The
Castro regime, as it has in the past, may also allow
citizens to use illegal emigration channels to the
United States through third countries. If public dis-
satisfaction reaches a level perceived as intolerable to
Castro, he could opt for another Mariel-style mass
emigration.
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Secret
Belgium: Deficit Politics
Belgium's large public-sector deficit-12 percent of
GNP in 1985, one of the highest in the OECD-is
probably crowding out private investment.' Prime
Minister Martens's Social Christian-Liberal govern-
ment is making deficit reduction a top priority, claim-
ing its reelection last year as a mandate. The govern-
ment is pledged not to raise taxes, however, and
coalition politics hamper efforts to cut spending. The
recently announced budget for 1987-which took six
weeks of intense bargaining between the coalition
partners-probably will result in a deficit of at least
10 percent of GNP, well above the government's
8-percent target. Further delay in reaching debt
reduction goals will make the task more difficult and
threatens coalition stability.
Belgium's large public-sector deficit reflects the con-
sequences of slow growth, high unemployment, and
generous social welfare coverage. Public expenditures
soared from 39 percent of GNP in 1974 to 56 percent
just eight years later as Brussels tried to ease the
social costs of slower economic growth and to assist in
the adjustment of the aging industrial sector. Unem-
ployment-which peaked at over 13 percent in
1985-also forced increased spending on unemploy-
ment compensation and job creation. Because of
Belgium's slow economic growth, government reve-
nues did not keep pace with increased expenditures
and Brussels's borrowing requirement rose from
3.5 percent of GNP in the early 1970s to a peak of
13.2 percent in 1981-one of the highest in the
OECD.
Interest payments on the soaring debt-which now is
more than 100 percent of GNP-have been the
fastest growing component of government expendi-
tures over the last few years. In 1985 these payments
Selected OECD Countries:
Government Budget Data as a
Share of GDP, 1984 a
Total Total Surplus or
Outlays Receipts Deficit
France 52.6 49.8 -2.8
United Kingdom 48.0 44.1 -3.9
Italy 57.4 44.4 -13.0
a Includes all levels of government.
b 1983 data.
accounted for over 10 percent of GNP-double the
1979 level-and over 20 percent of government
spending. Belgian authorities are also disturbed by the
heavy reliance on foreign borrowing. Foreign debt
rose from less than 2 percent of total Belgian indebt-
edness in 1979 to 23 percent in 1984 before abating
last year, when Brussels financed its entire deficit
domestically for the first time since 1978.
' Among 16 more developed OECD countries, Belgium had the
third-largest budget deficit in 1984. It had the sixth-highest level of
spending but ranked 11th in terms of revenue collection
Secret
DI IEEW 86-029
18 July 1986
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Secret
Belgium: Public Finances as a Share
of GNP, 1979-85
Belgium: Central Government Budget,
1984
I I I I I I I
0 1979 80 81 82 83 84 85
19.9
Total: US $ 40.0 billion
Other taxes
3.1
The Martens government has followed an austerity
program since 1982 in an effort to reduce the deficit.
The initial goal was a deficit of 7 percent of GNP by
1985, but the political sensitivity of expenditure cut-
backs has led Brussels to continuously push back the
target date, and the level last year was 12 percent.
Past measures included restraining wage increases for
public-sector employees, delaying civil service bonus-
es, and cutting welfare programs-especially family
and unemployment benefits. These efforts have re-
duced government spending for consumption and
transfers by almost 2 percent of GNP, but this gain
has been wiped out by higher interest payments.
There has been less emphasis on raising taxes al-
though there have been some increases such as social
security contributions and the value-added tax. To
make last year's spending reductions politically palat-
able, however, the coalition partners indexed income
tax brackets and made a 2.25-percent reduction in
Indirect taxes Direct taxes
35.9 61.0
marginal tax rates to be phased in over a three-year
period. As part of its deficit reduction effort, Brussels
also introduced a debt management program in 1985
to convert short-term foreign debt into long-term
bonds with lower interest rates. The Finance Ministry
has also issued about $150 million worth of zero-
coupon Eurobonds.
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Secret
ing-were needed
As with most controversial decisions in Belgium, the
coalition's discussions on the 1986 and 1987 budgets
were arduous and were not completed until late this
spring. Before negotiations began, Martens described
the attainment of a deficit of 8 percent of GNP by
1987 as "do or die for my government." To achieve
this goal, tax increases or spending cuts of $4.2-4.7
billion-more than 10 percent of projected spend-
next two years.
The budget that emerged called for limited measures
for 1986, since the year was nearly half over, but
outlined a somewhat vague plan to reduce the deficit
by $4.1 billion in 1987. Although Martens generally
opposes higher taxes, the budget provides $375 mil-
lion in new revenues by restoring the value-added tax
on construction to its normal level and eliminating
some tax deductions. Brussels will take advantage of
lower domestic interest rates by refinancing some of
its debt at a savings of over $600 million in 1987. The
government also estimates that lower energy prices, a
cheaper dollar, and lower international interest rates
will save an average of $300 million annually over the
The largest cuts-$1.1 billion-will be made in social
programs and unemployment benefits. The govern-
ment is reducing hospital capacity, instituting a user
fee for some medical tests, cutting some public em-
ployment programs and privatizing its workman's
compensation fund. The most controversial move is
the $440 million reduction in the education budget,
most of which will derive from the elimination of
14,000 secondary school teaching positions. The edu-
cation cut reflects Budget Minister Verhofstadt's
determination to reduce the teacher/student ratio, the
highest in Europe.
The Defense Ministry is also hit by the budget axe.
While there will be a 2-percent nominal increase in
defense spending this year, it will be followed by a
3.4-percent decrease in 1987-to be achieved mainly
by cutting equipment expenditures. Finally, business
subsidies will be cut-including a $200 million reduc-
tion in R&D subsidies-while public investment will
be decreased by pressing ahead with the privatization
of portions of the telecommunications industry and
the medical insurance sector.
The 1986 and 1987 budget plans announced by
Brussels almost certainly will not put Belgium's finan-
cial house in order. The US Embassy reports, in fact,
that the deficit may actually rise this year to nearly
13 percent of GNP. We believe this puts the 1987
target of 8 percent out of reach.
Even if Martens resists making concessions on spend-
ing, the government probably will miss its 1987 deficit
target because many of the budget cuts are uncertain
or overestimated. Many Belgian economists are
claiming, for example, that sure savings from the
budget amount to only $2.3-2.5 billion rather than the
government's projected total of $4.1 billion. US
Embassy officers estimate that, if the remaining $1.6-
$1.8 billion in cuts are not realized, the deficit will fall
to only a bit less than 10 percent of GNP in 1987.
In our view, however, some further spending conces-
sions are likely. In particular, Martens will be hard
pressed to resist easing spending cuts affecting Catho-
lic unions and schools. Martens's Flemish Social
Christian Party relies heavily on the backing of the
Catholic unions, which in recent years have been
drifting toward Belgium's socialist parties. Moreover,
Brussels may find itself spending more money than
anticipated on subsidies for aging and troubled indus-
tries such as coal and steel
Implications
The longer Brussels postpones serious deficit reduc-
tion, the more difficult the task becomes because of
the burden of servicing the growing debt. According
to Embassy estimates, Brussels would have to cut the
deficit to 6 percent of GNP in 1987 if it is to have any
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Secret
chance of stabilizing the debt/GNP ratio before the
next election due in 1989. Alternatively, the debt
burden could be stabilized if real GNP growth were to
average 4 percent annually over the next few years,
but our estimates are only about half that rate.
Consequently, we expect government debt to rise to
perhaps 112 percent of GNP by 1990.
We believe the budget deficit is having an increasing-
ly negative impact on the economy, mainly by crowd-
ing out private investment. By 1984, private invest-
ment accounted for only 14 percent of GNP compared
with 21 percent in 1974. The combination of falling
private investment and government austerity has held
economic growth to below 2 percent in each year of
this decade, and probably will limit 1986 growth to
about 1.3 percent.
The budget plan for 1987 also will hinder efforts to
reduce unemployment because it cuts programs that
have helped to lower joblessness from over 13 percent
last year to the current 11.6 percent. In addition,
Brussels's plan to eliminate teaching positions is likely
to strain government-labor relations as well as the
unity of Martens's Flemish Social Christians. In the
weeks encompassed by the Coalition's budget negotia-
tions, there were numerous strikes by public employ-
ees, and we expect them to continue-albeit at a
diminished level-for some time to come. Meanwhile,
the need for more deficit-cutting measures leaves
open the possibility of decreased stability in the
governing coalition.
Secret 22
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Secret
Energy
Island, causing loading delays and some postponements of shipments.
Iran's Difficulties Recent declines in oil prices and expectations of increased fighting later this
in Boosting year are pushing Tehran to increase the volume of oil exports. Iran scheduled
Oil Exports sales of about 2 million b/d for the first half of July-an increase of 30 percent
over normal levels. Actual gains, however, have been limited-despite a more
aggressive pricing policy-because of intense competition from other Gulf
states and the dying appeal of Iranian countertrade deals. Recent Iraqi attacks
on oil facilities have also made it difficult for Tehran to meet its export goals.
These attacks have contributed to shortages of Iranian light crude oil at Sirri
Chevron's Relations Chevron, one of the primary oil developers in Sudan, continues to slowly cut
With Sudan back operations and is contracting out remaining work. Company officials
maintain that poor security and the insurgency in the south are no longer the
primary reasons for reductions in operations-the declining price of oil
prevents the company from developing new discoveries. Chevron claims the
world price would have to rise to $25 per barrel to justify drilling. Recent
meetings between the government and Chevron officials have affirmed the
company's desire to retain good relations with Sudan despite the drawdown in
operations. Nonetheless, with no immediate solution to the insurgency in sight,
Chevron is unlikely to restart drilling and development, even if prices go up.
New Philippine IMF Negotiations for a new IMF program-talks began in Manila this week-will
Negotiations Begin probably be slow going. the Aquino government's first
major negotiations with a foreign creditor will be contentious, more than likely
delaying final IMF approval past September, when Manila had hoped to have
an agreement in place. Planning
Minister Monsod has warned IMF officials that Manila may still resort to
selective debt repudiation if the Fund's restrictive targets for government
spending undermine President Aquino's plans to deliver tangible economic
benefits rapidly, particularly in areas contested by the Communist insurgents.
According to the US Embassy, the Fund's top priority will be finding ways to
stem Manila's roughly $2 billion budget deficit-more than 5 percent of
projected national output this ear
VA significant reduction in
Manila's red ink will require the government to restructure financially shaky
23 Secret
DI IEEW 86-029
18 July 1986
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Secret
government-owned banks and corporations whose subsidies equal almost the
entire budget deficit. Although tax reforms were enacted earlier this month,
these measures will raise no more than $350 million in new revenue. Foreign
commercial creditors will postpone the final $350 million drawing on last
year's financial rescue package until a new Fund program is negotiated.
Although Manila's $1.5 billion foreign exchange reserves will probably allow it
to ride out a temporary delay in new foreign financing, an IMF program is
crucial in restoring foreign and domestic investor confidence.
Algerian Borrowing International lenders are increasingly wary of Algeria as a result of the
Prospects Wane country's declining petroleum revenues. Algiers has borrowed $700 million
since February and plans to borrow another $200 million this year to soften the
impact of domestic austerity. Nevertheless,
the success of Algeria's last syndication in mid-June stemmed primari-
ly from the skillful management of the Arab Banking Corporation and a US
bank rather than international interest in the loan. Soft oil market conditions
threaten to cut Algeria's oil earnings in half, which would push the debt
service ratio above 80 percent for the year. Moreover, since 1983 Algiers has
abandoned its stated goal of reducing its foreign debt that probably exceeds
$20 billion. At a minimum, further Algerian borrowing will be on less
favorable terms-Algiers has received some of the best terms of any Third
World country-and probably will have to be used to finance imports of basic
necessities such as food rather than of capital goods. In addition, a prolonged
slump in oil prices below $15 per barrel may force Algiers to pursue some form
of debt relief before 1988.
Mexico Mexico will host a 21 July meeting in Acapulco of its Latin American
Seeking Stronger Integration Association partners in an attempt to reactivate regional trade.
Latin American Mexican officials plan to use the meeting to push for regional tariff prefer-
Trade Ties ences and greater financial cooperation to encourage trade among Latin
American countries. Mexico's exports to other member countries dropped from
$1 billion to $600 million between 1982 and 1985 despite bilateral trade
agreements with all 10 member countries. Mexico City hopes to boost exports
to its Latin trade partners to ease its trade deficit, but, in our judgment, trade
improvements will be limited. Member countries lack the funds to increase
imports significantly and are focusing instead on boosting their own exports.
Secret 24
18 July 1986
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Global and Regional Developments
Initial Resolution In a victory for France, the European Space Agency (ESA) adopted a
on Hermes Spaceplane resolution on making the French-designed Hermes spaceplane an ESA
program. ESA members will meet in October to define the program's stages,
including division of work and financing. The French have long sought West
German participation in Hermes, and, although Bonn voted for the resolution,
it is not scheduled to make a final decision until this fall. The West German
vote may reflect its growing support for greater European independence from
US space programs. Current plans call for construction of two Hermes
spaceplanes about one-fifth the size of the US shuttle, with initial launching in
1996. London took the lead to ensure that, unlike the Ariane program, ESA
and not the French space agency will control Hermes. Financing for the
$2.8 billion project-which must be decided by mid-1987 to keep the program
on schedule-will probably, in part as least, have to come out of existing
programs. A final decision this fall on Hermes most likely means that the
British-initiated HOTOL-whose more advanced engine technology would
allow use of a regular runway-will not be a part of ESA's initial spaceplane
program.
French Transfer of An advanced telephone exchange sold by France to the USSR in 1982 over US
Communications objections is now operational in Leningrad, according to French press reports,
Technology and incorporates even more modern technology than was envisioned in the
to USSR original deal. The French Government bypassed COCOM in 1982 in authoriz-
ing the sale to the Soviets of MT-20 system hardware and manufacturing
technology. In 1982, the French said that, to reduce the strategic risk, they
would limit the technology Thomson could provide to the Soviets in the
MT-20. A more modern exchange-the E 10-MT-was eventually substituted
when the original supplier, Thomson-CSF, merged with another French
electronics firm, CIT-Alcatel. The E 10-MT has more than twice the call-
processing capability of the MT-20, offering the Soviets further improvements
in the quality of communications for military and government users. France
did not notify COCOM of the original sale and is unlikely to volunteer
information on the capability of the system ultimately installed.
New Soviet Tack on The USSR hopes to attend the fifth Pacific Economic Cooperation Conference
Pacific Basin meeting in Vancouver this fall as an observer to discuss cooperation between
Cooperation market and nonmarket economies, according to the US Embassy in Moscow.
A Soviet academician told the Embassy that Soviet interest may represent a
softening toward the Pacific Basin Initiative, which Moscow previously
denounced as militaristic. The Soviets have long tried to expand economic and
political ties to the Pacific Basin, especially ASEAN, but have usually focused
on countering Western proposals and excluding the United States. It is
possible that ASEAN's lukewarm reception for General Secretary Gorba-
chev's proposal last April on economic cooperation, and Soviet difficulties in
penetrating Pacific Basin markets may have led Moscow to try to work within
25 Secret
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Secret
existing regional economic processes. Soviet participation may create confu-
sion within the Conference, which is ostensibly nongovernmental and has had
trouble with the issue of participation by centrally planned economies. Moscow
is aware of the problems its participation may raise, and may be using the issue
to continue its efforts to frustrate Western economic cooperation with Asia.
Algerian Payment flexibility probably will determine whether Airbus or US companies
Aircraft Negotiations win the contract for up to 11 new aircraft for Algeria's national airline.
Air Algerie of-
ficials have been displeased with French after-sale support for Algeria's two
Airbus A-310s. Nevertheless, the sharp drop in Algerian crude oil prices to
about $10 per barrel-hydrocarbon exports account for virtually all foreign
exchange earnings-make the counterpurchase of crude oil and gas an
essential part of any purchase agreement. Algiers almost certainly will use
upcoming gas negotiations with France-one of Algeria's largest gas custom-
ers-as a bargaining chip. So far, Airbus has concentrated its marketing
efforts on government officials such as the Minister of Transportation and
bypassed Air Algerie. The final decision, due later this year, could influence
pending aircraft sales in neighboring Morocco and Tunisia.
National Developments
Secret
18 July 1986
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Japanese
Shipbuilders Press
for Cartel
continue to drop.
Weak demand in the world shipbuilding industry-that has already forced
shipbuilders to cut prices to one-half the 1981 level-and the strong yen have
led Japanese shipbuilders to propose the formation of a "recession cartel" to
meet the competitive challenge posed by South Korea. If the Japan Fair Trade
Commission determines that the industry's existence is threatened by a large
and sustained imbalance between supply and demand, firms could voluntarily
form a cartel to set prices and production limits without being prosecuted
under the Anti-Monopoly Act. Proof of the industry's endangered future may
be difficult, however, because firms that diversified during a previous cartel
that ended in 1982 are not showing overall losses. Even if the firms cut back
production by the proposed 20 percent, Japan would remain as the world's
leading shipbuilder, but its market share-now 49 percent-will probably
Less Developed Countries
Inflated Egyptian Egypt's government-supported press is raising popular expectations of in-
Expectations for creased US financial aid to unrealistic levels. The semiofficial media claimed
US Aid recently that senior Egyptian officials visiting Washington had "successfully
resolved" contentious issues such as Egypt's military debt and had secured
solid US backing for Cairo's economic reform efforts. In some cases, the
articles appeared before discussions were concluded. Egyptian officials may be
manipulating public opinion in an attempt to extract additional support from
the United States-a ploy that could have serious consequences. Egypt's acute
and worsening hard currency shortage will almost certainly force President
Mubarak to impose unpopular austerity measures if Egypt does not receive
massive infusions of aid-including cuts in near-sacrosanct food subsidies.
Results short of the public's inflated hopes of a bailout would heighten anti-US
sentiments, reinforce perceptions that Mubarak is incompetent, and increase
the risk of civil unrest.
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Secret
Lebanese Unions In reaction to the rapidly declining economy, the General Confederation of
Call Strikes Lebanese Workers (GCLW) called a nationwide 24-hour strike on 3 July,
halting all commercial, transport, and media activity. In addition to a 10 July
sit-in staged by labor and public unions, journalists, and lawyers at Beirut's
UNESCO building, the GCLW scheduled widespread demonstrations for 17
July and vows to call a general, open-ended strike, if the government fails to
offer positive economic reforms. Union goals transcend confessional politics
and are moderate in tone. The demonstrations were prompted by high
inflation-estimated by the US Embassy at 20 percent per month-and
government inability to handle mounting internal debt, which is expected to
increase 50 percent in 1986 and add to inflationary pressures. This month's
strikes represent the first collective response by Lebanon's formerly prosper-
ous, but largely powerless, urban middle class.
Obstacles to President Babangida's efforts to revitalize his 10-month-old regime hinge on
Nigerian Economic his recently announced package of economic and political reforms, but
Reform divisions within the ruling military council, an inept bureaucracy, and popular
opposition probably will derail the proposals. The US Embassy reports that
commercial creditors were mildly encouraged by Babangida's pledge to
liberalize trade, sell state-owned companies, and institute a two-tier foreign
exchange market that would in effect devalue the currency.
Babangida
played down the potential role of the IMF when he announced his new
economic program late last month, according to the US Embassy. Babangida's
initiatives have renewed the government's sense of direction, but his tactic of
stalling on difficult decisions or obscuring them under layers of bureaucracy
makes successful implementation more difficult. Babangida so far has not
provoked the vociferous public opposition that forced him to abandon IMF
negotiations last year, but he probably still lacks the consensus needed to
resolve crucial economic and social problems.
Uganda Barters President Museveni is relying almost exclusively on barter arrangements to
Coffee for supply his war-torn country with military supplies and other commodities,
Supplies Uganda has made barter deals with
Cuba, East Germany, Libya, and Egypt since Museveni came to power in
January.
The trade deals are in line with Mu-
seveni's pledge to deal with all countries except Israel and South Africa, and
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Secret
also reflects Libyan and Egyptian willingness to meet his immediate need for
military supplies.
Liberian Despite progress toward implementing US-recommended economic reforms, a
Economic recent spending binge prevented Liberia from making a payment on official
Developments US loans last month, triggering Brooke Amendment sanctions that could block
disbursements of most types of US assistance, according to the US Embassy.
Liberia, meanwhile, has been able to reduce domestic tensions by paying back-
salaries with recently issued local currency. Monrovia probably will make the
loan payment soon, but its resolve to pursue economic reform will be tested lat-
er this summer once the new currency is depleted and the government is again
faced with the need to reduce expenditures drastically. Stringent austerity
measures or renewed delays in wage disbursements could aggravate labor
grievances and strengthen support for the opposition.
Pakistani The level of concern many Pakistani officials have toward opposition leader
Provincial Minister Bhutto was recently demonstrated by the impromptu announcement by the
Hikes Minimum Wage Chief Minister of Sind Province that the minimum wage would be doubled to
$63 per month-matching a proposal by Bhutto. The US Consulate in Karachi
reports that a Sind Department of Labor official said that the proposal took
government officials by surprise. The higher minimum wage would, in fact,
leave many workers ineligible for death and injury benefits. Passage by the
provincial assembly of the required legislation is doubtful due to the low
priority of labor issues within the assembly.
Soviet Defense In a recent speech, Party Secretary and Politburo member Lev Zaykov said
Industry Support for that the leadership had decided "to make more active use" of defense
the Civilian Economy industries in the 1986-90 plan to produce civil machinery and consumer goods.
At the Supreme Soviet meeting last month, Chairman of the Council of
Ministers Ryzhkov spoke on the leadership's intention to involve all machine-
building ministries, including the defense industry ministries, in production for
light industry. The defense industries produce machine tools, computers,
microelectronics, and telecommunications equipment and could make a major
contribution to the modernization campaign. The Minister of the Shipbuilding
Industry recently indicated that he was being tasked to increase production of
consumer goods and complained about not being allocated enough computers
to fulfill his modernization tasks. Pressure on the defense industries to support
the modernization campaign and consumer goods program apparently is
building. Earlier leadership statements had called on defense industries only to
share their management expertise with the rest of Soviet industry. Help to the
civilian sector may limit the pace of defense-industrial modernization, but it
29 Secret
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Secret
does not necessarily imply any cuts in weapons production. Because of major
investments since the mid-1970s, the defense industries are well positioned to
accommodate the relatively slow growth in weapons production projected by
the US Intelligence Community.
Soviet Minister Nikolay Panichev has replaced Boris Balmont as Minister of the Machine Tool
of Machine Tool and Tool Building Industry, according to TASS. Balmont, who had held the
Industry Replaced post since 1981, was said to have retired, although he is only 59. The change
reflects General Secretary Gorbachev's determination to root out resistance to
his industrial modernization program. The Ministry has come under public
attack for low-quality production, and Premier Ryzhkov criticized Balmont
last month for failure to support managerial reorganization intended to spur
technological innovation and to raise efficiency. Balmont had also proposed
performance targets for his Ministry that were less ambitious than national
plans. Panichev is a strong proponent of rapid retooling and modernization of
the machine tool industry. He favors the importation of Western robots and
control systems for automated equipment.
New Soviet The Soviets are developing three new civilian transport aircraft they claim will
Airliner Programs be superior to Western designs. The aircraft will emphasize efficiency and fuel
economy and will incorporate technologies roughly equivalent to current
Western state of the art-including digital avionics, sidestick controls, com-
posite materials, and turbofan engines. The new Soviet aircraft are unlikely to
match the performance of those in the West or to offer much sales competition
except in client states. Previous Soviet experience suggests the aircraft will not
meet Moscow's performance claims, in part because the USSR has been
slower than the West in introducing new manufacturing technologies. Never-
theless, the transports will probably give Aeroflot additional flexibility in
augmenting military cargo aircraft in carrying troops and, to a lesser extent,
equipment for a variety of domestic and international missions.
East German Economy East Germany reported last week that most major economic goals were met
on Target in First Half for the first half of the year. Produced national income and industrial
production both were 4.3 percent above year-earlier levels, about in line with
annual targets. East Berlin claimed that labor productivity in industry rose 8.6
percent, more than planned-high-tech sectors showed the greatest increases.
Computer output reportedly rose 112 percent and integrated circuits 30
percent. Although aggregate growth figures undoubtedly are inflated by price
increases, the economy apparently is continuing its fairly strong performance
of the past three years. The East Germans probably continued their recent
pattern of hard currency trade surplus in the first half(
The
reported acceleration of the economy in June suggests that, like last year,
second-half growth rates may be somewhat higher. Fulfillment of most annual
Secret
18 July 1986
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Secret
goals would keep growth high by East European standards and would confirm
in East German leaders' minds the wisdom of their current economic strategy.
Yugoslav The government last week reversed a two-day-old increase in bread and flour
Bread Price prices. It noted the price rise-which averaged 60 percent-would adversely
Rise Revoked affect workers and blamed regional authorities for improperly handling the
decision. The rollback follows public warnings by some officials in poorer
southern Yugoslavia that the price hikes could increase public discontent.
Food prices in June were 109 percent above levels a year earlier. Such a quick
turnabout is highly unusual and spoils the impression of decisiveness and
organization that Premier Mikulic's new government is trying to project.
Belgrade outlined its broad new price policy only two weeks ago and is already
considering other changes. Despite desiring government action on the econo-
my, the public remains unwilling to accept subsidy reductions. Mikulic will
have to improve coordination with regional and public bodies to implement
other price policies, as well as his broader program for economic recovery.
31 Secret
18 July 1986
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Secret
Secret
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Directorate of
Intelligence
Economic & Energy
Indicators
DI EEI 86-015
18 July 1986
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This publication is prepared for the use of US Government
officials, and the format, coverage, and content are designed to
meet their specific requirements. US Government officials may
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liaison channels from the Central Intelligence Agency.
Requesters outside the US Government may obtain subscriptions to
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or: National Technical Information Service
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Economic & Energy
Indicators
Economic Industrial Production
Money Supply
Unemployment Rate
Foreign Trade
Current Account Balance
Export Prices in US $
Import Prices in US $
Exchange Rate Trends
Money Market Rates
Agricultural Prices
Industrial Materials Prices
World Crude Oil Production, Excluding Natural Gas Liquids 8
Big Seven: Inland Oil Consumption 9
Big Seven: Crude Oil Imports 9
Crude Oil Prices 10
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Percent chan
seasonally adj
ge from prev
usted at an
ious period
annual rate
United States
2.6
-7.2
5.9
11.6
2.3
0.5
-10.9
5.9
-7.4
0.4
3.5
11.1
4.6
0.7
-2.9
0
4.0
West Germany
-2.3
-3.2
0.3
2.4
4.8
-0.6
-23.7
72.6
France
-2.6
-1.5
1.1
2.5
0.5
-4.9
0
42.7
United Kingdom
-3.9
2.1
3.9
1.3
4.7
1.9
-1.1
14.0
-1.6
-3.1
-3.2
3.3
1.2
11.7
44.9
16.4
0.5
-10.0
5.3
8.8
4.3
0
-31.9
41.1
Percent change from previous period
seasonally adjusted at an annual rate
United States
2.5
-2.1
3.5
6.5
2.2
1.1
3.0 0.7 2.9
4.1
3.1
3.3
5.0
4.5
5.8
3.0 5.5 -2.1
West Germany
-0.2
-1.0
1.5
3.0
2.4
6.8
6.8 -0.2 -6.5
United Kingdom
-1.4
1.9
3.4
2.6
3.3
6.4
-1.1 1.8 2.9
0.2
-0.5
-0.2
2.8
2.3
5.8
1.0 2.3 5.3
Canada
3.3
-4.4
3.3
5.0
4.5
3.2
7.0 5.4
Percent change from previous period
seasonally adjusted at an annual rate
United States
10.3
6.2
3.2
4.3
3.5
1.4
-3.3 2.2
Japan
4.9
2.6
1.8
2.3
2.0
0.1
0.7 1.3 -0.7
West Germany
6.0
5.3
3.3
2.4
2.2
-0.9
-1.2 0.2 0.6
France
13.3
12.0
9.5
7.7
5.8
0.8
1.8 2.6 5.0
United Kingdom
11.9
8.6
4.6
5.0
16.4
14.9
10.6
8.6
6.2
3.5 5.5 7.6
10.8
5.8
4.3
4.0
4.8
2.7 5.2
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Money Supply, M-1 a
United States b
7.1
6.6
11.2
7.0
9.1
Japan
3.7
7.1
3.7
2.8
5.0
West Germany
1.1
3.6
10.2
3.3
4.4
France
12.2
13.9
8.7
United Kingdom
NA
NA
13.0
14.7
16.7
Italy
11.2
11.6
15.1
12.3
13.7
Canada
3.8
a Based on amounts in national currency units.
b Including M1-A and M1-B.
Percent change from previous period
seasonally adjusted at an annual rate
1st Qtr
Mar
Apr
May
7.9
15.0
15.5
25.9
7.7
13.6
9.4
8.9
9.8
44.9
1.9
-5.8
4.8
61.3
-9.7
-10.1
9.0
34.8
30.5
65.4
Unemployment Rate a
1981
1982
1983
1984
1985
1986
Year
4th Qtr
1st Qtr
Apr
May
Jun
7.1
6.9
7.0
7.0
7.2
7.0
2.6
2.8
2.6
2.9
2.7
West Germany
5.6
9.0
10.2
9.0
8.5
8.4
France
7.6
9.7
9.8
9.9
9.9
10.0
United Kingdom
10.0
11.6
12.4
12.4
12.9
12.9
13.1
13.2
13.3
Italy
8.4
9.1
9.9
10.4
10.7
11.0
11.5
Canada
7.5
11.1
11.9
11.3
10.5
10.2
9.7
9.6
9.6
9.1
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Foreign Trade
United States b
Exports
Imports
Balance
Japan
Exports
Imports
Balance
West Germany
Exports
Imports c
Balance
France
Exports
Imports
Balance
United Kingdom
Exports
Imports
Balance
Italy
Exports
Imports
Balance
Canada
Exports
Imports
Balance
1981
1982
1983
1984
1985
1986
Year
4th Qtr
1st Qtr
Mar
Apr
May
233.5
212.3
200.7
217.6
213.3
52.4
261.0
244.0
258.0
325.7
345.3
89.2
-27
5
-31.6
-57.4
-108.1
-132.0 '
-36.8
.
149
6
138.2
145.4
168.1
173.9
47.2
48.1
15.8
16.7
17.6
.
129
5
119.6
114.0
124.1
118.0
30.3
30.2
9.4
9.7
9.1
.
1
20
18.6
31.4
44.0
55.9
16.8
17.9
6.4
7.0
8.5
.
175
4
176.4
169.5
171.9
184.3
51.3
55.0
17.4
21.8
17.6
4
4
.
4
163
155.3
152.9
153.1
158.9
43.8
45.0
14.2
17.2
.
1
.
11.9
21.1
16.6
18.8
25.3
7.5
10.1
3.2
4.6
3.2
106
3
96.4
95.1
97.5
101.9
28.8
30.4
9.9
9.9
9.7
.
6
115
110.5
101.0
100.3
104.5
29.2
30.3
10.2
10.6
10.0
.
-9.3
-14.0
-5.9
-2.8
-2.6
-0.4
0.1
-0.4
-0.7
-0.3
102
5
97.1
92.1
93.6
100.9
27.3
26.2
8.4
9.1
8.9
.
94
6
93.1
93.7
99.3
103.5
27.6
28.3
10.2
9.5
9.9
.
7.9
4.0
-1.6
-5.7
-2.5
-0.3
-2.0
-1.8
-0.4
-1.0
4
75
73.9
72.8
73.5
78.8
22.5
23.4
7.7
8.2
8.1
9
.
91
2
86.7
80.6
84.4
90.8
26.1
26.5
8.5
8.2
7.
2
.
-15.9
-12.8
-7.9
-10.9
-11.9
-3.6
-3.1
-0.8
0
0.
70
5
5
68
73.7
86.5
88.0
22.5
21.6
6.7
7.4
7.0
.
4
64
.
1
54
59.3
70.6
75.7
19.6
19.8
5.8
6.6
6.4
.
6.1
.
14.4
14.4
15.9
12.3
2.9
1.8
1.0
0.8
0.6
a Seasonally adjusted.
b Imports are customs values.
Imports are c.i.f.
Current Account Balance
1981 1982 1983 1984 1985 1986
Japan 4.8
Year 4th Qtr 1st Qtr Mar Apr May
-8.1 46.6 -106.5 -117.7 -33.7 -33.7
2.1 2.4 2.6 -0.4 -0.7 -2.1
a Seasonally adjusted; converted to US dollars at current market
rates of exchange.
J
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Export Prices in US $
Percent change from previous period
at an annual rate
United States
9.2
1.5
1.0
1.4
-0.7
-12.0
7.7
-2.4
2
1'
Japan
5.5
-6.4
-2.4
0.2
-0.6
111.0
-5.7
48.1
.
West Germany
-14.9
-2.8
-3.2
-7.1
0
60.5
32.7
0
1
20
3
France
-12.0
-5.5
-4.8
-2.9
2.5
34.7
28.0
.
.
United Kingdom
NA
NA
-6.2
-5.1
2.3
-16.0
26.4
6
0
9
1
Italy
-7.8
-3.0
-4.4
-5.2
-0.3
.
.
17.2
-10.1
19.1
-2.5
Import Prices in US $
Percent change from previous period
at an annual rate
5.3
-2.0
-3.7
1.7
-2.4
-9.2
-29.6
-6
8
y
-2
4
3.6
-7.4
-5.0
-2.8
-4.3
46.8
-66.7
.
-59
0
.
-8.6
-4.7
-5.2
-4.8
-1.5
12.7
-2.5
.
-23
5
-7
9
-7.8
-7.2
-7.0
-3.8
-0.3
19.7
16.9
.
.
-5.7
-4.5
0.5
-2.0
26.2
-3
6
3
9
-6.6
-3.7
-1.0
.
.
-2.1
6.5
0
21.1
-2.6
Apr Ma
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400080005-7
Exchange Rate Trends
Percent change from previous period
at an annual rate
United States
10.5
10.6
5.8
9.1
6.3
-17.8
-20.3
-4.5
-13.7
Japan
9.3
-5.7
10.4
6.2
6.8
26.8
26.2
22.1
81.8
7
2
3
11
West Germany
-2.1
7.0
5.8
1.0
1.7
8.5
4.0
.
.
-5.1
-6.1
-4.7
-2.1
.2.7
5.8
2.0
-31.1
-3.1
38
0
11
8
United Kingdom
2.5
-2.1
-5.0
-2.5
2.0
-26.0
2.5
.
.
Italy
-9.2
-5.1
-1.6
-3.1
-3.8
5.5
4.2
-0.1
9.3
Canada
0.3
0.2
2.3
-2.3
-3.6
-13.1
-5.6
11.2
6.2
Dollar Cost of Foreign Currency
Japan 2.7
-12.9
4.6
0
-0.3
32.2
33.4
22.8
42.8
-2.2
-7.2
-5.2
-11.5
-3.3
31.3
-28.7
-20.8
-15.9
-14.7
-2.7
29.7
23.7
-39.1
15.7
-2.8
7
28
19
3
-7
7
United Kingdom -13.2
-13.4
-13.3
-11.9
-3.0
1.7
40.3
.
.
.
Italy -32.8
-18.8
-12.3
-15.6
-8.6
30.1
26.2
-4.7
18.8
-2.0
Canada -2.5
-2.9
0.1
-5.1
-5.4
-6.9
4.1
13.1
6.4
-13.1
Money Market Rates
United States
16.24
12.49
9.23
10.56
8.16
7.68
6.77
6.67
6.75
6.88
90-day certificates of
secondary market
deposit
,
Japan
loans and discounts
(2 months)
West Germany
12.19
8.82
5.78
5.96
5.40
4.51
4.52
4.47
4.55
4.55
interbank loans
(3 months)
France
15.47
14.68
12.51
11.74
9.97
8.96
7.41
7.55
7.27
7.41
interbank money market
(3 months)
United Kingdom
13.85
12.24
10.12
9.91
12.21
12.26
10.09
10.41
10.14
9.72
sterling interbank loans
(3 months)
13
66
50
12
97
11
Italy
20.13
20.15
18.16
15.91
14.95
16.00
12.71
.
.
.
Milan interbank loans
(3 months)
52
9
78
8
80
8
Canada
18.46
14.48
9.53
11.30
9.71
11.08
9.03
.
.
.
finance paper (3 months)
6
95
99
6
07
7
Eurodollars
16.87
13.25
9.69
10.86
8.41
7.91
7.00
.
.
.
3-month deposits
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400080005-7
1981
1982
1983
1984
1985
1986
Ist Qtr Apr
May
Jun
Bananas
Fresh imported,
(Total world, $ per metric ton)
214.0
217.0
232.0
243.0
110.3
109.8
106.8
109.2
NA
Beef (? per pound)
Australia
(Boneless beef,
f.o.b. US Ports)
112.4
107.4
111.1
101.0
96.6
97.6
93.5
91.2
89.3
United States
(Wholesale steer beef,
midwest markets)
100.0
101.4
97.6
100.9
90.7
87.8
83.4
85.8
81.5
Cocoa (? per pound)
89.8
74.3
92.1
106.2
98.7
95.7
84.9
81
4
81
4
Coffee ($ per pound)
1.28
1.40
1.32
1.44
1.43
2.01
1.92
.
1.77
.
1
51
Corn
(US #3 yellow,
c.i.f. Rotterdam, $ per metric ton)
150
123
148
150
125
116
113
117
.
118
Cotton
(World Cotton Prices, "A"
index, c.i.f. Osaka, US 0/lb.)
72.69
74.48
85.71
63.91
57.87
53.60
49.28
46.58
40.67
Palm Oil
(United Kingdom 5% bulk,
c.i.f., $ per metric ton)
571
445
502
730
501
289
242
237
244
Rice ($ per metric ton)
US (No. 2, milled,
4% c.i.f. Rotterdam)
632
481
514 .
514
- 484
453
440
323
293
Thai SWR
(100% grade B
c.i.f. Rotterdam)
573
362
339
310
249
236
225
221
226
Soybeans
(US #2 yellow,
c.i.f. Rotterdam, $ per metric ton)
288
244
282 ~
283
225
218
213
215
210
Soybean Oil
(Dutch, f.o.b. ex-mill,
507
447
527
727
571
407
349
343
351
$ per metric ton)
Soybean Meal
(US, c.i.f. Rotterdam
$ per metric ton)
252
219
238
197
157
188
187
184
181
Sugar
(World raw cane, f.o.b.
Caribbean Ports, spot prices ? per pound)
16.93
8.42
8.49
5.18
4.04
5.83
8.3
77.64
6.36
Tea
Average Auction (London)
(? per pound)
91.0
89.9
105.2
156.6
90.0
86.4
91.3
85.9
79.7
Wheat
(US #2. DNS
c.i.f. Rotterdam $ per metric ton)
210
187
183
182
169
172
172
163
140
Food Index a (1980=100)
88
78
86
92
81
95
98
95
88
8 The food index is com
iled b
Th
E
p
y
e
conomist for 14 food commodities which enter international trade. Commodities are weighted by 3-
year moving averages of imports into industrialized countries.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400080005-7
1981
1982 '
1983
1984
1985
1986
Aluminum (0 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
52.7
52.8
53.7
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, 0 per pound)
79.0
67.1
72.0
62.4
64.5
64.5
65.0
64.4
64.1
Gold ($ per troy ounce)
460.0
375.5
424.4
360.0
317.2
342.6
339.9
342.6
342.5
Lead a (0 per pound)
32.9
24.7
19.3
20.0
17.7
16.7
16.8
17.0
19.0
Manganese Ore
(48% Mn, $ per long ton)
82.1
79.9
Cathode major producer
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, 446.0
New York dealers' price
326.7
422.6
358.2
291.0
383.1
416.0
412.0
432.3
Rubber (0 per pound)
Synthetic b 47.5
45.7
Natural c 56.8
45.4
56.2
49.6
42.0
41.7
39.2
40.1
41.0
Silver ($ per troy ounce) 10.5
7.9
11.4
8.1
6.1
5.9
5.2
5.1
5.2
Steel Scrap d ($ per long ton) 92.0
63.1
73.2
86.4
74.4
74.0
73.2
71.5
NA
Tine (0 per pound) 641.4
581.6
590.9
556.6
543.2
357.4
257.9
249.3
244.2
Tungsten Ore 18,097
(contained metal,
$ per metric ton)
13,426
10,177
10,243
10,656
8,673
7,752
7,474
7,474
US Steel 543.5
(finished steel, composite,
$ per long ton)
567.3
590.2
611.6
617.8
551.2
551.2
554.8
NA
Zinc a (a per pound) 38.4
33.7
Lumber Index a 95
(1980= 100)
84
Industrial Materials Index 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.
Quoted on New York market.
d Average of No. I heavy melting steel scrap and No. 2 bundles
delivered to consumers at Pittsburgh, Philadelphia, and Chicago.
e This index is compiled by using the average of 10 types of lumber
whose prices are regarded as bellwethers of US lumber construction
costs.
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.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400080005-7
World Crude Oil Production
Excluding Natural Gas Liquids
1981
1982
1983
1984
19858
19868
1st Qtr
Feb
Mar
Apr
World
55,837
53,092
52,633
53,691
53,356
54,044
54,709
53
693
53
520
Non-Communist c
t
i
,
,
oun
r
es
41,602
38,810
38,228
39,257
38,692
39,758
40,423
39
407
39
181
Developed countries
,
,
12,886
13,276
13,864
14,302
14,730
15,022
15,070
14
872
13
949
United States
8,572
8,658
8,680
8,735
8,933
8,898
8,934
,
8,821
,
8
791
Canada
1,285
1,270
1,356
1,411
1,457
1,480
1,480
1
480
,
1
300
United Kin
dom
,
,
g
1,811
2,094
2,299
2,535
2,533
2,711
2,699
2
699
2
554
Norwa
,
,
y
501
518
614
700
785
856
870
860
319
Other
.717 .
736
915
921
1,022
1,077
1,087
1
012
985
Non-OPEC LDCs
6,036
6,633
6,823
7,515
7,845
7,556
7,393
,
7
605
7
712
Mexico
,
,
2,321
2,746
2,666
2,746
2,733
2,376
2,400
2,219
2
358
Egypt
598
665
689
827
874
758
600
800
,
760 ?
Other
3,117
3,222
3,468
3,942
4,238
4,422
4,393
4
586
4
594
OPEC
,
,
22,680
18,901
17,541
17,440
16,117
17,180
17,960
16
930
17
520
Algeria
803
701
699
638
645
602
550
,
600
,
600
Ecuador
211
211
236
253
280
275
220
300
300
Gabon
151
154
157
152
153
160
160
150
160
Indonesia
1,604
1,324
1,385
1,466
1,235
1,223
1
300
1
175
1
215
Iran
,
,
,
1,381
2,282
2,492
2,187
2,258
1,890
2,200
1
800
2
000
Iraq
,
,
993
972
922
1,203
1,437
1,732
1,880
1
650
1
500
Kuwait b
947
663
881
912
862
1,169
1,100
,
1
400
,
1
400
Libya
1,137
1,183
1,076
1,073
1,069
1,000
1,000
,
900
,
900
Neutral Zone c
370
317
390
410
355
276
300
230
240
Nigeria
1,445
1,298
1,241
1,393
1,464
1,417
1
400
1
550
1
650
Qatar
,
,
,
405
328
295
399
302
352
300
350
180
Saudi Arabia
9,625
6,327
4,867
4,444
3,290
4,256
4,600
4
000
4
600
UAE
,
,
1,500
1,248
1,119
1,097
1,146
1,287
1,400
1
305
1
255
Venezuela
2,108
1,893
1,781
1,813
1,621
1,541
1,550
,
1
520
,
1
520
Communist countries
1
,
,
4,235
14,282
14,405
14,434
14,664
14,286
14,286
14,286
14
339
USSR
11,800
11,830
11,864
11,728
11,749
11,350
11,350
11
350
,
11
390
China
,
,
2,024
2,042
2,121
2,286
2,496
2,496
2,496
2
496
2
496
Other
411
410
420
420
419
440
440
,
440
,
453
a Preliminary.
b Excluding Neutral Zone production, which is shown separately.
c Production is shared equally between Saudi Arabia and Kuwait.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400080005-7
Big Seven: Inland Oil Consumption
United States a
16,058
15,296
15,184
15,708
15,697
15,923
16,056
16,188
15,833
15,843
Japan
4,444
4,204
4,193
4,349
4,121
4,661
5,005
4,532
3,949
West Germany
2,120
2,024
2,009
2,012
2,060
2,096
2,406
2,141
France
1,744
1,632
1,594
1,531
1,493
1,626
2,009
1,525
1,679
1,222
United Kingdom
1,325
1,345
1,290
1,624
1,402
1,286
1,485
1,482
Italy b
1,705
1,618
1,594
1,513
1,516
1,718
1,855
1,535
1,495
Canada
1,617
1,454
. 1,354
1,348
1,344
1,346
1,374
1,183
1,239
a Including bunkers, refinery fuel, and losses.
b Principal products only prior to 1981.
Big Seven: Crude Oil Imports
May
United States
4,406
3,488
3,329
3,402
3,216
Japan
3,919
3,657
3,567
3,664
3,377
West Germany
1,591
1,451
1,307
1,335
1,284
France
1,804
1,596
1,429
1,395
1,476
United Kingdom
736
565
456
482
523
Italy
1,816
1,710
1,532
1,507
1,462
3,329
2,993
3,000
3,701
4,085
3,126
4,273
3,673
1,321
1,225
1,429
1,430
1,420
1,380
1,608
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798ROO0400080005-7
1st Qtr 2nd Qtr May Jun
OPEC Average a 30.87 34.50 33.63 29.31 28.70 28.14 28.09 28.08 28.07 28.11
(Official Sales Price)
World Average Price NA NA NA NA NA 27.16 20.67 NA 14.06 NA
a F.o.b. prices set by the government for direct sales and, in most cases, for the producing company buy-back oil. Weighted by the volume
of production.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400080005-7
Average Crude Oil Sales Price'
11.29 11.02 11.77 12.88 12.93
F17 FM FM 0 M
34.50 33.63
30.87
29.3 1 28.70 27.16
3.39
51
1973 74 75 76 77 78 79 80 81 82 83 84 85
14.03 14.06
'The 1973 price is derived from posted prices, 1974-84 prices
are derived from OPEC official sales prices, and beginning
in 1985, prices are a measure of average world sales prices.
STAT
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400080005-7
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400080005-7