INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000500230005-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 44
• Document Creation Date: December 22, 2016
• Document Release Date: September 28, 2011
• Sequence Number: 5
• Publication Date: April 10, 1987
• Content Type: REPORT

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Directorate of
Intelligence
Weekly
International
Economic & Energy
10 April 1987
DI IEEW 87-015
10 April 1987
Copy 8 5 8
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Secret
International
Economic & Energy Weekly
n
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10 April 1987
iii Synopsis
I Perspective-Global Trade Conflicts: Political Stakes Growing
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3 International Financial Situation: Update on LDC Debt
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7 Summit Issues: GATT Round Tactical Maneuvering
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Summit Issues: Attitudes Toward Agricultural Reform
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International Financial Situation: The Philippines-Struggling Tow
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ard an
Economic Recover
yF
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25 Nicaragua
: The Burden of US Sanctions
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29 Malaysia:
Economic Problems Cloud Election Prospects
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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
directed t irectorate of Intelligence
Secret
DI IEEW 87-015
10 April 1987
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International
Economic & Energy Weekly 25X1
Synopsis
Perspective-Global Trade Conflicts: Political Stakes Growing
Developed countries are embroiled in increasingly tense bilateral disputes sparked
by persistent trade imbalances-particularly Japan's large surpluses-growing
protectionism, and market uncertainties created by massive currency fluctuations.
For their part, LDCs generally believe the intensity of these disputes hurts them
by souring the global trade atmosphere and threatening the success of ongoing
multilateral negotiations in the Uruguay Round. F__]
3 International Financial Situation: Update on LDC Debt
7 Summit Issues: GATT Round Tactical Maneuvering
The Uruguay Round is now fully under way and GATT members have begun to
reveal their negotiating tactics, which will present US policymakers with obstacles
as well as opportunities
11 Summit Issues: Attitudes Toward Agricultural Reform
The Big Six have made only marginal progress toward agricultural reform since
the Tokyo summit, and are unlikely at the Venice summit to go beyond a call for
supporting work in the GATT's Uruguay Round and the need to cut farm
surplusesr-__-]
21 International Financial Situation: The Philippines-Struggling Toward an
Economic Recovery
Since assuming office almost 15 months ago, President Aquino's economic team
has adopted a strategy that emphasizes market-oriented policies and less govern-
ment intervention in the hope of restoring growth in an economy debilitated by
years of mismanagement and plunder. Although progress has been made on
inflation, interest rates, and restructuring the foreign debt, growth has been
insufficient to ensure political stability
iii Secret
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25 Nicaragua: The Burden of US Sanctions
Trade disruptions and the diversion of financial and managerial resources to
circumvent US economic sanctions have put significant additional pressure on the
already staggering Nicaraguan economy. We estimate that the embargo has
directly cost Managua about $85 million in lower export earnings, more expensive
imports, and new middlemen fees since sanctions were initiated.
29 Malaysia: Economic Problems Cloud Election Prospects
Prime Minister Mahathir faces the most serious challenge of his six years in office
as he tries to retain the presidency of the dominant Malay party-and the prime-
ministership-in the election scheduled for 24-27 April. Whoever wins the party
presidency will face several difficult years trying to cope with a burdensome
foreign debt, an unprofitable heavy industry sector, and an electorate whose
expectations far exceed the economy's likely performance
Secret iv.
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Perspective
International
Economic & Energy WeeklyF___1 25X1
10 April 1987
Global Trade Conflicts: Political Stakes Growing 25X1
development financing.
Continued turmoil in the global economic environment has aggravated trade
conflicts and considerably raised the political stakes for successful resolution.
Developed countries are embroiled in increasingly tense bilateral disputes sparked
by persistent trade imbalances-particularly Japan's large surpluses-growing
protectionism, and market uncertainties created by massive currency fluctuations.
LDC governments are also encountering severe domestic economic and political
strains in coping with large external debt burdens in the face of the continued
slump in commodity prices, restricted export markets, and declining sources of
Many countries are finding bilateral negotiations on specific trade problems
increasingly difficult, and several recent disputes among the three major players-
the United States, Japan, and the EC-have escalated to the brink of trade war. In
these disputes, trading partner demands have clashed with the imperatives of
increasingly vocal domestic interest groups, elections, and national policy:
multilateral negotiations in the Uruguay Round.
? In disputes with the United States over the trade effects of EC enlargement and
the fats and oils tax, EC officials' leeway has been restrained by the politically
powerful agricultural lobbies and the concerns of member state governments
facing coming elections.
? Prime Minister Nakasone, under increasing international pressure to open
Japan's markets to reduce its trade surpluses, is constrained by a slowing of the
domestic economy and controversy over his tax reform plan.
? Canadian Prime Minister Mulroney-heavily staking his political future on the
success of a freer trade agreement with the United States-could find that his
falling popularity will hamper his ability to successfully broker an agreement
acceptable to divergent Canadian interests.
For their part, LDCs generally believe the intensity of these disputes hurts them
by souring the global trade atmosphere and threatening the success of ongoing
mately, progress in the negotiations would slow
In this increasingly charged environment, US trading partners, particularly the
LDCs, are concerned with the specter of increased trade protectionism in the
United States. To some extent, this threat has produced positive spillover. There is
evidence, for example, that concern over US protectionism is causing some
relaxation of East Asian trade policies, and is helping propel the Uruguay Round
negotiations forward. Over the long run, however, we are concerned that, if
protectionism actually continues to increase, this would damage the credibility of
the United States as the key advocate of trade liberalization. US opportunities to
set the tone and pace of Uruguay Round negotiations would be undercut, and, ulti-
1 Secret
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10 April 1987
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The growing intensity of international trade problems has elevated their resolution
to a higher level of political involvement. As a result, trade will undoubtedly be a
major topic at the OECD ministerial and the Venice economic summit and
participating political leaders will probably reaffirm commitments to maintain the
momentum toward reform. Ultimately, however, domestic political considerations
will restrict their room to maneuver.
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International Financi
Update on LDC Debt Sitnati
Major developments in LDC debt situations this week focus on Brazil, Egypt,
Nigeria, and the creation of a Paris Club working group to examine ways to
alleviate debt pressures on the poorest LDCs:
? Brazil presented its five-year economic plan to its National Congress and foreign
creditors in the past week, but thus far few details on the domestic measures to
stabilize the economy are known. In addition, President Sarney has created a
Presidential Advisory Commission for the negotiation of the foreign debt,
chaired by Finance Minister Funaro, according to Embassy and press reporting.
Funaro stated on 2 April that the government will need about $4 billion annually
from commercial banks, official agencies, and multilateral institutions over the
next five years to achieve its annual growth target of 7 percent. At the same
time, he proposed that creditors sharply lower Brazil's debt servicing costs,
automatically refinance interest payments, and convert some debt into invest-
ment. Funaro and Central Bank President Gros discussed the plan with creditor
governments and commercial banks during talks this week. Commercial credi-
tors, who continue to demand that Brasilia implement a coherent economic plan
to boost the trade surplus, probably will not want to begin serious financial
negotiations based on this proposal. Instead, international banks may react by
demanding repayment of short-term trade and interbank credits in coming
weeks.
? Egypt and the IMF completed the technical annex to the letter of intent, but oth-
erwise made little progress on the actions Cairo would take to advance economic
reform efforts, according to the US Embassy. An IMF negotiating team-which
left Cairo on 1 April-had hoped to ascertain Egyptian intentions with regard to
future movements on exchange rates, interest rates, and energy prices. Egypt,
however, noted that this information is not required under the terms of the
standby until September and will not address the issues until that time. The lack
of progress in clarifying Egyptian intentions aggravates existing Fund doubts
about the viability of the program and Cairo's political willingness to implement
the necessary reforms. This may delay approval of the letter of intent and risk
accelerating financial instability in Egypt.
? Suffering from a severe foreign exchange shortage, Nigeria missed 1986 IMF
performance targets by allowing rapid credit growth and accumulating new
external arrears, jeopardizing the country's economic reform program. The IMF
was unable to complete the first review of the program because of the uncertain
reserve situation and questions on the prospective financing gap for 1987.
Similarly, the World Bank has withheld the second tranche of the trade policy
loan, pending Nigerian action on dismantling foreign exchange accounts that
fund special construction projects. With its reserve position shrinking, Lagos
may be unable to continue funding the second-tier foreign exchange market
without incurring substantial arrears-which would alienate creditors-or ac-
cepting further, politically risky devaluations.
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Key LDC Debtors:
Economic/Financial Indicators
Total
Debt a
International
Reserves b
Other
Indicators
Brazil
110
2.0 (Feb 87)
Trade surplus $260 million in February, double
3.5 (Nov 86)
January's surplus; slow start to reaching 1987 target
of $8 billion.
Mexico
104
6.3 (Dec 86)
Inflation rising, estimated 130 percent by yearend, up
4.0 (Jul 86)
from 106 percent in 1986; money supply growth up.
Argentina
50
2.0 (Dec 86)
Inflation projected at 94 percent for 1987, up slightly
3.5 (Sep 86)
from 82 percent in 1986.
Venezuela
36
5.0 (Jan 87)
Inflation rising; annual rate of 14.3 percent in Febru-
6.1 (Oct 86)
ary, up from 12.7 percent in December; could top 30
percent for year.
Indonesia
40
8.1 (Dec 86)
GDP stagnant in 1986 after 2.0 percent rise in
9.6 (Sep 86)
1985; growth of less than 1 percent projected for this
year.
Egypt
30
0.9 (Dec 86)
Inflation running at annual rate of 30 percent, up
0.9 (Sep 86)
from 17 percent rate last year.
Philippines
28
2.6 (Jan 87)
1986 GDP growth 0.1 percent, first increase in three
1.9 (Oct 86)
years; project 3.0 percent to 3.5 percent in 1987.
Chile
19
2.3 (Jan 87)
Trade surplus of $1.3 billion in 1986, 54 percent
2.2 (Oct 86)
higher than 1985; inflation declined to 17 percent in
1986.
Nigeria
19
0.5 (Mar 87)
Reserves at lowest level in at least 15 months, cover
0.7 (Dec 86)
roughly one month of imports.
14
0.8 (Feb 87)
Inflation at 100 percent annual rate during January-
1.0 (Nov 86)
February.
a Billion US dollars, yearend 1986.
b Billion US dollars.
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Boldface indicates change
over the previous week
Discussed five-year economic plan with creditor gov-
ernments and commercial banks this week.
Signed $7.7 billion commercial bank package
20 March; disbursement of $3.5 billion available by
end of April.
Bank talks began mid-February, now discussing
terms; $1.8 billion IMF package approved in Feb-
ruary.
Bank agreement reached; interest rate spread re-
duced; saves Caracas $2 billion in payments over
three years.
Congressional and gubernatorial elections in
September.
Rumors that Finance Minister Funaro to be fired; we
doubt any action in the short term.
Moderate GDP growth will limit political problems,
helping to ensure a smooth PRI victory in 1988.
Most industries ignoring limits on price increases;
labor groups plan to ask for pay hike of 15 to 20
percent.
Jakarta likely to reschedule if oil prices fall below $15 Parliamentary election in April; may determine
per barrel; still maintains limited access to commer- timing of rescheduling or reforms.
cial credit.
Completed technical annex of IMF letter of intent; Ruling party expected to win large majority in April
little progress made on reforms scheduled for Septem- parliamentary election.
ber.
Reached agreement to reschedule $13.2 billion in
bank debt over 17 years; investment note scheme
accepted by banks.
Bank agreement concluded 24 February-no new
lending, but lower rate spreads and single annual
interest payment. Met with Paris Club 2 April.
IMF ,unable to complete first program review; World
Bank has yet to disburse second tranche of trade loan.
Bank negotiations in limbo; IMF owed $250 million in
arrearages.
Rescheduling agreement-particularly less than
1-percent spread-political victory for Aquino and
Finance Secretary Ongpin.
Retiming could aid growth, but not enough to over-
come political difficulties.
Babangida implementing economic reforms; discon-
tent may rise if economy remains weak, however.
Garcia remains highly popular; worried about 1987
economic prospects.
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? Paris Club governments have set up a working group, which will meet 24 April,
to explore the options and detail possible approaches to reschedule the debts
owed to them by the poorest and most heavily indebted LDCs, according to
Embassy reporting. One proposal is to reschedule the official debts over a longer
period-15 to 20 years instead of the usual 7 to 10 years-at substantially
reduced interest rates with a longer grace period. Other options include using the
IMF Compensatory Finance Facility primarily in these LDCs or creating a new
funding body.
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Summit Issues: GATT Round
Tactical Maneuvering
While developing countries as a whole are very sup-
portive of the Uruguay Round of negotiations, which
are now fully under way, hardliners led by Brazil and
India are continuing their efforts to block progress on
the new issues-services, intellectual property, and
investment. Agriculture will be the most contentious
issue of the Round, with progress restricted by the
political constraints on the participants, particularly
the EC. The tactical maneuvering during this year's
first phase of the Uruguay Round, in addition to the
status of several external factors, such as LDC debt
and bilateral trade disputes, will ultimately affect the
ability of the United States to achieve its goals.F__
tactics that threaten to immobilize the talks.
LDC Hardliner Tactics. The LDC hardliners, pri-
marily Brazil and India, are continuing their efforts to
obstruct progress on the new issues-services, intel-
lectual property rights, and investment, according to
Embassy reporting. The group will do this primarily
by perpetuating old debates, by procedural delays,
and by narrowly interpreting the Uruguay Round
negotiating mandate for these issues. The hardliners
will resist any attempt to quicken the pace of discus-
sions, and will take advantage of any weakening in
developed country support for these issues. Brazil will
probably continue efforts to solidify the LDCs as a
negotiating bloc, and will claim to represent overall
LDC interests. This tactic, however, has failed recent-
ly as many LDCs are increasingly taking independent
positions in GATT and resent Brazil's obstructive
EC Tactics on Agriculture. The EC wants to protect
its present Common Agricultural Policy (CAP) based
on variable import levies and export subsidies. Given
its priorities, the EC will probably attempt to narrow
negotiations and will continue to oppose setting a
timetable for the talks. The key challenge will be to
prevent France and West Germany-CAP's staun-
chest defenders-from blocking progress. A unified
Uruguay Round Negotiating Structure
Following the completion of detailed negotiating
plans for two groups and 14 subgroups, substantive
negotiations began in February. Phase I of the negoti-
ations will continue throughout 1987 and focus on
information collection and research. Several of the
topics have already been the subject of lengthy dis-
cussions in GATT, such as tropical products, and
early agreements may be reached that can be imple-
mented provisionally.
Group of Negotiations on Goods
Tariffs
Nontarif measures
Natural-resource-based
products
Textiles and clothing
Agriculture
Tropical products
GATT articles
MTN agreements and
arrangements (Tokyo
Round GATT codes)
Safeguards
Subsidies and counter-
vailing measures
Trade-related aspects of
intellectual property
rights
Trade-related investment
measures
Dispute settlement
Functioning of the
GA TT System
Group of Negotiations on Services
(No subgroups as yet)
EC position on agriculture will not come easily,
however, because there is considerable divergence of
views among the member states on the future course
of EC internal policy. The EC will also be challenged
by numerous developed countries and LDCs who have
banded together to push for broad agricultural reform
in the GATT.
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Secret
Uruguay Round: Key Country Priorities and Tactics
The European Community
Defensive position on agriculture, seeks to protect
fundamentals of CAP, opposes fast track and ad-
dressing agriculture concurrently in subsidies
group ... supports framework services agreement,
keeping LDCs on board ... supports examination of
intellectual property norms, broadened counterfeit
code; concerned rules not become trade restrictive ...
believes new investment rules may not be necessary,
does not want to antagonize LDC by being overly
ambitious ... advocates parallel progress on all
issues.
Japan
Wants to limit and slow talks on agriculture, avoid
overemphasis on domestic subsidies ... proposed 11
concepts for services negotiations, supports identify-
ing barriers but does not want talks delayed by
definitional questions or data collection ... supports
broad intellectual property rights (IPR) code ... sup-
ports negotiations on investment, but faces internal
disagreement.
Other OECD
Australia, Canada actively support early, comprehen-
sive agricultural reforms; Nordics, Switzerland, Aus-
tria support EC ... Nordics, Canada, Australia, New
Zealand support services agreement, will follow US
lead, also on IPR ... investment not priority, con-
cerned that overly ambitious goals will alienate
LDCs ... Canada, New Zealand, Australia support
comprehensive subsidies, countervailing duties talks,
including agriculture.
Brazil
Wants to unite LDCs and lead opposition to devel-
oped country initiatives, and to get special treatment
for LDCs ... moderate supporter of agricultural re-
form ... leads opposition to initiatives on services,
investment, IPR; wants to avoid setting GATT stan-
dards in these areas, attempting to delay progress,
proposing extensive studies; denies any link with
goods talks ... pushingfor early progress on safe-
guards, market access.
India
Key interest is market access, particularly phase-out
of Multifiber Agreement ... supports agricultural
reform, not active participant ... along with Brazil,
seeks to limit negotiations on services, investment,
IPR; to stall progress by procedural delays; proposes
extensive data collection ... seeks special treatment
for LDCs in all areas.
ASEAN
Top priority is tropical products, wants rapid pro-
gress not tied to agriculture, access to developed
country markets ... supports reform, special treat-
ment for LDCs in agriculture ... other interests
include dispute settlement, nonselective safeguard
actions ... Singapore likely to be active participant in
services.
Other LDCs
Key interests are traditional topics-market access,
nonselective safeguards, subsidies ... want broad ag-
ricultural reform ... wary of services, IPR, invest-
ment; want more research, special treatment; moder-
ates South Korea, Hong Kong will participate.
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Informal Country Alliances
The group of LDC hardliners formed during 1985 to
oppose US efforts to launch a new GATT round and,
failing that, the inclusion of new issues-services,
intellectual property rights, and investment-in the
negotiations. According to Embassy reporting, the
Hardliners
Middle of the Road
Brazil
Canada
Pakistan
Hungary
India
Japan
ASEAN
European Free Trade
Egypt
Australia
Singapore
Association
Yugoslavia
New Zealand
Philippines
Sweden
Argentina
South Korea
Indonesia
Norway
Tanzania
Zaire
Malaysia
Finland
Zimbabwe
Mexico
Thailand
Iceland
Colombia
Brunei
Switzerland
Uruguay
Austria
second group was formed at the initiative of Canada,
Japan, and Sweden in 1987 to counter disagreements
between the EC and the United States, weaken the
influence of Brazil and India, and encourage moder-
ate LDCs to actively participate in the negotiations.
Criticism of US Policy Actions. GATT members are
concerned that US protectionism will hurt the global
trade environment. While members realize that pro-
gress in the Uruguay Round may dampen protection-
ist sentiment in the United States, restrictive trade
measures are likely to cause GATT members to
question the credibility of the United States as an
advocate of trade liberalization and be more demand-
ing in the Uruguay Round. This will especially hurt
US interests on services, intellectual property, and
investment where LDC support is critical. Several
GATT members have already cited the new US
Customs user fees and oil tax as violations of the
freeze on GATT-illegal measures. Moreover, a recent
working party of the OECD Trade Committee lodged
a strong criticism against the United States for its
action on machine tools and semiconductors
Negotiating Opportunities
Widespread Commitment to the Negotiations. Many
GATT members-particularly LDCs-fear that fail-
ure of the Uruguay Round will cause the world trade
environment to deteriorate even further, as it becomes
mired in trade-distorting bilateral and regional ar-
rangements. LDCs in particular believe they have the
most opportunity to obtain market access and nonre-
ciprocal concessions through the multilateral GATT
system rather than bilateral agreements. Embassy
reporting reflects a general desire that deadlines not
be allowed to slip-as they did in the Tokyo Round-
in order to keep the negotiations moving. Policymak-
ers in GATT member countries also have a high
political stake in seeing them succeed. F_~
The Fragmentation of the LDCs. LDCs' increasing
independence in GATT has weakened the traditional
North-South divisions. As a result, both developed
countries and LDCs have more opportunities to work
together constructively to solve trade problems. The
LDCs' interest in special treatment largely remains 25X1
the same, but their tactics are different. We believe
moderate LDCs such as Singapore and South Korea
will maintain their independence and be a critical
force in pressuring those with extreme positions to
reach a c:omnromise_ allowing the negotiations to
progress
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Expectations of US Leadership. The United States is
largely considered the driving force of the Uruguay
Round and thus many GATT members expect it to
take the lead, particularly on the new issues. They
probably believe that the United States offers the best
chance to break the continuing cycle of economic
brinksmanship and provide them a real opportunity
for sustainable economic improvement. This will al-
low Washington the opportunity to set the pace and
initiate substantive negotiations, as well as influence
countries' positions. On the other hand, many GATT
members also expect the United States to make the
biggest concessions.
In our view, Uruguay Round negotiations will be long
and hard fought; the Round is scheduled to last four
years, but the Tokyo Round dragged on for six. While
this year will focus on tactical positioning and infor-
mation collection on most issues, the real challenges
begin next year when more detailed, substantive
negotiations begin. GATT members' positions will
then be more developed and the defense of national
interests more compelling. While the United States
has several opportunities to propel the negotiations
forward, obstacles to progress over the course of the
Round should not be underestimated. LDCs will
strive to keep their options open on the new issues but
may become less conciliatory if their debt problems
grow, bilateral disputes escalate, industrial countries
invoke bilateral restraint agreements, or any final
Uruguay Round agreements involve changing nation-
al policies with no special provisions for LDCs. The
developed countries, too, could find their interests
diverging as elections approach or trade imbalances
continue, partiq,larl g the United States, the
EC, and Japan.
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Summit Issues: Attitudes Toward
Agricultural Reform
The Big Six have made only marginal progress toward
agricultural reform since the Tokyo summit, and are
unlikely at the Venice summit to go beyond a call for
supporting work in the GATT's Uruguay Round and
the need to cut farm surpluses. Structural reform of
the EC's highly subsidized Common Agricultural
Policy (CAP) remains politically unpalatable to most
member states, especially West Germany and France,
and Japan and Canada have barely begun to grapple
with their domestic farm subsidy systems. EC mem-
bers are unlikely to propose any bold initiatives on
agricultural reform at Venice, although France may
push for a world grain marketing cartel. Canada will
almost certainly press the United States and the EC
to reduce their export subsidies, but Japan will at-
tempt to keep a low profile on the topic.
Agricultural reform has become a central problem in
the economic relations of the summit countries. At an
enormous budgetary cost-the United States and the
EC each are spending about $25 billion supporting
farmers this year-the current agricultural policies of
the developed countries have fostered huge commod-
ity surpluses that disrupt trade. World grain stocks
are projected to rise this year to a level that could
sunnly the entire world grain trade for two years.
The Community's chronic budget crisis-largely a
result of supporting the CAP-will continue to be the
major driving force behind reform efforts. EC com-
mitments for 1987 are already beyond the limit of its
resources, even though revenues were boosted by 40
percent last year. Despite a 10-percent cut in the milk
production quota and cuts in beef support prices last
year, the EC expects a budget shortfall of an estimat-
ed $5.7 billion this year. The shortfall has worsened
The OECD Report on Agriculture
In January Secretary General Paye of the OECD
prepared a draft note outlining for the OECD minis-
terial meeting in May the causes of the current crisis
in agriculture and possible solutions. The crisis is
characterized largely as the result offlat demand-
stemming from a saturation of consumption at higher
income levels and slow population growth-and pro-
duction increases in traditional food importing coun-
tries. Government farm policies are fraught with
contradictory objectives. The use of support prices to
guarantee farm incomes, usually accompanied by
import restrictions and export subsidies, has exacer-
bated strains on the world agricultural market. The
costs offarm policies to national budgets and con-
sumers have increased remarkably.F--]
The solution must involve adjusting to real market
conditions. While little can be done to boost demand,
farm support levels must be reduced and output cut.
Support measures should be refocused on the poorest
farmers who need them the most. Some farmers
should be encouraged to quit producing, and all
should lower their costs. Governments should consid-
er the use of direct income aid to guarantee farm
incomes.)
The GATT Uruguay Round is the logical forum for
negotiating reform of agricultural policy. For the
talks to proceed smoothly a number of suggested
conditions would require governments to:
? Acknowledge their collective responsibility for the
present difficulties.
? Make an inventory of their direct and indirect
support to agriculture.
? Agree on the methods to be used to reduce the
levels of protection.
? Agree to setting a timetable for the dismantling of
protective barriers.F-l
Secret
DI JEEW 87-015
10 April 1987
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forced some writeoffs in the value of stockpiles
because the declining dollar has added to the cost of
subsidizing farm exports and because spoilage has
The EC Commission has presented a plan to boost
revenues further, but it is unlikely to be approved by
the member states until EC spending-two-thirds
goes to agriculture-is brought under better control.
To this end the EC Commission has proposed:
? A price freeze in the next marketing year for most
products, and cuts for others, including an almost
3-percent cut for grain.
? A limit on the Community's role as a purchaser of
last resort for commodities, thus forcing more farm-
ers to rely on the free market.
Reform efforts by other agricultural exporters, to the
extent that they lower world prices, also would ampli-
fy the budgetary pressures on the EC to reform the
CAP.
proach for the CAP
Despite increased realization that the CAP must be
reformed, progress will almost certainly continue to
be limited to small improvements in the way the
subsidies work. Powerful farm voting blocs in many
member states, dependent on high CAP support prices
for the maintenance of their incomes, make any direct
attack on the CAP politically impossible. This is
particularly true for France where the presidential
election in 1988 almost guarantees that the govern-
ment will tolerate little more than tinkering with the
CAP for the time being. For the longer term, France
generally favors cuts in surpluses and holding down
spending increases, and even some French farm lead-
ers cautiously support a more market-oriented ap-
West Germany, where disgruntled farmers helped to
reduce Chancellor Kohl's governing party's vote total
last January, has adopted a hard line against the
Commission's price cut proposal. Agriculture Minis-
ter Kiechle has been arguing strenuously for direct
national payments to farmers as a way of getting
around the budget constraint. Kiechle's proposal is
highly controversial and if adopted could be a first
step toward dismantling the CAP. Ending the com-
mon market for agricultural products and abolishing
common financing, however, would hurt poorer mem-
ber states that count on EC farm support funding.
Nevertheless, we believe that adoption of some form
of increased national direct payments to farmers-
perhaps with the Commission setting strict rules and
supplementing spending in the poorer member
states-is likely within the next two years. The
change would make it easier for members to agree to
CAP price cuts and help solve the budget crisis
The United Kingdom-with a politically weak farm
sector-is the strongest advocate of farm budget
discipline and is seeking cuts in price and production
support levels. Italy also favors substantial reductions
in the CAP budget, but wants more aid for farmers in
Mediterranean regions who have benefited relatively
less from the CAP because of its bias toward northern
products such as milk and grain.
25X6
Tokyo is an agricultural importer and is beginning to
appreciate the need to open its own protected and
subsidized market. Prime Minister Nakasone has
called for domestic farm prices to be more closely
aligned with world prices,
0o y~ own no sign o liberalizing imports of
other farm products for which it maintains quotas. It
is unlikely to open its rice market, a politically
sensitive and emotional issue.)
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Secret
Neither the EC member states nor Commission Presi-
dent Delors are likely to propose any major new
initiatives on agricultural reform at Venice. EC mem-
ber states would probably support a summit statement
endorsing a step-by-step Uruguay Round negotiating
plan without commitment to a specific timetable, and
are likely to argue that the Community has already
made some limited progress toward reform. They
probably will defend the fundamentals of the CAP,
and, with France and West Germany leading the way,
assert the political imperative of preserving farm
incomes.
France, however, is likely to use the summit to push
for its longstanding idea of a world grain exporter's
cartel as a way to reduce stockpiles and guarantee
market shares. French Agriculture Minister Guil-
laume recently resurfaced this idea as a "Marshall
Plan" for Third World agriculture. Under the plan,
the five major grain producers would fix a minimum
price for grain sales to wealthy countries, and use
some of the profits to fund LDC agricultural develop-
ment projects.
Canada is likely to call for an endorsement of the
need for fast-track negotiations on agriculture at the
Uruguay Round. As a member of the Cairns group of
nonsubsidizing exporters, it will want to focus atten-
tion on US and EC grain export subsidies, although it
is unlikely to push the United States too hard because
The Venice summit is unlikely to go beyond adopting
some kind of general blueprint for negotiations on
agriculture at the Uruguay Round. The OECD minis-
terial meeting this May is likely to draw upon the
work of OECD Secretary General Paye in drafting
such a blueprint. The EC and Canada already have
endorsed Paye's recommendations
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International Financial Situation:
The Philippines-Struggling Toward
an Economic Recovery
Since assuming office almost 15 months ago, Presi-
dent Aquino's economic team has adopted a strategy
that emphasizes market-oriented policies and less
government intervention in the hope of restoring
growth in an economy debilitated by years of misman-
agement and plunder. Their plans focus on reviving
the rural economy, where dismantling the country's
coconut and sugar monopolies and increasing govern-
ment spending in the countryside have already boost-
ed employment and incomes. In addition, Manila's
economic recovery program includes simplifying the
tax system, liberalizing trade and investment policies,
and privatizing some public financial and nonfinan-
cial enterprises. Another key component is negotiating
a financial package with foreign commercial creditors
and aid donors for the funding needed for a sustain-
able economic recovery. Although progress has been
made on inflation, interest rates, and restructuring the
foreign debt, growth has been insufficient to ensure
political stability.
Aquino's economic team has made progress in estab-
lishing a stable economic environment that would set
the stage for economic recovery. Effective fiscal and
monetary policies-along with steps taken to restore
democratic institutions and increase confidence in the
country's political stability-have contributed to dra-
matic reductions in inflation and interest rates, a
stable foreign exchange rate, growing foreign ex-
change reserves, and a booming stock market. In
addition, Philippine officials claim that the govern-
ment's "pump priming" program for the rural econo-
my, its reforms of the coconut industry, and a dou-
bling in the price of coconut products are largely
responsible for the nearly 2-percent growth in the
economy recorded in the last quarter of 1986. The
fourth-quarter spurt helped push growth for the entire
year to 0.1 percent, reversing the 9-percent contrac-
The new administration inherited a number of deep-
seated economic challenges:
? National output had declined by 9 percent in the
two-year period before Aquino took over; per capita
income had fallen 15 percent since 1980, and 40
percent of the workforce was underemployed.
Widespread poverty and income inequality, accord-
ing to Philippine academics, put over 70 percent of
Filipinos at or below the World Bank poverty line.
For rural Filipinos, low agricultural productivity
and government-authorized marketing monopolies
depressed living standards and contributed to a
growing Communist insurgency.
The country was overborrowed; its $27 billion in
foreign debt was absorbing nearly 40 percent of
domestic output, and investment capital was flow-
ing out of the country.
? Economic policies discouraged investment, espe-
cially in export production.
Nonetheless, these gains are less dramatic than Ma-
nila hoped and, by themselves, have not weakened the
Communist insurgency or ensured political stability:
? Increases in agricultural output during 1986 were
offset by declines in construction, industrial produc-
tion, and other urban-based activities.
? Investment by local businesses in 1986 was nearly
one-third below the previous year's level, and for-
eign corporate investments were one-half of the
1985 total.
tion in 1984-85.
Secret
DI IEEW 87-015
10 April 1987
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Philippines: Economic Indicators, 1981-86
0
Although Aquino's advisers developed a sound strate-
gy, implementation has been slow. For example,
Manila has yet to finalize a wide-ranging investment
code despite the priority attached to encouraging new
investment. In another instance, it has taken a year of
pressure from the left, repeated concern from many
quarters over Manila's inattention to the economic
causes underlying the Communist insurgency, and a
bloody confrontation in January between farmers and
security forces before the Aquino government recently
approved a six-year, $3.billion land reform program.
Even so, funding for the program is a major problem,
and US officials report that planning still is bogged
down.
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Philippines: Balance of Payments,
1985-87
Trade balance
-482
-78
-760
Exports, f.o.b.
4,629
4,806
5,140
Imports, c.i.f.
5,111
4,884
5,900
Services and
transfers
490
1,108
700
Interest on
debt
2,461
2,045
1,680
Current account
8
1,030
-60
Capital account
2,083
291
1,120
Net direct
investment
-9
100
150
Foreign exchange
reservesc
1,061
2,382
3,442
a Estimated.
b Projected.
At yearend.
Despite the limited progress on the economy, Manila
has negotiated financing packages on terms that, we
believe, reflect creditors' confidence and support for
the Aquino government. Late last year the IMF
approved a $500 million balance-of-payments loan; in
January 1987 Manila and its Paris Club creditors
rescheduled $870 million in debt payments; and Man-
ila's Consultative Group of key bilateral and multilat-
eral aid donors agreed in January to provide $1.5
billion in new economic assistance this year.F_~
Manila and its commercial creditors agreed last
month to reschedule payments on $13.2 billion in
bank debts over 17 years-concluding negotiations
that began in November but later stalled over the
issue of interest rates. Settlement was reached when
the banks agreed to accept Manila's proposal for a
Under Manila's debt restructuring agreement with its
commercial creditors, the banks have the option of
converting some of their interest receipts into Philip-
pine Investment Notes (PINs). Those banks that agree
to purchase the six-year, dollar-denominated PINs-
sold at a discount against their face value-have
three options:
? They can hold the PIN to maturity: after six years
they will receive the full value of the note in
dollars.
? They can trade the PIN in secondary markets to
potential investors who wish to cash the note for its
full peso value.
? They can redeem the note for its full value in pesos
at any time before maturity and invest the proceeds
in government-approved projects under Manila's
debt-to-equity conversion program
Manila hopes the innovative plan will conserve its
foreign exchange and attract foreign investment. The
plan's success, however, is not assured. Foreign inves-
tors remain on the sidelines-even though labor
unrest has diminished in recent months-citing un-
certainty over investment regulations, the Communist
insurgency, and the long-term stability of the Aquino
government. In addition, an adequate secondary mar-
ket is needed to make the PIN program work, but the
thin trading in other Third World debt instruments
suggests that the necessary resale market may not
develop.
lower interest rate in return for prepayment of a
portion of the Philippines' outstanding debt: 25X1
? Manila will repay $37, million annually until 1989
on the $925 million borrowed in 1985.
? In return, the banks accepted an interest rate spread
of 0.875 percentage point over LIBOR as long as
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25X1
amortization payments are on time; if Manila falls
in arrears, the spread will rise to 1 percentage point.
pine
? In a new wrinkle, the banks agreed to the option of
converting some of their interest receipts into Philip-
pine investment notes (PINs) that would finance
government-a roved investments in the Philip-
~
The new rate spread has symbolic as well as financial
benefits as far as Philippine financial officials are
concerned. It is the lowest rate granted recently to any
Third World debtor except Mexico and will save the
Philippines over $50 million a year in debt payments,
according to Philippine officials. Manila estimates
that another $50 million a year can be saved if the
PINs program is successful. The agreement is also a
political victory for President Aquino and her chief
negotiator, Finance Secretary Ongpin, who had been
under pressure to achieve a spread below 1 percentage
point. In fact, Ongpin believes the Philippines got a
better deal than Mexico, according to the US Embas-
sy, and expects no difficulties for the bank advisory
committee in selling the agreement to nearly 500
individual creditor banks holding Philippine debt.
Manila officially predicts that 1987 economic growth
will exceed 6 percent, but the US Embassy says
Planning Secretary Monsod recently acknowledged
that this performance will be hard to achieve. We
believe the economy, slowed by the delays in imple-
menting policies and development projects and inves-
tors' lingering doubts about the country's political
stability, is likely to grow about 3-4 percent this year.
Indeed, our index of leading Philippine economic
indicators has shown little improvement in recent
months, suggesting that a sustained economic recov-
ery is not yet in place and that the economy will
remain sluggish through at least the first half of 1987.
For example, our indicators for manufacturing em-
ployment and output remain flat, suggesting that
urban-based manufacturing industries are in a hold-
ing pattern. On the other hand, real money supply
Philippines: Leading Economic
Indicators, 1984-86 a
I I I I I I I I I
70 III IV I II III IV I II III IV
1984 85 86
a Includes exports, imports, government revenues,
manufacturing output and employment, and
money reserves.
through December is up almost 25 percent, indicating
a pickup in spending, most likely in the rural econo-
my
Although Manila hopes the new debt agreement will
boost investor confidence, foreign investors probably
will wait to see the results of the May legislative
election, as well as the government's continuing ef-
forts against the Communist insurgency, before com-
mitting substantial new funds. In addition, we believe
the prospect of a stagnating economy as a new
legislature opens for business in July will do little to
encourage investor confidence. If the past is any
guide, the new congress will begin to flex its muscles,
and there is likely to be more criticism by the left and
the right that Aquino and her economic policies are
not up to the job. Indeed, we believe such criticism
will increase dramatically if the recovery effort is
widely perceived to be faltering.
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Nicaragua: The Burden
of US Sanctions '
have been significant.
Trade disruptions and the diversion of financial and
managerial resources to circumvent US economic
sanctions 2 have put significant additional pressure on
the already staggering Nicaraguan economy. We
estimate that the embargo has directly cost Managua
about $85 million through February 1987 in lower
export earnings, more expensive imports, and new
middlemen fees since sanctions were initiated. Nica-
ragua still has been unable to find new customers for
much of its previous sales to the United States, and
higher transportation costs have reduced net foreign
exchange earnings for those commodity exports that
the Sandinistas have been able to relocate. Although
difficult to quantify, the indirect costs probably also
Even before US sanctions were announced, Nicara-
gua's economy was in a tailspin because of the
Sandinistas' economic and financial mismanagement,
their hostility to the private sector, and dislocations
caused by the growing civil war. We calculate US
sanctions have directly cost Managua some $85 mil-
lion through February 1987 because of the loss of
access to US markets, higher freight costs for exports
and imports, and new middlemen fees to circumvent
the embargo. Sandinista claims that the embargo cost
$165 million in direct losses through last year are, in
our opinion, exaggerated to deflect blame from the
regime for its general mismanagement of the
25X1 economy.F__1
I The United States announced limited economic sanctions against
Nicaragua on 1 May 1985. The sanctions became effective on
7 May 1985 and were phased in during the remainder of the year.
They embargoed most direct trade relations-except for charitable
donations, medical supplies, and educational materials-and termi-
nated Nicaraguan air and maritime service to the United States.
The sanctions did not call for an asset freeze, travel limitations, or
prohibitions against doing business with Nicaragua either on
personal contract basis or through third-country subsidiaries.
On the export side, we estimate that direct, sanction-
related losses have cost the Sandinistas $52 million in
net foreign exchange losses since the embargo was
announced. The impact is concentrated in a number
of areas:
? We estimate that net hard currency earnings from
beef exports fell some $14 million through 1986 as
efforts to find alternate markets in Canada and
elsewhere have been mostly unsuccessful.
? We estimate that loss of the US sugar market cost
Managua about $11 million in the past two years
because it has largely had to sell on the glutted
world market at less than one-third the subsidized 25X1
US price.
? We estimate that net foreign exchange earnings
from banana exports fell by some $11 million since
1984 with new-but less profitable-sales to West
European customers taking up some of the slack.
? Losses from lower passenger and cargo revenue and
higher prices for maintenance and spare parts cost
the state airline about $5 million since the embargo.
? Despite limited success replacing lost seafood and
tobacco markets, we estimate that sanctions cut net
foreign exchange earnings for these products by $7
million in 1985-86.
On the import side, we estimate direct foreign ex-
change expenses from higher prices and new middle-
men fees to regain access to priority US-sanctioned
goods have cost the Sandinistas about $33 million.
while the Sandi- 25X1
nistas have found some new suppliers for much of the
foodstuffs and raw materials formerly provided by US
sources, they have not done nearly as well replacing
Secret
DI IEEW 87-015
10 April 1987
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Secret
Nicaragua: Direct Costs Million US $ Nicaragua: Exports to
of Sanctions, 1985-87 the United States, 1976-86
Total losses 34 44 7
Export losses 20 28 4
Beef 5 9 NA
Machinery and 10 12 NA
chemicals
e Embargo phased in beginning 7 May 1985; costs are estimated net
foreign exchange losses.
b Through February 1987.
imports of US-built machinery, agrochemicals, and
spare parts. As a result:
? We estimate that, because of embargo-circumven-
tion surcharges, the Sandinistas paid an extra $22
million since the second half of 1985 to buy priority
US-manufactured spare parts, machinery, and
chemicals.
? We estimate that Managua paid an extra $8 million
in 1985-86 to retain access to other materials and
semifinished and consumer goods
We believe the indirect costs to the economy are also
substantial, although much more difficult to quantify.
I maneuvering around
US sanctions requires ewe bureaucratic atten-
tion, limiting Managua's ability to address other
economic issues and development projects. Moreover,
where the Sandinistas have been able to find replace-
ment imports for US goods in either the West or the
Soviet Bloc and thus avoid the circumvention sur-
charge, quality differ-
Annual A
Average A
1976-78 1
nnual
verage
982-83
1984
1985
1986
Total
194 1
02
69
50
1
Seafood
30
15
10
6
0
Bananas
21
20
33
23
0
Meat
48
32
11a
13
0
Sugar
32
23
5 b
3
0
Tobacco
7
4
4
2
0
Coffee
28
3
6
2
0
Cotton
0
0
0
0
0
Other
28
5
0
1
1
a Meat products were banned for much of 1984 because of
unsanitary conditions.
b Sugar quota revoked in 1983.
lower productivity. In the aggregate, we believe these
factors have played a major role in dampening eco-
nomic activity, increasing consumer and producer
shortages, and accelerating triple-digit inflation rates.
Managua's search for new Western outlets to replace
former US customers has been largely unsuccessful.
Since the embargo, total exports to Western nations
other than the United States have fallen by one-fifth,
according to international trade statistics-only Bel-
gium, Switzerland, and the Netherlands have in-
creased their purchases by significant amounts. After
nearly two years, the regime has not been able to find
stable new markets for its beef, seafood, and tobacco.
For example, Canadians have been reluctant to ex-
pand purchases of beef because of poor quality,
according to Embassy reporting. Efforts to find new
markets for seafood have suffered because of virtually
prohibitive transportation costs
While Nicaragua has sold more
bananas to Western Europe, the volume of total
entials often have resulted in adaptation problems and
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Nicaragua: Imports
From the United States
Million US $
Annual
Average
1976-78
Annual
Average
1982-83
1984
1985
1986
Chemicals
42
33
34
8
NEOL
Spare parts and
machinery
69
42
37
17
NEGL
banana exports remains substantially depressed from
presanction levels, according to Nicaraguan trade
While international trade statistics show that Nicara-
guan imports from the West also have fallen substan-
statistics.
tially since the embargo was announced, Nicaraguan
purchases from some non-US Western suppliers have
helped fill the void.
the Sandinistas have been able to buy
a small amount of spare parts for US vehicles and
equipment from suppliers in Spain and the United
Kingdom. Managua also has purchased some replace-
ment chemicals and consumer goods from Switzer-
land, Belgium, France, and the Netherlands.
Growing trade relations with the Soviet Bloc have
helped ease the impact of the embargo, but poor
quality has limited Managua's exports to the Bloc.
Nicaraguan exports to the Soviet Bloc actually fell
after the embargo was announced because Bloc coun-
tries did not follow up initial 1984 sample purchases
with new orders. During the past year Managua has
been able to boost sales to East Germany and the
Soviet Union, and total exports to the Bloc have
partially rebounded. Managua plans to soon sign a
new trade pact with Moscow that would provide for
increased shipments of coffee, cotton, and sugar to the
USSR at preferential prices. Even so, Bloc countries
have shown little immediate interest in expanding
purchases of the Nicaraguan beef, bananas, and
seafood that have been most affected by the embargo.
The USSR and Eastern Europe have sharply in-
creased economic aid in the last two years-including
some hard currency assistance designed to help offset
the embargo-but most Soviet aid is in the form of
trade credits for the purchase of Bloc goods. Nonethe-
less, Bloc suppliers are not able to replace most
sanctioned US machinery, agrochemicals, spare parts,
and luxury consumer goods.
Dealing With US Subsidiaries and Consultants
The Sandinistas have regained access to a substantial 25X1
portion of sanctioned goods and services by buying
them from US subsidiaries in third countries and
from US foreign trade brokers and consultants, as
permitted by the 1985 sanctions.
he Sandinistas have been able to
meet much of their priority agrochemical needs by
using commercial trade credits or barter deals from
subsidiaries of US companies in Western Europe,
Japan, and Latin America. Managua also uses third-
country US subsidiaries to obtain top priority hybrid
seeds, chemicals, computer goods, and technical assis-
tance
25X1
25X1
A wide variety of services are also regularly provided
to the Sandinistas by scores of US persons. According
to recent press reporting, as many as 100 US citizens
currently work full-time in Nicaragua for the Sandi-
nistas, while perhaps another 2,000 to 3,000 work
part-time or as volunteers on government projects.
According to Sandinista press and US Embassy re-
porting, US citizens regularly travel to Nicaragua to
provide consultations on computer software and hard-
ware systems and technical support for agriculture
and industry. US 25X1
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Secret
firms frequently provide financial, insurance, and
shipping services for the Sandinistas. Embassy reports
indicate, however, that there has been no US direct
private investment since the Sandinistas took power,
and all but a few of the remaining US-owned busi-
nesses are fully staffed by Nicaraguan citizens.
Using Front Companies
With substantial Cuban support, Managua has devel-
oped-and plans to expand-a network of Sandinista-
controlled front companies to help circumvent the
embargo. they are used
primarily to import spare parts, machinery, electron-
ics, and computer and communications equipment. A
few also are involved in redirecting Nicaraguan ex-
ports to US customers. Currently, we have identified
Nicaraguan front companies, particularly in Panama,
Costa Rica, Guatemala, Mexico, and Canada.
The Soviets have also been active in helping Nicara-
guan front companies. A Soviet front company pro-
vided spare parts for US-made automobiles to a
Nicaraguan front company during 1986,
We believe the current sanctions have hurt the Sandi-
nista economy and probably increased Managua's
vulnerability to internal dissent and armed insurrec-
tion. Moreover, tighter US economic sanctions would
certainly restrict remaining Sandinista access to US
goods, technology, and financing and would increase,
even at the margin, the cost to Moscow of maintain-
ing the regime. Even if sanctions were tightened,
Managua would probably try to keep some limited
access to US products and expertise-not only by
relying more on front companies but also by focusing
efforts on areas where US policy actions would, in
principle, result in increased financial costs to US
citizens and, possibly, some international legal chal-
lenges.
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Malaysia: Economic Problems Cloud
Election Prospects
Prime Minister Mahathir faces the most serious
challenge of his six years in office as he tries to retain
the presidency of the dominant Malay party-and the
prime-ministership-in the election scheduled for 24-
27 April. Mahathir's chief opponent, Trade Minister
Razaleigh, has made headway in recent weeks by
attacking the Prime Minister's leadership style and
charging him with economic mismanagement and
with tolerating financial improprieties by top govern-
ment officials. Razaleigh's campaign, in our view, is
also capitalizing on public discontent with Malaysia's
economic stagnation over the past two years. Whoever
wins the party presidency will face several difficult
years trying to cope with a burdensome foreign debt,
an unprofitable heavy industry sector, and an elector-
ate whose expectations far exceed the economy's
treasury benefited from taxes on burgeoning commod-
ity exports. The decade of rapid growth also allowed
Kuala Lumpur to keep communal tensions under
control and make progress on its New Economic
Policy (NEP)-the affirmative action program for
ethnic Malays-without shrinking the incomes of the
economically dominant Chinese community.
The situation has changed substantially. Low com-
modity prices and the slowdown in world trade
plunged Malaysia into its severest economic decline in
1985. GDP fell by 1 percent that year-the first drop
in output since independence in 1957. Although the
economy has perked up since late last year, even the
government's official forecast calls for growth to
remain in the 2- to 3-percent range through 1990.
likely performance.
ership dramatically altered this situation.
At the beginning of this year, political observers in
Kuala Lumpur considered Mahathir's position virtu-
ally unassailable because he had led his United
Malays National Organization (UMNO)-the domi-
nant party in the 13-party ruling coalition-to a
resounding victory in the general election last sum-
mer. Over the past two months, however, an unprece-
dented alliance between longtime bitter rivals-Trade
and Industry Minister Razaleigh and Deputy UMNO
President Musa-as well as growing public dissatis-
faction with Mahathir's economic and political lead-
The challenge to Mahathir's leadership comes at a
time when Kuala Lumpur is reassessing economic
policy and Malaysia's medium-term economic pros-
pects. Three years ago Malaysia topped the list of
creditworthy Asian nations and was cited, according
to many international financial analysts, as the LDC
most likely to become a "newly industrializing coun-
try" in the next decade. From 1975 to 1984 economic
growth averaged 7 percent a year and the Malaysian
Mahathir's opponents blame him for much of the
deterioration. Although we believe Mahathir is cor-
rect in his claim that low commodity prices are
largely responsible for the recession and slow recov-
ery, we also believe that his administration over the
past six years implemented a number of policies that
now make it harder to revive the economy.
The Troubled Heavy Industry Program. Most poten-
tially damaging, in our view, is Mahathir's effort to
build an extensive heavy industry sector-including
automobile manufacturing and iron and steel plants-
largely at government expense. Because of its small
population-16 million-Malaysia lacks a domestic
market large enough to make such products economi-
cal. For example, the Malaysian car, the Proton Saga,
is currently selling at a rate of 20,000 cars annually,
well below the plant's 110,000-vehicle-per-year capac-
ity, according to the US Embassy. Moreover, planned
export of the Proton Saga to the United States next
year will probably require a substantial government
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Razaleigh on Economics
Although the debt service ratio of 18 percent is low
compared with that of many troubled LDC debtors,
its rapid increase from 8 percent in 1981 has caused
some international lenders to reassess Malaysia's cre-
We have little reason to believe Minister of Trade
and Industry Razaleigh-Mahathir's opponent in the
party election-would follow substantially different
economic policies than Mahathir, although Raza-
leigh would probably not engage in strident criticism
of the West. Known as the "Father of Malaysia's
Economy "for his work in promoting and implement-
ing the New Economic Policy, Razaleigh continues to
be a strong supporter of the NEP. Among Malay-
sians, he has a reputation as both an economic
innovator and a skillful bureaucrat. Razaleigh has
publicly accused the West of having a vested interest
in keeping the developing nations poor and dependent,
and of hypocritically promoting the notion of free
trade while erecting barriers against Third World
products.
Razaleigh has been unable to repair the damage to
his political reputation caused by his connection to
the Bank Bumiputra scandal. Although Razaleigh
relinquished the chairmanship of the bank in 1976
when he became Finance Minister, he remained close-
ly associated with the bank's management and opera-
tions. Because the government dodged a full investi-
gation of the scandal, the extent of Razaleigh's-or
Mahathir's-involvement may never be known. But
Razaleigh has not been able to escape the suspicion
that he was criminally culpable, and his Malaysian
detractors frequently question his honesty and
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$9,000, according to press reports
subsidy: the distributor plans to sell for $5,000 to
$6,000 a car that now sells in Malaysia for roughly
Accelerating Foreign Debt. Mahathir encouraged for-
eign borrowing in the early 1980s to pay for expensive
development projects such as the auto industry. The
country's medium- and long-term foreign debt nearly
tripled between 1981 and 1986, to about $20 billion.
ditworthiness,
In addition, the government's self-imposed limits on
foreign borrowing as well as a budget deficit ap-
proaching 18 percent of GNP will constrain the public
sector's ability to stimulate the economy for several
years
"Look East Policy. " Mahathir's "look east policy" in
which he cites Japan and South Korea rather than the
"tired" United States or Western Europe as develop-
ment models also is proving costly. As a result,
Malaysia in the 1980s increased its borrowing from
Japan to the extent that about 30 percent of its
foreign debt is now denominated in yen, whose recent
sharp appreciation has increased the debt repayment
burden. According to the US Embassy, Mahathir's
personal pleas last fall to Japanese Prime Minister
Nakasone to lower.the interest rate on official credits
produced only token results
New Economic Policy. Mahathir's defense of prefer-
ential economic programs for ethnic Malays, who
account for roughly one-half of the population and
who have lagged behind the country's prosperous
Chinese citizens, continued during the early stages of
the recent economic slump. Although an astute tactic
politically, Mahathir's public adherence to the NEP
goals worried Chinese businessmen and led to as
Some of the money began return-
ing late last year, however, as the economy picked up,
but we are certain that much of it will remain abroad
until the political situation becomes clearer.
Tilting Against Foreign Economic Interests. Ma-
hathir's pursuit of his self-chosen role as LDC spokes-
man on commodity issues led to constant clashes
through the mid-1980s with the United States and
several West European countries. Mahathir's oppo-
nents accuse him of driving away foreign investment
and hurting sales of Malaysian commodities through
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when the government's role became public knowledge.
years of caustic criticism of Western nations, accord-
ing to the US Embassy. Moreover, Kuala Lumpur's
attempt in 1983 to drive up the price of tin on the
London Metals Exchange by functioning as a "mys-
tery buyer" may have cost the government nearly
$200 million, according to the international financial
press, and tarnished Malaysia's international image
Malaysia's image as a well-run, relatively corruption-
free country was also tarnished in the past few years
by a variety of financial scandals-some linked di-
rectly to members of Mahathir's administration. Ma-
hathir's chief political liability,
country's major banks and several of its top corpora-
tions after becoming Finance Minister. Although he
sold his majority interests after a Cabinet directive
last September, rumors abound of other corrupt prac-
Daim retained controlling interest in two of the
is his close friend Finance Minister aim.
Other financial improprieties include:
? Bank Bumiputra-the country's largest commercial
bank-was taken over by the national oil company
in 1984 after absorbing some $1 billion in losses
from questionable loans of a Hong Kong subsidiary.
? Bad debt problems brought on by poor management
and possibly fraudulent loans have forced a Central
Bank acquisition of controlling interest in two other
large commercial banks. As a result, five of the
country's seven largest domestic banks are now in
government hands, and another bailout is likely,
according to the US Embassy.
? The government still faces strong criticism for its
handling of the collapse of 24 unregulated deposit-
taking cooperatives last summer as a result of bad
loans and massive insider dealings. The victims are
mostly Chinese depositors who, according to the US
Embassy, may never recover the bulk of their
deposits under the government's rescue plan.F_~ 25X1
Although the momentum and the aggressiveness of
the Razaleigh-Musa campaign apparently took Ma- 25X1
hathir by surprise, we believe his control of the
national party machinery and attendant patronage, as
well as the Malay tradition of loyalty to the leader,
give him a slight edge. Mahathir is also fighting back
by appealing to poorer, rural Malays who are
UMNO's major constituency. His running mate,
Deputy Prime Minister Ghafar, announced last
month that the NEP would be extended indefinitely
beyond its current expiration date in 1990, and its
target of 30-percent Malay ownership of productive
facilities would be raised to 50 percent by 200025X1
Whoever wins the UMNO presidency and the prime-
ministership that goes with it will face several difficult
years of trying to turn around the Malaysian econo-
my. Tighter domestic budgets and self-imposed limits
on foreign borrowing have forced Kuala Lumpur to
revamp its development planning in favor of private-
sector rather than government-led growth. Under the
Fifth Malaysia Plan published early last year, the
private-sector share of total investment is targeted to
rise from 50 percent in 1985 to almost 62 percent in
1990.
The key to approaching this objective and boosting
growth, in our view, is reviving the confidence of
Malaysia's largely Chinese business community. We
see little prospect of this happening soon, however.
Although the economic picture has brightened some-
what since the last months of 1986 because of a slight
improvement in the prices of key commodities-
petroleum, palm oil, rubber, and tin-and an expan-
sion in manufactured exports, the government appears
to be focusing on attracting additional foreign rather
than domestic investment. Mahathir has recently
toned down his anti-Western rhetoric and promoted a
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Secret
number of more liberal foreign investment measures.
But as long as the Chinese community remains
concerned about its role in the economy and the
influence it has in the ruling coalition, we do not
expect it to step up investment in the kinds of small-
to medium-scale manufacturing activities Malaysia
needs to replace commodity exports as the engine of
growth
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Libyan Petroleum Libyan petroleum exports in February and March fell to roughly 800,000 b/d,
Exports Down about 20 percent below the January level, he drop
occurred primarily because several of Tripoli's longstanding West European
customers have resisted Libya's high crude oil prices under OPEC's fixed pricing
system. Tripoli also has cut back heavily on the oil the Soviets use primarily for re-
export the reduction of Soviet liftings is part of a
Libyan attempt to coerce Moscow into providing additional military hardware
despite disagreement over payments for past arms purchases. Oil prices have
firmed in recent weeks-substantially narrowing the disparity between crude and
refined products-and this should allow Libya to boost exports to Western Europe
in the second quarter. In addition, demand for Libya's lighter crudes, which yield a
higher proportion of gasoline, increases with the summer driving season. Libya's
severe equipment losses in Chad should facilitate resolution of its current dispute
with Moscow over the oil-for-arms deal.
protect their flagged vessels even without a formal agreement.
larger framework to deter Iranian aggression and that Western powers would
Kuwaiti-US Shipping Kuwait is no longer interested in US naval protection for its shipping and has de-
Agreement Update cided to request permission to operate only five Kuwaiti tankers under the US flag.
Moreover, the government has told its senior officials that Kuwait never requested
US protection for its oil shipments. The US Embassy says recent US press
publicity led Kuwait to revert to its original request to reflag a small number of its
ships. The Kuwaitis also have asked the United Kingdom, France, and China to
lease them tankers, according to the US Embassy. Kuwait asked London for a
written guarantee to protect chartered UK-flag ships, but London will not
redeploy its Gulf fleet. France has no tankers available but would allow Kuwait to
register tankers chartered elsewhere under the French flag. Kuwait's latest moves,
coupled with the Soviet agreement last week to lease three tankers, seek to involve
the permanent members of the UN Security Council. While playing down the
bilateral relationship, Kuwait probably believes it can use US support within a
New Brazilian Oil production from Brazil's giant, deepwater (250 to 400 meter) oilfield,
Oil Production Albacora, is scheduled to begin in July at a rate of 18,000 b/d and then double by
early 1988. According to press reports, this is the first of three phases of
development anticipated for this 500-million-barrel oilfield, and represents an
investment of roughly $100 million dollars. Development of this field will probably
be spread over a period of eight to 10 years, with production eventually reaching
200,000 b/d. More than 90 percent of the services and equipment used in this first
stage will be supplied domestically. This phase of development will provide
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extensive experience in the operation of subsea equipment, and will act as a testing
ground for production in much deeper waters in the second and third phases.
Brazil is currently working with US and West European firms to develop the
technology required to produce oil from depths in excess of 800 meters. If
successful, the Brazilians would be in the lead position to apply the technology to
other deepwater areas worldwide
Yugoslavia's Debt Western governments last week approved in principle the second phase of
Rescheduling Agreement Yugoslavia's current rescheduling agreement, although formal approval awaits a
forthcoming IMF assessment of Yugoslav economic policies. The accord resched-
ules $475 million in official debt, falling due between next month and March
1988, and clears the way for banks to activate the second stage of a multiyear refi-
nancing agreement later this month. The accord strikes a compromise between
Belgrade's demands for an automatic, unconditional refinancing and some govern-
ments' insistence on more explicit policy and performance guidelines. Creditors,
who previously favored a tougher stand, probably were influenced by recent labor
unrest and wished to minimize any threats to Yugoslavia's stability. Belgrade's
victory may be short lived; a negative IMF evaluation could set up another
confrontation as early as next month. Moreover, continuing liquidity problems will
probably force Belgrade into another grueling round of negotiations later this year.
Iraqi Rescheduling Iraq is making progress in rescheduling debt owed to major trading partners and
Update international banks. Baghdad needs to reschedule as much as $4 billion in debt
this year. The US Embassy in Rome reports that Italy agreed last month to
reschedule $320 million in government-insured short-term Iraqi debt due in 1987.
The agreement calls for repayment of $40 million in cash over the next five months
and $280 million to be repaid from 1989 to 1992. Combined with a total of $450
million rescheduled by China and France earlier this year, Baghdad has resched-
uled nearly $800 million so far. Recent repayments of overdue letters of credit also
are improving Baghdad's chances for obtaining rescheduling agreements with
international banks
Iran Uses Gold Iran borrowed about $1 billion from West European banks last year by using gold
To Obtain for collateral. The terms of several gold swap arrangements called for Iran to pay a
Foreign Exchange low interest charge and to buy its gold back within a few months. Iran usually ex-
tended the buy-back dates, however. This method of obtaining foreign currency
allows Tehran to claim the exchanges do not involve foreign loans, and that the
fees charged do not violate Islamic restrictions against paying interest.
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Cuba Using Panama Cuba continues to use Panama as a channel to obtain goods in circumvention of
To Circumvent the US embargo. Panama and Havana are reportedly negotiating the sale of
US Embargo $500,000 worth of computer equipment to the Cuban Ministry of Public Health.
In addition to deals for high-tech goods, other transactions involve mostly brand
name US-made products such as cigarettes, photographic equipment, office
supplies, leather goods, and footwear. Besides Panama, Cuba is tapping other
sources for US goods. Havana intends to purchase some of these goods from
Puerto Rico and Venezuela
Transshipment of A Japanese trading company has advised a Pakistani trader in methods to
Soviet Textiles to circumvent US import regulations on Soviet-made textiles. The Japanese firm
US Market advised the Pakistani trader to transship through Pakistan, Bangladesh, or other
East Asian countries in order to avoid the high US duties on Soviet textiles-20 to
25 percent on flannel material and 70 percent on bedsheets. In addition, the
Japanese trader also suggested using these points to dye, print, and stitch the
fabric to further disguise Soviet origin before final delivery to the United States.
Saudi-Moroccan During a visit last month, Saudi King Fahd apparently agreed to give Moroccan
Cooperation Agreement King Hassan extensive financial assistance in return for Hassan's nledee to station
Moroccan troops in Saudi Arabia
by Riyadh, will be sent to Saudi Arabia soon. In return, Fahd promised Hassan an
economic assistance package, including oil aid, and unspecified funding to
modernize the military. The agreement, which has been under discussion for
several months, reflects Fahd's continuing efforts to develop a credible military
deterrent to Iranian aggression. The extent of Saudi financial aid remains
unknown, but the proposed oil grant alone may exceed $450 million. About 3,000
Moroccan troops are already in the United Arab Emirates, and Hassan would
welcome the Saudi deal as an opportunity to obtain hard currency, reduce high
Moroccan unemployment, and free Moroccan funds for the purchase of F-16 or
Mirage 2000 aircraft
Breakthrough in researchers in Japan, Western
Superconductors Europe, and the United States have discovered superconducting ceramic materials
that do not require the costly, ultralow temperatures that current materials do.
The new technology has spread quickly-roughly two dozen labs claim recent
success-because the approximate chemical compositions of the new ceramics are
public knowledge and they are easy to make. Underscoring Japan's determination
to seize the initiative, the Japanese press has announced the formation of a
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Secret
research consortium of companies, universities, and government labs to further
develop the new superconductors. The new superconductors should enhance
performance and reduce cooling costs for applications such as high-speed computer
chips, low-loss powerlines, particle accelerators such as a "superconducting
supercollider," and fusion power. Experts differ in their estimates of how soon the
new superconductors can reach the market, but many of them see commercializa-
tion within five to 10 years.
Developed Countries
Japanese Economic Faced with mounting foreign and domestic pressure, the ruling Liberal Democrat-
Stimulus Package is Party (LDP) this week recommended measures designed to stimulate the
economy. The package calls for a large supplemental budget and early implemen-
tation of public works projects. While noting US demands to stimulate the
economy, the LDP statement also strongly reaffirms the Nakasone government's
commitment to continuing its deficit reduction campaign. Although the LDP
proposal is intended only as guidance to the government, it will essentially become
official policy. A large supplemental budget could significantly boost the economy
if it is funded with new money-past budgets have largely reallocated existing
revenues-but such decisions will not be worked out until the fall. In any case, the
LDP's statement suggests that even a genuine effort to stimulate the economy
would be temporary.
Protectionism Advocates of import protection for depressed industries appear to be gaining
Gaining Ground influence within the MITI as a result of the yen's appreciation to the 140 to 150
in Japan per dollar range and the shortcomings of the US-Japan Semiconductor Agree-
ment. Officials in the MITI bureaus responsible for the steel, cement, and textile
industries believe that the yen's continuing rise has undercut industry efforts to
carry out structural adjustments. They now insist that these sectors need import
penetration ceilings to hold back competition from Taiwan, South Korea, and
China, Vice Minister Fukukawa reportedly is
in a poor position to resist such pressures because of his past advocacy of structural
adjustment, including capacity reductions. Director of the Minister's Secretariat
Tanahashi and Vice Minister for International Affairs Kuroda, who would
normally be expected to resist protectionist proposals, are on the defensive within
MITI because of their identification with the semiconductor agreement.
Bundesbank Press reports indicate that the Bundesbank has downgraded the importance of its
Deemphasizes 1987 1987 monetary growth target out of concern that traditional efforts to slow
Monetary Targets monetary expansion will further hamstring the West German economy. After
badly overshooting last year, the bank had attached great importance to meeting
this year's target in order to restore its credibility. Primarily because of the
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continued strength of the deutsche mark, however, January's discount rate cut, an
unorthodox attempt to slow monetary growth by widening the gap between short-
and long-term interest rates, has done little-monetary growth remains 1.5
percentage points above its upper target. The announcement is almost certainly
intended to weaken demand for the mark by removing the prospect that the bank
will increase interest rates to slow monetary growth later this year. As it did last
year, the central bank will probably point to the decision to tolerate higher
monetary growth as a contribution to world economic adjustment.
Chile Opts for Faced with higher inflation and sharp increases in imports, Santiago has taken
Slower Growth fiscal and monetary measures to slow growth. Economic growth was 5.7 percent
last year and by January had accelerated to a 7-percent annual rate, heating up
the economy and pushing inflation to 3.8 percent for the month. The consumption-
led expansion also drove up imports by 24 percent last year, raising the danger of a
deeper current account deficit and external financing problems this year. In
March the central bank moved to cool off the boom by raising its lending rate to
commercial banks and slowing monetary expansion from its 26-percent real
increase last year. The scheduled cut in the fiscal deficit from 2.2 percent of GDP
in 1986 to 1.7 percent this Year will probably help to rein in growth to a more sus-
tainable level.
Peru Gropes for President Garcia continues to favor labor over other interest groups, despite his
Economic Remedies growing concern over inflation-which jumped to a 100-percent annual rate
during January-March, from 60 percent last year-and lack of new investment. In
a speech last week he decreed a 40-percent rise in the minimum wage-which
applies to one-fifth of the labor force-and 27- to 30-percent increases for
nonunionized and government workers. At the same time he hinted that consump-
tion may have to be curbed to allow for increased exports and greater domestic
savings. Lima probably will steadily raise taxes and administered prices-Garcia
also announced higher taxes on luxury consumer items and he recently raised
gasoline prices 20 percent-to fight the budget deficit, but, to maintain his popular
backing, Garcia also will ensure that the wages of the lowest paid stay ahead of the
cost of living. His piecemeal approach is unlikely, however, to encourage domestic
savings, particularly if the salaries of better paid workers are allowed to lag, and if
interest rates on savings accounts remain pegged well below inflation.
Syrian Military Move The additional financial costs posed by Syria's military intervention in West
Further Strains Beirut are sustainable for the near term. Over time, the move will further strain
Economy Syria's weak economy, especially if Damascus is forced to augment its 7,000 to
10,000 troops to maintain control. The US Embassy estimates the monthly cost of
maintaining Syrian troops in West Beirut is about $500,000.
Damascus has sought Saudi help to defray the costs. Syria will probably
finance its military operations in Beirut by limiting expenses in other areas;
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Damascus earlier eliminated the special bonus pay to soldiers serving in Lebanon.
President Assad will portray his policies as consistent with moderate Arab
interests, and almost certainly will seek assurances from Riyadh of oil deliveries
and hard currency support if Syrian forces move against the Iranian-backed
Hizballah in Beirut's southern suburbs
Pakistan Unveils Pakistani officials recently announced an employment program-the Youth
Employment Program Investment Promotion Society (YIPS)-to respond to growing unemployment
among educated youth, according to US Embassy reporting. The plan is intended
to assist educated youth to start small-scale businesses in industry, agriculture,
trade, transportation, and other sectors. The Society, which will collaborate with
the National Development Corporation, the Federal Bank for Cooperatives, and
the Small Business Finance Corporation plans to make $35 million annually in soft
loans and hopes to create 2,000 to 2,500 jobs each year. The government plans to
contribute $5 million from its July 1986 $120 million employment package that
uses windfall revenues created by lower world oil prices.
India's Oil India's dependence on imported oil is increasing as fuel demand grows and
Import Outlook domestic production stagnates. According to press reports, Indian petroleum
officials expect a 15-percent increase in India's imports of crude oil and petroleum
products this year. In 1986 India imported 40 percent-some 391,000 b/d-of its
petroleum requirements at a cost of about $2.5 billion. The Soviet Union will
probably continue to provide about one-third of India's oil imports with the
remainder purchased on the spot market or through barter arrangements. India's
7-percent annual increase in oil demand since 1985 is due in large part to the
growing energy needs of the country's expanding industrial sector and the
extensive use of irrigation pumps in the agricultural sector. Although India has
recently discovered some new onshore oil reserves, the projected output from these
new fields is expected only to offset declining output from current fields.
Thailand Suspending Thai officials told the US Embassy last month that they plan to halt below-cost ex-
Subsidized Rice ports of rice from stocks that the government had accumulated since December to
Exports support domestic rice prices. The government's subsidy on the 720,000 metric tons
of rice sold through mid-March-most of it to countries that are not traditional
US markets-amounted to as much as $19 million, according to the Embassy. We
believe the Prem government's decision to stop the sales is largely an outgrowth of
a financial scandal associated with the program and the ensuing political uproar
over the program's administration. Bangkok apparently also is concerned that
Washington might retaliate by increasing its support to US rice exporters.
Nonetheless, we cannot rule out the possibility that Bangkok will quietly renew its
subsidies if, as most international traders expect, weak markets make sales
difficult.
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Thailand Entering A Thai auto assembler has negotiated a six-year contract with Chrysler Canada to
Auto Export Market assemble a total of 100,000 "Lancer Champs" for export to Canada beginning in
November, according to the US Embassy. The Thai firm, MMC Sitthiphon, will
assemble kits sent from Japan by Mitsubishi-which produces the cars for
Chrysler and owns a 48-percent stake in Sitthiphon-if it obtains reduced import
duties on the cars under the Canadian GSP program. The firm hopes to use its
foothold in Canada to enter the US market, according to Embassy reporting. We
believe the deal is likely to serve as a test case in Thailand for other Japanese ex-
porters anxious to preserve their sales to North America and Western Europe in
the face of rising labor costs, a strong yen, and import restrictions.
Indonesia's Budget epartment of Finance officials are concerned that 25X1
Crunch Intensifying declining revenues-caused by sharply lower oil prices-are insufficient to fund
various politically important subsidy programs, including those for fertilizers and
Borrowings from Indonesian banks are providing a short-term
fix tote cash-flow squeeze, but Finance officials recognize that this approach will
ultimately aggravate budget problems by increasing the government's interest
payments. To alleviate the crunch, Jakarta is apparently considering cutting
subsidies and raising consumer prices, but these and other possible austerity
measures will be postponed until after the parliamentary election on 23 April.
Jakarta will then attempt to deflect public cricitism of economic policy by a
publicity campaign on the need for national unity
Potential Vietnamese Vietnam is requesting its UN Mission and several embassies in Western countries
Rice Shortage to solicit emergency aid to combat a severe insect infestation in key ricegrowing
provinces in the north Hanoi claims potential losses
may exceed 300,000 metric tons-one-fifth of the production in the afflicted
provinces. In addition, drought conditions are affecting more than 12 percent of
the total rice acreage in the north, and the press reports delays in harvesting the
spring crop because of shortages of fuel and spare parts for tractors. We believe
Hanoi will probably petition the UN for food aid if the crop damage worsens. Viet-
namese leaders probably believe they cannot count on Moscow to provide more
than limited assistance. The Soviets in 1985 refused Hanoi's pleas for extensive
food aid during that serious shortfall, and Hanoi was forced to use scarce foreign
exchange for rice imports-an outlay from which it has still not recovered.F
39 Secret
10 April 1987
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500230005-9
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500230005-9
Vietnam Expanding Vietnam plans to increase the number of its workers in foreign countries by as
Labor Exports much as 50 percent this year, according to a senior official in the Labor Ministry.
The Vietnamese Party Congress last December had announced that expanded
labor cooperation would be part of an accelerated effort during the 1986-90 Five-
Year Plan to integrate the country's economy more fully into CEMA. Labor
exports from its large underemployed manpower pool, in our judgment, is probably
Hanoi's best means of offsetting its large debts and trade imbalances with the host
countries. If Hanoi meets its reported target this year, approximately 30,000
additional workers will be sent abroad-primarily to the Soviet Union and Eastern
Europe-augmenting a Vietnamese force of guest workers that has held steady at
about 60,000 for the past several years. Despite such drawbacks as large salary de-
ductions that go toward repaying the national debt, overseas workers earn far more
than their counterparts in Vietnam, and we believe Hanoi will have no trouble
attracting enough recruits.
Secret 40
10 April 1987
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500230005-9
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500230005-9
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500230005-9
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500230005-9
Secret
Secret
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500230005-9