INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97-00770R000100090001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 43
• Document Creation Date: December 22, 2016
• Document Release Date: June 22, 2011
• Sequence Number: 1
• Publication Date: February 14, 1986
• Content Type: REPORT

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Directorate of _ -,
2-? 4M e-74-~
International
Economic & Energy
Weekly
14 February 1986
DI IEEW 86-007 f"
14 February 1986
Copy 6 6 4
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International
Economic & Energy Weekly
14 February 1986
iii Synopsis
1 Perspective-Incentives for More Radical Debtor Action
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3 Libya: Economy Under Siege
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7 Indonesia: Coping With Low Oil Prices
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17 USSR-Eastern Europe: New CEMA S&T Program
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21 Romania-USSR: Poor Prospects for Trade Growth in 1986-90
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Energy
International Finance
Global and Regional Developments
National Developments
Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence)
Secret
DI IEEW 86-007
14 February 1986
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International
Economic & Energy Weekly 25X1
Synopsis
1 Perspective-Incentives for More Radical Debtor Action
We believe increased incentives exist for Mexico and other major debtors,
separately or as a group, to take radical action to reduce debt service
obligations.
Libya: Economy Under Siege 25X1
The recent drop in world oil prices and US economic sanctions are the latest
jolts to hit the Libyan economy. The sharp drop in oil prices will leave Tripoli
even less maneuvering room to manage the economy this year.
Indonesia: Coping With Low Oil Prices 25X1
Despite recent sharp declines in world oil prices, we believe Jakarta will
continue to meet its payment obligations and protect its strong international
credit rating. In our view, Jakarta would have to reorient its development
strategy towards more labor-intensive programs to keep the country's severe
unemployment problem in check.
13 Key LDC Debtors: 1985 Trade Performance and Outlook for 19861 25X1
Key LDC debtors recorded a dismal trade performance in 1985. For this year,
we forecast higher export earnings for most non-oil-exporting key debtors, but
oil exporters will continue to suffer from declining petroleum prices.
17 USSR-Eastern Europe: New CEMA S&T Program 25X1
The CEMA Complex Program for Scientific and Technical Progress Until the
Year 2000 is a blueprint for cooperation in science and technology to spur eco-
nomic growth throughout the region. The twin goals of technological modern- 25X1
ization and self-sufficiency, however, may well turn out to be inherently
contradictory, which will hamper the implementation of the program.
21 Romania-USSR: Poor Prospects for Trade Growth in 1986-90
The Romanian-Soviet trade protocol for 1986-90 and the new five-year science
and technology cooperation agreement suggest a significant strengthening of
economic ties between the two countries. There is reason, however, to question
Secret
DI IEEW 86-007
/4 February 1986
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Secret
International
Economic & Energy Weekly
14 February 1986
Perspective Incentives for More Radical Debtor Action
Mexico is fast approaching its position of 25X1
August 1982 when it was unable to meet its debt obligations. On that occasion,
quick and cooperative actions by Mexican finance officials, the US Govern-
ment, and commercial creditors averted a major financial or political crisis.
We see substantial differences in the current situation, however, and believe
greatly increased incentives exist for Mexico or other major debtors, separately
or as a group, to take radical action to reduce debt service obligations.
For most debtors, the perceived economic benefits of continuing with the 25X1
current debt strategy have declined significantly:
? Interest payments have far exceeded funds available under new loans,
making Third World debtors net exporters of capital.
? Total foreign debt has increased, and-despite higher export earnings-
debt-to-export ratios have risen.
? The share of export earnings to pay interest on the debt has declined
marginally at best.
? Investment and savings levels have fallen.
? Per capita incomes have regressed to levels of nearly a decade ago.
In addition, after three years of austerity, LDC leaders face worrisome 25X1
political pressure from both powerful elites and the general public for a change
in economic and debt policies. Last week a crowd-estimated at 50,000 people
by the press-rallied in Mexico City to demand a moratorium on debt
repayments. More significantly, labor czar Fidel Velasquez-who has support-
ed government economic policies-publicly declared that the government
needed to put internal social needs before debt servicing obligations. In
Argentina, a general strike by Peronist labor unions last month was widely
supported and included the demand for a moratorium on debt repayments.
Brazilian President Sarney has reaped considerable political benefit from his
Finance Minister's tough stance in dealing with the IMF on Brazil's current
economic program. Moreover, press reporting indicate the 25X1
growing participation in economic policy debates by LDC officials with more
nationalist philosophies. 25X1
Finally, we believe the increased political dimension of the debt problem will
make bilateral negotiations between debtors and commercial creditors more
difficult than in the past. Both sides are not as likely to push for agreement be-
cause they believe the US Government will come to the rescue. Moreover, the
Cartagena group gives Latin debtors an additional mechanism to pressure
Washington to recognize their political and economic problems and to provide
Secret
DI IEEW 86-007
/4 February 1986
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We are concerned that, taken together, these factors are leading Third World
leaders to try to obtain immediate political gain and economic benefits by
reducing or suspending interest payments, thereby forcing Washington and
bank creditors to assume a greater share of the costs this time around.
In our judgment, more concrete measures designed to effectively reduce the
Third World debt burden will be needed to defuse the potential for more
radical debtor action on interest payments. Even if new loans or rescheduling
agreements are concluded in the coming weeks, Mexican and Argentine
leaders, in particular, probably will experience rising frustration this year in
managing their economies. As a result, we believe that they will be tempted to
link deep-seated economic problems to their debt burden and to what they
perceive as the need for global trade and monetary reform. In such an
environment there may be an opportunity for linking concessions on interest
payments to a commitment by debtor governments to undertake politically
risky structural reforms.
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Libya: Economy
Under Siege
The recent drop in world oil prices and US econom-
ic sanctions are the latest jolts to hit the Libyan
economy. They come at a time of unprecedented
popular discontent over Libyan leader Qadhafi's
misguided economic policies and penchant for cost-
ly foreign adventures. The freeze on Libyan assets
in US banks has deprived Tripoli of access to
approximately $700 million, and closed off an
important channel for revenues from the sale of
Libyan crude. The sharp drop in oil prices-unless
accompanied by an offsetting increase in liftings-
will leave Tripoli even less maneuvering room to
manage the economy this year. A dip in oil prices to
$15 per barrel would confront Qadhafi with an
unmanageable cash shortage unless he makes polit-
ically risky cuts in consumer imports or swallows
his pride and borrows on the international market.
Further reductions in imports almost certainly
would increase the chances that the military will
decide to move against Qadhafi.
Living With Less
Qadhafi's speech last September calling for a
greater public sacrifice underscores growing con-
cern in Tripoli over the poor state of the economy.
Although oil revenues have stabilized at about $11
billion over the past two years, this is down by
almost half from the 1980 level. Unlike previous
speeches extolling revolutionary successes, the Lib-
yan leader urged the people to eat camel meat and
wild game rather than imported lamb and beef.
Qadhafi's uneasiness is supported by recent statis-
tics that suggest real GDP fell 2 percent last year,
the fifth consecutive year of decline. Per capita
GDP is now below the 1977 level and inflation is at
a near-record 15 percent.
Living conditions for the average Libyan continue
to deteriorate.
shelves in most government-operated supermarkets
are empty or poorly stocked except on traditional
holidays. Food lines are longer and more conten-
tious as people search for basic staples. Hoarding
has become a way of life for most and a thriving
black market has evolved, despite numerous at-
tempts to control such activity. Moreover, the
quality of health care and education-hallmarks of
Qadhafi's revolution-has fallen off sharply. While
few starve in Libya, most agree that Qadhafi's
economic policies have failed.
The government budget, foreign workers, and for-
eign contractors have all been casualties of the
revenue squeeze. Development spending was down
by 20 percent, and the administration budget had
to be cut for only the second time since 1969.
Actual spending levels probably are as much as 40
percent lower, however, based on import figures
and press reporting. Moreover, 25X1
the expulsion of 150,000 foreign 25X1
workers last year was intended to save $1 billion in 25X1
worker remittances. To shore up Tripoli's foreign
exchange position, payments to foreign suppliers
were further delayed. The slowdown probably
pushed Libyan commercial arrears to an estimated
$4 billion, straining relations with several of Li-
bya's leading trading partners, including Moscow.
Nevertheless, work on priority development pro-
ects is continuing. 2.5X1
state ministries decided last summer to 25X1
finish those projects that were more than fifty
percent complete and to cancel or delay others
under the 1986-90 Plan
Exceptions to the decision include 25X1
Qadhafi's priority Great Manmade River project,
an iron mill at Misratah, and an aluminum smelter
at Zuwara. Qadhafi also has attached increased 25X1
importance to agricultural development to limit
dependence on Western food supplies. One benefit
Secret
DI IEEW 86-007
14 February 1986
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Secret
Libya: Economic Indicators, 1981-86
Real GDP Growth
Percent
Financial Reserves a
Billion US $
Consumer Price Growth
Percent
Grain Productions
Thousand metric tons
End of period; excluding 3.6 million ounces of gold.
Includes wheat and barley.
Estimated.
Projected.
of the development slowdown has been that it
limited the impact of the expulsion of foreign
workers.
Defense spending also has felt the pinch. Military
imports probably fell to $1.7 billion last year from
their peak of almost $3 billion in 1982. Most of this
decline reflects the completion of deliveries under
existing contracts. Other defense-related spending
has remained relatively stable. Qadhafi depends
heavily on the military and security forces to stay
in power and knows that they pose the greatest
threat to his regime. As a result, further cuts in
defense spending are not likely.
Qadhafi's draconian measures to stem the econom-
ic slide have had some positive effects. The sharp
cut in imports and foreign workers, coupled with oil
exports slightly above Libya's OPEC production
quota of 990,000 b/d, probably produced a small
surplus in the current account for the first time
since 1982. These factors and delayed payments to
foreign contractors helped push foreign exchange
reserves to $5.5 billion by yearend-10 months of
imports-from a low of $3.3 billion in January
1985.
The freeze on Libyan financial assets has had the
greatest impact among the various US economic
restrictions imposed last month. Libya lost access
to as much as 13 percent of its foreign exchange
reserves and has had increased trouble in servicing
contract payments-especially to oil companies.
Moreover, Tripoli's attempts to circumvent US
sanctions have met with limited success. Other
Arab states so far have offered little more than
vocal support.
The impact of US sanctions on the oil sector is
small. We estimate that Libya continues to produce
1.1-1.2 million b/d of oil. While most US oil
workers have left Libya, domestic oil workers and
other foreign technicians probably can maintain
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Political Strains ofAusterity
For the most part, Qadhgfi is a judicious political
calculator. He has often been able to respond
flexibly to his political and economic troubles,
tactically changing course without losing sight of
his revolutionary goals. When he perceives threats
to himself or that his revolution isfailing, however,
Qadhafi s usually pragmatic decisionmaking can
falter. We judge that Qadhafi is now in such a
strained period, and flawed decisionmaking could
loyalty and was intended to demonstrate to his
adversaries that the Libyan revolution would con-
tinue even if he were personally eliminated.
well compound his economic problems.
Qadhct/i has increasingly surrounded himself with
people whom he believes he can trust-relatives,
fellow tribesmen, or young radicals committed to
his ideology.
Qadhctfi also has staged rallies in tribal
areas to convince both internal and external oppo-
nents that he continues to enjoy popular support.
For example, this year, for the first time, Qadhafi
celebrated the anniversary of his coup in the
relatively secure city of Sebha. Instead of the
usual displays of military units, he featured pa-
rades of Revolutionary Committee cadre. In our
view, this relects Qadhafi s distrust of the Army's
production and possibly increase it by several hun-
dred thousand barrels per day.
Fspare parts are
not a problem because stocks are adequate or can
be aquired through non-US suppliers. Moreover,
com-
pletion of other Libyan development programs,
including the Great Manmade River project, will
be largely unaffected because of the substantial
participation of West European and South Korean
firms that can easily replace US firms.
Qadhafi s popular base will continue to erode as
long as he responds to the challenges to his regime
by closetting himself with a diminishing circle of
loyal revolutionaries. Qadhctfi is almost entirely
dependent on the continued loyalty and competence
of the Revolutionary Committees and the security
services to preserve his position. At present, these
institutions appear capable of protecting him.
Nonetheless, political and economic trends in Lib-
ya are running against Qadha 1, and we assess his
chances of surviving until 1987 as little better than
Soft oil market conditions pose the greatest threat
to the economy and probably the regime. Tripoli
loses $400 million annually for each one dollar
decline in oil prices at the current export volume.
Conversely, every 100,000-b/d drop in oil exports
costs the regime $730 million at the current $20 per
barrel price.
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Libya: Current Account Trends, 1981-86
Current account balance
-5.3
0.6
-1.0
-1.5
0.6
-1.0
Trade balance
-1.3
4.3
3.5
3.1
4.1
2.5
15.2
13.6
11.9
11.2
11.0
8.8
Imports (f.o.b.)
16.5
9.3
8.4
8.1
7.0
6.3 e
Non-Communist
13.0
5.8
5.9
5.9
4.9
4.7
Military
0.8
1.1
0.6
0.4
0.5
0.5
Communist, nonmilitary
1.8
1.7
1.3
1.0
0.9
0.7
Soviet
0.3
0.3
0.4
0.2
0.1
0.1
Other
1.5
1.4
0.9
0.8
0.7
0.5
Communist, military
1.8
1.9
1.3
1.3
1.2
1.0
Soviet
1.2
1.0
0.7
0.8
0.7
0.6
Other
0.6
0.9
0.6
0.5
0.5
0.4
Net services
-3.6
-3.1
-4.2
-4.1
-3.3
-3.2
Freight and insurance
-2.0
-1.1
-1.0
-1.0
-0.8
-0.7
-3.1
-3.9
-3.6
-2.8
-2.7
Projected, assuming average exports of 1.2 million b/d at $20 per
barrel.
b Based on additional reductions in military- and project-related
imports.
A $20 per barrel oil price probably would have
little impact on the economy during the next year if
current export levels can be maintained. Assuming
no change in imports, Tripoli would face a project-
ed current account deficit of roughly $1.5 billion
this year. Such a shortfall could be sustained by
drawing down accessible foreign exchange reserves.
An average price of $15 per barrel would force
Tripoli to make some difficult choices. Tripoli
would face a projected current account deficit of
$3.0-3.5 billion this year, equal to about 70 percent
of available foreign exchange reserves. Hefty im-
port reductions, however, almost certainly would
hit both civilian goods and military equipment as
well as priority projects. Any increased popular
dissatisfaction could generate renewed coup plot-
ting and force Qadhafi to rely even more heavily on
his security forces to remain in power.
A steep drop in oil prices also limits Qadhafi's
ability to purchase support by reordering economic
priorities and channeling the savings into the con-
sumer sector. In response, he could step up oil
production to boost export revenues and purchase
basic commodities to ease mounting tensions over
living standards. An increase of 140,000 b/d in oil
exports at $20 per barrel would boost revenues by
the amount of import reductions last year. Such
volume, however, would be difficult to sustain
under current market conditions without depressing
prices further.
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Indonesia: Coping With
Low Oil Prices
Despite recent sharp declines in world oil prices, we
believe continued fiscal austerity and a competitive
exchange rate policy would enable Jakarta to con-
tinue to meet its payment obligations on its $37
billion foreign debt and protect its strong interna-
tional credit rating. The challenge facing the Soe-
harto regime in the coming years will be finding
policies that will provide politically acceptable rates
of economic growth. In our view, Jakarta would
have to reorient its development strategy toward
more labor-intensive programs to keep the coun-
try's severe unemployment problem in check. Polit-
ical inertia, corruption, and inefficiency, however,
may undermine such a strategy. Under these cir-
cumstances, growing unemployment could be a
spark for more social tension than in recent years,
and force Jakarta to abandon some of the strictures
of foreign debt management that have served it
Our econometric simulations of the Indonesian econ-
omy through 1989 under alternative oil price scenari-
os assume that Jakarta will continue its present
course of debt management through .fiscal austerity,
tax policy, financial reform, and competitive ex-
change rate adjustments. We have assumed that the
value of the rupiah against the US dollar is allowed
to depreciate by an average of 7 percent annually
through the end of the decade, and we project a
modest real increase in total capital expenditures
over the period. Moreover, we anticipate 10 percent
annual growth in nonoil exports over the next four
years, and a global economic recovery by mid-to-late
1987.
well thus far.
Recent Developments
Since 1981, Indonesia's external accounts have
reeled under the pressure of falling oil prices. In
just four years, petroleum receipts have fallen
nearly 25 percent, resulting in $17 billion in cumu-
lative current account deficits. Moreover, under the
weight of austerity, economic growth has declined
from an annual average of 8 percent in 1973-81 to
only 3 to 4 percent during 1982-85, resulting in a
dramatic increase in urban unemployment-unoffi-
cially estimated in excess of 20 percent. Jakarta
remains concerned that the economy will not be
able to grow fast enough to absorb the two million
new entrants to the labor force each year.
Complicating the near-term outlook, Indonesia's
foreign debt obligations have passed the point
where traditional surpluses in merchandise trade
are sufficient to ensure manageable current ac-
count deficits in light of large transfer and service
deficits. In addition, debt service payments are
estimated to have increased 40 percent since 1982
to almost $6 billion last year, surpassing inflows of
foreign assistance.
Oil prices are central to Indonesia's economic and
financial prospects and its ability to service its
burgeoning foreign debt-the fifth largest among
developing countries. Oil and natural gas earnings
account for about 75 percent of total exports. In
order to assess the extent of Jakarta's vulnerability
to creditor concerns and to actual strains on its
external accounts, we have examined two possible
oil price scenarios for Indonesian crude-$20 and
$15 per barrel-through the end of the decade. We
assume in each scenario that Jakarta continues the
Secret
DI IEEW 86-007
14 February 1986
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Indonesia: External Debt and Debt
Service, 1979-85
External Debt
Billion US S
Medium- and
long-term
Short-term n
I I i
Debt Service Payment
Billion US $
I I I I I I
0 1979 80 85c
Including IMF loans.
Including short-term trade financing and short-term
borrowing by the central bank and commercial banks to
finance international reserves.
policies that have protected its finances so far:
austerity and foreign exchange rate adjustments. In
addition, we have supplemented our analysis with a
probability index of debt rescheduling in an at-
tempt to quantify the chance that Jakarta might
seek to reschedule its foreign debt.'
Best Case Scenario. We believe both Indonesia's
external accounts and its growth potential can be
expected to fare reasonably well under $20 per
barrel oil. At $20 per barrel, real economic growth
would exceed 4 percent annually, with unemploy-
ment at 30 percent in 1987. Indonesia's current
account deficits would rise to approximately $3.5
billion annually through 1989, while the probability
of a debt rescheduling would be 25 percent by
1987, falling to 20 percent by the end of the
decade. By comparison, before Jakarta's last re-
scheduling in 1970, the probability index reached
45 percent.
A Worst Case Scenario. At $15 per barrel, the
economy would be in a very delicate financial
position. The annual current account deficit would
probably exceed $4 billion, pushing the country's
foreign debt to over $50 billion by the end of the
decade. Total debt service payments could rise to
well over $8 billion by 1989.
In our judgment, prudent policymaking still would
enable Jakarta to meet its debt obligations. Al-
though interest payments and principal repayments
would absorb approximately 40 percent of export
earnings, this is well below the 85 percent regis-
tered before Indonesia's last rescheduling episode.
Moreover, we calculate that the probability of a
debt rescheduling will peak at less than 30 percent
by 1987, before moderating to 20 percent by the
end of the decade
The pain of $15 per barrel oil, in our judgment,
would come instead from the fiscal austerity re-
quired to slow imports, which would exact a heavy
3 Probabilities are estimated using an econometric technique that
attempts to predict a binary event-in this case rescheduling versus
no rescheduling-on the basis of statistically significant economic
25X1
25X1
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Current Account Deficit Foreign Debt
Billion US $ Billion US $
Indonesia: Impact of Changing Oil toll on the economy. Real economic growth would
Prices, 1986-89 stagnate at 3.5 to 4.0 percent annually-far short
of the 5 to 6 percent real growth considered
essential in order to stem the growth of unemploy-
ment. Unemployment could soar as high as 35
- $20 per barrel percent by 1986-underemployment would also be
- $15 per barrel extensive-putting serious strains on Indonesia's
5 60
I I I I I 1 I I
Unemployment
Percent
Probability Index a
Percent
I I I I I I I
0 1986 87 88 89 0 1986 87 88 89
This index is a measure of the likelihood that
the Indonesia will reschedule its foreign debt.
social fabric.
Wrestling With Policy Alternatives
From a balance-of-payments perspective, Jakarta
still has some breathing room under any of our oil
scenarios. Government austerity measures already
in place should keep import growth and current
account deficits in check over the near term. More-
over, the country has ready access to foreign pri-
vate credit and the government's financial stockpile
is substantial-foreign exchange reserves totaled
nearly $10 billion at yearend 1985.
Recent actions of the Soeharto government suggest
that Jakarta is prepared to make whatever policy
decisions are necessary to maintain its international
credit standing. Budget cutbacks since 1981, for
example, enabled the government to hold current
account deficits to 3.5 percent of GNP. Moreover,
the trade account has rebounded from a surplus of
only $1 billion in 1983, following the initial declines
in oil prices, to a surplus of $5.5 billion in 1984 and
an estimated surplus of $4.9 billion last year.
Government policy initiatives responsible for this
track record include:
? Policies to promote nonoil exports, such as cur-
rency devaluation, banking deregulation, new
shipping and customs procedures, and tax reform.
? Rephasing of large-scale capital- and import-
intensive development projects.
? Government expenditure cutbacks amounting to
roughly $5 billion since 1981.
For the future, we believe Jakarta's policy options
fall into two broad categories. On the one hand, the
government can continue to stress its capital-inten-
sive import-substitution development strategy.
Such a policy, however, risks continued slow
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Indonesia: Current Account Trends, Billion US $
1982-85
1.9
1.0
5.5
4.9
12.0
11.9
10.2
9.0
0.3
0.4
0.6
0.7
Textiles and garments
0.2
0.3
0.5
0.6
Merchandise imports (f.o.b.)
17.9
17.7
15.3
14.0
1.2
1.7
0.8
1.0
12.5
11.7
10.5
11.0
government's ability to control the economy and
threaten inefficient domestic firms with stiff new
competition from both domestic and foreign inves-
tors. It might also fuel protectionist pressures in
industrial country markets and pit Indonesian ex-
porters against firms in the more advanced develop-
ing countries that have already gained access to
these markets.
All signs from Jakarta suggest more austerity in
the immediate future with little in the way of
structural change. An anticipated 14-percent de-
cline in oil and gas revenues for fiscal 1986,' for
example, led President Soeharto to announced
sharp cuts in the federal budget, while the coun-
try's underlying capital-intensive growth strategy
remains essentially unchanged. The new budget-
$19.4 billion-is an 11-percent decrease over the
previous fiscal year. This is the most austere budget
since the early 1970s and one that includes a cut of
22 percent in development spending-the first such
cut since 1969.
Service exports
1.5
1.2
1.4
1.5
Service imports
8.9
8.6
9.1
9.4
Interest payments
1.5
1.8
2.6
2.9
Net transfers
0.1
0.1
0.1
0.1
-5.3
-6.3
-2.1
-3.0
growth, rising unemployment, and social unrest. If
this policy is accompanied by increased deficit
spending to create jobs, the result will be higher
foreign borrowing, which would risk Jakarta's
standing with its foreign creditors and further
reduce incentives to cut costs and improve efficien-
cy.
Jakarta's alternative is to bolster its labor-intensive
export-promotion efforts. In the long run, this
would enable the government to ease the unemploy-
ment situation despite falling oil prices. This op-
tion, however, entails costs. It would reduce the
Indonesia's long-term economic growth and politi-
cal prospects will continue to be hampered by soft
world oil prices. At best, economic growth will
average around 4 percent for the balance of the
decade, resulting in sharp increases in an already
desperate unemployment problem. While this does
not in itself pose a serious threat to the government,
the rising tide of Indonesia's unemployed could
exacerbate existing ethnic tensions. In the past,
Jakarta reacted to rioting and public tensions by
using oil revenues to remedy the symptoms, rather
than the causes, of Indonesia's social ills. The
regime must now come to grips with the shortcom-
ings of an economic policy that has done little to lay
the groundwork for sustained economic growth and
relieve the plight of the country's poor.
Even if basic reforms in economic policy were
enacted, however, tangible results would take years
to materialize. Instead, we believe that Soeharto
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Secret
will intensify efforts to expand the country's nonoil
export markets wherever possible-including Chi-
na, the Soviet Union, and the East European
countries. This tactic is likely to meet with very
limited success. In the meantime, increasing rural
landlessness, migration to the cities, rising expecta-
tions, and growing dissatisfaction with poor living
conditions will continue to exert severe strains on
the government's financial and managerial re-
sources. Under these circumstances, growing un-
employment could spark more social tension than
in recent years, and force Jakarta to abandon some
of the strictures of foreign debt management that
have served it well thus far.
If Jakarta does not continue its present develop-
ment policy, we judge the path the government
takes will include measures to deregulate the econ-
omy. Indications of such a shift would include:
? Efforts to encourage private domestic and foreign
investment in order to make up for shortfalls in
public investment funds. Nonoil exports, for ex-
ample, have suffered from domestic protectionist
measures-primarily nontariff barriers such as
import licensing and quota restrictions-designed
to increase local content in selected manufactures
and protect uncompetitive upstream industries.
? Efforts to remove redtape, bureaucratic ineffi-
ciency, and corruption that have squeezed invest-
ment opportunities. Despite public pronounce-
ments to the contrary, we anticipate little near-
term improvement because of latent government
misgivings about an independent private sector,
ethnic resentment of local Chinese business activ-
ity, and nationalistic objections to foreign involve-
ment in domestic economic activity.
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Key LDC Debtors:
1985 Trade Performance and
Outlook for 1986
Key LDC debtors recorded a dismal trade perfor-
mance in 1985. For the group of 12 countries we
examined,' export earnings declined about $8 bil-
lion. Unable or unwilling to draw down reserves or
obtain new credits, many key debtors reduced
imports, limiting the cumulative trade surplus de-
cline to only $1 billion. For this year, we forecast
higher export earnings for most non-oil-exporting
key debtors, but oil exporters will continue to suffer
from declining petroleum prices. For several key
debtors, lower exports and higher debt service
requirements will squeeze import growth. As a
result, we believe it increasingly likely that other
countries will follow the lead of Nigeria and Peru
and unilaterally limit debt service payments.
Lower Export Growth
Key debtor exports declined last year, the result of
past unfavorable exchange rate movements, sag-
ging commodity prices, and slower economic
growth in developed countries. We estimate export
earnings dropped 5 percent, or approximately $8
billion, a dramatic reversal from the 7-percent
increase in 1984.
Among individual debtors, exports increased in
only four of the 12 countries we examined:
? Colombian exports of coal and petroleum dou-
bled, and gains were reported for cotton, rice,
manufactures, and other minerals.
? Nigeria sharply boosted oil export volume in the
first and fourth quarters of last year, offsetting
declining petroleum prices.
? Argentine grain exports reached record levels,
despite sharply lower prices. Nontraditional ex-
ports also showed gains, and sales of petroleum
doubled to about $600 million.
'The countries are Argentina, Brazil, Chile, Colombia, Indonesia,
Malaysia, Mexico, Nigeria, Peru, the Philippines, South Korea,
and Venezuela
? South Korea's export revenue growth was the
smallest in almost 30 years and a sharp reversal
from the 20-percent gain recorded in 1984. The
major factors were lower economic growth in
major export markets (such as the United States
and Japan), falling export prices, and increased
protectionism.
Exports fell in the other eight debtors, in some
cases dramatically:
? Philippine sales of sugar and coconut products
dropped, while exports of nontraditional items
such as electronic goods showed little change.
Lack of a coherent export promotion program 25X1
also hindered foreign sales.
? For Venezuela, lower oil prices and export volume
reduced earnings by nearly $2 billion. Nonoil
exports registered a sizable percentage gain, but
they still account for less than 10 percent of total
export earnings.
? Mexican export losses were primarily in petro-
leum and petroleum products. Nonoil exports also
declined as a result of lower economic growth in 25X1
developed countries-especially the United
States-and falling export prices.
Imports Forced Down Again
In response to the loss of export revenue, most key
debtors were forced to cut imports last year. For
the group as a whole, we estimate imports dropped
6 percent, the fourth annual decline in a row:
? Colombian efforts to improve the trade balance
led to deep cuts in imports of electrical machin-
ery, transport equipment, and grain.
Secret
DI IEEW 86-007
14 February 1986
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Key LDC Debtors: Trade Performance, 1984-85
Billion US $
(except where noted)
1984
1985 a
Change
(percent)
1984
1985 a
Change
(percent)
1984
1985 a
Change
Argentina
8.1
8.2
1
4.1
3.8
-7
4.0
4.4
0.4
Brazil
27.0
25.6
-5
13.9
13.2
-5
13.1
12.4
-0.7
Colombia b
2.0
2.3
15
2.7
1.9
-30
-0.7
0.4
1.1
Indonesia
20.8
19.0
-9
15.3
14.0
-8
5.5
5.0
-0.5
Malaysia
10.8
10.3
-5
8.6
7.7
-11
2.2
2.6
0.4
Mexico
24.0
21.6
-10
11.3
13.4
19
12.7
8.2
-4.5
Nigeria
11.2
11.5
3
9.5
8.5
-to
1.9
3.2
1.3
Peru
3.1
3.0
-3
2.1
1.9
-10
1.0
1.1
0.1
Philippines
5.4
4.6
-15
6.1
5.0
-18
-0.7
-0.4
0.3
South Korea
26.3
26.5
1
27.4
26.4
-4
-1.1
0.1
1.2
a Estimated.
b 1985 estimate based on data through October.
1985 estimate based on data through August.
? Chile used a variety of import controls-such as
reference pricing and higher tariffs-to reduce
imports last year. Imports from major OECD
countries fell 27 percent, with the largest declines
in food and manufactured goods.
? The Philippine import drop reflected continuing
sharp declines in real GNP. Manufactures im-
ports from major developed countries fell nearly
20 percent, with smaller declines in foodstuffs
and raw materials.
? Peru sliced imports of industrial inputs and capi-
tal goods. In addition, spending for luxury items
was halved. Trade with the United States and
Canada fell sharply, while imports from France
and the United Kingdom increased.
? South Korean imports showed the first decline
since 1982-as a result of lower real GNP
growth. Imports of food and raw materials fell
sharply, while purchases of fuels and manufac-
tured goods increased.
Mexico, the major exception, recorded the only
import gain among the group, with purchases up 20
percent in 1985 under the stimulus of increased
preelection public-sector spending. Imports of man-
ufactured goods (especially machinery, transport
equipment, and consumer goods) rose 20 percent,
and raw materials imports were up 16 percent. This
import surge contributed to a $4 billion drop in
Mexican foreign exchange reserves; we believe net
reserves now total around $2 billion, less than two
months' import coverage.
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Key LDC Debtors: Export and
Import Trends, 1975-85
Key LDC Debtors:
Outlook for 1986 Export Growth
Sharply Higher No Lower Sharply
Higher Change Lower
0 1975
Efforts To Boost Trade Surpluses
Most key debtors increased their surpluses last year
to finance their debt service payments and main-
tain creditworthiness. Colombia, Nigeria, and
South Korea recorded gains in excess of $1 billion.
The glaring exception was Mexico. According to
our estimates, the Mexican trade surplus last year
was down 35 percent from 1984. The loss sharply
increased the current account deficit, jeopardized
the multiyear debt rescheduling agreement signed
last year, and raised new fears over the country's
ability to service its $100 billion debt. As a result,
Mexico may be forced to seek as much as $9 billion
in new lending this year, far more than previously
anticipated.
We forecast higher export earnings for most non-
oil-exporting debtors in 1986. The drop in the US
dollar, continued economic growth in developed
countries, and the expected firming of commodity
export prices will be contributing factors:
? The outlook appears especially bright for Colom-
bia; earnings from coffee exports may rise as
much as $1 billion this year, and sales of coal are
also expected to surge.
? Brazil will also benefit from the higher coffee
prices it will receive on sales from inventories.
On the other hand, major oil-exporting countries,
especially those with few nonoil exports, will con-
tinue to suffer from falling petroleum prices. If the
recent drop in oil prices is sustained, and world
prices average $20 per barrel:
? Mexico-already reeling from last year's export
decline-would be especially hard hit, experienc-
ing a $3.7 billion drop in oil earnings. Nonoil
export growth in these key debtors almost cer-
tainly will not be strong enough to make up for
the expected loss of oil export revenue.
? Nigeria would suffer a $3.6 billion loss in oil
revenues.
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? Venezuelan oil revenue losses would total about
$3.3 billion.
Oil exporters face bleak import prospects next year.
However, we believe these LDCs will not try to
compensate for lost export revenues by further
squeezing imports. In most nonoil exporters, stron-
ger export growth should provide some additional
import capacity to support government priorities
for economic growth, but the impact will be limited
by higher scheduled debt service payments. Under
these circumstances, several key debtors are likely
to seek further debt rescheduling, or new loans
from creditors. If sufficient financial relief is not
forthcoming, additional countries may follow the
lead of Nigeria and Peru and limit debt service
payments to a fraction of exports.
Secret 16
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USSR-Eastern Europe:
New CEMA S&T Program
The CEMA Complex Program for Scientific and
Technical Progress Until the Year 2000 is a blue-
print for cooperation in science and technology to
spur economic growth throughout the region. Its
principal goal is to close the gap vis-a-vis Western
science and technology by the end of the century
through greater economic integration. CEMA re-
gards the new program as the most significant
initiative since the 1971 program for cooperation
and the development of socialist integration. Mos-
cow's long-term objective is to tie East European
economies more closely to the Soviet system and
make them more responsive to Soviet needs. At the
same time it is designed to reduce CEMA's depen-
dence on Western technology and, in particular, to
eliminate Western leverage through economic
sanctions and embargoes. The twin goals of techno-
logical modernization and self-sufficiency, howev-
er, may well turn out to be inherently contradic-
tory. This is likely to lead to serious discord among
the members, which, in turn, will hamper the
implementation of the program.
with them, and biotechnology. The specific goals in
each of the five areas reflect the desire of the
CEMA countries to be at the frontier in each field
and equal to the West in the year 2000.
The program consists of 92 tasks or problems. The
goal is to solve half of these problems within three
years by producing new equipment and applying
new technologies. To help meet this ambitious
timetable, 67 new agreements are to be concluded
among members and over 80 existing agreements
are to be extended by June 1986.
Three secondary multilateral accords also an-
nounced at the December meeting include an
agreement on the creation and introduction of
computer-aided design (CAD), another on the de-
velopment and production of a unified fiber-optic
information communications system, and the estab-
lishment of Interrobot. Six (unnamed) CEMA
countries are slated to participate in Interrobot,
which will coordinate research in advanced robots
and production of robots and related components.
The new push for scientific-technical cooperation
was launched at the June 1984 CEMA Summit in
Moscow, where the leaders agreed to prepare a 15-
to 20-year multilateral program as the basis for a
coordinated-"and in some cases, unified"-sci-
ence and technology policy in CEMA. While work
on the program began before General Secretary
Gorbachev took office, he was probably instrumen-
tal in pushing the draft plan to completion last
year. The program was originally to be completed
by the end of 1984, but was not formally adopted
until a special meeting of CEMA premiers in
Moscow last December.
The Complex Program identifies five major areas
of development: electronics, automation, nuclear
power, new materials and technologies associated
Implementation: News Forms of Cooperation
CEMA's earlier effort at specialization and inte-
gration foundered largely because of an inability to
provide incentives or authority to carry through on
plans. As a result, CEMA's programs generally
have been undermined by inattention and failure to
cooperate at lower levels. The new program shows a
determination to avoid repetition of these past
errors; the most interesting and novel aspects are
the provisions to implement it. There is a strong
effort to directly involve lower levels-enterprises,
research institutes, and design bureaus-and to
assign them responsibility for meeting the targets.
Secret
DI IEEW 86-007
14 February 1986
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Secret
The Technical Targets
The announcement of the S& T program was ac-
companied by a list of several goals presumably
a portion of the 92 tasks. Most of the goals are
described only in general terms, but thefew that
were specified are extremely ambitious. In addi-
tion, many of the goals have significant military
In electronics, the overall goal is the mass intro-
duction of advanced electronics throughout
CEMA. The program calls for the production of a
supercomputer capable of 10 billion operations per
second, which is roughly 20 times the speed of the
West's fastest computer, the use of artificial intel-
ligence to streamline management, an integrated
digital information communications system, a
high-speed fiber-optic communication system, and
a new generation of satellite communications.
The basic objectives in the area of new materials
include cooperation to widely introduce, primarily
in industry, new types of materials that are dura-
ble and resistant to corrosion, radiation, and heat.
The priority tasks include the development of a
ceramic internal-combustion engine and a ceramic
gas turbine engine, improvement of continuous
casting technology, and creation and introduction
of new plastics and composite materials.
A few days before the CEMA Council approved
the S&T program, Moscow established 16 Inter-
branch Scientific and Technical Complexes
(MNTK) to coordinate Soviet research in key areas
such as lasers, robotics, fiber optics, personal com-
puters, polymers, and biotechnology. In general,
each MNTK will have as its nucleus an academic
or industrial ministry institute and will coordinate
all of the work in its area throughout the USSR.
Resources are to be ensured by the State Commit-
tee on Material and Technical Supply. Once new
technologies developed by the complexes are
deemed ready, the State Planning Committee will
select the enterprises to apply the technologies on a
In the area of automation, the CEMA countries
want to automate their economies through wide-
spread use of flexible manufacturing systems, com-
puter-aided design (CAD), and computer-aided
manufacture (CAM). They plan to use high-accu-
racy electronic sensors and measuring instruments
for quality control. Industrial robots, including
those with artificial vision and the ability to
understand spoken commands, also are to be intro-
The aims of CEMA in nuclear power development
include creation of district nuclear heat and elec-
tricity supplies for civilian and industrial use
(including long-distance-25 kilometer-transport
of heat). Other goals include development of equip-
ment for fast breeder reactors and multipurpose
high-temperature (for increased efficiency) nuclear
power engineering installations and implementa-
tion of research on controlled nuclear fusion
Bioengineering tasks are directed toward medicine
and agriculture and include new medicines, syn-
thetic proteins, development of microbiological
agents to protect plants against diseases and pests,
bacterial fertilizers and plant hormones, and new
high-yield crop varieties resistant to adverse envi-
ronmental conditions.
MNTKs are also expected to oversee the coordina-
tion and execution throughout CEMA of R&D in
the five priority areas. Details are sketchy, but
presumably each Soviet MNTK will work with
counterpart research organizations in each of the
other CEMA countries to complete the assigned
tasks. Statements by CEMA officials indicate that
many of the MNTKs' partners in Eastern Europe
The leading role of the MNTKs appears to assure
Soviet dominance of the CEMA S&T program and
these fledgling organizations also bear great re-
sponsibility for the success of the program. The US
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Secret
Embassy in Moscow notes many uncertainties
about how the MNTKs will relate to the rest of the
Soviet scientific community, especially the Acade-
my of Sciences and the State Committee for Sci-
ence and Technology.
The program stresses the importance of direct links
thoughout CEMA between production and re-
search organizations at all levels. Joint Science and
Production Associations, also referred to as trusts,
will include both R&D institutes and production
enterprises. The new multilateral Interrobot ap-
pears to be the first undertaking that encompasses
both a design bureau and full production. Accord-
ing to the Polish press, there are proposals for
additional joint enterprises in the chemical and
light industries, and in agriculture. Joint scientific-
research institutes, also called international collec-
tives of scientists, will be bridges between research-
ers in CEMA. We do not know whether any of
these have yet been established.
Finally, bilateral coordination of economic plans-
the traditional method of implementing CEMA
programs-will be an important tool. In an inter-
view, Guriy Marchuk, chairman of the Soviet State
Committee on Science and Technology, pointedly
said that bilateral interests of the CEMA countries
will play a significant role in the Complex Pro-
gram.
Commitment of resources for the program will be
the responsibility of the participating countries,
although credits from the two CEMA banks, the
International Investment Bank and the Interna-
tional Bank for Economic Cooperation, have been
suggested.
come from fulfillment of the program, their enthu-
siasm is tempered by their own problems and
interests:
? Premier Stoph said East Germany will participate 25X1
in all five areas and will develop direct ties to
enterprises in other CEMA countries. Stoph re-
ported that tasks resulting from the Complex
Program are being incorporated into East Berlin's
annual and five-year plans and that party and
government will take the necessary short-term
measures to meet commitments. He noted that
industrial combines in East Germany already
have responsibility for the whole production pro-
cess from R&D through sales.
? Poland embraced the Complex Program as the
answer to the technological threat from the West
and Japan. Warsaw will participate in all five
areas, and expects to develop exports of drugs,
mining equipment, and electronics.
Warsaw already
had increased research and development funding
30 percent above what was called for in the draft
plan for R&D to 1990.
25X1
25X1
? Hungary also will participate in all five major 25X1
areas and 70 to 80 percent of the tasks of the
program. In electronics, Budapest will participate
in the development of two new central processor
computer units and new software. In bioengineer-
ing, their contribution will be in agro-industry 25X1
and pharmaceutical
25X1
Eastern Europe's Participation
East European responses to the Complex Program,
which was primarily generated by the Soviets, were
guardedly positive. While the East Europeans seem
genuinely interested in the benefits that would
? Statements by Czechoslovak Premier Strougal
indicated that Prague wishes to participate across
the board in the Complex Program, and will be
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Secret
active in 50 to 75 percent of the programs. He
emphasized that participating countries must ful-
fill their commitments.
? Bulgaria is likely to have a major-but not
dominant-role in robotics,
countries are vying for leading roles in the
CEMA robotics program.
advanced countries-Hungary and East Germany,
for example-will have less to gain from sharing
their technology and may be reluctant to contrib-
ute. The success of the program will depend largely
on the willingness of scientists and engineers in
each country to share their knowledge and tech-
niques with the rest of CEMA.
Nonetheless, this initiative may yield better results.
The emphasis on implementation indicates the So-
viets have correctly diagnosed some of the flaws in
earlier programs, although only time will tell
whether the new organizations and mechanisms
will be the appropriate remedy. It is also possible
that the East Europeans will be more willing and
active participants than in the past. The prospect of
technological advance appeals to them, and trade
with the West probably is no longer considered by
some as the path to prosperity. Finally, in Gorba-
chev the East Europeans face for the first time in
many years a tough and vigorous Soviet leader who
clearly expects his allies to toe the line-and who
has put his own stamp on CEMA's new initiative.
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Outlook: Old Obstacles and New Conditions
History offers much reason for skepticism about
the success of the latest Soviet-inspired drive for
integration of the Bloc economies. Past efforts,
launched with similar vigor and rhetoric, have
achieved, at best, mixed results. Earlier programs
succumbed to the ability of some of the East
Europeans-and perhaps the Soviets-to duck
their commitments in favor of pursuing trade with
the West and other economic and political goals.
The programs lacked the institutional authority to
compel participation and the incentives to encour-
age it.
The East European countries still may present
several obstacles to the new program. They will be
strapped to commit large amounts of resources to
CEMA S&T because of prospects for slow econom-
ic growth, debts to the West, and large investments
in Soviet energy projects. The more technologically
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Romania-USSR:
Poor Prospects for
Trade Growth in 1986-90
The Romanian-Soviet trade protocol for 1986-90 Soviet-East European Trade,
and the new five-year science and technology coop- 1977-84
eration agreement suggest a significant strengthen-
ing of economic ties between the two countries.
Trade is to increase by at least 70 percent over the Index: 1977=100
1981-85 level, the fastest planned growth rate for Soviet Imports
Soviet trade with any East European country.
From Eastern Europe a From Romania
There is reason, however, to question whether trade 225 225
will reach the levels envisioned. About one-third of
the projected growth is based on highly unrealistic
200
ex
ectations for Soviet oil
x
t
hil
h
f 200
p
por
e
s, w
e muc
o
Nominal
the remaining growth is to come from joint devel-
opment projects, many of which are likely to 175
progress slowly. Moreover, the implementing con-
tracts for most areas under the two agreements 150
remain to be worked out. Growth in Soviet-Roma-
nian trade for the next several years will be ham-
pered by the same constraints that have inhibited 125 Real
bilateral trade in recent years-the USSR's insis-
tence on balanced trade and its refusal to grant 100
concessionary terms, and Romania's inability to
deliver the type and quality of goods required. 75 ' ' ' 1 ' 1 1 75 1 1 1 1
Background
Since the late 1970s, foreign debt problems and
domestic economic decline have led Romania to
seek increased trade with the USSR, despite Bu-
charest's longstanding concern to avoid economic
dependence. Romania's primary objective has been
to obtain increased deliveries of energy and raw
materials in return for goods difficult to sell in the
West. Romania's eagerness, however, has not been
matched by Soviet responsiveness. The USSR's
insistence on balanced trade and its refusal to grant
concessionary terms have inhibited significant
growth in trade with Romania. Of the 40,000 b/d
of oil agreed upon for 1984, and the 68,000 b/d for
1985, Romania received little more than half large-
ly because of its inability-or unwillingness-to
supply the type and quality of goods required in
return. Romanian trade in real terms with the
USSR since 1980 has grown less than that of any
75 1977 80 84 75 1977 80 84
a Includes East European CEMA countries
except Romania.
Secret
DI IEEW 86-007
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other East European CEMA country, with the
exception of Poland. The substantial increase in the
Soviet share of Romanian trade was primarily due
to cutbacks in Bucharest's trade with the non-
Communist world. Although preliminary data indi-
cates trade in real terms with the USSR picked up
by about 10 percent in 1985, it still fell considera-
bly short of target.
The new five-year trade agreement envisions total
trade of 30-35 billion rubles,' an increase of 70 to
100 percent over the level achieved in 1981-85. The
big-ticket items include:
? Soviet deliveries of 100,000 b/d of oil annually in
return for agricultural products-mostly meat-
and some industrial machinery.
? Approximately 15-20 billion cubic meters of So-
viet gas in 1987-90 in return for assistance in
building the Progress pipeline; the agreement to
begin deliveries in 1987 (instead of 1989 as for
the other East European CEMA countries) may
be a concession to Romanian energy needs.
? Romanian deliveries of machinery and equipment
valued at 6-6.5 billion rubles ($7.4-8.0 billion)-
including increased deliveries of oil drilling equip-
ment and agricultural machinery-and Soviet
deliveries of machinery valued at 4.5 billion
rubles ($5.5 billion).
The plan also allows the Soviets to make use of the
unutilized 40 percent of steel production capacity
in Romania-the Soviets are to provide the re-
quired energy and raw materials. Technical cooper-
ation will include continuing Romanian construc-
tion of KA-126 helicopters and IL-114 two-engine
medium-range aircraft for the Soviets. The Roma-
nians are scheduled to deliver several tankers and
cargo vessels annually, and will be partially com-
pensated by Soviet assistance in modernizing their
shipyards.
December.
The extent of Romanian participation in CEMA
science and technology cooperation is unclear, but
the Romanians probably are most interested in the
nuclear energy aspect of the program. The imple-
mentation of the 1982 agreement to construct a
Soviet-designed 3,000-MW nuclear power plant in
northern Romania may begin this year. The project
presumably falls under the CEMA science and
technology agreement signed in Moscow in
Although the agreement's provisions for Romanian
construction of the IL-114, Soviet utilization of
Romanian steel plants, and cooperation on the
Pribuzhiye nuclear plant in the Ukraine are mutu-
ally advantageous, terms for the other deals out-
lined for 1986-90 do not match Romanian needs or
abilities to pay:
? The Soviet commodity most desired by the Ro-
manians-crude oil-is the item Moscow will be
most reluctant to supply. Falling Soviet oil pro-
duction and decreasing world oil prices, which
have cut the USSR's hard currency oil earnings,
have stiffened Moscow's resolve to obtain full
compensation for its oil exports to Romania.
Pique at Romania's practice of refining Soviet oil
and reexporting products for hard currency has
also played a role. As a result, the Soviets are
insisting on hard currency goods, primarily meat,
with the balance in high-quality industrial ma-
chinery. The faltering Romanian agricultural
sector is not likely to produce the food deliveries
needed to obtain the full 100,000 b/d of oil
offered.
? The Soviets are demanding that, in the 1986-90
period, the Romanians provide machinery and
other goods of equal quality to items supplied by
the Soviets. Romanian industry, plagued by
shortages and inferior inputs, is unlikely to supply
all the high-quality machinery Moscow is seek-
ing. Bucharest may be reluctant to divert goods
now exported to the West to meet its goal of
eliminating its hard currency debts.
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Secret
Romania-USSR:
Joint Development Projects
Project Romanian
Contribution
Sovetabad natural gas field and Construction and equipment
pipeline
Yamburg (Progress) natural gas Construction and equipment, assis-
pipeline tance in exploration of Soviet oilfields,
financing
Krivoi Rog iron ore enrichment Construction
plant
Asbestos plant in Kiembai, Construction
Siberia
Usti Ilim cellulose and paper Construction
plant
Pribuzhiye atomic power plant Construction work, installation
of reactors
USSR-Turkey gas pipeline Construction of 200 kilometers
from USSR through Romania through Romania
and Bulgaria
Moldova 3,000-MW nuclear Romania to provide construction mate-
power plant rials and labor; USSR to supply tech-
nology and equipment
IL-114 two-engine medium- 50 to 60 annually
range aircraft
Completed 1977- 1.5 billion cubic meters of natural gas
79 per year-,-] 979-90
Under way in 300 million cubic meters of natural gas
1984, to be com- per year
pleted in 1990
1989-90 5 billion cubic meters of natural gas
per year, 1987-90
Ongoing 30,000 metric tons of asbestos deliv-
ered annually until 1990
NA 50,000 tons of cellulose per year until
1990
Ongoing 50,000 tons of ferroalloys per year
until 1990
1982-90 Electric power through the year 2004;
first installment of 1.5 million kwh
delivered in 1985
Begun in 1985, Transit fees
scheduled for
completion in
1988
? The terms for Romanian participation in the
Progress pipeline are not settled. Although Ro-
mania was originally scheduled to construct a
segment of the 4,600-kilometer line, providing
machinery, pipe, and labor, Bucharest has indi-
cated that it will not be able to completely meet
this commitment and will substitute assistance in
the exploration of Soviet oilfields.
? The Moldava nuclear power plant project could
be delayed or even scuttled because the Soviets
will probably require hard currency go
QdS In
payment for much of their contributio
Because of Bucharest's uncooperative behavior in
the international arena-which has frequently em-
barrassed and annoyed Moscow-the USSR is
unwilling to provide economic assistance, especially
when it is attempting to reduce the level of econom-
ic support to Eastern Europe. Romanian irritation
surfaced in late December when Ceausescu criti-
cized CEMA for not responding to Romanian
energy and raw material needs. He stated that the
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 I; I I ..I
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Secret
coordinated 1986-90 plans for CEMA members did
not reflect the objectives set forth at the CEMA
Summit in 1984, and called for implementation of
existing technology before turning to the high-
technology programs being pushed by the Soviets.
Soviet-Romanian trade-particularly Romania's
dependence on Soviet oil and gas-will increase
over the next several years, but will not reach the
level of the other East European countries. Soviet
oil deliveries are unlikely to reach the 100,000 b/d
envisioned under the new five-year accords, but,
even if they do, Soviet oil would account for
somewhat less than 20 percent of total Romanian
oil supply. Most other East European countries
receive at least 75 percent of their oil supply from
the USSR. Similarly, even if annual Soviet gas
deliveries reach the 7-billion-cubic-meter level, this
amount would represent only 15 to 20 percent of
Romania's total supply, in sharp contrast to the 35-
to 40-percent dependency of most other East Euro-
pean countries. Furthermore, given the recent de-
clines in the price of oil in world markets, the
Romanians might turn to the spot market if they
perceive Soviet terms to be too onerous.
Moscow's insistence on quid pro quo trade arrange-
ments suggests that the USSR is not interested in
trying to buy greater foreign policy compliance
from Romania. The Soviets do not appear to regard
Ceausescu's behavior as a sufficient threat to their
interests to warrant expending substantial sums to
try to rein him in. They probably realize it would
be a nearly impossible feat to carry off. Now is
likely to drop thereafter.
probably the most propitious time to make the
attempt, however. After 1988, Romania's financial
squeeze will lessen, giving it greater flexibility to
rebuild trade levels with the West. Moreover, many
of the joint cooperation projects with the USSR are
scheduled to be completed after 1990, and unless
new projects are entered into late in the decade or
existing projects are extended, trade levels are
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Secret
Energy
OPEC Production OPEC crude oil output averaged 17.3 million b/d in January, a 1.1-million-
Update b/d decrease from December levels. Weak oil demand caused Saudi produc-
tion to drop about 600,000 b/d, which may indicate that companies are not
picking up all the oil they are entitled to under netback contracts. Nigeria and
Libya also had trouble marketing their oil.
OPEC: Crude Oil Production, 1985-86
17.3
0.7
0.3
0.2
1.3
2.3
0.90
1.1
(0.9)
1.1
(1.0)
1.2(l.0)
0.99
1.2
1.3
1.1
Saudi Arabia b
4.35
3.5
(3.3)
4.9
(4.7)
4.3 (4.1)
0.95
1.1
1.2
1.2
a Estimated.
b Amount in parentheses excludes production from the Neutral
Zone, whose output is divided between Saudi Arabia and Kuwait
and included in their country quotas; the Neutral Zone has no
production quota of its own.
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Secret
DI IEEW 86-007
14 February 1986
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Spot Oil Price
Developments
cant output reductions, however, do not appear imminent.
Following several weeks of precipitous decline, the drop in spot oil prices has
slowed since the beginning of February. North Sea and US crude prices-
fluctuating in the $16.50 and $18.00 per barrel range for the past two weeks-
now sell at 30 percent-or over $8 per barrel-below early January levels.
Low spot prices are pulling official prices down. Mexico, Venezuela, and Egypt
have all announced price cuts of as much as $4 per barrel in attempts to keep
their crudes competitive. We estimate the early February average world price
is about $22 per barrel in contrast to the 1985 average price of $27. Marketing
and pricing problems have reduced liftings in several producing countries as
consumers hold off purchasing in anticipation of further price drops. Signifi-
China Stabilizing
Oil Exports
Increased Soviet
Energy Deliveries
to Yugoslavia
Secret
/4 February 1986
exchange-are more likely to influence its marketing and pricing
China last week said it will not increase its oil exports in 1986, claiming to sup-
port OPEC efforts to stabilize world oil prices. China's exports of crude rose
85 percent over the last two years and in 1985 provided an estimated $5.6 bil-
lion-one-fifth of China's foreign exchange earnings. Beijing has voiced
support for price stabilization efforts in the past but has continued to increase
sales and undercut OPEC prices. Although China will try to use its announce-
ment for political mileage, other factors-including China's limited ability to
increase production and control domestic consumption, and its need for foreign
The recently signed trade protocol between the USSR and Yugoslavia for
1986-90 provides for higher annual base-level deliveries of Soviet gas,
electricity, and oil than the amounts set in the protocol for 1981-85. Annual
deliveries of gas will rise from 3 billion to 5 billion cubic meters, oil from
90,000 b/d to 110,000 b/d, and electricity exports will total 3.5 billion
kilowatt-hours over the five years. Differences between Belgrade and Moscow
over the level of energy deliveries and the composition and amount of Yugoslav
exports had delayed the signing of the trade agreement for several months.
Although Yugoslavia's heavy dependence on Soviet energy will continue, the
actual increases will be much less than comparisons of the two protocols
suggest. Gas deliveries in 1984-85 were already on the order of 4 billion cubic
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Secret
Mexico Divided
on Debt Strategy
a practice the Soviets insist will end under the new agreement.
meters annually. Moreover, in recent years Moscow regularly granted
Belgrade's requests for additional oil amounting to about 20,000 b/d annually,
President de la Madrid's cabinet, meeting in emergency sessions, has failed to
reach a consensus on debt policy
De la Madrid
faces increasing pressure to suspend payments. Last week powerful labor
leader Fidel Velazquez reversed his earlier position that debt payments should
be met and some 50,000 marched in Mexico City to demand a debt
moratorium. Because de la Madrid probably lacks the political will to ask
Mexicans to make more sacrifices, it is increasingly likely that, unless
substantial new lending or concessions are forthcoming, he will tell creditors
his country cannot honor its obli ations
25X1
25X1
Extension of EC
Import Surveillance
on Japanese Goods
Global and Regional Developments
The EC Commission has extended its system of import surveillance on certain
Japanese products through 31 December 1986. Originally instituted in 1983 to
limit Japanese penetration in certain "sensitive" areas, the list now includes
machine tools, stereo equipment, color televisions, cathode ray tubes, motorcy-
cles, light commercial vehicles, and forklift trucks. Dropped from the list were
VCRs-whose tariff was boosted from 8 to 14 percent in January-and quartz
watches. The extension of the system signals continuing EC annoyance with
Japanese trade policy. EC Commission President Delors recently visited Tokyo
to press again for increased imports from Community members. Tokyo,
Secret
14 February 1986
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 I! I I I ..
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New Soviet Economic
Support for Nicaragua
surplus with the Community.
however, has refused, agreeing only to the formation of a more amorphous
"surveillance group" to monitor potential EC-Japanese trade frictions. We
expect continued EC pressure on the Japanese to reduce their persistent trade
50 Soviets arriving by March for a four-year,
Closer
Argentine-Cuban
Commercial Ties
1970s.
working in Nicaragua to about 350. Nicaraguan officials had announced
unspecified new Soviet agricultural aid last December. The Soviets have
reportedly agreed to provide all materials and technicians needed to develop
36,000 hectares near Managua for cotton and grains. An official report
indicates that this project is the first phase of the Sandinistas' 20-year, $2
billion Pacific Coast agricultural development plan-a plan largely based on
work done for Somoza by USAID and the US Bureau of Reclamation in the
$90 million irrigation project. This boosts the number of Soviet civilians
the surplus.
Argentina and Cuba completed negotiations on commercial air service last
month, according to Embassy reporting. The two-year agreement provides for
one flight each week between Buenos Aires and Havana, alternately flown by
Aerolineas Argentinas and Cubana Airlines. Moreover, the two countries
recently signed a maritime transport accord. Havana pushed for the transpor-
tation agreements primarily to assist its ailing maritime industry and boost its
fledgling tourist business. Buenos Aires benefits handsomely from its current
lopsided trade with Cuba, which purchases agricultural products, electric
cables, trucks, auto parts, and other manufactures, but has no market in
Argentina for its main export, sugar. Spurred by trade credits worth $200
million per year for 1984-86, Argentina's trade surplus with Cuba more than
doubled over the past two years to $275-300 million in 1985, according to
Argentine estimates. Buenos Aires probably believes the transportation agree-
ments will enhance trade relations with Havana, without significantly lowering
Soviet Trade A Soviet economic delegation recently was in Khartoum to discuss trade and
Overtures to Sudan the possible resumption of joint economic projects, but the two sides apparently
di not conclude any agreements.
The Soviets want to
encourage Sudan's nonalignment and are interested in improving relations,
which had deteriorated since the early 1970s. The Kremlin may be willing to
make a barter deal to play on Sudan's dissatisfaction with its Western
creditors. If Moscow were to supply crude oil, it probably would transfer oil
from the Middle East rather than from Soviet stocks. It would have to export
gasoline or petroleum products from its own supplies, however, and could offer
Secret
14 February 1986
only small quantities.
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Canadian Difficulty
in Disposing of
Feed Wheat
National Developments
Developed Countries
The Canadian Wheat Board may approach Ottawa for additional subsidies to
promote sales of its surplus feed wheat stocks. The Board has been pushing to
dispose of up to 2 million metric tons of feed wheat by midsummer, and has
thus far sold 30 to 40 percent of its goal-most likely to nations in the Pacific
Basin. Other potential purchasers, however, are using the global abundance of
feed wheat to drive a harder bargain.
25X1
25X1
British Labor Party The opposition Labor Party, in anticipation of the next election, is developing
Emphasizes Industrial an economic policy strategy aimed at Prime Minister Thatcher's free-market-
Renewal oriented policies. Labor's main criticism is that Britain is being turned into a
Round Under Way
service economy of low-paying jobs and the Tory policies are inadequate to 25X1
prepare the economy to compete in world markets as North Sea oil production
declines through the end of the decade. Labor will propose new investment and
technology to revitalize manufacturing-both high-technology and traditional
industries, such as steel and coal. Party plans call for a National Investment
Bank (NIB) to provide long-term financing for small innovative firms and
mature industries that are facing increasing international competition. Labor's
goal is to create 1 million jobs in two years, through increased direct
government spending and the NIB. 25X1
West German Wage The opening salvos in this spring's wage round have already been fired, but
both management and labor appear prepared for compromise. The wage
increase demanded by the giant metalworkers union-the pacesetter for the 25X1
rest of organized labor-is 6.0 to 7.5 percent, while construction workers are
asking for 5.8 percent. Both unions, however, probably will settle for pay hikes
in the 3.5- to 4.5-percent range. The public employees already have settled for
a 3.5-percent gain. Increases in this range would represent a real wage gain of
about 1.5 to 2.5 percent and would not seriously impair export competitive-
ness-assuming that productivity growth maintains the 2.5-percent average of
recent years. Several smaller unions are seeking cuts in the workweek, but the
metalworkers will wait until after their next congress in October to pursue
their 35-hour-week goal. 25X1
Secret
14 February 1986
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Ireland's
Tight Budget
Policy Continues
Turkish Push for
Entry Into EC
Secret
14 February 1986
foreign debt burden.
Dublin's 1986 budget, announced in late January, reaffirms the priority given
to reducing the deficit while counting on faster world growth to balance the
dampening effects on the domestic economy. Higher-than-expected spending
has thwarted the government's deficit reduction goals in past years, and we be-
lieve the government will again fall short this year. Government policy calls for
cuts of about $69 million in capital expenditures to bring the fiscal 1986 deficit
from 8.2 percent to 7.4 percent of GNP. The revenue proposals feature a
reduction in the highest tax rate from 60 to 58 percent and the abolition of a
1-percent income levy. To replace lost revenues, the VAT will be raised by 2
percentage points to 25 percent, life insurance interest will be taxed, and a
withholding tax on bank deposits will be introduced. Dublin was reluctant to
impose more austere measures that would slow growth and add to the
18-percent unemployment rate. The government is concerned about the impact
of persistent high deficits on Ireland's $12 billion foreign debt, but calculates
that lower international interest rates and a declining dollar will lower the
Prime Minister Ozal is taking steps to revive the issue of EC membership, long
dormant because of Community concern about the economic costs of adding
another developing Mediterranean economy and reservations about the
strength of democratic institutions in Turkey.
its prospective EC partners.
Ozal is ex-
pected to push for British support for quick Turkish entry when he visits
London on 17-20 February. The Turks probably would be willing to put
membership-which the EC committed itself to in the association agreement
of 1964-on the back burner in return for some EC concessions. The Turks are
particularly interested in obtaining the release of $540 million in EC aid-
frozen after the 1980 military takeover in Turkey-and in the lifting of EC
quotas on Turkish textiles. Ozal also may hope to use the prospect of eventual
EC membership to maintain domestic support for his economic liberalization
program, which requires painful sacrifices to enable Turkey to compete with
25X1
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on the Upswing
Israeli Labor Unrest The Israeli labor scene is heating up after six months of relative calm. A two-
Package Unveiled
achieve. 25X1
hour public-sector warning strike on 4 February and the ongoing sit-in
demonstration by workers at the government-owned Israeli Shipyards indicate 25X1
that labor's patience with the current economic austerity program is wearing
thin. Labor unrest is likely to intensify over the next couple of months as
negotiations on new public- and private-sector wage agreements begin and the
Knesset votes on the budget for the fiscal year beginning 1 April. Labor
leaders-already under fire for their passive behavior over the past eight
months-will be under considerable pressure from workers to extract conces-
sions from the government. A compromise that can maintain the government's
commitment to austerity and also mollify the workers will be difficult to
Less Developed Countries
Argentine Economic President Alfonsin's latest economic reform measures, announced last week,
Aires's dispute with the IMF over the budget deficit this fiscal year, which has
delayed disbursements of new money originally slated for last December.
are likely to facilitate growth without inflation. He has pledged to sell six
state-owned companies to the private sector, including the country's largest
steel plant and two leading petrochemical concerns. In addition, he plans
export programs based on tax credits for industrial exports and a land tax that
will allow Argentina to reduce duties on agricultural exports. Demands by
labor and the Peronists for a moratorium on foreign debt payments have been
rejected. While most Argentines and foreign creditors will applaud moves to
trim the public sector, labor will oppose the initiative-because of the scarcity
of domestic capital, only foreign companies probably can afford to buy the
inefficient state enterprises. The reforms, however, will not resolve Buenos
Surge in Brazilian
Rice Purchases
Official announcements indicate Brazil will buy 1.7 million metric tons of rice
at a cost of more than $400 million this year-more than eight times the
average yearly amount imported during 1980-85. Purchases will be used to
boost food supplies, keep food prices down in the wake of this year's drought-
reduced corn crop, and build government stocks. Unusually large Brazilian
purchases this year are likely to bolster sagging world rice prices somewhat
and improve US sales prospects later in the year when US rice prices become
more competitive as a result of recent legislation designed to spur farm
exports. Brazil, for example, purchased about 250,000 tons of Asian rice in
January at about half the cost of US rice of similar quality, according to
Secret
14 February 1986
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Ecuador Faces
Sliding Oil
Revenues
President Febres-Cordero is deeply troubled by the sudden plunge in oil prices.
Foreign Minister Teran told the US Embassy that the President fears that the
resulting recession and foreign payments problems endanger his experiment
with free market economics and threaten to undo recently signed accords with
international lenders. The Foreign Minister voiced concern that recession
would strengthen domestic critics of the President's close relations with
Washington and the IMF, and could result in a sweeping defeat for the
President's coalition in June's congressional elections. Although Teran was
clearly trying to "worst case" Ecuador's plight, the US Embassy estimates
that real GDP growth this year is likely to fall far short of the government's
3.7-percent target-a target based on oil at $23 per barrel. Continuation of the
current $19 per barrel price would result in no economic growth this year, but
debt service would be manageable. Oil at $15 per barrel, however, would result
in a 3-percent decline in GDP, and bank sources believe the payments gap
would exceed meager foreign exchange reserves, necessitating new borrowing.
The drought afflicting South America's southern region has had a disastrous
Paraguayan Drought impact on Paraguay's agriculturally based economy. The US Embassy
Impact of the
Tunisian Oil Crisis
Secret
14 February 1986
agreement with the IMF and reschedule its debt with creditor banks.
international payments arrearages, which may force Asuncion to seek an
estimates that the country's GDP could decline by as much as 8 percent this
year, with the agricultural sector contracting at least 20 percent. Soybean and
cotton crops, which alone account for 80 percent of export earnings, are down
39 and 42 percent, respectively. Low world prices for these commodities will
add to the impact on export revenues. In addition, Asuncion's vastly overval-
ued exchange rate has further lowered farm prices for exporters. If world
prices do not recover and the guarani remains overvalued, export revenues-
$312 million in 1985-will probably not reach $200 million this year. This will
probably result in a significant drawdown in foreign reserves and worsening
The oil price plunge comes as a severe shock to Tunisia's economy, which faces
growing austerity and a mounting debt service burden. The US Embassy
estimates that $20 per barrel oil will increase the budget deficit by 10 percent,
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trim 2 percentage points off GDP growth, and increase the current account
deficit by $50-100 million. A $15 per barrel price would almost double the im-
pact. 25X1
The
regime's economic options are equally troubling. Further budget cuts will
affect the ruling party's patronage structure and erode popular confidence in
the regime's economic policies. Additional foreign borrowing almost certainly
would be at higher rates than previously obtained and would push Tunisia
closer to a politically troubling IMF stablization program. 25X1
South Yemen: Composition of GDP
Agriculture 13%
(including fishing)
3081652 86
Economic Impact of the Although the heavy fighting in Aden has damaged many residential and
South Yemeni Coup government buildings, the warring factions 25X1
avoided Aden's key economic facilities, ,including port facilities and electric 25X1
power plants. The status of the 15,000-b/d refinery has not been determined
25X1
If the
25X1
refinery was hit, its operations probably will be halted only temporarily. The
death toll is likely to prove more serious.
25X1
South Yemen's small educated
class suffered disproportionately and probably were specific targets. Personnel
will be hard to replace in an economy already short of skilled manpower.
The new government has set up a committee to develop short- and long-term
plans for restoration. Although the already-limited economy probably will
continue to function, South Yemen has only $200 million in financial reserves
Secret
14 February 1986
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additional military and economic advisers.
and will have to seek aid from the USSR and the Persian Gulf states. To retain
their favored position, the Soviets probably will be the major donor. Moscow
may also press for greater access to South Yemeni facilities and offer
Tunisian Labor and Government efforts to restrict activities of Tunisia's powerful labor and
registration by voting-age youth for national elections this fall
could occur if students become aware of government efforts to impede
student movements could spark widespread violence between now and elections
this fall. Proposed cuts in student subsidies and university enrollment, and
government efforts to limit political activities on campus have led to numerous
incidents of violence since school reopened on 8 January. Further episodes
Moreover, hard-line union members are closing
Indians Protest
Price Hikes
keep the lid on rising popular disgruntlement.
ranks behind government-deposed labor boss Habib Achour for another
confrontation over wages and union freedom. Coupled with the sharp decline
in oil prices, the labor and student demands will tax the regime's ability to
promote industrial modernization and foreign technology.
The continuing outcry following the 1 February price increases for key staples
underscores the difficulty Prime Minster Gandhi faces in his effort to
modernize India's economy. More than 3,500 demonstrators have been
arrested or detained in New Delhi in the last two weeks, and a general strike
was called by the leftist ruling party in the state of West Bengal on 11
February. Rice and wheat prices are to increase 6 to 11 percent, fertilizer 8 to
10 percent, and busfares in New Delhi 100 to 150 percent. Growing public re-
sistance, combined with opposition within the ruling Congress Party, prompted
a 5 February partial rollback for petroleum prices, initially raised 6 to 20
percent. These price hikes will fuel criticism that Gandhi's economic policies
favor the rich and the middle class. Without these additional revenues
designed to trim a serious budget deficit projected for the next fiscal year,
Gandhi will be unable to implement the tax reforms and incentives intended to
Taiwan Pushing the Taiwanese officials have designated auto manufacturing as a strategic indus-
Secret
14 February 1986
try and have implemented a wide range of policies to stimulate this sector. This
is part of a larger government plan to hasten the transformation of Taiwan's
already a $3 billion surplus in Taiwan's favor-likely will widen.
succeed in becoming a major auto exporter, the US-Taiwan trade gap-
exports include first Canada and then later the United States. Taiwan
automakers are turning to foreign firms, especially the Japanese, to gain from
their expertise and position themselves for future access to the export market.
The Japanese are actively seeking equity participation in Taiwan's auto
industry to soften the effects of the strengthening yen, to circumvent
restrictions on Japanese autos, and to concentrate domestic production on the
higher margin luxury market. US auto manufacturers are also actively
researching equity participation in Taiwan's auto industry. Should Taiwan
6xports from labor-intensive goods to capital intensive. Targets for auto
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP97-0077OR000100090001-3
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP97-0077OR000100090001-3
Secret
Brazil's Troubled
Private Sector
Polish Worker
Discontent
decline in Brazil's GDP growth this year.
Despite President Sarney's early pledge to reinvigorate Brazil's private sector,
government policies are discouraging private capital expansion. According to
the US Embassy, both domestic and foreign industrialists in Brazil are cutting
back plans for investment in spite of very high capacity utilization rates. They
cite a deteriorating cash flow position that stems from high real interest rates
caused by continued large-scale government borrowing, increased corporate
taxation, and widespread price controls. Businessmen also fear that the recent
acceleration of inflation will prompt the government to impose even more
rigorous price controls, reinforcing the profit squeeze. We believe that, unless
the government alters its current policies, a stalled industrial recovery, in
tandem with the drought impact on agricultural output, will result in a major
Growing worker dissatisfaction over longstanding economic problems may
make First Secretary Jaruzelski more open to criticism from his party
opponents in the campaign before the party congress this June. 75X1
workers are increasingly unhappy 25X1
China's
Foreign Exchange
Reserves Puzzle
about the rising cost of living and low wages. The government raised prices in
December on a small number of consumer items without much advance notice, 25X1
provoking rumors that more "surprise" hikes are in the works. Some workers
have been upset over efforts by local factory directors to more closely link
wages and productivity. The regime recently tried to appear responsive to
worker concerns by backing away from earlier plans to extend the workweek,
keeping the current system of work-free Saturdays. The regime's efforts,
however, are unlikely to mollify the workers. Jaruzelski may hope that his
resignation from the premiership and the appointment of new senior economic
officials in November will divert blame from him for Poland's economic
difficulties. He is likely to be disappointed. 25X1
According to the People's Bank of China, China's foreign exchange reserves
rose $1.7 billion in the third quarter of 1985 following a 12-month decline. De-
spite Beijing's claims that tightened controls on foreign exchange and trade
were responsible for the turnaround, imports of both raw industrial materials
and consumer goods remained at record or near-record levels through the third
quarter, widening the trade deficit by $2.8 billion.
$12.6 billion-will be shortlived.
Unless Bening
can substantially dampen imports, the growth of reserves-which now total V
Secret
14 February 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP97-0077OR000100090001-3
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP97-0077OR000100090001-3
Secret
China To Increase
Tungsten Sales
to the USSR
Secret
/4 February 1986
ing countries for causing a decline in prices.
Beijing late last year agreed to increase sales of tungsten to the Soviet Union in
1986. Although details on the volume of trade are unavailable, China has been
a major Soviet supplier of tungsten materials for years. No agreement between
the two was ever reached on the level of 1985 Chinese deliveries. As a result,
China, the world's leading producer, sold its low-priced tungsten ores and
products on the international market, provoking criticism from other produc-
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP97-0077OR000100090001-3
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP97-0077OR000100090001-3
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP97-0077OR000100090001-3
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP97-0077OR000100090001-3
Secret
Secret
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP97-0077OR000100090001-3