INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97-00771R000707460001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 37
• Document Creation Date: December 22, 2016
• Document Release Date: August 19, 2010
• Sequence Number: 1
• Publication Date: March 29, 1985
• Content Type: REPORT

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Directorate of Seeret 25X1
International
Economic & Energy
Weekly
Sftftt--
DI IEEW 85-013
29 March 1985
COPY 680
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Secret
International
Economic & Energy
Weekly
iii Synopsis
1 erspective-Foreign Effects of US Economic Trends
Prepared by analysts in the DI.
/.
3 1' "Summit Issues: Impact of the US Recovery on the OECD
7 Summit Issues: Big Six Attitudes on Mixed Credits
15 , / Colombia: Oil Export Prospects
21 4(ice Production: The Asian Success Story
25 Briefs Energy
International Finance
Global and Regional Developments
National Developments
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Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence
Secret
29 March 1985
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Secret
International
Economic & Energy
Weekly
Synopsis
1 Perspective-Foreign Effects of US Economic Trends
The international economic position of the United States has shifted dramati-
cally. These shifts have created both pluses and minuses in the rest of the
world, but, on balance, we believe the impact has been positive.
3 Summit Issues: Impact of the US Recovery on the OECD
Strong US import demand accounted for almost one-half of the 3.4-percent
GNP growth in the other OECD countries last year.
7 Summit Issues: Big Six Attitudes on Mixed Credits
Some Big Six governments are sympathetic to US initiatives to curb mixed
credits, but the French are likely to block progress on this issue-if it is raised at
The Caribbean oil-based economies-Trinidad and Tobago, the Netherlands
Antilles, and The Bahamas-have been hit by the slack world oil market. The
result almost certainly will be more urgent calls for increased US aid to the re-
gion and even larger flows of illegal entrants into the United States.
15 Colombia: Oil Export Prospects
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Despite recent oil finds, Colombia's goal of becoming a significant net oil
exporter remains elusive. 25X1
21 Rice Production: The Asian Success Story
Asian rice production has increased by 75 percent over the past 20 years as a
result of government policies designed to encourage production, and burgeon-
ing export surpluses have had a significant impact on foreign exchange
earnings across the region.
iii Secret
DI IEEW 85-013
29 March 1985
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Secret
Perspective
International
Economic & Energy
Weekly
Foreign Effects of US Economic Trends
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fect has been positive.
The international economic position of the United States has shifted dramati-
cally. The current account deficit has topped $100 billion; the capital account
surplus has approached $100 billion; even with the recent decline, the dollar is
.at heights unmatched since the 1960s; and the United States will this year:be-
come a net debtor for the first time since 1914. These shifts have created both
pluses and minuses in the rest of the world, but, on balance, we believe the ef-
telecommunications equipment.
The chief favorable impact has been through trade flows. Using IMF data, we
estimate the $90 billion jump in US imports between 1982 and 1984 equaled
the entire rise in the rest of the world's export sales over the same period. This
surge of sales to the United States was a major factor in what little growth has
occurred in Western Europe and in the dramatic improvements in several
Latin debtors' external positions. The high dollar also allowed foreign
competitors to make inroads, even in markets where the United States
presumably has a competitive edge, such as computers, semiconductors, and
On the other hand, we believe the huge shift toward net US capital inflows
probably has had some detrimental impact on the rest of the world. The
increased desirability of the United States for investment-most notably of
US funds that formerly went abroad-has reduced the availability of invest-
able funds abroad and helped to raise domestic interest rates in other
countries.
The positive effects abroad on jobs, profits, and external balances of the surge
in US imports of goods and services has far offset the negative impact on in-
vestment. Moreover, some of the negative impact of US capital inflows should
perhaps be discounted, given the probability that foreign financial and
structural problems may have retarded investment in any case.
achieve further competitive inroads.
How long these trends will continue is problematical, but we believe the
determining factor will be perceptions of the investment climate in the United
States compared with that elsewhere. So long as US demand for credit remain
strong and global investors continue to view the United States as the place to
invest, the current situation will continue: foreign investors will acquire
additional net claims on the US economy; the dollar's value will not change
markedly; the US current account deficit will persist; and foreign firms will
1 Secret
DI IEEW 85-013
29 March 1985
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Expected changes in underlying relative investment returns or expectations of
a dollar decline could alter investor perceptions. Because most shifts in US
capital flows have been in short-term funds, we believe that a reversal in
investor perceptions could be quickly felt in financial markets. Indeed, in the
last week, the foreign exchange markets reacted sharply to reports of slower
US growth and the Ohio savings and loans closures.
Given the large US current account deficits and the growing US net foreign
debt position, a reversal in investor perceptions could set off rather large
adjustments, including a sharp decline in the dollar and the trade. deficit. The
reversal in US trade trends, however, would remove one of the main impetuses
to foreign growth. Although the greater availability of investment. capital'- Ci
abroad would help somewhat, we do not believe it would be enough to offset
the lesser trade stimulus.
In such a circumstance, we would expect West European expressions of
concern about the depreciating dollar, and possibly more strident stances by
Latin debtors. Debtors would be more vocal if US interest rates also rose, as
would be likely if the reversal stemmed from a loss in confidence in the dollar,
as opposed to lower US credit demand. Although these reactions themselves
would not pose major difficulties, they could complicate a number of areas, in-
cluding continuing debt negotiations and the beginning of a new GATT trade
round.
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29 March 1985
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Secret
Summit Issues: Impact of the US
Recovery on the OECD
Strong US import demand accounted for almost
one-half of the 3.4-percent GNP growth in the
other OECD. countries last year. The increase in
US. imports came primarily in manufactures, a
trend that especially favored the Big Six economies,
the major suppliers of these goods. Canada and
Japan gained the most from US trade; the United
Kingdom and France benefited the least.
Impact of the US Recovery
The United States last year was the fastest growing
major export market for the other OECD coun-
tries, accounting for about two-thirds of their ex-
port growth. The robust US economic expansion
and the rising dollar helped boost OECD exports in
1984 to the United States by 29 percent over the
previous year-a sharp rebound from 1982 when
these exports fell by almost 2 percent. In contrast,
most other markets for OECD goods posted only
moderate gains over 1983.
According to simulations of our Linked Policy
Impact Model (LPIM), the full impact of export
sales to the US market alone boosted OECD GNP
growth by 1.6 percentage points in 1984. As a
result, we estimate that employment remained 1.5
million higher than otherwise would have been the
case
The impact of the expansion in US import demand
on the individual OECD countries varied primarily
according to the relative importance of the US
export market for each economy. The Canadian
and Japanese economies received the largest stimu-
lus because the United States accounts for 70
percent and 35 percent, respectively, of each coun-
try's sales abroad. The four major West European
countries received a smaller boost because the
United States: Imports From the
OECD, Seasonally Adjusted,
1983-84
,I I I I I I I I I I I I I I I
0. J J D
1983 1984
United States accounts for 7 to 14 percent of their
total exports
Manufactures accounted for almost 90 percent of
the increase in OECD exports to the United States.
The biggest increases came in machinery and
transport equipment where motor vehicles and elec-
trical machinery accounted for almost 60 percent
of the total increase for the two categories. Semi-
finished goods, the third-largest category under
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United States: Imports
From the OECD
Billion us $
Japan
37.7
41.2
55.9
West Germany
12.0
12.7
16.5
France
5.5
6.0
7.9
United Kingdom
13.1
12.5
14.1
Italy
5.3
5.5
7.5
Canada
46.5
52.1
65.3
19.1
19.8
25.8
manufactures, got its major boost from a $3.6
billion gain in metal sales. Consumer electronics,
chemicals, and fuel were other areas where US
Estimating the Impact of
US Import Demand
We used our Linked Policy Impact Model to
estimate the impact of the expansion in US import
demand on OECD exports and economic growth.
To estimate this impact, we determined the differ-
ence between actual trade, employment, and GNP.
growth for 1983 and 1984 and the simulated
results for the same variables assuming no growth
in US imports. Because the model links all OECD
economies, the results capture not only the direct
impact of increased exports to the United States,.
but also the indirect effects on.domestic consump- 25X1
tion and investment as well as increased exports to
each other and the rest of the world.
products as vehicles, heavy industrial machinery,
and metals, and the Italians did well in textiles and
apparel. French increases were moderate.
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import growth was strong.
Canada, which supplies one-third of US imports
from the OECD, would have suffered a decline in.
GNP (according to the LPIM) without the $13
billion rise in its sales to the United States. In
particular, the Canadians boosted vehicle exports
by $5 billion last year, one-half the OECD total.
Japan, the second-largest exporter to the United
States, posted $56.billion in sales in 1984 for a 36-
percent gain. Japanese producers accounted for
most of the OECD increase in sales of electrical
machinery, business machines, and consumer elec-
tronics. Although the four major West European
countries averaged a 25-percent increase in exports
to a total of $46 billion last year, total British sales
rose by only 13 percent because of.a $728 million
plunge in raw material exports, mostly unwrought
silver. British manufacturers, however, matched
the performance of the other West European econ-
omies, boosting exports by almost one-third. The
West Germans made their gains in such traditional
Implications
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29 March 1985
Although US import demand is helping all the .
OECD economies, it cannot solve their fundamen-
tal economic problems over the medium term. The
benefits flowing to these countries, nevertheless, do
provide an economic cushion as they restructure
their industries and grapple with increasing unem-
ployment.
West European leaders are aware of the beneficial
impact of the US expansion, but the recent
strengthening of the US dollar is rekindling criti-
cism of US economic policies. Policymakers in most
industrial countries are worried that the trade
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OECD: Export Gains to the United States, 1984
Change jr'om'previous year
OECD
Big
Six
Japan
West . France
Germany.:..
United .
Kingdom .
Italy
Canada
(million US $)
43,280
37,237
14,747
3,788
1,828
1,678
2,014
13,183
(percent)
28.9
28.7
35.8
29.8
30.4
13.5
36.9
25.3
Foodstuffs
(million US $)
959
698
73
73
112
4
61
374
(percent)
11.0
13.4
19.8
17.5
15.6
0.6
12.0
15.0
Raw materials
(million US $)
670
332
-12
80
24
-728
9
961
(percent)
6.4
3.8
-8.3
39.4
15.3
-67.8
12.0
13.4'
Fuels
(million US $)
2,644
1,461
44
-24
52
229
268
893
(percent)
17.8
11.5
266.7
-25.5
92.9
5.5
125.8
10.9
Manufactures
(million US $)
38,345
34,344
14,700
3,724
1,708
1,917
1,656
10,639
(percent)
35.2
34.9
36.6
32.1
35.4
32.2
36.2'
34.0
(million US $)
2,111
1,740
164
293
281
238
111
654
(percent)
24.1
24.9
15.0
23.9
32.0
23.3
36.9
26.3
Semifinished
(million US $)
6,951
5,355
1;734
817
314
245
472
1,773
(percent)
37.5
33.4
34.2
52.2
31.3
31.1
48.7
26.6
Machinery
(million US $)
13,753
12,582
7,005
1,076
656
863
387
2,595
(percent)
48.0
48:9
58.2
27.3
54.3
38.9
38.8
49.0
Transport
(million US $)
11,098
10,753
3,120
1,414
306
464
190
5,257
(percent)
29.1
29.5
20.9
34.1
28.1
46.8
49.4
35.1
Consumer products
(million US $)
4,433
3,914
2,675
124
150
108
496
360
(percent)
29.5
29.9
38.1
16.7
23.1
11.5
25.8
19.6
Other
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United.States: Contribution to Percentage points
OECD Economic Growth a
1983
1984,
GNP
Growth
US
Imports
GNP
Growth
US
Imports
Non-US OECD
1.8
0.5
3.4
1.6
Big Six
2.0
0.6
3.7
2.4
Japan
3.0
0.8
5.8
3.2
West Germany
1.3
0.4
2.5
1.7
France
0.7
0.3
1.8
1.1
United Kingdom
3.2
0.4
2.0
1.3
Italy
-1.2
0.5
3.0
2.0
Canada
3.3
2.1
4.7
5.0
gains-which forecasters predict will continue in
1985-will provoke Washington to impose such
protectionist measures as an import tariff sur-
charge, which could abort their own tentative
economic recoveries. On the other side of the coin,
West Europeans are also concerned about the
'tential disruption to trade and monetary relations
he dollar were to slide rapidly.
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29 March 1985
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Summit Issues: Bi - Six Attitudes
on Mixed Credits
Some Big Six governments are sympathetic to US
initiatives to curb mixed credits, but the French are
likely to block progress?on this issue if it is raised at
the Summit. Mixed credits-concessionary, foreign
aid loans, or grants blended with standard commer-
cial or official export credits-typically are used
for LDC development projects that include tied
purchases from:the donor country.The ability of
US firms to compete on such projects has been .
limited. because they lack access to similar financ-
ing, and, as a result, US businessmen are becoming
increasingly vocal over the role of mixed credits in
distorting international trade. Although the
amount of mixed credits has apparently declined in
recent years, a resumption of LDC growth would
also reflected cutbacks in the development pro-
The yearly commitments for mixed credits remain
small in relation to annual OECD capital goods
exports of $75-85 billion to the LDCs, but the total
value is.larger;than official reporting indicates.
Estimates on mixed credits depend on country
submissions to the OECD, and these are subject to
underreporting.
probably revive their use.
The use of mixed credits grew rapidly in 1982 when
a number of OECD governments apparently began
to use such credits to circumvent the strengthened
1981 OECD, consensus agreement on export cred-
its-an arrangement that set minimum interest
rates on official export credits to limit government
interest rate subsidies ,on such loans. According to
the OECD, the value of mixed credit commitments
rose from.$3.5 billion, in 1981.. to $5.2 billion in
1982.
Alarmed by this growth, OECD governments
agreed to screen mixed credit proposals more tight-
ly after July 1983 and to ban mixed credits con-
taining a grant element below 20 percent. Mixed
credit commitments fell to $2 billion in 1983 and
$1.5 billion last year. OECD aid devoted to mixed
credit programs dropped from 6 percent of total
bilateral aid commitments in 1981-82 to 3 percent
in 1983-84. Countries seem to be honoring the 20-
percent aid requirement. Tighter discipline contrib-
uted to the drop in mixed credits, but the decline
Once LDCs adjust sufficiently to resume develop-
ment plans and projects; pressures for new. mixed
credits may intensify. China; for example, is active-
ly soliciting mixed credits to finance its develop-
ment program. Some LDCs, such as India, have
become adept at?augmenting multilateral lending,
such as World Bank loans, with mixed credits.
Mixed credit competition will remain especially
strong in the telecommunications sector.
The United States has proposed that the minimum
grant element of mixed credits be raised from-20 to
50 percent. Such a requirement would increase'the
budgetary costs of mixed credit programs and
discourage their use for commercial competition.
The US proposal would apply to all foreign aid
loans tied to donor nation procurement.
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All of the Big Six governments have on occasion
issued mixed credits. Some consider mixed credits an
integral part of their export strategies; others employ
mixed credits chiefly on an ad hoc basis to match
competitors. Unlike humanitarian aid, mixed credits
are directed toward relatively affluent LDCs and are
concentrated in capital-intensive sectors principally
power generation, steel, telecommunications, and
transport.
Franco accounts for slightly less than one-half of all
mixed credits issued by OECD governments, and
Paris does not hesitate to use foreign aid as a tool to
promote exports. Mixed credits are generally the
only type of project aid Paris is willing to make
available for LDCs outside: the francophone area.
French mixed credits typically have. a minimal aid
component, highlighting. their commercial character.
The United Kingdom accounts for about one-fourth
of all mixed credits, despite the Thatcher govern-
ment's stated aim of ultimately banning such financ-
ing methods. A new trade/aid facility was established
in 1977 to match competitors' efforts, but the govern-
ment began in 1981 to negotiate mixed credit lines
directly with LDCs.
Italy has patterned its program after the French: a
high proportion of foreign development projects in-
volve mixed credit, which, in turn, contain a relative-
ly low aid component. Although the Italians try to .
Secret
29 March 1985
use mixed credits aggressively, they are con-
strained by low aid resources, which prevent Ital-
ian companies from participating in many such
deals. Italy accounts for slightly more than 9
percent of all mixed credits.
Japan is the fourth-largest issuer of mixed credits,
accounting for slightly less than 9 percent of the
world total. Tokyo uses mixed credits to match
competitors and to augment its extensive yen-loan
program. Yen'loans, which are highly concession-
ary, can often underwrite LDC projects without
any other type of finance.
ministerial committee
Mixed credit
transactions presently need approval by an inter-
Canada has been a minor player in the mixed
credit game-on average only 5 percent of bilateral
aid has been allocated to such finance. The more
interventionist government of former Prime Minis-
ter Trudeau had proposed a new trade/aid fund
that could have multiplied mixed credit usage.
The Mulroney government has put this facility on
hold, however, pending an overall review of
Ottawa's foreign aid policies.
West Germany is opposed. in principle to mixed
credits and is not a significant practitioner.
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Secret
Big Six reactions to the US proposal vary widely.
The French reject the US proposal and are ada-
mant in defense of their mixed credit program.
Paris contends that mixed credits increase the
overall volume of developmental aid and are there-
fore beneficial to LDCs. Moreover, the French
point out that mixed credit use has declined, and
deny, in any case, that mixed credits distort trade.
The French likely perceive the United States as the
sole hardliner on this. issue and, given the divisions
in the United States over subsidized export financ-
ing, probably consider US retaliation with its.own
mixed credit scheme an empty threat. Japan is
pushing a compromise-raising the minimum grant
element to only, 25 percent. The Italians back the
French in opposition to a major boost in the
minimum grant element but would probably agree
to the lower Japanese proposal.
The West Germans, on the other hand, support the
United States on the. need to phase out mixed _
credits, but Bohn seems reluctant to push hard on
this issue. The British Treasury agrees with the
United States on the need for tougher rules on
mixed credits, although British trade officials are
more ambivalent-and publicly advocate the use of
foreign aid to promote exports. The new Canadian
Government appears to be leaning toward a tough-
er line against mixed credits and supports in princi-
ple the US proposal. Some Big Six governments
feel that mixed credits are not a priority issue, but
almost all are willing at least to compromise on
tighter rules on disclosure and on prior notification
of mixed credit offers.,
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United;
States
t_Cayman Islands
(U.K.)
Jamaic ii i
The Bahamas
urks and Caicos Islands
%Tro (U. K.)
Puerto iI
e
Virgin Islands
Rico (U.K.)
(U.S.),
' mP Anguilla
? (U. K.)
Virgin Islands
(U. S.)
St. Martin
(Guadeloupe and
Netherlands Antilles)
Saba (Netherlands Antilles)
St. Eustatius
(Netherlands Antilles)
a Antigua and
? Barbuda
Saint Christopher
and Nevis
~(~Guadeloupe
)
'(France
0
U.
Dominica
Martinique
T~ (France)
Costa,Rica
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29 March 1985
Netherlands Antilles
(Netherlands)
Aruba` Bonaire
Boundary representation is
not necessarily authoritative.
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St.?Vincent and? O
the Grenadines. Barbados
Grenada
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Caribbean Oil
Boom Goes Bust
The Caribbean oil-based economies-Trinidad and
Tobago, the Netherlands Antilles, and The Baha-
mas-have been hard hit by the slack world oil
market. Primarily geared to produce heating oil for
the US market, Caribbean refineries are operating
at half capacity or less because of excess refining
capacity in the United States and the switch to
cheaper energy sources by US consumers. More-
over, the Netherlands Antilles and Trinidad have
been hurt by sluggish growth in tourism-their
second-largest foreign exchange earner-and de-
pressed. island-based shipping. The result has been
an overall economic stagnation in the past four
years for all three countries compared with the 5.-
percent average annual growth during the 1976-80
period. In addition, the economic decline of these
wealthier islands is already having a negative im-
pact on the other Caribbean nations. The result
almost certainly will be more urgent calls for.
increased US aid to the region and even larger
flows of illegal entrants into the United States.
Despite the economic doldrums that afflicted much
of the Caribbean region during the past decade, the
oil windfall in Trinidad, the Netherlands Antilles,
and The Bahamas until recently helped to cushion
the region's problems. As a result, these islands
became havens for migrants from other Caribbean
countries seeking job opportunities. Moreover,
Trinidad became both the. largest regional aid
donor and market for Caribbean-made.goods.
These countries also used their rapidly rising oil
earnings to begin diversifying their economies.
Trinidad ventured into costly, energy-intensive in-
dustries such as steel and petrochemicals. Petro-
leum receipts allowed the Netherlands Antilles and
The Bahamas to bolster tourism and offshore bank-
ing by providing the extra revenue necessary to
offer generous investment and tax breaks. With the
worldwide recession of the early 1980s, however,
virtually all of these islands' foreign exchange
earners-including oil-began to flag.
Economic activity in Trinidad fell about 3 percent
in 1984, following a 2.6-percent decline in 1983.
Lagging crude and refined product output, which
contributes nearly 50 percent of GDP and 75
percent of export earnings, was largely responsible.
Other important sectors also performed poorly-
agriculture continued to suffer from prolonged
neglect, construction sagged, steel sales fell because
of quality and marketing problems, and petrochem-
ical exports declined. As a result of two consecutive
$1 billion balance-of-payments deficits, foreign re-
serves at yearend 1984 stood at less than $1 billion.
The government belatedly tightened controls on
imports and withdrew some consumer subsidies.
Most workers, including the salaried middle class,
have been hurt badly by even limited belt-tighten-
ing and have shown signs of restiveness. The unem-
ployment rate tops 20 percent. Formerly generous
wage increases now are held well below the 20-
percent rate of inflation. As a result, labor unrest
increased in the past year, with strike actions
hitting most major industrial installations. In addi-
tion, a work slowdown by most of the country's
65,000 public-sector workers-demonstrating re-
jection of the government's wage contract propos-
als-temporarily brought the country to a near
standstill last fall.
Only generous. Dutch aid allowed economic activity
in the. Netherlands Antilles' six-island federation to
grow at even a snail's pace during 1983 and 1984.
Secret
DI IEEW 85-013
29 March 1985
25X1
25X1
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Caribbean Petroleum Exporters: Economic
Growth and Inflation, 1974-84
Caribbean Petroleum The Bahamas
Exporters a
I I I I 1 1 1 1 1 1 1 1 1
-10 1974 80 84 -10 1974 80 84
The Netherlands
Antilles
Trinidad and
Tobago
u
84
The oil sector's poor performance-output of petro-
leum products contributes about 30 percent of the
country's GDP and 97 percent of export earnings-
was to blame. Other important sectors also lan-
guished. New US legislation removed the withhold-
ing tax exemption for US investment in that coun-
try's financial sector, hurting Antillean offshore
Secret
29 March 1985
banking activities. The strong US dollar has in-
creased the attractiveness of Western Europe and
other vacation spots contributing to the steep drop
in tourist receipts. Unemployment continued to
rise, topping 25 percent. Meanwhile, the govern-
ment-hoping to ride out the world oil slump-
avoided belt-tightening. As a result, foreign re-
serves fell to $100 million by yearend 1984, half of
the peak 1982 level.
During 1983-84 real economic growth in The
Bahamas averaged only 2 percent because the
performance of nonoil sectors was not strong
enough to fully offset growing problems in that
country's petroleum industry. Only tourism-
buoyed by the US economic recovery, an aggressive
advertising campaign, and close proximity to the
United States-and banking-probably helped by
drug-related money laundering-showed any real
improvement. In these circumstances, the jobless
rate rose to about 25 percent by yearend 1984. The
crime rate-partly drug related, according to press
reports jumped alarmingly as well, especially
among unemployed youths. As a result, the govern-
ment initiated negotiations in early 1985 with Haiti
to return illegal immigrants-who, according to the
US Embassy, may number over 50,000.
Looking Ahead
The principal concern in Trinidad is the expected
shutdown of Texaco's unprofitable refinery at Point
a Pierre and of on-island producing fields. Texaco,
according to press reports, will close the refinery if
a buyer is not found, idling 3,400 workers and ,
eliminating 40 percent of Trinidad's export earn-
ings.
Although the government recently held preliminary
talks with the IMF-on financial assistance; national
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Secret
Caribbean Area: Petroleum Exports
and US Share, 1974-84
elections, scheduled for late 1985, will make it
especially hard to come to terms with the Fund any
time soon.
Exxon's closure this month of its refinery in the
Netherlands Antilles will severely compound that
country's economic troubles. Royal Dutch Shell
also has announced plans to pull out unless costs
can be cut. A shutdown of both refineries virtually
would bankrupt the economy and directly add
about 2,000 workers to the jobless ranks, pushing
the country's unemployment rate to nearly 30
percent. According to the US Embassy, the govern-
ment expects other traditional foreign exchange
earners to decline further-government revenues
from offshore banking alone are forecast to drop 30
percent over the next few years as effects of new
US legislation take hold. Moreover, growing eco-
nomic troubles are likely to generate sporadic
unrest, particularly as Aruba prepares to leave the
Federation in early 1986. Police on that island used
tear gas this month to disperse 200 to 500 demon-
strators protesting a 10-percent cut in public-sector
wages, a result of. the Exxon closure.
In The Bahamas, should the BORCO refinery
close-one of its owners, Charter Oil Company,
reportedly has filed for bankruptcy-or related
petroleum transshipment activities be curtailed, the
impact would be much less severe than in the other
countries but still could cost several hundred jobs
and a sizable loss in export earnings. Overall
performance in other key sectors is unlikely to
improve much over the near term. Tourism proba-
bly will not grow much until the value of the US
dollar moderates against other currencies. Al-
though the country could initially attract some
business from the Antillean banking industry, any
financial gains would be short lived; Washington
and Nassau are finalizing negotiations on a 15-
month agreement to allow limited US access to
Bahamian banking records.
US Interests 25X1
Worsening difficulties in three of the Caribbean
area's larger economies can be expected to contrib-
ute to more urgent pleas for stepped-up US aid to
the region. We believe these islands also will exert 25X1
stronger pressure on Washington to provide prefer-
ential treatment under the Caribbean Basin Initia-
tive (CBI) and to try to deter or compensate for any
substantial US private disinvestment. For its part,
the Netherlands Antilles lobbied the US Govern-
ment to stop the Exxon closure. Moreover, worsen-
ing economic conditions and the efforts to expel
illegal immigrants from other Caribbean islands
will increase illegal immigration to the United
States from the region.
Growing economic hardship also is likely to open
the door to further Communist penetration efforts.
Secret
29 March 1985
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Colombia: Oil Export
Prospects
Despite recent oil finds,' Colombia's goal of becom-
ing a significant net oil exporter remains elusive.
Potential oil exports could provide Bogota $1-2
billion in foreign -exchange annually. The Betancur
administration needs to `raise $700-800 million in
investment capital-.to'fund infrastructure and field
development costs, but international lenders are
reluctant to provide credit. In addition to improving
Colombia's financial outlook, these oil earnings
may aid Bogota's efforts to bring the drug industry
under control and combat a persistent terrorist and
insurgent threat.
Colombia: Oil Production, 1984 a
Barrels Per
Day
Percent
of Total
Total
167,810
100
Magdalena basins
122,499
73
Llanos basin
17,873
11
Putumayo basin
18,803'?
11
Oil production, which peaked in 1970 at 220,000
b/d, began a -steady downward course shortly
thereafter prompting the government to initiate
policies aimed at rejuvenating domestic oil supplies.
Prices paid to producers were raised to world levels,
investments in oil recovery projects were increased,
and contract terms were adjusted to'attract foreign
investors. Since 1979, according to the Ministry of
Mines, production began to increase gradually-at
an average annual rate of about 6 percent-from a
low of 125,000 b/d. According to Embassy report-
ing, production last year-averaged 168,000 b/d
and-for the first time since 1975-surpassed do-
mestic oil consumption.
In the mid-1970s, Colombia began offering oil
companies "association contracts," which-accord-
ing to industry analysts-includes contract terms
among the most attractive in the international oil
market.' Colombian officials state that foreign
investment under association contracts increased
steadily from $127 million in 1979 to $267 million
in 1982. Investment dropped last year to $186
million in the wake of worldwide recession and
weak oil demand. Despite the continued oil market
softness; investment is expected to rise again as new
finds and favorable contract terms encourage addi-
tional exploration efforts.-
We . believe oil. consumption will rise slightly
through 1990, perhaps to as much as 200,000 b/d.
Slow economic growth and the completion of nonoil
energy projects will help keep oil demand in check.
Bogota will also continue to promote oil conserva-
tion-through its policy of maintaining prices at
near world market levels-with the goal of mini-
mizing imports and increasing oil revenues. The
success of this approach may be tempered by
declining international oil prices.
' Under association contracts, foreign oil companies are responsible
for all exploration costs, but once a discovery is declared commer-
cial, Ecopetrol-the national oil company-will pay 50 percent of
development costs.The operator is required to pay a royalty equal
to 20 percent;of the volume of oil-and gas produced, and the rest is
shared equally with the. government. Companies are paid the world
price for their oil and'allowed to export after domestic requirements
Secret
DI IEEW 85-013
29 March 1985
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Colombia: Oil Production and Consumption
could contain 760 million barrels and produce as
much as 220,000 b/d. Other industry personnel in
Colombia, however, believe these figures to be
overly optimistic.
production range
350
1980 81 82 83 84 87a 90a
We believe Colombia has the potential to surpass.
its 1970 production record of 220,000 b/d and once
again become a sizable net oil exporter. Upon
completion of the Rio Zulia pipeline, total domestic
output should increase to about 280,000 b/d and
exports could rise to about 100,000 b/d. If more
optimistic production levels are achieved, Colombia
could be producing more than 400,000 b/d by the
end of the decade and exporting close to 200,000
b/d.
Exploration has been concentrated in the Llanos
basin where production has increased from 3;500
b/d in 1982 to the current 18,000 b/d. The most
significant discovery of late has been the joint
Occidental/Ecopetrol finds in the Cravo Norte
concession. According to Embassy reporting, pre-
liminary evaluations indicate proved reserves of at
least 400 million barrels that will allow an initial
production rate of 90,000 to 100,000 b/d. Compa-
ny officials estimate the Cravo Norte concession
Secret
29 March 1985
Construction of a 300-kilometer pipeline is required
to link the finds with an existing pipeline at Rio
Zulia. Crude will be transported from Rio Zulia to
either the Tibu refinery or to Colombia's main
pipeline network at Ayacucho. Initial capacity of
the new line will be 90,000 b/d that can be
expanded to 250,000 b/d with construction of
additional pumping stations. Last Augusta $171
million contract was awarded to a West German
and British consortium with a scheduled comple-
tion date of January 1986. A second pipeline
system is planned to connect the fields:of Apiay and
Casanare in the southern part of the Llanos to an
existing pipeline that traverses the center of the
country. A contract award is expected shortly.
These fields are estimated to have sufficient re-
serves to provide an additional 20,000 b/d through
In addition to new finds, secondary recovery proj-
ects are scheduled to stem the decline in output
from fields in the major oil-producing region, the
Magdalena Valley. A major water injection project
is planned for the Casabe and Cocorna fields.
Industry experts expect production from. these two
fields to more than double to about 40,000 b/d by
The southwest Marcaibo and Putumayo basins
supply the remaining oil-approximately 27,400
b/d. A majority of the fields within these basins
started producing in the early 1960s and are now
nearing their full potential. Recent successful drill-
ing tests and enhanced oil recovery techniques,
however, are expected to boost production slightly.
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Secret
Petroleum Development,
Insurgent Operating Areas, and Narcotics Growing Areas
Netherlands Antilles
arubad (Netherlands) r r rU
Panama
PANAMA
U Barrancabermeja v- ~ L1avo r
iddle 0 cslCesabe }Q Araucanccssion;`
Magdalen r? Departamento
or
D
a
p
C
rr
North
Pacific
Ocean
Titiu L
Ayacucho(p
~~ Rio Zub~J`~
c d
Viflavicencio
V
Boun Eery e0re va h.lon is
nol neceasamy aumodtou.e.
Lago de-)
Maracaibo
Traditional marijuana
cultivation area
Oil basin limit
Area of oil concentration
Oilfield
Crude oil pipelines
existing
under construction
Refinery
approximate alignment j'tCasanare
, BOGOTA
rf- , ;/ r r
-
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Constraints on Development
Although Colombia has the potential geologically
to become a significant net oil exporter, it is likely
that it will suffer setbacks in its production timeta-
ble because of financial and security concerns. We
estimate Colombia's share of the roughly $1 billion
in development costs of the Llanos basin and the
Casabe and Cocorna fields to be $700-800 million.
Although Bogota, through Ecopetrol, will generate
a portion of the needed capital, most will have to be
raised on the international market. Bogota received
a financial boost in November 1984, when the
World Bank approved a loan of $130 million for
field development. Colombian officials are hoping
that the World Bank loan will encourage additional
credit from private as well as international lending
sources. International lenders, however, remain re-
luctant to lend to Colombia in light of its worsening
economic conditions, balance-of-payments difficul-
ties, a $12 billion foreign debt, and the absence of a
formal debt repayment plan. We believe capital
inflows would be more forthcoming, however, if
Bogota undertakes austerity measures under an
IMF program.
The Rio Zulia pipeline is the linchpin to Colom-
bia's quest for continued oil development. In recent
months, however, there have. been sporadic inci-
dents of sabotage to pipeline facilities and kidnap-
ings by the National Liberation Army (ELN).
Construction ceased with the abduction of a high-
level West German official; his release was granted
in exchange for a substantial ransom. After Bogota
agreed to provide additional security measures,
construction resumed in early January. The first
130 to 160 kilometers of the pipeline must be laid
before the rainy season begins to avoid further
delay.
the scheduled
completion date of January 1986 remains attain-
able. If terrorist attacks continue, however, despite
improved security measures, we believe completion
could be pushed back by up to a year.
In addition to problems with terrorists, tht pipeline
will extend into regions where cocaine smuggling is
common. Drug traffickers, however, do not pose as
Secret
29 March 1985
Columbia: Petroleum Sector Million US $
Investment Program, 1984-88
Ecopetrola
Private Sector
Total
2,124
952
3,076
Exploration
203 '
450
653
Development
990
379
1,369
Pipelines
323
123
:446.
Refineries
358
0
358
Miscellaneous
250
0
250
a Includes export credits and international loans. Includes $700
million earmarked for development of the Llanos basin and comple-
tion of enhanced oil recovery projects.
serious an 'impediment to pipeline construction and
personnel security as do guerrilla groups-only 5 to
10 percent of all cocaine trafficking in Colombia
takes place along the pipeline route. Moreover,
narcotics traders, may use the pipeline support
infrastructure and personnel to facilitate smuggling
activities. Although the construction phase will
increase government and corporate presence in the
vicinity and may temporarily interrupt trafficking
activities, we believe traffickers will adjust by
relocating operations. If government activities and
military personnel begin to affect profits of these
organizations, however, violence may occur and
possibly disrupt oil production.
Since 1980 Colombia has progressively improved
its oil trade balance. A lower volume of imports
coupled with low world oil prices reduced.?Colom-.
bia's oil import bill from $700 million in 1980 to
about $445 million in 1984. At the same time,
steadily rising production has generated additional
export earnings. Last year, according to Ecopetrol,
25X1
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Secret
Colombia generated a small oil trade surplus, and
we believe this surplus will grow. Upon completion
of the pipeline, net oil export earnings could aver-
age about $1 billion annually and double that
amount if more optimistic production levels are
achieved. This additional foreign exchange would
ease debt service pressures, enable Bogota to focus
on economic recovery, and possibly permit greater
drug enforcement efforts.
19 Secret
29 March 1985
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Secret
Success Story
Asian rice production has increased by 75 percent
over the last 20 years as a result of government
policies designed to encourage production, and
burgeoning export surpluses have had a significant
impact on foreign exchange earnings across the
region. The growing political leverage of Asian
farm lobbies will work in most countries to ensure
continued production gains, import cuts, and export
growth. As a result of these trends, the United
States, a major rice exporter, will face continued
Asian competition in African, Middle Eastern, and
European markets, as well as the permanent loss of
such lucrative Asian customers as South Korea and
Indonesia.
Asian governments have long recognized the politi-
cal importance of ensuring sufficient rice supplies,
particularly in the cities, while at the same time
providing for the welfare of rice farmers, who
account for about half of the region's population.
To reach these goals, these governments have fol-
lowed widely different policies. Although most set
quotas on amounts that must be sold to the govern-
ment, a wide range of free market entrepreneurship
on the part of farmers and traders is permitted. For
example, the Government of North Korea has a
monopoly on trade, and all production above subsis-
tence levels goes to the state. At the other end of
the spectrum, less than 13 percent of Thai rice is
procured by the government.
India's successful Green Revolution has spread
across Asia. Success has been facilitated by large
amounts of private and public investment in irriga-
tion, subsidized farm inputs, and hybrid seeds
adapted to local conditions. In turn, better yields in
combination with effective price stabilization and
government procurement policies have stimulated
Asian rice farmers to expand production.
Powerful farm lobbies intent on protecting farm
interests against the demands of competing sectors
have evolved in most Asian rice-producing coun-
tries. Across the political spectrum Asian govern-
ments have had to accede to the demands of rice
farmers for price increases, increased input subsi-
dies, and liberalized credit terms, as well as greater
tolerance of free market forces.
The Payoff-Sufficient Food and
Current Account Dividends
Careful orchestration of rice policy over the past 20 25X1
years has spurred a 75-percent increase in Asian
rice production from an already large base; the
region now produces 92 percent of total global
supplies. With 45 percent of the crop still depen-
dent on monsoon-driven rains, production gains
have not been even, however. Some countries-
Vietnam and the Philippines-for example, tempo-
rarily emerged as net exporters, only to fall behind
again as a result of combinations of bad weather,
misguided farm policy, or political disruption. Most
countries, however, have been able to sustain pro-
duction gains over the longer term.
The rapid gains in total production have contribut-
ed to a significant improvement in the trade bal-
ances in the region. Despite population growth
rates of about 2 percent, the Asian share of world
rice imports dropped from nearly 65 percent in
1965 to 30 percent this year, and the Asian share of 25X1
exports held steady at about 66 percent:
? Pakistani exports increased by 850 percent, a
though consumption doubled.
Secret
DI IEEW 85-013
29 March 1985
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Secret
World production
180.9
226.4
313.8
Asia
165.0
206.0
288.1
China
85.1
86.7
123.2
India
39.3
39.6
58.5
Japan
11.5
11.2
10.8
Burma
5.3
5.4
9.0
Vietnam
6.3
7.2
9.0
South Korea
4.0
4.4
5.7
Philippines
2.6
3.7
5.1
Pakistan
1.4
2.3
3.5
2.4
3.7
4.4
5.2
4.8
6.1
0.6
0.8
0.8
? -India, self-sufficient in most years, was a substan-
tial net exporter from 1978 to 1982, and now
imports only to replenish stocks during periods of
low world prices..
? Both Burma, where rice exports account for 40
percent of export earnings, and Thailand, where
rice earns 15 percent of the total, have tripled
exports in the last decade.
Secret
29 March 1985
? Indonesia and South Korea, which each imported
2 million metric tons of rice annually during the
1970s, are expected to import little or no rice in
1985.
Effective management of rice policy in the face of
the growing political influence of farm lobbies. will.
challenge Asian planners, for the remainder of the
decade. Embassy reports indicate that the need .to
reduce burdensome farm subsidies poses a dilemma
for countries such as South Korea, where consump-
tion is declining, as well as for those for.which
continued increases in production are essential-
India and the Philippines, for example. Steps are
under way in South Korea to reduce. the govern-
ment deficit by cutting rice and fertilizer subsidies;'
but Seoul, may face strident opposition from farm-
ers. In India, both the federal and state govern- .
ments are being squeezed by rising farm subsidies
and growing political influence of farm lobbies.
Filipino farmers, predict a shortfall of 300,000 tons
in the fall harvest unless demands for a rollback in
production costs are meta
Complicating the task.of government- rice. planners
is the instability of the world rice market, both as to
availability and price. Only about 5 percent-of the
world rice crop enters, international trade, and
about half of total production is dependent on the
vagaries of the Asian monsoonal rains. World;
prices are currently at a 10, year low and demand is
weak, causing problems for major exporters.. such as
Thailand and Burma. The. market could shift rap-
idly this year, however, because global stocks-
currently at a 10-year low-are inadequate to.
compensate for. crop losses if the :weather .turns 'bad.
25X1
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Secret
World Rice Trade, 1965 and 1985
Latin America 7 Latin
America 12
Africa 11 Asia 63
Other 13 Other 23-
23 Secret
29 March 1985
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World Rice Prices, 1970-85
~I III II IIIIIIII1IIIIIII1III IIIIIIIIIIII IIII III1III IIII~III
0 1970 75 80 85
- Milled, Zenith No. 2, medium grain miller to distributor,
f.o.b. New Orleans.
b White milled 5 percent broken, f.o.b. Bangkok.
United States as
of February
19851-
Thailand as of
February 1985b
The Asian competitive advantages- Jn climate,
cheap labor, low energy usage, and strong govern-
ment support suggest continued formidable compe-
25X1
tition for the United States,
Large Asian purchases from the
25X1
United States in deficit years-such as the 1- ,
million-ton Korean purchase in 1981-are becom-
ing rarer. At the same time, US prices-currently
about 50 percent higher than Asian prices for
comparable quality-are particularly unattractive
to the poorer African countries and have led to
growing US rice stocks. Pressure likely will build
for concessional US sales and credits from these
African countries and probablyithe Philippines.
Implications for the United States
A growing ability to supply the high-quality rice
preferred by consumers in the Middle East and
Western Europe is enabling some Asian exporters
to capture shares of these traditional US markets.
Thai producers have developed varieties of rice
designed to appeal to these stable, markets and have
installed improved milling and sorting machines.
As a result, in combination with low Thai prices,
Thai rice exports to the EC doubled in 1984. In
addition, eco-
nomic reforms providing incentives to export rice
have resulted in a larger availability of good quality
Chinese rice on the international market.
Secret
29 March 1985
25X1
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Secret
Energy
igeria Expanding Nigeria has reversed policy and is negotiating countertrade deals in an effort
Countertrade in Oil to. raise import levels in the face of high debt service and falling foreign
w Libyan
Refinery Online
festering
exchange earnings. Brazil is discussing a second barter deal worth about $1
billion over the next year, and Canada, Yugoslavia, France, Italy, Austria, and
West Germany have indicated interest. Although conserving on hard currency
import costs, such deals do not add to foreign exchange available for debt
repayment and diminish the government's ability to respond to changes in
world oil prices. Furthermore, cuts in oil revenues that are shared with
Nigeria's 19 states risk heightened regional discontent, particularly in the
south where. opposition to the northern-dominated government is already
Production at Libya's new Ra's al Unuf refinery continues to average about
20,000 b/d since testing began earlier this year. Output is being sold on the
spot market with negotiations under way for term contracts with several West
European countries. Plans call for 120,000-b/d production by.midyear-half
of designed capacity. A substantial portion will go to the domestic market
because existing refinery capacity of about 130,000 b/d barely meets domestic
demand. Construction of phase two of Ra's al Unuf-including petrochemical
units-is moving ahead. Weak world demand for petroleum products and
petrochemicals, however, probably will keep production and revenues well
below planned levels.
Secret
29 March 1985
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L
Shortfalls in
Polish Coal x Ports
Harsh winter weather has contributed to a 15-percent drop in hard currency
exports-mainly coal-in the first two months of this year, as compared with 25X1
the same: period of 1984. The decline in coal exports may reflect in part a deci-
sion to give priority to increased consumer demand during the cold weather.
The Poles exported a record amount of coal in 1984 in hopes of a second mild
winter and successful conservation. Warsaw has spent the past two years
trying to regain its reputation as a reliable supplier after labor unrest reduced
coal exports by more than 60 percent in 1981. The recent shortfalls are likely
to cause an overall decline this year in coal sales-which earned about 20
percent of hard currency revenues in 1984-and thus add to Warsaw's
difficulties in meeting its financial commitments. 25X1
/Sudan's IMF The IMF's qualified endorsement of Khartoum's recent economic package
Agreement improved Sudan's near-term financial outlook, but entails several politically 25X1
1' r- h d f d d'
f
l
exp olive re r ms. a memoran u. o un erstan ing is not a
orma
agreement but should permit disbursement of foreign bilateral and multilater-
al assistance largely suspended since Sudan fell into arrears on its IMF
standby arrangement in mid-1984. Resumption of this funding, worth over
$400 million annually, would allow at least partial repayment of IMF arrears
and substantially ease the critical foreign exchange shortage. Khartoum's
reform program includes a 48-percent official devaluation, a 66-percent
increase in gasoline prices, and a 30-percent increase in the price of bread. The
bread price increase has sparked violent rioting throughout the Khartoum area
that could lead the Nimeiri regime to backpedal on some price increases,
thereby jeopardizing the IMF accord.
Mauritanian ebt Mauritania has signed a letter of intent with the IMF for a standby loan for
Ne o ' ns 1985. Conclusion of the agreement, however, requires that Nouakchott close
the $160 million foreign payments gap expected this year; the government is
marshaling support from Arab and Western donors. In addition, Mauritania
has requested a Paris Club rescheduling of its estimated $1.6 billion foreign
debt. Over $210 million is due this year-85 percent to Arab creditors.
Drought and weak markets for Mauritania's primary exports-fish and iron
ore-however, sharply limit Nouakchott's ability to improve its finances.
27 Secret
29 March 1985
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'ecord South
merican
Soybean Crops
y
Brazil, Argentina, and Paraguay will have record-breaking 1985 soybean
harvests totaling 23-24 million tons,
South American exports have jumped 60 percent.
Record crops this year are the result of expanded plantings, high-yield seed,
and opportune late season rains. With favorable export tax incentives and
aggressive marketing, large quantities of South American soybeans will be
competing with US soybeans in export markets, especially in the EC and
Eastern Europe. The strong dollar will make foreign producers even more
competitive. US soybean exports are down 22 percent from 1983 levels; and
ubber Producers' Members of the Association of Natural Rubber Producing Countries
Negotiating Position (ANRPC)-Malaysia, Thailand, Indonesia, Sri Lanka, India, and Singa-
pore-met last week to discuss their negotiating position on the international
Natural Rubber Agreement (INRA), which expires in October. Producer-
consumer meetings are scheduled to begin next week. Although higher prices
will be the key issue for producers, a senior Thai delegate reported that
members will also agree to the US request for discussions about supplies at the
April meetings. Malaysia-which accounts for about half of world natural
rubber production-had been an outspoken opponent of the US position on
supply guarantees. ANRPC members also agreed to seek a two-year renewal
of the current agreement-the maximum permitted.
`est German-Soviet Chancellor Kohl said last week that he is "favorably disposed" toward a
proposal to establish a Baltic rail ferry between either Kiel or Luebeck in West
Germany and Klaipeda in the Soviet Union. A decision could come as early as
next week. Officials of the coastal states of Hamburg, Bremen, and Schleswig-
Holstein see economic benefits from the project and are the main supporters of
the idea.
The Soviets have
been pressing for such a link for several years, probably as an alternative to
costly rail transport through Eastern Europe. Bonn expects a guarantee of at
elgium Continues
Austerity Program
Secret
29 March 1985
least 51-percent West German ownership.
National Developments
Developed Countries
Prime Minister Martens has proposed new spending cuts for 1985 to 'allow the
government to meet its original target of reducing the budget deficit to 10.4
percent of GNP. The $420 million decrease will come mainly in social
expenditures, including unemployment-related early pensions, and sick pay for
public servants. The government also is hoping for a smaller increase in its
contribution to the EC. Despite those- deficit reduction targets, Martens
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Global and Regional Developments
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Secret
announced a four-year tax cut to begin in the 1986 budget-welcome news to
supporters facing election later this year. More difficult bargaining between
Social Christian and Liberal coalition partners will be required on next year's
eek Foreign Pay-
ments Deteriorated
Further in 1984
budget, which will be presented in June.
The deterioration in Greece's foreign payments position last year increases the
possibility that Athens will need to seek official assistance in 1986 if present
economic policies are continued. The current account deficit grew 16 percent
to $2.2 billion, or 6.7 percent of GNP, up from $1.9 billion or 5.3 percent of
GNP in 1983. The trade deficit declined slightly, but invisibles fell for the
fourth consecutive year-mainly because of a sharp fall in shipping receipts,
interest payments on a growing foreign debt, and a drop in net EC subsidies.
The poor external performance necessitated official borrowing of $2.2 billion,
up from $1.9 billion in 1983. Foreign debt, including military debt, now totals
$14 billion and.debt service likely will reach 25 percent of current account
earnings this year. The Bank of Greece, however, was still able to negotiate a
$450 million syndicated loan on favorable terms probably because the
participating banks wanted to protect their heavy exposure in Greece.
announced another austere budget for the fiscal year beginning 1 April 1985.
South Africa's fiscal management has suffered in recent years from, serious
overspending, particularly for defense, and overly optimistic revenue projec-
tions. Spending is set to rise by 13.9 percent-compared with current 16-
percent inflation. Revenues are projected to increase by 18.8 percent-about
one-third from higher taxes, including a 2-percentage-point increase in both
sales taxes and the income tax surcharge. The anticipated $1.3 billion deficit
before borrowing represents 2.2 percent of GDP, well below the 3-percent IMF
J k - '' " guideline under the standby agreement.
stralian Strike
Laws Strengthened-
Last Friday the state of Queensland passed unprecedented legislation outlaw-
ing industrial disputes in the electrical industry, requiring workers to sign no-
strike contracts and subjecting strikers to suspensions and heavy fines. A
February strike by the Electrical Trades' Union caused 15 days of statewide
power outages,, closed Queensland ports, and cost businesses approximately
$420 million, according to the US Consulate in Brisbane. Although public
opinion is solidly behind the government; union officials have threatened
sporadic strikes.to cut state revenues. The umbrella Australian Council of
Trade Unions has given Queensland unions the go-ahead in their campaign
against the state's National Party government undoubtedly because it fears
the spread of strike-limiting legislation.
29 Secret
29 March 1985
uth African Budget To fight persistent double-digit inflation and restore credibility, Pretoria has
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Less Developed Countries
xplosion at Iraqi
Bank Headquarters
luminum Smelter in
Algerian Land Reform
An explosion heavily damaged central bank" headquarters on 14 March,
producing, temporary confusion throughout the Iraqi banking system. The US
Embassy reports foreign businessmen are having trouble obtaining foreign
exchange transfers, and several embassies have encountered difficulties mak-
ing deposits or withdrawals: Key records may have been destroyed, but no
workers were harmed in the afterhours blast, and bank activity is slowly
returning to normal. Additional restrictions on issuing letters of credit will
continue for at least a short time, and foreign worker remittances will be
snarled.
According to Embassy reporting, the Aluminum Company of America is
considering building a smelter in Saudi Arabia, as a joint venture with Saudi
industry and government. This would continue the trend of locating aluminum
smelting near low-cost energy sources; since 1980 aluminum smelting capacity
in the Persian Gulf region has increased more than 40 percent. Although these
countries account for a small share of total world aluminum capacity at
present, low-cost energy supplies assure their growing importance, putting
increased pressure on high-cost Western producers. US primary aluminum
capacity has, for example, remained at the 5-million-ton level since 1980 and
nearly one-fifth of this capacity is idle.
The Algerian Government has offered free state land to small farmers around
Algiers probably as a trial balloon to help raise production through conversion
of collective farms to private ownership. The US Embassy says that response
has been mixed because the government will' retain control over crop choice
and marketing. The 1985-89 plan stresses development of agriculture and
water resources and, especially the land reform program, is a major break with
past emphasis on industry and reflects Bendjedid's growing ability to guide the
economy over the opposition of remaining socialist hardliners.
Algerian Price
Increases
Prices for bread and other subsidized goods have been raised 12 to 17 percent
by Algiers-the sharpest increase in recent. years and probably the beginning
of a broader campaign to contain foreign borrowing needs and stimulate
domestic agricultural production: The rising. subsidy burden consumed almost
$400 million-5 percent-of budget revenues in, 1984. The new price adjust-
ments will trim $50 million from the subsidy bill this year. Algeria's pervasive
security forces and the limited expectations of most Algerians have helped
control discontent so; far, but tighter austerity increases the likelihood of unrest
especially in urban areas.
Secret
29 March 1985
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criticizing Finance Minister Prawiro for his weak leadership and ineptness in
introducing a new value-added tax. They are also watching Prawiro's moves to
clean up the notoriously corrupt Customs Service, a task not helped by his rep-
utation for dishonesty. One Embassy source said that longtime Soeharto aide,
Sudharmono, will head a newly created structure overseeing domestic politics.
Sudharmono's son-in-law, Ginandjar Kartasasmita, who was recently named
to head the Capital Investment Coordinating Board, would combine oversight
of foreign and domestic investment with his other duties involving the
promotion of domestic products. Such moves would continue the economic
housecleaning by President Soeharto who, in the past several months, has
replaced the leadership of the state oil company, the national airline, the
investment coordinating board, and the Customs Service. 25X1
31 Secret
29 March 1985
Nicar an Coffee
H est Falls
hort of Goal
- last fall based on the government's optimistic production estimate.F 125X1
-below export quality because of the overextended harvest period. Managua
will likely be forced to purchase coffee on world markets to satisfy contracts let
Despite President Ortega's claims to the contrary, Nicaraguan coffee export
revenues will be $50-100 million below Managua's target according to the US
Embassy. Private-sector growers estimate that the December-March harvest
will fall about 400,000 quintals short of the 1.2-million-quintal goal.,They
have told US officials that, despite a bumper crop, the harvest was down
because of the use of inexperienced workers, Contra activities, and the threat
to pickers of military impressment. Moreover, at least 20 percent of the crop is 25X1
Uruguay's New President Sanguinetti's reliance on market-oriented officials probably signifies
Economic Team: ? pursuit of coherent stabilization policies rather than quick economic fixes.
We judge this will allow the new Central Bank President, Ricardo Pascale, to
pursue a tight monetary. policy to fight inflation and maintain export
competitiveness. With these policies, Uruguay will probably be able to
reconcile with the IMF and reach agreement with its creditors to ease external
constraints on growth. F1 _ 25X1
Foreign Affairs Minister Enrique Iglesias is entrusted with international
economic policy and will likely play the major role in debt negotiations with 25X1
the IMF and commercial banks. Although he is a vocal supporter of political
dialogue with creditors, US Embassy officials indicate he opposes a debtors'
cartel. Finance and Economy Minister Ricardo Zerbino, a free market
economist, will probably support exchange rate adjustments to stimulate
export-led growth, cuts in government spending, and improved tax collection.
The US Embassy reports an upsurge in rumors of leadership shifts as the 25X1
Rum ed in Jakarta Soeharto government begins a new fiscal year next Monday. Local bankers are
Cabinet C anges
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harp Drop in Soviet
Ordersfor Western
Machinery and
Equipment
go Trade Through
hailand Drops
Sharply
Soviet orders of Western machinery and equipment totaled only $1.1-billion in
1984-the lowest in more than a decade and one-half the 1983 level. Leading
the decline was a precipitous drop (from $1.6 billion in 1983 to about $295 mil-
lion ' last year) in new orders for the-oil and gas, chemical, and metallurgy in-
dustries. Only partially offsetting this decline was a near doubling of orders for
the transportation sector (from $213 million in 1983 to $387 million in 1984)
and a slight rise in new contract commitments for the consumer goods sector.
As in recent years, the lion's share went to Western Europe ($731 million) and
Japan ($251 million). US firms, in contrast, took only about 6 percent ($70 mil-
lion) of the total, reflecting Soviet efforts since the imposition of Western
sanctions to become less dependent on US machinery and equipment. Despite
last year's poor showing, we expect the pace of contracts placed in the West to
pick up somewhat as the Soviets embark on their 12th Five-Year Plan.
on transshipment through Thailand.)
Vietnam is apparently succeeding inits attempt to divert Laos from its
dependence on Thailand as a conduit and market for foreign trade. According
to a World Bank economist, the share of Lao import tonnage transiting
Vietnam increased from one-fifth in 1982 to two-thirds in 1985, and Lao
commodities are increasingly exported through Vietnam including all Lao
gypsum and tin ore for smelting in the Soviet Union. Wood-Vientiane's
primary. export-is now exported chiefly as logs to Vietnam because Lao
sawmills have failed to meet standards for the. Hong Kong and Japanese
markets. Although unofficial border trade with Thailand will probably
continue, we expect the upgrading of road links and the construction of an ad-
ditional oil pipline connecting Laos and Vietnam to further reduce dependence
Secret
29 March 1985
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