INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000400200005-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 56
• Document Creation Date: December 22, 2016
• Document Release Date: July 27, 2011
• Sequence Number: 5
• Publication Date: October 10, 1986
• Content Type: REPORT

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Directorate of
Intelligence 25X1
International
Economic & Energy
Weekly
Secret
DI IEEW 86-041
10 October 1986
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Secret
International
Economic & Energy Weekly
1 Perspective-The Globalization of Financial Markets
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3 Iran: Increasing Economic Toll of the War
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7 Latin America: Changes in Debtor Strategies
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11 Prospects for Sino-Soviet Economic Relations
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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 86-041
10 October 1986
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Secret
International
Economic & Energy Weekly 25X1
Synopsis
1 Perspective-The Globalization of Financial Markets
The explosive increase in the ease, speed, size, and scope of international money
transactions is making the international financial markets a connective medium
that interlocks political and economic phenomena worldwide.
3 Iran: Increasing Economic Toll of the War
Increasingly effective Iraqi air attacks on Iran's oil refining and export systems are
substantially raising the pressure on an economy reeling from low oil prices and in-
creased war spending. The combination of these economic problems could produce
significant civilian unrest, especially if Tehran is unable to show some progress in
the war.
7 Latin America: Changes in Debtor Strategies
The foreign payments positions of the major Latin debtors are deteriorating-
despite lower interest rates-and these countries are increasingly insisting that
their debt burdens be reduced to promote economic growth. Because the cost of a
breakdown in debtor-creditor relations is high, we believe that negotiations will
continue to culminate in mutually satisfactory agreements.
11 Prospects for Sino-Soviet Economic Relations
We expect that Sino-Soviet trade will meet the goal set in the 1985 trade
agreement-$14 billion over the 1986-90 period-but will remain a small share of
each country's total trade. The technical cooperation agreement-the first in more
than 20 years-will probably unfold slowly because of Beijing's wariness of Soviet
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assistance in general and dissatisfaction with Soviet industrial technology. 125X1
iii Secret
DI IEEW 86-041
10 October 1986
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Secret
International
Economic & Energy Weekly
interlocks political and economic phenomena worldwide.
The globalization of financial markets since the mid-1970s is one of the most
revolutionary structural changes affecting the world economy today. This change
has been brought about by rapid technological advances, a wave of financial
deregulation, and the sharp increase in capital flows that accompanied the oil
shocks. As a result, traditional distinctions are blurred between domestic and
international financial markets, between different types of financial transactions,
and between who is a participant and who is not. Moreover, there has been an ex-
plosive increase in the ease, speed, size, and scope of international money
transactions, making the international financial markets a connective medium that
economic activity worldwide.
The increased capabilities of the financial system have unquestionably improved
growth and efficiency in the world economy. For the United States, globalization
has made it easier for Japanese and European capital to be tapped to finance large
US trade and fiscal deficits, and has facilitated foreign investment in the United
States. The resulting growth of the US economy, in turn, has fueled increased
rates can swell already large debt service burdens.
Despite the many benefits, however, we believe the new financial environment is
creating some potential risks. In the economic arena, the international financial
market provides a highly fluid medium through which political and economic
shocks are transmitted quickly and forcefully around the globe. As a result,
important factors such as exchange rates, interest rates, and capital flows are
increasingly sensitive to events worldwide. Such volatility can be particularly
damaging to LDC economies in which, for example, a sudden rise in world interest
of interest rate policies.
In addition, the increasingly international nature of these markets is weakening
governments' ability to carry out independent monetary and fiscal policies, while
making effective intergovernmental policy coordination increasingly elusive. Tak-
en together, these trends could heighten international disputes over such issues as
foreign investment restrictions, capital controls, and macroeconomic policies-as
demonstrated by the strained relations among the G-5 countries over coordination
Over the longer term, the new power of financial markets will accelerate the flow
of resources worldwide. Financial flows have created "capital bridges" over which
other resources-particularly productive capacity and high technology-can cross
national boundaries. Although largely beneficial to the world economy, the speed
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DI IEEW 86-041
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at which these changes occur can create significant economic and political
adjustment problems. Shifts in international payments positions, relative competi-
tiveness, and technological leadership, for example, can emerge far more rapidly in
this new environment.
We are also concerned about a number of more specific risks resulting from the
globalization of financial markets including:
? Exploitation of the system. A more complex financial system is more accessible
to governments and groups whose objectives threaten Western security interests.
In addition to the multibillion dollar narcotics money-laundering industry,
considerable evidence exists that the increased sophistication of financial
markets has facilitated the activities of those engaged in terrorism, gray arms
deals, and nuclear proliferation.
? System vulnerability. Along with financial globalization have come sharper,
more risk-taking competition among lenders, a decline in regulatory powers, the
spread of untested financial instruments, and a more complex-and perhaps
more fragile-financial communications network. These trends have led some in
financial circles to believe the system is more susceptible to a domino-type
collapse following some crisis.
Nonetheless, the continued globalization of financial markets can also promote US
interests. As the importance of the financial structure grows, Communist and
Third World countries will find it increasingly costly to remain outside this largely
Western system. Governments that do remain outside will find themselves on the
periphery of international economics and related political issues-"Albanian" of
the international community. Wider participation, coupled with the key position
the United States occupies in this global network, is likely to present opportunities
for promotion of Western political and security interests within this arena.
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Secret
Iran: Increasing Economic Toll
of the War
Increasingly effective Iraqi air attacks on Iran's oil
refining and export systems are substantially raising
the pressure on an economy reeling from low oil prices
and increased war spending. Acute shortages of con-
sumer items, soaring prices for food and other necessi-
ties, and rapidly rising unemployment have been
evident since the spring and will probably worsen in
coming months. Moreover, Iran is likely to suffer
severe shortages of heating fuel, electricity, and possi-
bly natural gas this winter. The combination of these
economic problems could produce significant civilian
unrest, especially if Tehran is unable to show some
progress in the war.
Iraqi attacks, compounded by bad weather and tech-
nical problems, have reduced Iran's oil exports since
early August to about 1.1 million b/d-600,000 b/d
below normal, given Iran's OPEC production quota.
Oil exports will probably fall below 400,000 b/d for
October. In September, the primary loading jetty on
Khark Island has been put out of action indefinitely.
the remaining operational
berth was destroyed on 6 October.
repairs had been under way at Khark,
but Tehran has not yet been able to compensate for
damage by activating floating oil terminals at Gana-
veh. Moreover, Iran's shuttle system continues to be
plagued by rough seas at its new transshipment point
at Larak Island where Iran was forced to transfer
operations following Iraq's attack on Sirri Island in
mid-August. In addition, the shuttle fleet continues to
be hampered by maintenance problems and periodic
air attacks.
Tehran needs foreign technical assistance to help
solve export problems and apparent difficulties with
oil production.
J Iran is urgently seeking assistance from for-
eign companies to rebuild and service a variety of oil
facilities in poor condition or damaged by Iraqi
attacks.
Iran may find it
difficult to acquire needed foreign expertise and spare
parts as foreign workers will be hesitant to work under
threat of Iraqi air raids, and firms are likely to
demand payment up front. In September, a foreign
drilling company in Iran ceased operations because it
had not received payments,
On top of low prices and reduced exports, Tehran's
financial position is suffering from a need for more
imports of petroleum products, higher transportation
costs, and continued oil aid to Syria. The amount of
crude oil sent overseas to be refined or swapped for
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petroleum products probably has increased by 50,000
to 100,000 b/d during the past year. The cost of
shuttling oil to Larak Island is up because of greater
distances and higher insurance costs, and Tehran has
been providing 30,000 to 40,000 b/d of free oil to
Syria. We estimate Iran's net revenue-generating oil
exports were probably 900,000 b/d in August and
September of this year, with Iran earning only an
estimated $10 per barrel after subtracting production 25X1
and transport costs. This compares with 1.6 million 25X1
b/d at $23 per barrel in August and September of 25X25X1
1985. In addition, the declining value of the dollar has
reduced the purchasing power of these revenues.F
... Squeeze the Domestic Economy
Low oil revenues and increased military expenditures
have left little foreign exchange for Iran's highly
import-dependent civilian economy. We estimate Iran
will only earn some $7 billion this year, compared
with about $15 billion last year. We believe military
spending is probably up this year to $3.5-4 billion, and
food imports have been only slightly reduced to $2-2.5
billion, meaning that the bulk of Iran's earnings is
Secret
DI /EEW 86-041
10 October 1986
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Secret
Iraqi Air Attacks on Iranian Economic Targets
Caspian
Sea
Persian
Gulf aavan isl
IANaaaa
Island
1514 ~~aa?
Sea island is ? ?;
oil-loading ge ..
terminal 11 12 S '' ~?
Undamaged
berths
Ahvoz and Manru
oilfields hit
Ba0ragijcLX
oil t inal
Boundary representation
not necessarily authoritati....
Gulf
of
Oman
6 Sept.
In ( rf Island) 10/n a
Qata
DOHA
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needed just to finance these items. Because the Cen-
tral Bank is trying to reduce short-term trade credits,
the $570 million drawdown in reserves in the first
quarter of 1980
was probably used to pay off
short-term debts and not to support imports
Huge cuts in imports of raw materials and spare parts
have forced businesses to close and put many people
out of work. We estimate unemployment is at least 30
percent. wide-
spread layoffs and shortened hours, particularly in
factories, most of which require imports. Lower gov-
ernment revenues have forded ministries to cut expen-
ditures and encourage early retirements,
Low imports and depressed domestic production have
driven up prices and caused scarcities of consumer
goods, including food and medicine. Since early this
summer, shortages of
food, especially meat and rice, throughout Iran. Some
household products such as soap are almost impossible
to find.
Energy Shortages-A Cold, Dark Winter Ahead
Iraqi attacks on refineries and pump stations will
probably cause severe shortages of gasoline and heat-
ing fuel this winter. Iraqi airstrikes on 13 September
against pumping stations supplying crude to Iran's
principal refineries-accounting for about 80 percent
of undamaged refinery capacity-will significantly
reduce production of petroleum products. We esti-
mate direct attacks on four of Iran's refineries since
May had already reduced output by 40 percent below
last year's level. Iranian officials announced this
month that consumption of gasoline must be cut by at
least 25 percent.
Iran's energy problems will be heightened by attacks
on power stations and natural gas facilities. Electric
output will also be reduced because of inadequate
supplies of gas or fuel oil from colocated refineries.
Baghdad also claims to have destroyed on 6 October
the lead compressor station on the IGAT 1 Gas 25X1
Pipeline at Bid Boland. Severe damage here would
greatly affect the availability of gas for heating and
cooking in Tehran.
Iran cannot completely offset reduced domestic pro-
duction with imports. Oil product imports, which last
year averaged about 125,000 b/d, may have risen to
as much as 250,000 b/d
= but Iran probably has little capacity to import
more because of limited port facilities. Moreover, Iran
imports most products by a shuttle system similar to
its crude export shuttle, and several product tankers
have been victims of Iraqi attacks
Iraq appears to be preparing to
at Bahrgan Sar.
attack Iran's main petroleum product import terminal
Shortages this winter of electricity, heating oils, and
diesel fuel-and possibly natural gas-could cause
serious unrest, particularly among the lower class, the
clerical regime's strongest supporters. Tehran proba-
bly will meet military fuel needs first, making civilian
shortages that much greater. Moreover, inadequate
supplies of diesel fuel will hamper distribution of
goods and worsen shortages. In past years, shortages
of heating fuel less serious than those likely this year
have prompted demonstrations.
Tehran is aware of these risks, especially if there is no
progress in the war. Majles Speaker Rafsanjani has
warned the Iranian people against overoptimistic ex-
pectations of victory, probably fearing pent-up frus-
tration over the continuing war and economic priva-
regime may have committed itself to action by public-
ly linking increased economic sacrifices to the goal of
defeating Iraq this year.
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Latin America: Changes in
Debtor Strategies
The foreign payments positions of the major Latin
debtors are deteriorating-despite lower interest
rates-because of sagging exports and low levels of
new lending. As a result, these countries are increas-
ingly insisting that their debt burdens be reduced to
promote economic growth. This shift in debtor atti-
tude has increased the risk of militant debtor actions.
Nonetheless, because the cost of a breakdown in
debtor-creditor relations is high, we believe that nego-
tiations will continue to culminate in mutually satis-
factory agreements.
The fall in oil prices is dealing a serious setback to the
export revenues and economic growth plans of Mexi-
co, Venezuela, and Ecuador. According to our calcu-
lations, Mexico's economy probably will contract 4
percent or more this year as the government pursues
austere domestic policies to adjust to an expanding
public deficit, rising inflation, and dwindling foreign
exchange reserves. Venezuela and Ecuador, while
better off than Mexico in terms of foreign exchange
and inflation, probably will have no GDP growth this
year. Although imports will be cut by $1.9 billion and
interest payments reduced by $1.5 billion, we estimate
their combined deficit will be $4.6 billion, compared
with a $3.4 billion surplus in 1985.
In contrast, the economies of Argentina, Brazil, Chile,
Colombia, and Peru are showing appreciably im-
proved GDP growth this year, according to US
Embassy reporting. All five are growing at a 4-
percent or better pace-only one country, Brazil, did
as well last year. Rising export revenues have been the
chief stimulus for the recovery of Colombia, which
has reaped windfall benefits from a sharp jump in
coffee prices. The export drives of Argentina, Brazil,
and Peru are faltering, however, because of inade-
quate steps to maintain competitive exchange rates,
slowing growth in industrial country markets, and
continuing low commodity prices. For these countries,
US Embassy reporting indicates that easier fiscal,
monetary, and wage policies underlie their economic
expansion:
? A resurgence of consumer spending in Argentina,
fed by sizable wage increases and money supply
growth, is leading to economic growth surpassing 4
percent.
? Rising real wages and growing public spending in
Brazil are fueling high consumer demand and will
result in 7-percent growth.
? Increasing domestic demand as a result of expan-
sionary credit measures, wage hikes, and reduced
taxes will be instrumental in Peru's 5-percent
growth.
Growing import demand is starting to erode the
strong trade positions of these key debtors, although it
has yet to produce cash stringencies. Argentina, Bra-
zil, and Colombia are substantially hiking their im-
ports of raw materials and capital goods to support
their reinvigorated economies-Brazil's nonoil im-
ports will be up by an estimated 30 percent over last
year. Their combined imports will rise by about 10
percent this year while export growth is lagging,
neutralizing the beneficial impact on their current
account balances of widespread savings in interest
payments
On the basis of preliminary data, we estimate that
Latin America's new foreign borrowings this year will
only slightly exceed last year's total of $24 billion.
Additional lending by multilateral banks for new
projects and structural adjustments probably will
merely offset the growing reluctance of commercial
banks this year to extend more medium-term loans to
Latin American debtors.
Secret
DI IEEW 86-041
10 October 1986
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Latin America's Key Debtors:
Payments Performance, 1985 and 1986
Exports
Imports
Balance
Interest
Payments
Current
Account
1985
1986
1985
1986
1985
1986
1985
1986
1985
1986
Total
83.8
72.2
48.1
48.1
35.7
24.1
33.4
29.7
-0.4
-8.9
Oil exporters
38.9
26.8
22.6
20.7
16.3
6.1
14.1
12.6
3.4
-4.6
Mexico
21.9
15.5
13.5
11.9
8.4
3.6
9.9
8.9
0.5
-2.6
Venezuela
14.3
9.3
7.3
7.2
7.0
2.1
3.5
2.9
3.1
-1.2
Ecuador
2.7
2.0
1.8
1.6
0.9
0.4
0.7
0.8
-0.2
-0.8
Others
44.9
45.4
25.5
27.4
19.4
18.0
19.3
17.1
-3.8
-4.3
Brazil
25.7
25.9
13.2
13.9
12.5
12.0
9.8
9.0
0
-0.5
Argentina
8.4
7.7
3.4
3.9
5.0
3.8
5.3
4.6
- 1.1
-1.8
Chile
3.8
4.0
3.0
3.0
0.8
1.0
1.9
1.8
-1.3
- 1.1
Colombia
4.0
5.3
4.0
4.3
0
1.0
1.1
1.1
-1.3
-0.4
Peru
3.0
2.5
1.9
2.3
1.1
0.2
1.2
0.6
-0.1
-0.5
Moreover, international creditors are focusing most of
the available new money on select recipients, especial-
ly Mexico. At the end of September, Mexico's bank
advisory committee agreed to extend $6 billion in new
funds as part of a $12 billion, 18-month financial
rescue package. In contrast, Argentina has seen its
receipts of new money decline by half despite a
considerably enlarged current account deficit.
bankers are withholding
greater financial resources from Argentina and other
Latin debtors, in part because of what they view as
insufficient debtor commitment to domestic economic
reforms. Buenos Aires probably will intensify pressure
on banks for new money, including contingency loans
tied to export price declines.
Debt Strategy Implications
Faced with depressed export earnings and low levels
of capital inflows, many Latin debtors, in our view,
are focusing more on alternative approaches to over-
coming their debt problems. Already, according to the
financial press, key debtors are proposing a variety of
schemes to reduce annual debt servicing burdens in
their talks with creditors. Most governments remain
willing to negotiate more favorable debt terms; Lima's
unilateral measures to limit debt payments represent
a notable exception.
Mexico made an important breakthrough last month
when, as part of its financial rescue package, it
exacted an agreement from its bank creditors to
reduce debt servicing by rescheduling outstanding
debt payments over 20 years with a seven-year grace
period and by paring the interest spread over LIBOR
by 0.3 percentage point.
Venezuela and Argentina have monitored Mexico's
negotiations with its creditors very closely and have
indicated they also will seek a comparable debt
rescheduling-in addition to new money-because of
their similar plight stemming from plunging export
prices.
Brazil has attracted considerable international atten-
tion with its self-proclaimed goal of reducing its debt
servicing payments as a share of GDP from more than
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4 percent this year to about 2.5 percent in 1987.
During his visit to Washington last month, President
Sarney insisted that Brazil must negotiate both lower
annual payments in order to boost imports, and
investment to support high economic growth. Brazil-
ian officials have indicated they may be able to attain
their reduced debt payment goal by maintaining
strong GDP growth, negotiating a switch in interest
rate payments from US prime to LIBOR, and reduc-
ing the spread on 1986-91 maturities. The US Embas-
sy believes Brasilia will be a tough negotiator in its
quest for these concessions during planned negotia-
tions for a multiyear debt rescheduling beginning this
fall.
We believe recent and ongoing developments in inter-
national markets-including sluggish world demand
for exports, private bank unwillingness to substantial-
ly increase lending, the precedents set by the Mexican
agreement, and the growing disenchantment among
debtor countries with continuing debt accumulation-
have hardened debtor attitudes and increased the risk
of militant debtor actions. Negotiations, however, will
continue to culminate in mutually satisfactory accom-
modations because the costs to both parties of a
breakdown in relations are high.
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Prospects for Sino-Soviet
Economic Relations
Last month's trip to Beijing by Soviet First Deputy
Premier Talyzin resulted in two agreements that will
facilitate implementation of the five-year accords on
trade and technical cooperation signed in July 1985.
We expect that Sino-Soviet trade will meet the goal
set in the 1985 trade agreement-$14 billion over the
1986-90 period. Even so, Sino-Soviet trade will re-
main a small share-less than 5 percent-of each
country's total trade.' The technical cooperation
agreement-the first in more than 20 years-will
probably unfold slowly because of Beijing's wariness
of Soviet assistance in general and dissatisfaction with
Soviet industrial technology. In any case, a growing
economic relationship between the two countries will
not inhibit US sales to China except in a few areas,
such as timber, fertilizers, coal, and some industrial
chemicals.
The Five-Year Agreements: Setting the
Stage for Closer Economic Ties
In July 1985, China and the USSR signed separate
barter agreements on trade and economic cooperation
over the 1986-90 period. The trade agreement-
under which two-way trade is to total $14 billion over
the five-year period-established a framework for
negotiating yearly trade protocols: annual accounting
would continue as the norm, with negotiators meeting
at yearend to discuss any imbalances in trade, which
must then be settled by the end of the first quarter of
the subsequent year. The cooperation agreement, the
first in more than 20 years, permitted China to pay
over a multiyear period for imports of capital goods
and technical assistance acquired under that pact.
The Talyzin Visit: Ironing Out the Details
The Talyzin delegation met with Chinese officials in
Beijing to discuss trade and technical cooperation
under agreements signed in July 1985. Two agree-
ments were signed during the visit. A consular agree-
ment provides for trips to China by Soviet experts,
students, and professors, and permits Chinese diplo-
mats to transit the Soviet Union by train en route to
Europe. A cooperation agreement between the State
Planning Commissions of both countries provides a
formal framework for the trade and commercial
exchanges to take place through 1990.
Although the Soviets have implied that the meetings
covered political as well as economic issues, China's
hardline response to General Secretary Gorbachev's
28 July speech on improving relations with Asian
countries leads us to believe that no political agree-
ments were reached. Planning for the Talyzin visit
began long before the speech; the Talyzin trip recipro-
cated a trip to the USSR by Yao Yilin last year to
sign the trade and economic cooperation agreements.
Bilateral Trade: Expanding Within Limits
We expect Beijing and Moscow to have little diffi-
culty reaching the $14 billion cumulative target for
1986-90 trade. If two-way trade is $2.5 billion in
1986-the minimum we expect-then it need average
only $2.9 billion per year for the rest of the decade.
Growth much beyond that level will be constrained by
the cumbersome barter arrangement. Representatives
meet annually to negotiate a detailed list of trade
goods, including price and quantity. These negotia-
tions are often prolonged and arduous, as each coun-
try tries to sell its top-quality goods on world markets
for foreign exchange, and leaves lower quality items
for barter trade. In addition, China may have trouble
supplying the enormous volume of goods-in quality
and prices acceptable to Moscow-that will be needed
to pay for both trade and technical assistance. More-
over, the strain on already burdened transportation
links between the two countries will interfere with
deliveries over the next few years. Rail transport is so
Secret
DI JEEW 86-041
10 October 1986
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Secret
China: Trade With the Soviet Union,
1980-85
I ~ ~ I
0 1980 81 82 83 84 85
tight that many products are shipped by sea, and port
congestion ties up both ships and cargoes. Planned
improvements in rail and shipping facilities will not
provide significant relief for several years.
Technical Cooperation: Inching Forward
Earlier this year, Beijing and Moscow fleshed out
some of the details of industrial cooperation under the
1985 accord. The countries are exploring the possi-
bility of Soviet assistance to China in renovating 17
factories and in building seven new enterprises. Both
sides have agreed on cooperation in electric power,
metallurgy, machinery, textiles, and coal-processing
industries; the Soviets have also proposed assistance in
nuclear energy, although Beijing's response has been
lukewarm-especially since the Chernobyl' accident.
The two countries probably discussed additional pro-
jects during the Talyzin visit, but, to date, have
ly on a barter basis.
The Soviets obtain Chinese foodstuffs, consumer
goods (textiles, footwear, household goods), and
metal ores primarily to meet demand in the Soviet
Far East, which has suffered from shortages and high
costs for transporting goods from the European
USSR. In return, China acquires unsophisticated
manufacturing equipment; such materials as timber,
steel, and nonferrous metals; and transportation
equipment, including aircraft, locomotives, and
trucks. Sino-Soviet trade is conducted almost entire-
We estimate that informal trade between the border
regions represents less than 1 percent of total China-
USSR trade but believe it is likely to increase. This
trade is conducted between Chinese provincial au-
thorities and Soviet Far Eastern trade officials. It is
not clear how much of it is counted under the
national agreement. At a recent conference in Harbin,
several Chinese provinces began making arrange-
ments to engage in border trade with the USSR using
Heilongjiang Province as an agent or facilitator. If
these ties come to fruition, we expect border trade to
increase rapidly. Beijing then may require such trade
to pass through national channels to maintain some
control over Sino-Soviet trade and to ensure that
exchanged goods are properly counted against the
bilateral trade agreement
cooperate directly, including joint ventures.
provided few details. One Western newspaper, citing
Soviet sources, indicated that the program would
require more than 100 Soviet experts to be sent to
China over the next few years. The sources also hinted
that the Soviets might eventually provide technical
assistance for the modernization of up to 100 Chinese
factories. According to Embassy reporting, negotia-
tors agreed that Chinese technical experts would soon
begin making two- to three-week visits to the Soviet
Union to assess the appropriateness of Soviet technol-
ogy. Talyzin reportedly also raised the possibility of
finding ways for Soviet and Chinese enterprises to
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Constraining Sino-Soviet technical cooperation is
China's dissatisfaction with the out-of-date technol-
ogy the Soviets are offering. Beijing prefers to up-
grade factories with more sophisticated-if more ex-
pensive-US, Japanese, or West European assistance.
Beijing may approve only 10 of the 24 projects; an
evaluation by China's Ministry of Machine-Building
Industry reportedly rejected the other 14 on technical
grounds. Moreover, extended technical cooperation
will depend largely on Beijing's perception of the costs
in goods as well as the attitude of Chinese officials
toward having on-site participation by Soviets. Tech-
nical cooperation, like trade, will also be limited by
China's need to produce and transport goods with
which to pay for Soviet advice and equipment. If early
projects proceed smoothly, we expect additional Sovi-
et involvement. The technical cooperation program
could be abruptly terminated, however, if Soviet
interest in cultivating the appearance of closer ties
diminishes, or if Soviet officials grow weary of Bei-
jing's pointed efforts to showcase the economic
achievements China has made since moving away
from the Soviet economic model.
Both countries benefit from the trade relationship,
especially because it is conducted almost entirely on a
barter basis. China's interest in barter has grown
because the country's foreign exchange reserves have
declined over the past two years; Beijing views trade
with the Soviets as one way to acquire needed goods
without exceeding China's 1985 record total trade
deficit and further drawing down foreign exchange.
The Soviets, too, have foreign exchange problems and
are looking to increase noncash trade.
Beijing stands to derive several benefits from techni-
cal cooperation with the USSR as well. Soviet tech-
nology is, for the most part, ahead of China's but not
so advanced as to cause the same absorption problems
that have occurred with some advanced Western
technologies introduced to China. Moreover, China
will be getting assistance in heavy industry, a sector
that Chinese officials claim Western investors gener-
ally avoid. We believe another factor that makes these
projects acceptable to Beijing is the relatively short
duration of the prospective Soviet presence at the
project sites.
In our view, Moscow gains primarily the appearance
of warming relations with Beijing. But the Soviets will
also be able to export Soviet capital equipment and
technical assistance-for which there is little demand
in the West-in exchange for Chinese goods. Moscow
may also hope to gain access to some of the Western
technology or equipment that has been integrated into
China's factories, although we expect the Chinese to
strictly limit Soviet access to sophisticated Western
hardware.
Minimal Impact on Sino-US Trade
We do not expect expanded Sino-Soviet trade to cut
substantially into US-China trade, largely because of
China's clear preference for advanced Western goods.
As a result, China will continue to need US expertise
and equipment for development of its industries,
services, and infrastructure. The Chinese will, howev-
er, use every opportunity to use barter rather than
foreign exchange, and increased purchases of Soviet
raw materials or low-level technology goods-timber,
coal, nitrogen fertilizer, selected industrial chemicals,
and basic machine tools, for example-may dampen
some US sales. On the export side, Soviet markets
provide China an outlet for products that the United
States and other Western governments restrict, such
as textiles and footwear.
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Briefs
Saudi-Iraqi Contrary to oil trade press reports, pump station construction work on Petroline,
Pipeline Construction which carries crude oil from eastern Saudi oilfields to the Red Sea, will not
prevent export operations during November and December, according to the US
Embassy in London. Saudi Red Sea exports are expected to drop 150,000 b/d-to
an average of 500,000 b/d-during the two months, but customers will receive
replacement deliveries at Saudi Persian Gulf terminals,
between Riyadh and Baghdad on export levels continue. The Saudis will have little
difficulty maintaining overall export levels at their east coast terminals. If Riyadh
reduces Iraqi exports through the Red Sea port of Yanbu al Bahr, it is likely to off-
set the decrease by selling its own oil on Iraq's behalf. Iraq will probably receive an
increase in the volume of oil it can export at Yanbu al Bahr when construction
work to expand the line's capacity by more than two-thirds, to about 3.2 million
b/d, is completed, probably early next year.
China's Offshore The Japan-China Oil Development Corporation in November will resume develop-
Oil Cooperation ment of its second offshore field in Bohai Bay, according to the US Embassy in
With Japan Resumes Tokyo. Falling world oil prices had forced the joint venture last April to suspend
activity at the BZ-28 oil reservoir,- believed to have recoverable reserves of 22
million barrels. To improve profitability, the Japanese have since downscaled
production plans for the site from 9,000 b/d to 8,000 b/d, which they claim will al-
low them to cut investment costs by $60 million, to $140 million. Production is now
scheduled to begin in late 1988, a full year behind the original schedule. China
now sees little chance of developing offshore oil production at levels anywhere near
the 1 million b/d initially hoped for by the early 1990s.
Alberta Considers In answer to energy industry demands for provincial concessions matching the
Floor Price for Oil federal government's elimination of the Petroleum and Gas Revenue Tax, Alberta
is considering an $18 per barrel floor price for the first 1,000 barrels of an oil com-
pany's daily production. The difference between the market and floor prices would
be granted to the producer as an interest-free loan, repayable only when prices top
$18 per barrel. Though originally conceived as a joint provincial/ federal program,
Ottawa is unlikely to participate because of its budget problems. Cash-strapped
Albertan producers are disdainful of the floor pricing scheme, however, and favor
instead reductions in provincial royalty rates. Such reductions, however, would
severely aggravate Alberta's budget deficit and are opposed by Albertan Premier
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Getty, who favors the floor price idea because it provides relief to independent
producers. Getty plans to have an aid program in place by the end of October but
may face possible US charges that the floor price mechanism is a direct subsidy.
Dutch The Dutch Government recently delayed the construction of two nuclear power
Nuclear Power plants until at least spring 1988. In the interim, the government will study the im-
Program Delayed plications of the Chernobyl' disaster and will commission an outside study on the
safety of existing Dutch nucler plants. The two plants were approved in 1985 to re-
duce Dutch dependence on imported energy and were originally scheduled to be on
line by 1995. Delays involving site selection and the location of nuclear waste
disposal sites, however, had limited progress even before Chernobyl'. To meet the
anticipated shortfall in electricity production caused by the postponement, the
Dutch Electricity Utilities Association is expected to announce the construction of
two coal-fired power plants later this year. That decision will force the utilities to
search for new sources of coal because the Dutch have ceased importing South
Panamanian Debt Negotiations between Panama and its major creditors continue on new reschedul-
Rescheduling Delayed ing and financing packages, but slow progress in implementing a proposed second
World Bank structural adjustment loan (SAL-II) will probably delay final
agreement until 1987. The major difficulty is the footdragging by the Delvalle
government in reforming the social security system and privatizing public-sector
enterprises-key conditions required by the World Bank. Because of the delays,
talks with the bank advisory committee are on hold. In late September, Panama
delayed its formal request for a rescheduling of $1.2 billion in maturities due
between 1987 and 1990 and a new $200 million loan, probably until at least 1 Jan-
uary 1987. Commercial creditors reportedly persuaded Panama to withhold its
request until the full $60 million of the 1985-86 commercial refinancing package is
fully distributed-$21 million has been disbursed already-and the SAL-II is
finalized. With prospects for signing the SAL-II this year decreasing, creditor
banks may have to meet again to consider either a short-term rollover of maturities
due after 1 January 1987 or disbursement of the remaining $39 million from the
Bolivia Meets Bolivia is in full compliance with the targets in its current IMF standby
IMF Targets agreement. For example, its fiscal deficit will probably fall to 3.7 percent of GDP
this year, compared with a target of 6.4 percent and a deficit of 14 percent in 1985.
Bolivia may qualify for a $60 million compensatory
financing facility in addition to the $40 million it is already scheduled to receive
this year. Nevertheless, serious economic problems remain. High real interest rates
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are discouraging investment and creating a shortage of working capital. In
addition, according to the US Embassy, the exchange rate is becoming overvalued.
Although the consumer price index has risen 59 percent since December, the
exchange rate has dropped only 13 percent, hurting exports and promoting capital
flight. Because of these and other factors, such as the decline in world prices for tin
and natural gas-Bolivia's main exports-we expect a 3- to 4-percent decline in
GDP this year, adding to serious unemployment problems.
EC-Hong Kong Last week the EC and Hong Kong renewed their textile agreement-the latest in a
Textile Accord series of EC bilateral agreements designed to limit the share of its textile market
held by major exporters. The five-year agreement, which expires at the end of
1991, provides for increases in sales of less than 1 percent per year for the eight
sensitive product categories that account for about one-half of Hong Kong's textile
exports to the EC. Larger increases were agreed to for less sensitive categories.
Hong Kong will also be allowed to transfer unused quota allocations among EC
member states. The EC has now concluded bilateral agreements with 23 of its 26
leading textile suppliers. Only negotiations with India, Yugoslavia, and Uruguay
remain to be completed. The agreements, which fall under the auspices of the
GATT Multifiber Arrangement, are used by the EC to protect its textile industry,
which is in the midst of restructuring to boost productivity and competitiveness.
Without the agreements, textile exporters might face even tighter unilateral
restrictions.
Malaysian Official Although Malaysian firms engage substantially in countertrade, a Malaysian
Warns of Countertrade official has expressed deep concern over the dangers from increased barter activity
Dangers by ASEAN. Four of the six ASEAN countries-Indonesia, Malaysia, the
Philippines, and Thailand-now engage heavily in countertrade. The official's
concern stems from past Malaysian countertrade deals-approximately $100
million with Japan, over $74 million with Egypt, and $20 million with West
Germany, in addition to deals with the Soviet Bloc, Western Europe, and Brazil.
Along with the lack of foreign exchange, the growing epidemic of barter deals will
impair Southeast Asia's economic independence, growth, and development. In
addition, countertrade jeopardizes the expansion of multilateral trade and is
contrary to free trade; entails high transaction costs and limited choice of goods;
and the goods received often lead to dumping and distorted competition. Moreover,
countertrade does not result in stable trade relations.
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Global and Regional Developments
Pakistan-India Construction of a dam by the Indians on the Jhelum river in Jammu and Kashmir
Water Dispute is adding another irritant to already strained Indo-Pakistani relations. According
to press reports, Pakistani officials are concerned that the proposed reservoir would
allow India to divert 300,000 acre feet of water from Islamabad's Mangla
Reservoir-a major source of hydroelectric power and irrigation water-instead of
the 10,000 acre feet that is permitted . Islamabad claims that, under the terms of
the Indus Water Treaty of 1960 that granted Pakistan the water rights to three
western rivers-Indus, Jhelum, and Chenab-and India the rights to three eastern
rivers-Sutlej, Beas, and Ravi-Pakistan is entitled to an uninterrupted flow of
Jhelum river water. Pakistani officials are skeptical of New Delhi's claims that the
main purpose of the dam is to improve year-round navigation and believe that the
Indians intend to divert a portion of the river's flow. New Delhi has not yet
publicly responded to Pakistan's charge, but construction is going ahead, accord-
ing to official Pakistani statements quoting Pakistani members of the Indus Water
Treaty Commission.
EC Response to EC countries plan no new sanctions against South Africa in response to US
US Sanctions on Congressional action last week. The British, who hold the EC presidency through
South Africa the end of the year, intend to shift the focus of Community discussions toward
"positive measures," according to the US Embassy in London. An official West
German spokesman said on Friday that Bonn still doubts the efficacy of sanctions.
The British continue to worry that tougher sanctions by others, particularly the
United States and Japan, could force the EC to take additional measures, as could
increased violence in South Africa. The Foreign Office appears hopeful, however,
that EC agreement on limited sanctions in mid-September will permit the EC to
concentrate now on positive measures, such as greater economic assistance to
South African blacks. Should some EC countries such as the Netherlands urge a
tougher stance, British, West German, and Portuguese reluctance is likely to
preclude early movement in this direction.
Japan Pays Off on Reversing its earlier position, MITI last week paid $195 million in export
North Korean Debt insurance claims on the long unpaid North Korean debt. MITI-which has not
provided export insurance on credits to North Korea since 1975-may have been
responding to pressure from at least 10 large and politically important Japanese
trading companies, increasingly frustrated over North Korea's reneging on debt
repayments and stalling on negotiating a fourth debt rescheduling pact. North
Korea-which owes $455 million to Japanese creditors-reportedly has made no
payments since 1982. It is not clear why P'yongyang has not at least made token
payments-as it has from time to time to its West European and even Soviet
creditors. Perhaps it reflects P'yongyang's resentment of Japanese sanctions
following the Rangoon incident and Tokyo's active support of South Korea on
international issues. Moreover, P'yongyang feels that the Korean businessmen in
Japan should help the North more, even though they are carrying numerous
unpaid North Korean debts on their books. Tokyo's payment of insurance claims
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Water Dispute Between Pakistan and India in Jammu and Kashmir
Soviet
Union
The Indus Water
granted Pakistt
of the tndus4he
Boundary representation is
not necessarily authoritative.
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Secret
would normally damage trade between the two countries, but the North is already
near the bottom of Japan's-and everyone else's-credit rating list. Moreover,
imports from Japan are already down as a result of North Korea's inability to pay
and the unwillingness of Japanese firms to extend new credits. In fact, MITI's ac-
tion might actually clear the air enough to allow some expansion of commercial ac-
Tokyo Emerges as Japan has become India's largest bilateral source of official development assis-
Main Source of tance. Tokyo has agreed to provide India with $336 million in development aid this
Indian Aid fiscal year, almost double the annual average amount Tokyo extended between
1975 and 1985. In our view, Tokyo's motive is to establish a dominant position in
the Indian market as Gandhi seeks to modernize the economy. Japanese funds are
mainly used for financing projects in electric power, gas, telecommunications,
transportation, fertilizer plants, and mining. While New Delhi has accepted the
assistance, it is not pleased with terms that tie the aid to the purchase of Japanese
goods. At the same time, the United States, India's other major source of advanced
technology and equipment, is providing New Delhi with $152 million in develop-
ment assistance-a drop of about 20 percent over last year.
Long-Term Northwest Airlines has agreed to purchase up to 100 Airbus A320 aircraft. The
Implications of unusually flexible contract-10 firm sales and 90 options-worth some $3 billion
Northwest's represents the second sale of the 150-seat, narrow-body A320 to a major US
Airbus Purchase airline. We believe the agreement adds to Airbus's worldwide prestige and makes
additional A320 sales more promising, especially to airlines with hubs tied to
Northwest. Airbus sales of 75 aircraft thus far in 1986 bring total A320 orders to
over 350 (144 firm and 223 options). We believe the growing order book increases
the likelihood that Airbus officials will pressure consortium governments to go
forward with two new longer range widebodies-the twin engine A330 and the
four engine A340. Overall, sales of the A320, coupled with orders for US Boeing
737s and MD80s, now total some 1,000 aircraft, more than one-half the projected
demand for the 150-seat design. This high level of orders for existing aircraft may
translate into delays for new technology aircraft such as the unducted fan, pushing
Angola To Reduce Angolan officials plan to reduce Soviet
Soviet Bloc Role and Eastern Bloc participation in the $1.2 billion Kapanda Dam Project. This is
in Dam Project due in part to the Angolan view that the Soviets are unwelcome exploiters.
Attempts by the Cubans to participate in the project have also been denied
because of their reputation for pillaging Angola. The official noted that the Soviet
Bloc and Cuba have a history of not fulfilling their promises in major deals.
Meanwhile the Angolan Government plans to expand the role and financial
participation of Brazilian firms. Brazilian participation-originally limited to
$320 million in contracts that have already been signed-will eventually expand to
$780 million. As a result, purchases of Soviet equipment and services will be cut by
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Secret
$460 million. The Brazilians have also agreed to develop the areas surrounding the
two workers' villages that will house troops as well as a large
number of Brazilians and will provide formidable barriers on the two main
approach roads to Luanda.
Developed Countries
Ottawa Permits Ottawa's decision to permit Lloyd's Bank of London to purchase the troubled
Foreign Takeover of Continental Bank has been criticized for increasing foreign ownership in the
Small Canadian Bank Canadian banking sector. The criticism is more political than economic, however,
since the acquisition raises foreign participation in the sector to only 10.5 percent,
still well below the 16-percent upper limit authorized under the Bank Act.
Ottawa's acquiescence to the purchase probably reflects a desire to avoid further
bailout-government loans to the bank were equivalent to 40 percent of its assets.
Though essentially sound, the Continental had been unable to regain deposits lost
last year when a liquidity crisis swept through a number of small Canadian banks
following the first Canadian bank failures in 62 years. The opposition parties will
argue that the problems affecting Canada's small banks stem from the Tories'
incompetent handling of the initial crisis. They are also certain to claim that
Ottawa's action will invite foreign bidders for the Bank of British Columbia-
another small Canadian bank that is looking for a merger partner.
South African Foreign Minister Botha's threats to boycott US grain and to refuse to transport
Threats of US grain to other southern African states probably are intended as a show of
Countersanctions strength for the South African audience. South Africa imported more than $60
million worth of US wheat, rice, and corn last year. Its landlocked neighbors
imported more than $10 million worth of US grain, mostly wheat. While Pretoria
is likely to carry through on its threat to boycott US grain products, it probably
would not hinder US shipments of food aid to its neighbors. A three-year drought
has ended, and South Africa's grain requirements are much lower this year than in
1985. The worldwide grain surplus will enable Pretoria to find alternative sources,
possibly even at lower prices. However, Pretoria's neighbors, highly dependent on
South Africa's transportation could be hurt by additional South African attempts
to shift the burden of sanctions to the region.
Australia Protests Trade Minister Dawkins warned publicly last week that bilateral relations could
Proposed US be endangered if Washington passes legislation that would maintain US imports of
Legislation Caribbean and Ecuadorean sugar and increase Philippine quotas at the expense of
Australian sugar sales. Dawkins claims that the proposed legislation-an amend-
ment to a drug enforcement bill-violates international trade agreements that
prohibit discrimination among trade partners in the allocation of quotas. Canberra
fears it may lose much of its $54 million in annual sugar sales to the United States,
Australia's second-largest market. The perceived threat of losing the US market
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has revived charges of unfair US agricultural trade practices. The US offer in July
to subsidize Soviet wheat purchases angered and embarrassed Prime Minister
Hawke and led rural politicians and members of the Labor Party's left wing to call
for a reappraisal of US-Australian joint defense facilities. Although Hawke has so
far rejected linking trade and defense issues, a reduction in US imports of
Australian sugar would increase the pressure on him to do so.
Less Developed Countries
Brazil's Industrial Strong consumer demand is fueling rapid industrial growth this year, but a
Sector Boom slowdown is likely in 1987. Output from Sao Paulo's industrial park, which
accounts for more than 70 percent of Brazil's total industrial production, rose more
than 11 percent during the first seven months of this year, according to recently re-
leased statistics. Burgeoning consumer demand-spurred by real wage boosts and
the drawdown of personal savings to buy while prices remain fixed under the
Cruzado Plan-led to an unprecedented 40-percent surge in production of
consumer durables during the period. Output of capital goods jumped 25 percent,
and many key industries-steel, textiles, paper and pulp, chemicals, plastics and
food processing-are now operating at full capacity, according to the US
Consulate in Sao Paulo. Even though Brasilia has hiked taxes to curb demand,
banned exports of some staples, and loosened restrictions on some imports, these
moves have not proved sufficient to prevent pervasive shortages, according to press
reports. We believe that demand will start to cool as consumers begin to rebuild
savings late this year. Nevertheless, supply problems are likely to persist, because
investment in additional capacity remains sluggish. Consequently, we foresee
increasing shortages of products requiring inputs from those sectors now at full
capacity, leading to a slowdown in industrial growth by early next year.
Brazilian Ithe Sarney government believes the current meat
Beef Shortages shortage is likely to become a political issue for elections next month. The
widespread scarcity-Brazil is normally a beef exporter-results from cattle losses
in the prolonged drought early this year, ranchers withholding supplies from the
market because of government price controls, and the sharp increase in demand
for meat products as real wages rose under the Cruzado Plan. Lengthening queues
to purchase beef are receiving extensive, critical press coverage and drawing the
ire of consumers, according to the US Embassy. To alleviate shortages and
growing discontent, the government last week announced a higher producer price
for beef; the elimination of value-added tax on beef, poultry, and fish; a ban on
beef, and a limit on poultry, exports; and additional meat imports. Nevertheless,
producers remain dissatisfied with the new price and continue to withhold cattle
from the market, according to the US Embassy.
President Sarney plans to invoke-on a limited scale-a controversial
law that allows the government to confiscate cattle from private producers.
Nonetheless, we believe beef shortages are likely to persist for the next 2 to 3
months as new supplies move through the distribution network. In the interim,
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consumer discontent is likely to cost the government's party some support in
November's elections, as well as undermine public confidence in Sarney's econom-
ic management.
Pressure Against Brazilian engineering associations have convinced President Sarney to review his
Brazilian Trade decision approving foreign bidding on local engineering projects financed by the
Liberalization World Bank and the Inter-American Development Bank (IDB). The associations
have argued that opening the Brazilian market puts domestic industries at risk,
that domestic industries are totally competent to perform major projects, and that
these firms would use domestic-rather than foreign-products, which would
contribute to the technological development of Brazil's engineering sector. As a
result, Sarney requested that the Planning and Finance Ministries "re-examine"
their positions favoring opening the Brazilian market. The World Bank and IDB,
however, demand a nondiscriminatory policy, and Sarney is unlikely to risk losing
project funding by reversing the decision. Industrialists in most LDCs view any
move to open domestic services industries to foreign competition as disastrous for
the sector involved. As a result, domestic pressure will influence LDC positions on
the liberalization of services trade in the new GATT round.
Private-Sector Pakistan, which lacks a reliable nationwide power grid, has issued regulations to
Power in Pakistan encourage private-sector investment in electricity generation. Contracts are to be
negotiated during the next few months. Modeled on agreements in the United
States, the government-owned Water and Power Development Authority of
Pakistan has offered to buy surplus power from private companies at a fair market
price. According to the US Embassy, the number of responses to the government's
offer is encouraging, although private-sector companies have a number of
concerns. The most important issue raised by businessmen in meetings with the
Karachi Electric Supply Corporation (KESC) is the fear of nationalization,
according to Embassy reporting. Other stumblingblocks include assurance of
prompt and fair payment for surplus power, foreign exchange repatriation of profit
to overseas investors, and meter readings that would be performed by both private
suppliers and KESC.
Economic Chaos Economic conditions in war-torn Qandahar-Afghanistan's second-largest city
in Major before the Soviet invasion in 1979-continue to deteriorate,
Afghan City Some 60 to 70 percent of the prewar population has fled and only
3,000 of the 20,000 shops open before the war remain in business,
Only a few industrial plants remain in operation because of a lack of
raw materials and there are food shortages. Government services are practically
nonexistent-the phone system is inoperative and electricity is supplied only to
government offices and military installations.
the Afghan regime has had difficulty collecting taxes and most oca
government expenditures are underwritten by Kabul. To boost tax revenue, the
regime recently announced that only those farmers who can verify that they have
paid their taxes will be allowed to sell their produce in the markets in Qandahar
City. Many farmers will probably feel compelled to comply because of the control
government forces exercise over traffic going into the city.
23 Secret
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Secret
Thailand's The Thai parliament is expected to give final approval next month to an
Expansionary Budget expansionary $8.8 billion budget for the fiscal year that began 1 October,
according to press reports. Over one-half the proposed 7.5-percent rise in spending,
the largest in three years, is for foreign and domestic debt service, which now ac-
counts for one-fourth of total expenditures. Thai budget planners assume that tax
revenues will grow by nearly 15 percent over last year's level, a target we believe is
unrealistic. With a budget deficit already well above the ceiling stipulated under
an IMF standby arrangement, Bangkok probably will have to take politically
difficult steps to cut spending later in the fiscal year, most likely by scaling back
proposed modest increases in social services and government investment in
infrastructure projects.
Soviet Trade According to recently released Soviet trade data for the first half of 1986, the hard
With the West currency export earnings remain depressed. Exports of $11.6 billion were slightly
Lagging above the level in the first half of last year but down sharply from sales during the
comparable periods in 1982-84, which averaged about $15.5 billion. Low oil prices
are responsible for the poor first-half performance this year; in terms of volume, oil
deliveries were up about 25 percent, as compared with the first half of last year.
Hard currency imports totaled $12.9 billion through June, about 8 percent behind
the pace last year in nominal terms but 20 to 25 percent behind in volume. The So-
viets are reacting as expected to low oil prices and a falling dollar, letting imports
slide rather than increasing borrowing or dumping gold on the market. According-
ly, export earnings in the second half of the year are unlikely to exceed the level in
the first half. Import activity remains sluggish, suggesting additional cuts are
likely as Moscow seeks to reduce its hard currency deficit further.
Secret 24
10 October 1986
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Soviet Meat Soviet statistics show that production of meat on state and collective farms-
Production and Feed which produce nearly three-fourths of all Soviet meat-is running 7 percent ahead
Supplies Improve of last year even though the number of animals is not increasing. Production of
several major forage crops this year will probably be close to previous highs in con-
trast to the grain harvest, which is likely to be mediocre at best. General Secretary
Gorbachev's strategy of increasing meat supplies through productivity gains-
more meat per animal-is paying off, as is the Soviet emphasis on increasing the
share of forage in livestock feed. Meat production will reach at least the planned
target of 17.3 million metric tons, 200,000 tons more than in 1985. Soviet
purchases of meat to date indicate that imports will come close to the 830,000 tons
imported in 1985. The abundant harvest of forage crops also reduces Moscow's
immediate need to import grain for livestock feed.
Polish Energy The replacement of Mining and Energy Minister General Piotrowski last week
Problems Mount may portend tougher measures by Warsaw to deal with its energy problems.There
are coal shortages in many of Poland's 49 provinces-including the major
population centers-on the eve of this year's heating season. Reportedly, there is
growing consumer discontent in the last two months, with warnings of possible
protests over inadequate fuel supplies. The problem could grow even more acute in
the future. Because of its need for hard currency, moreover, Warsaw is unlikely to
cut back on coal exports. Warsaw has taken several steps this year to tighten
control over energy supplies and raise prices to encourage conservation. The
removal of Piotrowski, who advocated heavy investment in energy production, in
favor of coal-mining expert Jan Szlachta, may signal a further shift in Polish
energy policies toward emphasis on conservation and efficiency. The measures
adopted this year are probably too limited to reduce energy consumption
significantly, however, if Warsaw is to maintain modest economic growth-
especially if there is a harsh winter. Criticism of government energy conservation
policies by Solidarity's new Provisional Council, created last week, might stall the
regime's efforts to raise prices and limit energy consumption.
First Bond Beijing this year began redeeming PRC government bonds for the first time.
Redemption in PRC According to the Ministry of Finance, each year from 1986 to 1990, China will
pay back 20 percent-about 1.1 billion yuan-of the bonds sold in 1981, the first
year of issue. China has sold about 24 billion yuan in bonds over the last five years,
to businesses and-since 1982-to individuals. The proceeds funded construction
of energy, communications, and raw materials projects. Because interest rates
have risen for new bond issues-now 10 percent, compared to 4 percent in 11981
the Ministry of Finance expects the older bonds to be cashed in promptly.
25 Secret
10 October 1986
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Iq
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Mexico/US: Bilateral
Commercial Talks
After a year-long hiatus, Mexican officials have
agreed to return to the negotiating table this month on
a bilateral commercial agreement with the United
States. The pact will provide a framework for trade
and financial dealings, consultation and dispute settle-
ment procedures, and guidelines for investment. Al-
though Mexico has made some headway in removing
major trade irritants with the United States in the
past year, a number of problem areas remain. The
most difficult are patents and trademarks, restrictions
on foreign investment, local content requirements, and
export performance requirements.
law makes it easier to prove that patent and trade-
mark rights have been infringed by permitting firms
to present the products as evidence in court. Accord-
ing to one legal association, the proposal may. provide
only nominal protection because of several loopholes.
Compulsory licensing and injunctions are in fact very
difficult to obtain in Mexico. Moreover, ambiguous
wording may allow "pirate" firms to interpret the law
to their advantage.
Dim Prospects for Changing Investment Laws
Giving Ground on Intellectual Property Rights
the Mexi-
cans are willing to move forward with changes in
patent and trademark laws. In order to meet US
demands, Secretary of Health Soberon reportedly is
trying to persuade Secretary of Commerce Hernandez
to lengthen the period of patent protection from 10
years to 20 years. The government also presented
draft amendments on the inventions and trademarks
law to the Mexican Senate in mid-September. If
enacted, these amendments would go far beyond
President de la Madrid's 1985 decision to overturn a
regulation prohibiting US drug firms from using
brand names and forcing them to disclose trade
secrets. the
changes will protect both the manufacturing process
and the end product. In large measure, the revisions
are primarily aimed at protecting pharmaceuticals
and biotechnology, but they also will cover other
products, such as chemicals, previously excluded from
patent rights.
Under the proposed patent law, manufacturers will be
able to obtain compulsory licensing that will prevent
other firms from copying their products and to seek
injunctions against companies suspected of breaking
the law. The draft law proposes some tough sanc-
tions-the government could close down plants for
two weeks as a warning and could shut plants perma-
nently if violations continued. In addition, the new
In our opinion, a wariness toward foreign investment
and a desire to prevent multinationals from driving
local firms out of the market are likely to remain the
underpinnings of Mexico's investment policy. Despite
some steps taken two years ago to chip away at
administrative delays and to lower barriers on foreign
investment in priority sectors, the government has
authorized only a handful of US investments with
more than a 50-percent US share. Mexico also has
recently allowed 100-percent Japanese ownership of
several plants. Nevertheless, we believe these moves
are in line with previously announced policies to allow
majority foreign ownership only in a limited number
of sectors where the Mexicans seek foreign technol-
ogy, such as electronics and chemicals, and subject to
Secret
DI /EEW 86-041
10 October 1986
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Secret
Mexico: Legal Obstacles to Investment
Several laws put into place in the 1970sform the core
of an investment strategy that has discouraged for-
eign investment and obliged the government to meet
most of its financing needs by borrowing abroad. The
most important constraint is Mexico's 1973 law
limiting the share offoreign investors in company
holdings to 49 percent, except for assembly plants.
The law injects not only new investments, but also
plant expansions, relocations, and new products.
Regulations weakening intellectual property rights
are powerful disincentives to foreign multinationals.
Under Mexico's technology transfer law, foreign com-
panies can expect trade secrets to be kept for only 10
years and may charge no more than 6 percent of sales
for royalty payments. In return, they must provide
scholarships, high-quality technology, improved tech-
nial aid, projects that enhance Mexican R&D, and
projects that promote import substitution and ex-
ports. The 1976 inventions and trademarks law-
currently being revised-made it easier for Mexican
firms to copy foreign products. The law prevented
firms from patenting a number of products, set a
maximum of 10 years for patent rights, and gave the
government a free hand to transfer patent rights to
another company if a patent was not used during the
first three years.
numerous constraints. At the same time, Mexico has
imposed higher local content and export performance
requirements that hinder foreign investors. The gov-
ernment shows no signs of permitting majority foreign
ownership in politically sensitive sectors, such as
banking, insurance, and brokerage, where Mexican
firms would have difficulty competing with multina-
tionals.
The Mexicans reportedly are drawing up explicit
regulations on foreign investment to eliminate some of
the vagaries discouraging multinationals from invest-
ing in Mexico. The categories of acceptable and
unacceptable foreign investments in electronics, for
instance, currently overlap. If Mexico follows
through, the regulations could at least clear up uncer-
tainties and contradictions in the government's policy.
Concessions Mexico May Seek
Mexico is almost certainly coming to the talks with
the hope of making inroads into the US market. The:
collapse of oil prices has prompted Mexico to diversify
and increase nonpetroleum exports, particularly to the
United States, its most important trading partner.
Last year's subsidies agreement went part of the way
toward achieving this goal by obtaining a US commit-
ment to assess whether US firms are injured by
Mexican exports before applying countervailing du-
ties and antidumping margins. In exchange, the Mex-
icans promised to phase out export subsidies.
Mexico City has moved further to encourage trade
since the signing of the subsidies agreement. It has
eased import licensing restrictions, lowered tariffs,
and joined the GATT. These steps will markedly
increase US exporters' access to the Mexican market
and improve protection afforded to US manufactur-
ers. Mexican officials probably view these changes as
bargaining chips for extracting additional agreements
from the United States, such as promises not to
impose new tariffs or nontariff barriers; a rollback of
US countervailing duties on Mexican exports; and
easier access for such Mexican goods as textiles, auto
parts, steel, meat, tuna, and sugar. Mexico may also
want to recover some of the tariff concessions it lost
during the last US review of the Generalized System
of Preferences.
Opposition to a wide-ranging bilateral agreement
within the Cabinet is likely to place limitations on any
agreement and may cause the Mexicans to drag their
feet on negotiations. Secretary of Commerce Hernan-
dez advocates a framework agreement, but he proba-
that Mexico stands to gain little.
bly will have a harder time selling it than GATT
membership or the subsidies agreement if it appears
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already expressed their opposition to a wide-ranging
Mexicans would be willing to agree to consultation
and dispute settlement procedures and to fold intellec-
tual property rights into an agreement, but, if they are
pressed on foreign investment, they are likely to balk.
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Secret
Secret
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41, e n -c wI aac UI
Intelligence
Economic & Energy
Indicators
DI EEI 86-021
10 October 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
obtain additional copies of this document directly or through
liaison channels from the Central Intelligence Agency.
Requesters outside the US Government may obtain subscriptions to
CIA publications similar to this one by addressing inquiries to:
Document Expediting (DOCEX) Project
Exchange and Gift Division
Library of Congress
Washington, D.C. 20540
or: National Technical Information Service
5285 Port Royal Road
Springfield, VA 22161
Requesters outside the US Government not interested in subscription
service may purchase specific publications either in paper copy or
microform from:
Photoduplication Service
Library of Congress
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or: National Technical Information Service
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(To expedite service call the
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Comments and queries on this paper may be directed to the DOCEX
Project at the above address or by phone [phone]), or the
NTIS Office of Customer Services at the above address or by phone
(703-487-4660). Publications are not available to the public from the
Central Intelligence Agency.
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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
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
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Percent change from previous period
seasonally adjusted at an annual rate
United Kingdom -3.9 2.1 3.9 1.3 4.7 3.0 -2.9 48.9
Percent change from previous period
seasonally adjusted at an annual rate
United Kingdom -1.4 1.9 3.4 2.8 3.6 -0.4 0.7 4.4 0.7
Italy 0.2 -0.5 -0.2 2.8 2.3 1.0 2.3 -0.4
Percent change from previous period
seasonally adjusted at an annual rate
Japan
4.9
2.6
1.8
2.3
2.0
0.4
1.0
-3.5
-2.4
West Germany
6.0
5.3
3.3
2.4
2.2
-0.9
-1.1
-2.5
0.8
United Kingdom
11.9
8.6
4.6
5.0
6.1
4.4
0.6
1.0
2.4
Italy
19.3
16.4
14.9
10.6
8.6
6.2
5.0
3.8
6.8
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Money Supply, M-1 a
Percent change from previous period
seasonally adjusted at an annual rate
1st Qtr
2d Qtr
Jun
Jul
Aug
United States b
7.1
6.6
11.2
7.0
9.1
7.9
16.7
15.8
18.3
22.9
Japan
3.7
7.1
3.7
2.8
5.0
7.7
9.4
7.5
6.5
13.0
West Germany
1.1
3.6
10.2
3.3
4.4
9.8
11.3
21.3
-0.4
14.5
France
12.2
13.9
8.7
20.4
1.4
11.6
4.3
United Kingdom
NA
NA
13.0
14.7
16.7
9.2
33.0
14.7
14.0
27.3
Italy
11.2
11.6
15.1
12.3
13.7
8.3
2.4
14.6
Canada
3.8
0.7
10.2
3.3
4.1
- 2.4
-1.9
8.3
28.4
-3.2
a Based on amounts in national currency units.
b Including Ml-A and MI-B.
Unemployment Rate a
1st Qtr
2d Qtr
Jun
Jul
Aug
United States
7.5
9.6
9.4
7.4
7.1
7.0
7.1
7.0
6.8
6.7
Japan
2.2
2.4
2.7
2.7
2.6
2.6
2.8
2.7
2.9
2.9
West Germany
5.6
7.7
9.2
9.1
9.3
9.1
9.0
9.0
8.9
8.9
France
7.6
8.4
8.6
9.7
10.0
9.8
10.1
10.2
10.2
10.3
United Kingdom
10.0
11.6
10.7.
11.1
11.3
11.5
11.6
11.7
11.7
11.7
Italy
8.4
9.1
9.9
10.4
10.7
11.5
11.3
Canada
7.5
11.1
11.9
11.3
10.5
9.7
9.6
9.5
9.9
9.7
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United States b
Exports
233.5
212.3
200.6
218.0
213.2
53.0
53.2
18.4
18.5
18.7
Imports
261.0
244.0
258.4
326.2
346.1
91.8
88.4
30.1
33.8
30.6
Balance
-27.5
-31.6
-57.8
-108.2
-132.9
-38.8
-35.2
-11.7
-15.3
-11.9
Japan
Exports
149.6
138.2
145.4
168.1
173.9
47.8
51.3
16.9
17.7
17.8
Imports
129.5
119.6
114.1
124.1
118.0
29.9
29.1
10.2
9.7
9.0
Balance
20.1
18.6
31.4
43.9
55.9
17.9
22.2
6.7
8.0
8.8
West Germany
Exports
175.4
176.4
169.5
171.9
184.2
55.3
60.8
21.2
20.8
19.9
Imports
163.4
155.3
152.9
153.1
158.9
45.1
47.6
15.9
15.7
14.9
Balance
11.9
21.1
16.6
18.8
25.3
10.1
13.2
5.3
5.2
5.0
France
Exports
106.3
96.4
95.1
97.5
101.9
30.4
29.8
10.1
10.8
10.7
Imports
115.6
110.5
101.0
100.3
104.5
30.3
30.9
10.3
10.6
10.2
Balance
-9.3
-14.0
-5.9
-2.8
-2.6
0.1
-1.1
-0.2
-0.2
0.5
United Kingdom
Exports
102.5
97.1
92.0
93.7
100.9
26.2
26.8
8.8
9.0
8.1
Imports
94.6
93.1
93.3
99.4
103.5
28.4
29.2
9.7
9.9
10.3
Balance
7.9
4.0
-1.3
-5.7
-2.6
-2.1
-2.4
-0.9
-0.9
-2.2
Italy
Exports
75.4
73.9
72.8
73.5
78.8
23.3
24.3
8.1
8.5
8.0
Imports
91.2
86.7
80.7
84.4
90.8
26.1
24.2
8.1
9.1
6.3
Balance
-15.9
-12.8
-7.9
-10.9
-11.9
-2.8
0.2
0.1
-0.6
1.7
Canada
Exports
70.5
68.5
73.7
86.5
88.0
21.9
21.3
6.7
7.0
Imports
64.4
54.1
59.3
70.6
75.7
20.3
19.2
6.4
7.2
Balance
6.1
14.4
14.4
15.9
12.3
1.6
2.1
0.3
0.2
a Seasonally adjusted.
b Imports are customs values.
c Imports are c.i.f.
e Seasonally adjusted; converted to US dollars at current market
rates of exchange.
I
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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
-0.5
1.5
9.2
7.8'
Japan
5.5
-6.4
-2.4
0.2
-0.6
26.1
24.9
-3.5
43.8
West Germany
-14.9
-2.8
-3.2
-7.1
0
40.8
16.6
-2.4
48.8
France
-12.0
-5.5
-4.8
-2.9
2.5
33.3
-0.3
-4.7
United Kingdom
NA
NA
-6.2
-5.1
2.3
-2.6
7.2
-1.7
-15.8
Italy
-7.8
-3.0
-4.4
-5.2
-0.3
26.1
6.4
-14.9
Canada
3.9
-2.0
0.2
-0.4
-3.5
-16.3
6.0
11.1
-30.7
Percent chan
ge from pre
at an
vious period
annual rate
United States
5.3
-2.0
-3.7
1.7
-2.4
-7.2
-10.4
0
8.7
Japan
3.6
-7.4
-5.0
-2.8
-4.3
-5.3
-49.2
-2.2
39.0
West Germany
-8.6
-4.7
-5.2
-4.8
-1.5
9.6
-11.7
-24.1
10.0
France
-7.8
-7.2
-7.0
-3.8
-0.3
10.2
-11.6
-14.5
United Kingdom
NA
NA
-5.7
-4.5
0.5
-0.5
2.4
-18.2
-8.2
Italy
1.0
-5.3
-6.6
-3.7
-1.0
10.9
-20.6
-11.6
Canada
8.7
-1.1
0.6
1.0
-2.1
- 9.1
3.8
-21.3
14.4
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Exchange Rate Trends
Percent c
hange fro
m previo
at an an
us period
nual rate
10.5
10.6
5.8
9.1
6.3
-17.8
-11.3
-21.7
-17.2
9.3
-5.7
10.4
6.2
6.8
26.8
42.4
18.4
113.6
-2.1
7.0
5.8
1.0
1.7
8.5
6.0
6.5
17.0
United Kingdom
2.5
-2.1
-5.0
-2.5
2.0
-26.0
9.5
3.87
-21.5
Japan
2.7
-12.9
4.6
0
-0.3
32.2
33.5
-2.2
48.3
27.5
-4.7
West Germany
-24.6
-7.2
-5.2
-11.5
-3.3
31.3
17.1
-1.0
35.5
40.0
9.0
France
-28.7
-20.8
-15.9
-14.7
-2.7
29.7
4.4
-2.8
27.7
28.1
8.1
United Kingdom
-13.2
-13.4
-13.3
-11.9
-3.0
1.7
20.8
-7.7
-2.0
-16.7
-10.6
Italy
-32.8
-18.8
-12.3
-15.6
-8.6
30.1
14.5
-2.0
35.2
37.9
7.1
Canada
-2.5
-2.9
0.1
-5.1
-5.4
-6.9
5.7
-13.1
6.8
-0.9
-3.8
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)
1st Qtr 2d Qtr Jul Aug Sep
16.24 12.49 9.23 10.56 8.16 7.68 6.75 6.45 5.99 5.83
Eurodollars 16.87 13.25 9.69 10.86 8.41 7.91 6.99 6.65 6.23 6.05
3-month deposits
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400200005-3
Bananas
Fresh imported,
(Total world, $ per metric ton)
Australia
(Boneless beef,
f.o.b. US Ports)
United States
(Wholesale steer beef,
midwest markets)
100.0
101.4
97.6
100.9
90.7
87.8
84.4
89.6
89.9
Cocoa (0 per pound)
89.8
74.3
92.1
106.2
98.7
95.7
82.6
87.6
89.1
Coffee ($ per pound)
1.28
1.40
1.32
1.44
1.43
2.01
1.73
1.49
1.54
Corn
(US #3 yellow,
c.i.f. Rotterdam, $ per metric ton)
150
123
148
150
125
116
116
98
87
Cotton
(World Cotton Prices, "A"
index, c.i.f. Osaka, US 0/lb.)
Palm Oil
(United Kingdom 5% bulk,
c.i.f., $ per metric ton)
US (No. 2, milled,
4% c.i.f. Rotterdam)
Thai SWR
(100% grade B
c.i.f. Rotterdam)
Soybeans
(US #2 yellow,
c.i.f. Rotterdam, $ per metric ton)
Soybean Oil
(Dutch, f.o.b. ex-mill,
$ per metric ton)
Soybean Meal
(US, c.i.f. Rotterdam
$ per metric ton)
Sugar
(World raw cane, f.o.b.
Caribbean Ports, spot prices a per pound)
Tea
Average Auction (London)
(Q per pound)
Wheat
(US #2. DNS
c.i.f. Rotterdam, $ per metric ton)
91.0 89.9 105.2 156.6 90.0 86.4 85.6 79.8 86.5 1
- The food index is compiled by The Economist for 14 food commodities which enter international trade. Commodities are weighted by 3-
year moving averages of imports into industrialized countries.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400200005-3
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
50.7
51.0
Chrome Ore
(South Africa chemical
$ per metric ton)
grade
50.0
50.0
43.9
40.0
40.0
40.0
40.0
,
Q per pound) 79.0
Copper u (bar
67.1
72.0
62.4
64.5
64.5
64.5
60.6
59.1
,
Gold ($ per troy ounce) 460.0
375.5
424.4
360.0
317.2
342.6
341.6
348.4
365.4
Lead a (0 per pound) 32.9
24.7
19.3
20.0
17.7
16.7
17.6
17.0
17.5
Manganese Ore 82.1
$ per long ton)
(48% Mn
79.9
73.3
69.8
68.4
67.2
64.8
64.8
65.6
,
Nickel ($ per pound)
Cathode major producer 3.5
3.2
3.2
3.2
3.2
3.2
3.2
3.2
3.2
LME Cash 2.7
2.2
2.1
2.2
2.2
1.8
1.8
1.8
1.8
475.0
475.0
475.0
475.0
475.0
475.0
475.0
475.0
475.0
Metals week,
New York dealers' price
Rubber (? per pound)
Synthetic b 47.5
45.7
44.0
44.4
44.1
42.8
38.7
38.3
NA
Natural C 56.8
45.4
56.2
49.6
42.0
41.7
40.1
43.6
43.5
Silver ($ per troy ounce) 10.5
7.9
11.4
8.1
6.1
5.9
5.2
5.0
5.1
Steel Scrap d ($ per long ton) 92.0
63.1
73.2
86.4
74.4
74.0
71.8
71.8
75.0
Tin n (? per pound) 641.4
581.6
590.9
556.6
543.2
357.4
250.5
244.0
245.5
Tungsten Ore 18,097
(contained metal,
$ per metric ton)
13,426
10,177
10,243
10,656
8,673
7,567
7,112
6,360
US Steel 543.5
NA
(finished steel, composite,
$ per long ton)
567.3
590.2
611.6
617.8
551.2
554.4
556.6
Zinc a (0 per pound) 38.4
33.7
34.7
41.5
35.4
28.5
33.8
36.5
36.5
Industrial Materials Index r
82
76
69
69
70
67
67
(1980=100)
1~ 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.
This index is compiled by using the average of 10 types of lumber
whose prices are regarded as bellwethers of US lumber construction
costs.
The industrial materials index is compiled by The Economist for
18 raw materials which enter international trade. Commodities are
weighted by 3-year moving averages of imports into industrialized
countries.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400200005-3
World Crude Oil Production
Excluding Natural Gas Liquids
1981
1982
1983
1984
19858
1986 a
1st Qtr
May
June
July
World
55,837
53,092
52,625
53,674
52,931
54,039
Non-Communist countries
41,602
38,810
38,228
39,257
38,692
39,758
Developed countries
12,886
13,276
13,864
14,302
14,730
15,022
United States
8,572
8,658
8,680
8,735
8,933
8,898
8,848
8
808
8
800
Canada
1,285
1,270
1,356
1,411
1,457
1,480
,
,
United Kingdom
1,811
2,094
2,299
2,535
2,533
2,711
2,538
2
196
Norway
501
518
614
700
785
856
826
,
848
Other
717
736
915
921
1,022
1,077
927
915
Non-OPEC LDCs
6,036
6,633
6,823
7,515
7,845
7,556
7,998
7
964
Mexico
,
2,321
2,746
2,666
2,746
2,733
2,376
2,527
2
547
2
500
Egypt
598
665
689
827
874
758
845
,
753
,
Other
3,117
3,222
3,468
3,942
4,238
4,422
4,626
4
664
OPEC
22,680
18,901
17,541
17,440
16,117
17,180
18,000
,
19
300
20
320
Algeria
,
,
803
701
699
638
645
602
600
600
600
Ecuador
211
211
236
253
280
275
300
300
285
Gabon
151
154
157
152
153
160
160
170
170
Indonesia
1,604
1,324
1,385
1,466
1,235
1,223
1,305
1
235
1
250
Iran
,
,
1,381
2,282
2,492
2,187
2,258
1,890
2,100
2
200
2
300
Iraq
993
972
922
1,203
1,437
1,732
1,700
,
1
700
,
1
900
Kuwait b
947
663
881
912
862
1,169
1,400
,
1
500
,
,
1
600
Libya
,
,
1,137
1,183
1,076
1,073
1,069
1,000
1,100
1
200
1
150
Neutral Zone c
,
,
370
317
390
410
355
276
220
300
340
Nigeria
1,445
1,298
1,241
1,393
1,464
1,417
1,550
1
490
1
600
Qatar
,
,
405
328
. 295
399
302
352
360
430
400
Saudi Arabia b
9,625
6,327
4,867
4,444
3,290
4,256
4,250
5
100
5
600
UAE
,
,
1,500
1,248
1,119
1,097
1,146
1,287
1,405
1
505
1
505
Venezuela
2,108
1,893
1,781
1,813
1,621
1,541
1,550
,
1
570
,
1
620
Communist countries
1
,
,
4,235
14,282
14,397
14,417
14,239
14,281
USSR
11,800
11,830
11,864
11,728
11,350
11,350
China
2,024
2,042
2,121
2,280
2,496
2,506
2,557
2
557
Other
,
411
410
412
409
393
425
I Preliminary.
b Excluding Neutral Zone production, which is shown separately.
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-RDP88-00798R000400200005-3
Big Seven: Inland Oil Consumption
United States a
16,058
15,296
15,184
15,708
15,726
15,923
16,056
16,188
15,743
15,852
15,998
16,075
Japan
4,444
4,204
4,193
4,349
4,123
4,661
5,002
4,547
3,924
3,568
3,577
West Germany
2,120
2,024
2,009
2,012
2,060
2,096
2,406
2,141
2,640
2,388
2,473
France
1,744
1,632
1,594
1,531
1,498
1,625
2,008
1,525
1,701
1,245
1,387
1,383
United Kingdom
1,325
1,345
1,290
1,624
1,402
1,286
1,483
1,447
1,427
1,330
Italy b
1,705
1,618
1,594
1,513
1,516
1,718
1,855
1,535
1,495
1,345
1,329
Canada
1,617
1,454
1,354
1,348
1,342
1,336
1,351
1,168
1,237
1,302
1,368
1,370
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
3,426
3,201
3,329
2,993
3,000
3,701
3,872
4,675
4,648
Japan
3,919
3,657
3,567
3,664
3,377
3,126
4,273
3,673
3,469
2,756
2,798
West Germany
1,591
1,451
1,307
1,335
1,284
1,321
1,258
1,429
1,285
1,340
1,265
France
1,804
1,596
1,429
1,395
1,476
1,430
1,420
1,380
1,608.
1,235
1,454
United Kingdom
736
565
456
482
523
493
445
494
610
767
442
Italy
1,816
1,710
1,532
1,507
1,462
1,593
1,593
1,593
Canada
521
334
247
244
283
353
424
260
185
276
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400200005-3
OPEC Average a 30.87 34.50 33.63 29.31 28.70 28.14
(Official Sales Price)
World Average Price NA NA NA NA NA 27.16 20.55 13.65 11.42 12.33
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-RDP88-00798R000400200005-3
Average Crude Oil Sales Prices
34.50 33.63
30.87
29.3 1 28.70 ' 27.16
18.67
11.29 1 1 02 11.77 12.88 12.93 I 3 (~ ~ :
1973 74 75 76 77 78 79 80 81 82 83 84 85
14.03 14.06
2.33
I?'iii''l1 11.42 1P -7
'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-RDP88-00798R000400200005-3
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400200005-3