INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97-00771R000707150001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 39
• Document Creation Date: December 22, 2016
• Document Release Date: October 19, 2010
• Sequence Number: 1
• Publication Date: August 31, 1984
• Content Type: REPORT

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Directorate of ~-i-~t~
Intelligence
International
Economic & Energy
Weekly
D/ /EEW 84-035
3/ August 1984
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International
Economic & Energy
Weekly
31 August 1984
Synopsis
--
1 erspective-The Changing West German-East German Relationship
Energy
International Finance
Global and Regional Developments
National Developments
15 /USSR-OPEC: Bilateral Oil Arrangements
19 /Prospects for NATO Defense Spending
25 viet and US Gross National Products, 1960-83
ras: Waiting for Economic Recovery
: Nimeiri's Financial Mess
Su
Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence
Secret
31 August 1984
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)fetereata?nae
lEcoeoeaec & ]Energy
Weekgy
Synopses
Perspective-The~Changing 66'est German-East German Relationship
A unique bilateral economic relationship-has allowed East Germany to derive
significant benefit from West Germany over the last 35 years despite often-bit-
ter political relations. Bonn's recent guarantee of an untied financial credit for
East Germany and East Berlin's subsequent easing of travel restrictions reflect
efforts by both governments to improve intra-German relations at a time of
heightened East-West tensions.
15 USSR-?PEC: Bilateral ?il Arrangements
The prolonged soft oil market has led some OPEC members to conclude oil-
barter deals with the USSR, adding even more crude oil to an already glutted
market. The volume of oil involved, however, is too small to affect world oil
prices significantly, and the deals offer little political leverage to Moscow.
19 Prospects for NAT? Defense Spending
Despite the 1978 commitment by NATO members to increase defense
expenditures by 3 percent annually, the non-US NATO average has been only
2 percent. The sluggish recovery in Western Europe almost certainly will curb
defense spending, thereby increasing pressures on the United States to
compensate for the reduced readiness of the European Allies.
25. Soviet and US Gross National Products, 1960->13
Although the Soviet economy did not achieve its goal of outperforming the
American economy by 1981, it was slowly gaining ground until the mid-1970s.
Thereafter, the relationship between the growth paths shifted in favor of the
United States as Soviet growth slowed.
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D/ IEEW 84-035
31 August /984
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29 Honduras: Waiting for Economic Recovery
Honduras's deep four-year recession appears to be bottoming out. Nonetheless,
a return to the high growth rates of the late 1970s is unlikely to occur any time
Sudan is doomed to financial crises for the next few years and will remain de-
pendent on Western and Arab aid.
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3/ August 1984,
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International
Economic & Energy
Weekly r
31 August 1984
Perspective The Changing West German-East German Relationship
A unique bilateral economic relationship has allowed East Germany to derive
significant benefit from West Germany over the last 35 years despite their
often-bitter political relations. Bonn's recent guarantee of an untied financial
credit for East Germany and East Berlin's subsequent easing of travel
restrictions have once again focused international attention on improving
relations between the two Germanys. While the overall economic relationship
is important in itself, the West Germans, in particular, view economic ties as a
means to pursue broader improvements in intra-German relations at a time of
heightened East-West tension.
The Kohl government-contrary to the tough negotiating stance demanded by
the Christian Democrats while they were in opposition-guaranteed the first
loan a year ago without demanding specific concessions from the East.
Criticism of last year's deal from Kohl's conservative supporters increased
pressure on Bonn to obtain a quid pro quo from the Honecker regime this year.
This largely explains Bonn's insistence on an easing of travel restrictions by
East Berlin-and, even more importantly, a public announcement of the
terms. While these concessions appear meager to conservative critics, they
expand the opportunities for contacts between Germans living in the two
.states.
_ East German gains from the relationship have been principally financial, and
East Berlin sought the loan even though its economy is improving. A third
straight year of a hard currency trade surplus, declining foreign debts, and
increased reserves have contributed to a resurgence in interest among Western
bankers in lending to East Germany. Indeed, East Berlin's stronger economic
position enabled it to keep its political concessions to a minimum-an ironic
contrast to what occurred in 1983, when Bonn was in a stronger bargaining po-
sition but asked for little. This year's loan provides East Berlin with:
? About 15 percent of the money to repay maturing medium- and long-term
debt in 1984.
? An improvement in the maturity structure of East German debt.
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? Cheaper medium-term money than East Berlin could have acquired else-
where, even assuming that they could have found the money elsewhere.
Over the longer term, East German economic gains could be even larger. The
credit reinforces banker confidence in the West German "umbrella" and will
tend to reduce the cost of new East German borrowing in international credit
markets. The deal demonstrates that both German Governments support ~~
closer economic ties and could have a spillover effect by encouraging
additional financial, trade, and technological agreements.
Bonn is still likely to press for modest political or humanitarian liberalization.
This serves the dual purpose of easing the burden of partition on all Germans
while keeping alive the idea of a common German nation. Explicit linkages of
economic deals to political concessions, however, raises problems in Moscow,
evident in this summer's Soviet outbursts in Pravda against warming intra-
German relations. As a result, East Berlin is likely to stress more strongly the
separation of political and economic agreements. Bonn, for its part, has reacted
calmly to Moscow's outbursts. The Kohl government almost certainly hopes
that its largess will maintain the momentum in intra-German relations despite
Soviet pressure on East Berlin to put a greater distance between the "two
states in one nation."
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Japanese Crude Oil
Imports Up Sharply
Energy
barrel is only 20 cents per month.
Japanese refiners increased their spot purchases of crude oil in July and
August in anticipation of an increase in the petroleum tax that becomes
effective on 1 September. July crude oil imports totaled nearly 3.8 million b/d,
up 10 percent from June and up 13 percent from year-earlier levels. August
imports are expected to be nearly 4.7 million b/d or more than 55 percent
greater than last year. The tax increase is expected to add about 40 cents per
barrel to the cost of oil, according to one corporate planner. Storage cost per
West European Gas .West European natural gas consumption rose nearly 14 percent in the first
quarter of 1984 compared with year-earlier levels. Gas use was up in nearly all
countries, with Italy, France, and West Germany registering gains of 21, 15,
and 15 percent, respectively. The residential/commercial and industrial
sectors accounted for the bulk of the increased demand. Gas use in electric
utilities, however, was up 20 percent, or about 1.4 billion cubic meters. Italy
more than doubled gas use for power generation as it tried to cope with excess
volumes of Algerian gas that Rome had to purchase under take-or-pay
contract provisions.
Western Europe: Natural Gas Consumption .
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Billion Cubic Meters
Percent
Change
First Quarter
First Quarter
1983
1984
Total
71.8
81.5
13.5
West Germany
16.2
18.6
14.8
United Kingdom
16.9
18.6
10.1
Netherlands
13.5
15.0
11.1
Italy
9.4
11.4
21.3
France
9.3
10.7
15.1
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Yugoslav Oil Shortages A fall in crude oil imports limited Yugoslav refinery operations to 75 percent
of the goal set for the first half of 1984. Lower refinery production has led to. a
shortage of oil products and, if it continues, could produce bottlenecks in
transportation and other oil-dependent sectors. Hard, currency shortages held
purchases from the,West to less than half of planned levels. Imports from soft
currency sources-almost exclusively the USSR-also fell below. plan: A
senior Soviet Embassy official in Belgrade has acknowledged that Moscow has
halted deliveries intermittently to prod the Yugoslavs into fulfilling export
International Finance
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gentine
President Alfonsin's new austerity proposals come amid growing signs that
Alfonsin believes he has to reach an accord with the IMF. The new plan-to
take effect in September-calls for controlling wage and price increases. The
goal is to halve the current 600-percent annual rate of inflation by next year.
The proposals complement earlier decisions to reduce the public deficit and
speed up currency devaluations.
These moves reflect Alfonsin's awareness of dwindling international support.
Banks recently refused to renew ashort-term loam
economic policy.
Meanwhile,
opposition Peronists have become increasingly critical of high inflation and
mismanagement of debt negotiations but have shown little interest, according
to US Embassy reports, in reaching an accord with the government on
and press for more concessions from lenders.
Even with the new measures, the government still lacks the comprehensive
monetary and fiscal policies required for an IMF agreement. Moreover, many
officials apparently overestimate the Fund's willingness to make additional
concessions and may unrealistically believe that lenders will not confront
Argentina if September loan deadlines are missed. Nevertheless, international
and domestic pressures may persuade Alfonsin that further delays would be
more costly politically than the consequences of austerity and a Fund .
agreement. He may wait until after meetings of the IMF and the Latin
American debtor countries next month, when he will gauge regional backing
Trinidad and Tobago's Trinidad and Tobago's foreign payments position could deteriorate rapidly
W Bening Financial because the government is resisting necessary austerity measures. The econo-
roblems my has been hard hit since 1981 by declines in domestic oil production-the
mainstay of the economy-and world oil prices. Moreover, foreign investment
in the oil industry is off sharply and some companies are trying to divest
themselves of their refinery operations. Trinidad's payments deficit this year is
likely to approach $1 billion and will cause further declines in the country's
foreign exchange holdings. Reserves in June stood at $1.5 billion, less than half
the 1981 level Despite these problems, the Chambers government faces
elections in 1986 and appears unlikely to take the unpopular steps-devalua-
tion in particular-that are necessary to put the country's finances in order
and set the basis for reaching an agreement with the IMF.
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Further Lebanese The Lebanese pound recently has fallen to record lows, 6.5 pounds to the US
Fin ncial Problems dollar, because of the country's tenuous political and economic situation and
uncertainty over the appointment of a new Central Bank governor. The
Lebanese political stalemate has prevented the Cabinet from naming a
replacement for Central Bank Governor Shaykh Michel al-Khuri, whose term
expires on 7 September. The US Embassy and the press report that the
Lebanese Central Bank is selling its scarce foreign exchange reserves to
moderate the pound's decline. The Central Bank has been spending on the
order of US $20 million a day, but cannot afford to continue doing so. Foreign
exchange reserves probably total about $1 billion. The pound has depreciated
about 8 percent since the beginning of August and is expected to depreciate to
7 pounds to the dollar by yearend. The fall of the pound adds to the country's
problems by increasing import costs without helping exports, because of supply
constraints.
Global and Regional Trends
West European We believe that the West Europeans have, or soon will have, equipment for
pability.for commercial production of single-crystal turbine blades. These blades are
~vanced Jet Engines largely responsible for the superiority of US aircraft engines and are only used
in Pratt & Whitney's latest military and commercial engines. The British and
French have announced plans for tests of rotot e blades in ex erimerital
engines.
This is the first
evidence of a production capability for these blades outside the United States.
Thyssen has contracted to deliver a turnkey facility for manufacturing gas
turbine components, including single-crystal turbine blades and vanes, to the
Soviets in apparent violation of COCOM prohibitions. Beyond concerns about
enhancing Soviet military capabilities,. the existence of foreign production
capability for single-crystal turbine blades has commercial implications for the
United States. West European aerospace companies could increase their
ability to compete with US commercial engines or assume a larger more active
share in future cooperative ventures with US engine manufacturers.
Economic King Hassan's unhappiness with the level of financial assistance from the
Motives for Moroccan- United States and other Western governments was a major factor in his
Libyan Union_ decision to form the union with Libya.
his friendship with the United
States has not brought enough assistance to meet Morocco's economic and
military needs. The King was irritated by what he sees as a disproportionate
gap between US aid to Rabat and US aid to Tel Aviv and Cairo.
Libya has agreed to provide $980 million to Morocco during
the next year. About half will be in cash, with the first $100 million due in ear-
ly September. The remainder will consist of oil and military materiel,
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as a market for Brazilian military equipment, and Brasilia is unlikely to
jeopardize the relationship. Libya buys relatively inexpensive armored vehi-
cles, ammunition, and other military items from Brazil and already has signed
contracts for aircraft and rocket launchers. Brazil also continues to look to
Middle Eastern countries for investment capital and probably would welcome
Libyan participation in joint economic ventures.
Soviet Trade With The Soviet trade surplus with non-Communist countries continues to grow:
Non-Communist During the first half of the year, the,surplus was $2 billion, as compared with a;1
Countries deficit of $200 million for the first six months of 1983. Soviet imports from
goods.
purchase $600 million annually in Moroccan agricultural and manufactured
including small arms and light armored vehicles. Libya also has agreed to
accept 100,000 Moroccan workers over the next two ears as compared with
the present level of 20,000. Tripoli will
Qadhafi's aid package is one of the largest he has ever offered. It would allow
Libya to replace Saudi Arabia as Morocco's principal economic benefactor.
The aid would help ease Morocco's foreign debt burden and high unemploy-
ment resulting from a weak market for Morocco's phosphate and agricultural
exports. In addition, Hassan probably hopes to use the Libyan deal as a
bargaining chip in obtaining new aid from the West.
Qadhafi gains a secure source of agricultural goods and access to skilled labor.
Tripoli can finance its aid commitment to Rabat by selling 100,000 barrels of
oil per day. Qadhafi's consistent failure to deliver on past promises of aid,
however, suggests that he will again fail to honor his commitments. Any
breach of the economic agreements would reduce Hassan's motivation for
remaining in the union.
Brazil and Libya Brasilia and Tripoli are seeking to expand their military and economic ties, de-
Strengthen Relations spite the reluctance of a major Brazilian arms producer to sell additional
e ui ment to Lib a.
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ports indicate the Brazilian Navy Minister will travel to Libya in September
for talks on military cooperation. In addition, the transportation ministers of
the two countries are to meet soon, and the Brazilian-Libyan mixed~commis-
sion is scheduled to reconvene in October to discuss cooperative projects.
The recent contacts are likely to lead to new arms contracts,
Libya traditionally has been. second only to Iraq
non-Communist countries declined 14 percent, and exports fell 3 percent. The
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E st German Trade
urplus With West
Germany
Economic Issues at
the South Korea-Japan
Surr~mit ,
Secret
31 August 1984
World countries.
decline in Soviet imports results mainly from a drop in purchases of Western
machinery and equipment as the Siberia-to-Western Europe gas pipeline
nears completion. The value of grain imports also declined as volumes and
prices were down slightly from year-earlier levels. The decline in Soviet
exports primarily reflects a drop in the value of military deliveries to Third
included in the 1986-90 Five-Year Plan.
Although the Soviet surplus with the non-Communist countries for 1984
probably will be higher than the $5.9 billion realized last year, the overall
improvement is not likely to be as marked as it wa's during the first half of the.
year. Recent large orders indicate that Soviet grain imports for the last six
months of this year will be substantially higher than the 13 million tons
imported during the second half of 1983. Imports of machinery and equip-
ment, however, probably will remain down. In the first five months of this
year, Soviet equipment orders totaled less that $500 million, as compared with
$6.8 billion in 1982-when large orders for the export pipeline were placed-
and $2.2 billion last year. Soviet orders for Western technology and equipment
should begin to pick up r