Trade Around the World

Trade in South Korea

2012-03-12T01:18:00.000-07:00

COUNTRY

Mosjeed South Korea

Formal Name: Republic of Korea.
Short Form: South Korea.
Term for Citizens: Korean(s).
Capital: Seoul.
Date of Independence: August 15, 1948.

GEOGRAPHY

South Korea in map

Location and Size: Strategic location in waters of the Sea of Japan, Korea Strait, and Yellow Sea. Total land area of Korean Peninsula, including islands, 220,847 square kilometers; approximately 98,477 square kilometers (44.6 percent) constitutes territory of South Korea.
Land Boundary: 238 kilometers with North Korea.
Disputes: Demarcation Line with North Korea; Liancourt Rocks claimed by Japan.
Topography and Drainage: Approximately 70 percent of land area mountains and uplands. Principal ranges--T'aebaek and Sobaek range and Chiri Massif. Tallest mountain--Mount Halla at 1,950 meters, a volcanic cone located on Cheju Island. Longest rivers--Naktong River, 521 kilometers; Han River, which flows through Seoul, 514 kilometers; and Kom River, 401 kilometers.
Climate: Long, cold, dry winters; short, hot, humid summers with late monsoon rains, flooding. Seoul's January mean temperature -5° C to -2.5° C; July, 22.5° C to 25° C. Cheju Island warmer, milder weather than other parts of South Korea. Annual rainfall varies from year to year but usually averages more than 100 centimeters; two-thirds of precipitation falls between June and September. Droughts, particularly in southwest; approximately one every eight years.

ECONOMY

General Character: Export oriented although domestic market increasing source of growth in late 1980s; real growth 12.5 percent 1986-88; 6.5 percent, 1989. Dominated by chaebol, or business conglomerates. Most industries, except mining, in urban areas of northwest and southeast. Heavy industry generally in south. World's tenth largest steel producer in 1989. Major electronics producer. Automobiles and automotive parts major domestic growth and export industry of 1980s. Armaments also manufactured for domestic use and export. Construction critical source of foreign currency and invisible export earnings. Textiles, clothing, and leather products important. Growing labor movement affects production and costs.
Gross National Product (GNP): In 1989 US$204 billion, US$4,830 per capita, 6.5 percent annual growth rate.
Gross Domestic Product (GDP): US$211.9 billion at market prices, 1989; real annual growth 6.1 percent. Average growth 6.1 percent 1986-90; high, 12.4 percent in 1986; low, 6.1 percent in 1989.
Industry: Main growth sector, produced 46 percent of GDP and employed 35 percent of work force in 1988.

Trade flow of South Korea

Resources: Peninsula has minimal resources. Mineral deposits mostly small, except for tungsten. Anthracite coal most important mineral product by volume and value, but also imported. Most energy needs met by nuclear power, coal, and crude petroleum imports.
Agriculture, Forestry, and Fishing: Employed approximately 21 percent of work force in 1989; generated 10.2 percent of GDP. Relative importance declining since mid-1960s; production grew 5.9 percent in first half of 1989. Major crops rice and barley, also millet, corn, sorghum, buckwheat, soybeans, and potatoes. Fishery products popular food and important export commodity. Inadequate forestry resources.
Foreign Trade: Annual trade in 1988 more than US$100 billion; first time world's tenth largest trading nation. Major trading partners United States and Japan. Main exports textiles, clothing, electronic and electrical equipment, footwear, machinery, steel, ships, automobiles and automotive parts, rubber tires and tubes, plywood, and fishery products. Main imports machinery, electronics and electronic equipment, petroleum and petroleum products, steel, grains, transport equipment, raw materials, chemicals, machinery, timber and pulp, raw cotton, and cereals. Balance of payments affected by oil imports and raw materials needs; surplus of US$4.6 billion in 1989, but deficit of US$1.9 billion, 1990.
Currency and Exchange Rate: January 1990, US$1=683.4 won (W).
Fiscal Year: January 1 through December 31.

FOREIGN ECONOMIC RELATIONS

Exports were the key to South Korea's industrial expansion. Until 1986 the value of imports was greater than exports. This situation was reversed, however, in 1986 when South Korea registered a favorable balance of trade of US$4.2 billion. By 1988 the favorable balance had grown to US$11.4 billion. Financing this persistent, although not unexpected, gap between domestic and imported resources was a principal concern for economic planners. In the 1950s and 1960s, much of the trade deficit was financed by foreign aid funds, but in the last two decades, borrowing from and investment in international capital markets have almost completely substituted for economic aid.

Aid, Loans, and Investment

Foreign economic assistance was essential to the country's recovery from the Korean War in the 1950s and to economic growth in the 1960s because it saved Seoul from having to devote scarce foreign exchange to the import of food and other necessary goods, such as cement. It also freed South Korea from the burden of heavy international debts during the initial phase of growth and enabled the government to allocate credit in accordance with planning goals. From 1953 to 1974, when grant assistance dwindled to a negligible amount, the nation received some US$4 billion of grant aid. About US$3 billion was received before 1968, forming an average of 60 percent of all investment in South Korea. As Park's policies took effect, however, the dependence on foreign grant assistance lessened. During the 1966-74 period, foreign assistance constituted about 4.5 percent of GNP and less than 20 percent of all investment. Before 1965 the United States was the largest single aid contributor, but thereafter Japan and other international sponsors played an increasingly important role.

Apart from grant assistance, other forms of aid were offered; after 1963 South Korea received foreign capital mainly in the form of loans at concessionary rates of interest. According to government sources, between 1964 and 1974 such loans averaged about 6.5 percent of all foreign borrowing. Other data suggested a much higher figure; it seemed that most loans to the government were concessional, at least through the early 1970s. International Monetary Fund data showed that imports financed through such means as foreign export-import loans with reduced rates of interest totaled 11.6 percent of all imports from 1975 to 1979. The aid component of these loans was only a fraction of their total value.
During the mid-1960s, South Korea's economy grew so rapidly that the United States decided to phase out its aid program to Seoul. South Korea became increasingly integrated into the international capital market; from the late 1960s to the mid- 1980s, development was financed with a series of foreign loans, two-thirds of which came from private banks and suppliers' credits. Total external debt grew to a high of US$46.7 billion in 1985. Positive trade balances in the late 1980s led to a rapid decline in foreign debt--from US$35.6 billion in 1987 to an expected US$23 billion by 1991. Account surpluses in 1990 were expected to enable Seoul to reduce its foreign debt from its 1987 level of about 28 percent of GNP to about l0 percent by 1991.
United States assistance ended in the early 1970s, from which time South Korea had to meet its need for capital investment on the competitive international market and, increasingly, from domestic accounts. The government and private industry received funds through commercial banks, the World Bank, and other foreign government agencies. In the mid-1980s, total direct foreign equity investment in South Korea was well over US$1 billion.
The fact that South Korea was so dependent on foreign trade made it very vulnerable to international market fluctuations. The rapid growth of South Korea's domestic market in the late 1980s, however, began to reduce that dependence. For example, a dramatic rise in domestic demand for automobiles in 1989 more than compensated for a sharp drop in exports. Furthermore, while Seoul's huge foreign debt left it vulnerable to changes in the availability of foreign funds and in international interest rates, Seoul's economic and debt management strategy was very effective.
The South Korea's philosophy concerning direct foreign investment had undergone several major changes tied to the changing political environment. Foreign investment was not allowed through the 1950s. In 1962 the Foreign Capital Inducement Act established tax holidays, equal treatment with domestic firms, and guarantees of profit remittances and withdrawal of principal. Despite the provisions of the act, there was little foreign investment activity until after the establishment of diplomatic relations between South Korea and Japan in 1965.
Seoul had to mobilize both external and internal sources when it launched its First Five-Year Economic Development Plan in 1962. The Foreign Capital Inducement Act was amended in 1966 to encourage a greater inflow of foreign capital to make up for insufficient domestic savings. A rapid inflow of investment followed until 1973, when the act was changed to restrict the flow of investments. Beginning in the late 1970s, however, the government gradually began to remove restrictions as domestic industries began to grow and needed to be strengthened to cope with international competition. But until the early 1980s, South Korea relied heavily on borrowing and maintained a somewhat restrictive policy towards foreign direct investment.

Donald S. Macdonald has pointed out that under the liberalization policy, restrictions on foreign direct investment were eased in 1984 and 1985. Seoul changed its control policy on foreign investment from a "positive list" to a "negative list" basis, which meant that any activity not specifically restricted or prohibited was open to investment. An automatic approval system was introduced under which all projects meeting certain requirements were to be immediately and automatically approved by the Ministry of Finance.
Seoul twice revised the negative list system after its initial introduction--first in September 1985 and again in April 1987--to open more industrial sectors to foreign investors. In 1984 there were 339 items, or 34 percent of the 999 items on the Korean Standard Industrial Classification, on the negative list. As of July 1987, there were 788 industrial sectors open to foreign investment. In the manufacturing sector, 97.5 percent of all industries (509 out of 522) were open to foreign investment.
In December 1987, Seoul announced a policy to liberalize the domestic capital market by 1992. The program called for liberalizing foreigners' investment funds, offering domestic enterprises rights on overseas stock markets, and consolidating fair transaction orders. Seoul planned to allow direct foreign investment in its stock market in 1992.
Of the total direct investment in South Korea from 1962 to 1986, which amounted to US$3.631 billion, Japan accounted for 52.2 percent and the United States for 29.6 percent. In 1987 Japan invested US$494 million, or 47 percent of the total foreign investment of US$1.1 billion. Japan invested mainly in hotels and tourism, followed by the electric and electronics sector. Direct investment from the United States showed a remarkable increase since the early 1980s, accounting for 54.4 percent of the 1982-86 total investment. The United States invested a total of about US$255 million, or approximately 24 percent of the 1987 investment. Cumulative United States investment was about US$1.4 billion by 1988.
There was a dramatic rise in foreign investment in the late 1980s. Approvals of foreign equity investments reached an all- time high of US$1.283 billion in 1988, a 21 percent increase over 1987. As in previous years, approvals for Japanese investments were the dominant factor; they totaled US$696 million (up 41 percent from 1987), followed by United States investors with US$284 million (up 11 percent), and West European sources, US$240 million (up 14 percent). Investment approvals in the service sector doubled in 1988 to US$561 million, which included two large Japanese hotel projects totaling US$344 million. Investment approvals in the manufacturing sector, however, declined from US$775 million in 1987 to US$710 million in 1988.
South Koreans began investing abroad in the 1980s. Before 1967 there was virtually no South Korean investment overseas, but thereafter there was a slow growth because of Seoul's need to develop export markets and procure natural resources abroad. In the 1970s, South Koreans invested in trading, manufacturing, forestry, and construction industries. By the early 1980s, a sharp reduction in development projects in the Middle East led to a decline in South Korean investment there. Mining and manufacturing investments continued to grow throughout the decade. In 1987, out of a total South Korean overseas investment of US$1,195 million (745 projects), US$574 million was invested in developed countries and the remaining US$621 was invested in developing countries.
One of the most noticeable economic achievements in the 1980s was Seoul's reversal of the balance of payments deficit to a surplus. This improvement was largely attributable to strong overseas demand for South Korean products and to the reduction in expenditures for oil imports. In addition, the "invisible" trade account (monies from tourism and funds sent home by nationals) had improved considerably in the late 1980s because of temporary increases in revenue from tourism, receipts from overseas construction, and structural decreases in interest payments.
South Korea's success in achieving a balance of payments surplus, however, was not without some drawbacks. It led to harsh trade disputes with the United States and other developed nations, as well as to inflationary pressures. To cope with these problems, Seoul had to modify its enthusiastic promotion of exports in favor of a policy restraining trade surpluses within reasonable limits.
An important measure restraining the growing foreign trade imbalance between South Korea and the United States was Seoul's decision to revalue the won against the United States dollar. A stronger won made American imports cheaper, increased the cost of South Korean exports to the United States, and slowed, but did not reverse, the growth in the South Korea-United States trade deficit as of 1989. The United States pressed for further appreciation of the won in 1989. In April 1989, the United States Department of the Treasury accused South Korea of continued "manipulation" of the South Korean currency to retain an artificial trade advantage. South Korean officials and businesspeople, however, complained that the already rapid appreciation of the won was slowing economic growth and threatening exports. In May 1989, South Korea avoided being called an unfair trader by the United States and forestalled possible United States trade sanctions, but the nation paid a high price by promising to open up its agricultural market, ease investment by foreigners, and remove many import restrictions.

Foreign Trade Policy

Seoul stated in 1987 that its foreign trade policy was structured for further expansion, liberalization, and diversification. Because of the paucity of natural resources and traditionally small domestic market, South Korea has had to rely heavily on international trade as a major source of development. Seoul also sought to diversify trading partners to ease dependence on a few specific markets and to remedy imbalances in the present tendency to bilateral trade.

Exports and Imports

The rapid growth of South Korea's economy in the late 1980s led to significant increases in exports and imports. In the wake of the 1988 Seoul Olympics, South Korea's trade surplus exceeded US$11 billion and foreign exchange revenue had increased sharply. Seoul's trade with communist countries surged in 1988. Trade with Eastern Europe was US$215 million, trade with China almost US$1.8 billion, and trade with the Soviet Union US$204 million.
In 1989 total exports grew to US$74.29 billion, and imports totaled US$67.21 billion. South Korea's annual trade exceeded US$100 billion for the first time in 1988, making it the world's tenth largest trading nation.
During the 1960s and early 1970s, the commodity structure of Seoul's principal exports changed from the production of primary goods to the production of light industrial goods. After 1974 there was a rapid expansion in the production and export of heavy industrial and chemical products. By 1986 the share of heavy industrial and chemical products in total exports had expanded to 55.5 percent (as compared to 18.9 percent in 1980) whereas the share of light industrial products had shrunk to 40.9 percent (as compared to 71.1 percent in 1980).
South Korea had depended greatly on the United States and Japan as its major trading partners, with 75.6 percent of all exports going to these markets in 1970. Success at diversifying export markets led to a reduction in the United States-Japan export market share to 55.6 percent in 1986. The Middle East accounted for 12 percent of South Korea's export trade from 1972 to 1977, but its share declined to 5.2 percent in 1986 because of the collapse of the construction boom in the Middle East and the Iran-Iraq war (1980-88). Exports to Western Europe declined from 18.8 percent in 1979 to 15 percent in 1986. Exports to developing areas, such as Latin America (0.8 percent in 1972; 3.6 percent in 1986) and Oceania (0.9 percent in 1972; 1.4 percent in 1986), grew.

Indirect Seoul-Moscow trade was estimated at about US$20 million in 1978, with Moscow importing electronics, textiles, and machinery and exporting coal and timber. By the late 1980s, South Korea's global fur trader, Jindo, was expected to produce US$20 million worth of fur garments annually in a joint venture with the Soviet Ministry of Light Industry. South Korean businesspeople were offered such Soviet products as instruments for nuclear engineering and technology for processing mineral ores and concentrates. In the first ten months of 1989, bilateral trade between Seoul and Moscow reportedly increased 156 percent from 1988 figures to US$432 million.
Since the early 1960s, the structural pattern of imports had shown changes, particularly in the relatively decreasing share of imported consumer goods and the accelerated growth of industrial supplies and capital equipment imports. The share of consumer goods imported in 1962 was 24.1 percent of total imports; this share declined to 9.8 percent of total imports in 1986 because of increased South Korean production of these goods for the domestic market. The declining share of raw materials as a percentage of imports during the early 1970s was reversed in 1974 because of the increased value of oil imports (caused by the 1973 war in the Middle East). By 1979 crude oil was 25 percent of South Korea's total import requirements. This figure dropped to 8.4 percent in 1988 because of the use of other sources of energy and the decline in the price of petroleum in the late 1980s.
South Korean exports to the United States in 1988 rose to US$21.5 billion, a 17-percent increase over 1987; imports rose to US$12.8 billion, a 46-percent increase over the 1987 level. The percentage of total South Korean exports destined for the United States market decreased to 35.3 percent in 1988 from 38.7 percent in 1987. At the same time, the United States' share of total South Korean imports rose to 24.6 percent, up from 21.4 percent in 1987. By 1988 Seoul's favorable balance had grown to more than US$8.7 billion.
In 1989 imports rose to US$57 billion (up 18 percent from 1988) whereas exports reached US$61 billion, a 2-percent increase from 1988. The trade surplus was reduced from US$11.5 billion to US$4.3 billion and was projected to decline even more. Invisible receipts rose 10 percent, but payments, mainly reflecting a big increase in South Korean travel abroad, were up 20 percent. Thus, the surplus on invisible trade was reduced from US$1.3 billion to US$400 million.

The Economic Future

The Korea Development Institute also forecasted in 1988 that South Korea's per capita GNP would exceed US$10,000 early in the twenty-first century. The institute predicted that Seoul would enjoy a higher sustained growth rate than average through the 1990s; that the manufacturing industry would play a pivotal role in the economy in the twenty-first century; and that the service industry would become knowledge-intensive in order to meet the needs of a highly diversified industrialized society. The share of the primary sector (agriculture, forestry, and fisheries) would sink to nearly 5 percent by the turn of the century, whereas the secondary sector (industry) would rise to over 40 percent and the service sector would be at about 55 percent. Major areas of industrial growth would include automobiles, electronics, and machinery.
In 1988 Kim Duk-choong of Sogang University listed five main points that were expected to make the "Korean economic future look bright." He noted that South Korea had drastically reduced its foreign debts since 1985, greatly increased the rate of domestic savings, improved on the equitable distribution of income throughout the population, increased the role of small and medium-sized corporations in the economy, and made the transition from a labor-oriented to a technology-oriented economy. He expected that these positive economic developments would easily outweigh existing problems and lead to real growth in years to come.
Kim's optimism had merit, but there were other important issues that could inhibit economic growth, for example, rising protectionist sentiments in the United States, Japan, and elsewhere. Another problem was the fact that the chaebol tended to restrict subcontracting and to keep as much production as possible inhouse, which meant that the smaller industries and businesses, which bore the brunt of slowdowns in Japan, would not be able to act as shock absorbers. Moreover, as South Korea moved up the technological ladder, it would face stiff competition from advanced nations like Japan and up-and-coming nations like Thailand. There also was the intangible problem of the resolve of South Korea's workers, who labored six days a week with little vacation time. What effect would a slackening of resolve have on the South Korean worker by the 2000? In general, the future of South Korea's economy looked very bright, but there were enough intangibles to make accurate predictions difficult at best.

South Korea trade center

There are numerous excellent works on the South Korean economy that offer a variety of perspectives. Historical studies charting the nation's colonial and modernization periods include Andrew C. Nahm's Korea under Japanese Colonial Rule and Ramon H. Myers' and Mark R. Peattie's The Japanese Colonial Empire, l895-1945. Donald S. Mcdonald's The Koreans provides information on the Korean economy from colonial times through contemporary society. Among the general works on the postwar economy are David I. Steinberg's South Korea's Economy and Chaebol, Han Sung-joo's and Robert Myers's Korea, Edward S. Mason et al.'s The Economic and Social Modernization of Korea, Jene K. Kwon's, Korean Economic Development, G. Cameron Hurst III's Korea 1988, Alice H. Amsden's Asia Next Giant, David S. Bell, Jr.'s, Bun Woong Kim's, and Chong Bun Lee's Administrative Dynamics and Development, Karl Maskowitz's From Patron to Partner, and The Rise of the Korean Economy by Byung-Nak Song.
Opposition groups' views of the South Korean economy are best expressed in Minjungsa's Lost Victory. The Far Eastern Economic Review publishes frequent articles on the economy, as does Asian Survey. For a South Korean perspective on the economy, articles in the English-language Korea Newsreview and the various publications of the Korean Economic Institute in Washington are valuable.

FINANCING DEVELOPMENT

Financing South Korea's economic development in the 1990s was expected to differ from previous decades in two main respects: greater reliance on domestic sources and more emphasis on equity relative to debt. Beginning in the 1960s, foreign credit was used to finance development, but the amount of foreign debt had decreased since the mid-1980s. According to the Sixth Five-Year Economic and Social Development Plan (1987-91), an average annual growth rate of 8 percent was expected, together with account surpluses of about US$5 billion a year through 1991.
To realize these growth targets, South Koreans needed the gross domestic savings rate to exceed the domestic investment rate; additionally, they needed the financing of future economic growth to come entirely from domestic sources. Such a situation would involve reducing foreign debt by US$2 billion a year; and South Korea would become a net creditor nation in the mid-1990s. Through the promotion and reform of the securities markets, especially the stock market, and increased foreign investment, the sixth plan encouraged the diversification of sources and types of corporate finance, especially equity finance.
Domestic savings were very low before the mid-1960s, equivalent to less than 2 percent of GNP in the 1960 to 1962 period. The savings rate jumped to l0 percent between 1970 and 1972 when banks began offering depositors rates of 20 percent or more on savings accounts. This situation allowed banks to compete effectively for deposits with unorganized money markets that had previously offered higher rates than the banks. The savings rate increased to 16.8 percent of GNP in 1975 and 28 percent in 1979, but temporarily plunged to 20.8 percent in 1980 because of the oil price rise. After 1980, as incomes rose, so did the savings rate. The surge of the savings rate to 36.3 percent in 1987 and 35.8 percent in 1989 reflected the sharp growth of GNP in the 1980s. The prospects for continued high rates of saving were associated with continued high GNP growth, which nevertheless declined to 6.5 percent in 1989.
According to Donald S. Macdonald, through the early 1980s funds for investment came primarily from bilateral government loans (mainly from the United States and Japan), international lending organizations, and commercial banks. In the late 1980s, however, domestic savings accounted for two-thirds or more of total investment.

Throughout the 1980s, the financial sector underwent significant expansion, diversification of products and services, and structural changes brought about by economic liberalization policies. As noted by Park Yung-chul, financial liberalization eased interest ceilings. Deregulation increased competition in financial markets, which in turn accelerated product diversification. In the early 1980s, securities companies were permitted to sell securities through a repurchase agreement. By 1985 banks also were allowed to engage in the repurchase agreements of government and public bonds. In 1981 finance and investment corporations started dealing in large-denomination commercial paper. The new form of commercial paper was issued in minimum denominations of 10 million won, compared to the previous minimum value for commercial paper of 1 million won.
In order to extend their ability to raise cash, investment and finance companies introduced a new cash-management account with a 4 million won minimum deposit in 1983. Investment and finance corporations managed client funds by investing them in commercial paper corporate bonds and certificates of deposit. Money-deposit banks in the mid-1980s began offering similar accounts, known as household money-in-trust. Trust business formerly had been the exclusive domain of the Bank of Seoul and Trust Company; however, after 1983 all money-deposit banks were authorized to offer trust services.
The financial system underwent two major structural changes in the late 1970s and 1980s. First, money-deposit banks saw a sustained erosion of their once-dominant market position (from 80 percent in the 1970 to 1974 period to 55 percent by 1984). One reason for this decline was that in the 1970s nonbank financial intermediaries, such as investment trust corporations, finance companies, and merchant banking corporations, were given preferential treatment. Further, because the costs of intermediation at these nonbank financial institutions were lower than at banks (with their many branches nationwide and their multitudes of small savers and borrowers), their cost advantages and higher lending rates allowed them a larger market share.
The second structural change was the rapid increase of commercial paper and corporate debenture markets. Another development was the steady growth of investment trust corporations in the 1980s.
Because of the introduction of tax and financing incentives by the government that encouraged companies to list their shares on the stock market, the Korean Stock Exchange grew rapidly in the late 1980s. In 1987 more than 350 companies were listed on the exchange. There was an average daily trading volume of 10 million shares, with a turnover ratio of 80 percent. In 1989 the stock market was tarnished by accusations of insider trading among the five major South Korean securities firms. The Securities and Exchange Commission launched an investigation in late 1989. The popular index of the market soared to a high of 1,007.77 points on April 1, 1989, but plunged back to the 800s in late 1989 and early 1990.
Business financing was obtained primarily through bank loans or borrowing on the informal and high-interest "curb market" of private lenders. The curb market served individuals who needed cash urgently, less reputable businesspeople who engaged in speculation, and the multitudes of smaller companies that needed operating funds but could not procure bank financing. The loans they received, often in exchange for weak collateral, had very high interest rates. The curb market played a critical role in the 1960s and 1970s in pumping money into the economy and in assisting the growth of smaller corporations. The curb market continued to exist, along with the formal banking system, through the 1980s.

Trade in Romania

2012-03-10T22:25:00.000-08:00

Romania

Beautiful floating Mosjeed of Romania

Formal Name: Socialist Republic of Romania.
Short Form: Romania.
Term for Citizens: Romanians.
Capital: Bucharest.

GEOGRAPHY

Romania in map

Area: 237,499 square kilometers.
Topography: Almost evenly divided among hills, mountains, and plains; mountains dominate center and northwest; plains cover south and east. Highest point, 2,544 meters.
Climate: Transitional from temperate in southwest to continental in northeast. Average annual precipitation, 637 millimeters.

SOCIETY

Population: 23,153,475 (July 1989); average annual growth rate 0.44 percent.
Ethnic Groups: 89.1 percent Romanian, 7.8 percent Hungarian, 1.5 percent German, 1.6 percent Ukrainian, Serb, Croat, Russian, Turk, and Gypsy.
Language: Romanian spoken in all regions; Hungarian and German commonly used in Transylvania and Banat. Systematic discrimination against minority languages.
Education: Mandatory attendance, ten years; literacy, 98 percent. Highly centralized. Marxist ideology and nationalistic values stressed at all levels. In 1980s technical and vocational education emphasized.
Religion: About 70 percent Romanian Orthodox, 6 percent Uniate, 6 percent Roman Catholic, 6 percent Protestant, 12 percent unaffiliated or other.
Health and Welfare: Free health care provided by state. Most serious health threats cancer, cardiovascular disease, alcoholism. Infant mortality rate, 25 per 1,000 live births (1989). In 1989 life expectancy for men 67.0 and for women 72.6 years. Pensions inadequate; health care for elderly generally poor. Rural areas neglected.

ECONOMY

Industry in Romania

Gross National Product: US$151.3 billion (1988), US$6,570 per capita, with 2.1 percent growth rate. Industry accounts for 52.7 percent, agriculture 14.9 percent, other sectors 32.4 percent (1987).
Administration: Extremely centralized, directed by communist party. Detailed economic planning. State ownership of most fixed assets.
Fuels and Energy: Once extensive oil and gas reserves nearing depletion. Increasing dependence on imported fuels. Coal reserves large but of poor quality. Coking coal reserves inadequate. Significant hydroelectric potential under development. Nuclear power program lagging badly.
Minerals: Deposits of ferrous and nonferrous ores, salt, gypsum. Increasingly dependent on imported iron ore.
Foreign Trade: Split almost evenly between socialist and nonsocialist countries. Large surpluses run during 1980s to repay foreign debt. Major exports metallurgical products, machinery, refined oil products, chemical fertilizers, processed wood products, agricultural commodities. Major imports crude oil, natural gas, iron ore, machinery and equipment, chemicals, foodstuffs.
Industry: Fuels production and processing, metallurgy, chemicals, machine building, forestry, food processing, textiles.
Agriculture: About 91 percent collectivized. Primary crops: corn, wheat, barley, oilseeds, potatoes, sugarbeets, fruits and vegetables. Cattle, sheep, hogs, and poultry widely raised.
Exchange Rate: 14.5 lei per US$1 in January 1989.

ECONOMIC STRUCTURE AND DYNAMICS

Evolution

From earliest times, the Romanian lands were renowned for their fertile soil and good harvests. As the Roman colony of Dacia, the region supplied grain and other foods to the empire for nearly two centuries. During the subsequent two millennia, a succession of foreign powers dominated the area, exploiting the rich soil and other resources and holding most of the native population in abject poverty. It was not until the middle of the nineteenth century that a unified, independent Romania finally emerged, opening the way for development of an integrated national economy.

Modern machines in Romania

But even after Romania had gained independence, foreign interests continued to dominate the economy. Large tracts of the best grain-growing areas were controlled by absentee landlords, who exported the grain and took the profits out of the country. Outsiders controlled most of the few industries, and non-Romanian ethnic groups--particularly Germans, Hungarians, and Jews-- dominated domestic trade and finance. The centuries of outside control of the economy engendered in the Romanian people an extreme xenophobia and longing for self-sufficiency--sentiments that would be exploited repeatedly by the nation's leaders throughout the twentieth century.
On the eve of World War II, agriculture and forestry produced more than half of the national income. Reflecting the country's limited economic development, about 90 percent of export income in 1939 was derived from raw materials and semifinished goods, namely grain, timber, animal products, and petroleum. The most advanced industry at that time, oil extraction and refining, was controlled by Nazi Germany for the duration of the war and suffered severe bombing damage.
For several years following the war, the devastated economy was burdened with reparation payments to the Soviet Union, which already by 1946 had expropriated more than one-third of the country's industrial and financial enterprises. By mid-1948 the Soviets had collected reparations in excess of US$1.7 billion. They continued to demand such payments until 1954, severely retarding economic recovery.
After the installation of a Soviet-styled communist regime, Romania's economic evolution would faithfully follow the Stalinist pattern. Adopting a centrally planned economy under the firm control of the PCR, the country pursued the extensive economic development strategy adopted by the other communist regimes of Eastern Europe but with an unparalleled obsession with economic independence. The development program assigned top priority to the industrial sector, imposed a policy of forced saving and consumer sacrifice to achieve a high capital accumulation rate, and necessitated a major movement of labor from the countryside into industrial jobs in newly created urban centers. The first step on this path was nationalization of industrial, financial, and transportation assets. Initiated in June 1948, that process was nearly completed by 1950. The socialization of agriculture proceeded at a much slower pace, but by 1962 it was about 90 percent completed.
Beginning in 1951, Romania put into practice the Soviet system of central planning based on five-year development cycles. Such a system enabled the leadership to target sectors for rapid development and mobilize the necessary manpower and material resources. The leadership was intent on building a heavy industrial base and therefore gave highest priority to the machinery, metallurgical, petroleum refining, electric power, and chemical industries.
Shortly after Nicolae Ceausescu came to power in 1965, PCR leaders reevaluated the development strategy and concluded that Romania would be unable to sustain the rapid rate of economic growth it had achieved since the early 1950s unless its industry could be streamlined and modernized. They argued that the time had come to assume an intensive development strategy, for which the term "multilateral development" was coined. This process required access to the latest technology and know-how, for which Ceausescu turned to the West.
Economic growth during the first twenty-seven years of communist rule was impressive. Industrial output increased an average 12.9 percent per year between 1950 and 1977, owing to an exceptionally high level of capital accumulation and investment, which grew an average 13 percent annually during this period. But with the concentration of resources in heavy (the so-called Group A) industries, other sectors suffered, particularly agriculture, services, and the consumer-goods (Group B) industries.
After 1976 the economy took a sharp downturn. A severe earthquake struck the country the following year, causing heavy damage to industrial and transportation facilities. Ceausescu's vision of multilateral development had made little headway, as the bureaucracy was unable to steer the economy onto a course of intensive development, which would have necessitated major improvements in efficiency and labor productivity. The population was demanding production of more consumer goods, and an incipient labor shortage was hindering economic growth. By 1981 the country was in a financial crisis, unable to pay Western institutions even the interest on the debt of more than US$10 billion accumulated during the preceding decade. Obsessed with repaying this debt as soon as possible, Ceausescu imposed an austerity program to curtail imports drastically, while exporting as much as possible to earn hard currencies. Rationing of basic foodstuffs, gasoline, electricity, and other consumer products was in effect throughout the 1980s, bringing the Romanian people the lowest standard of living in Europe with the possible exception of Albania. In April 1989, Ceausescu announced that the foreign debt had been retired, and he promised a rapid improvement in living conditions. Most foreign observers, however, doubted that he could fulfill this pledge.

FOREIGN TRADE

Goals and Policy

During the postwar era, Romania used foreign trade effectively as an instrument to enhance the development of the national economy and to pursue its goal of political and economic independence. In this context, earning a foreign-trade surplus was not a primary concern until the late 1970s. The primary goal, rather, was acquisition of the modern technologies and raw materials needed to create and sustain a highly diversified industrial plant. The export program was geared to earning the required hard currency to purchase these materials and technologies. But in the 1980s, the focus of foreign trade was shifted to curtail imports and run large hard-currency surpluses to repay the debt that had accrued in the previous two decades. Enterprises that produced for export received preferential treatment in resource allocation and higher prices for their output.

Foreign exchange graph

Foreign trade was a state monopoly. Trade policy was established by the PCR and the government, and its implementation was the responsibility of the Ministry of Foreign Trade and International Economic Cooperation. Subordinate to the ministry were special state agencies--foreign-trade organizations--that conducted all import and export transactions. In 1969 the ministry was reorganized to become essentially a coordinating agency, and within a year only three foreign-trade organizations remained under its direct control. This decentralization was short-lived, however, as the number of foreign-trade organizations was reduced from fifty-six in 1972 to forty in 1975, and all but four of these were returned to the ministry's control.

Trading Partners

Before World War II, the West accounted for more than 80 percent of Romania's foreign trade. During the postwar period up to 1959, however, nearly 90 percent of its trade involved Comecon nations. The Soviet Union was by far the most important trading partner during this period. But the PCR's insistence on autarkic development led Romania into direct confrontation with the rest of the Soviet bloc. In the late 1950s and early 1960s, Soviet leader Nikita Khrushchev had envisioned an international division of labor in Comecon that would have relegated Romania to the role of supplier of foodstuffs and raw materials for the more industrially developed members, such as the German Democratic Republic (East Germany) and Czechoslovakia. In April 1964, however, General Secretary Gheorghe Gheorghiu-Dej threatened to take Romania out of Comecon unless that organization recognized the right of each member to pursue its own course of economic development.

Export areas in Romania

As early as the 1950s, Gheorghiu-Dej had begun to cultivate economic relations with the West, which by 1964 accounted for nearly 40 percent of Romania's imports and almost one-third of its exports. When Ceausescu came to power in 1965, the West was supplying almost half of the machinery and technology needed to build a modern industrial base. In 1971 Romania joined the General Agreement on Tariffs and Trade and the following year it won admission to the IMF and the World Bank. In 1975 Romania gained most-favored-nation trading status from the United States.
Between 1973 and 1977, Romania continued to increase its trade with the noncommunist world and initiated economic relations with the less-developed countries. In 1973 about 47.3 percent of its foreign trade involved the capitalist developed nations, with which it incurred a large trade deficit that necessitated heavy borrowing from Western banks. During this period, major obligations to the IMF (US$159.1 million) and the World Bank (US$1,502.8 million) were incurred.
To gain greater access to nonsocialist markets, Romania set up numerous joint trading companies. By 1977 twenty-one such ventures were in operation, including sixteen in Western Europe, three in Asia, and one each in North America and Africa. Romania held at least 50 percent of the start-up capital in these companies, which promoted its manufactured goods and agricultural products abroad. In 1980 Romania became the first Comecon nation to reach an agreement with the European Economic Community (EEC), with which it established a joint commission for trade and other matters.
During the 1980s, however, trade relations with the West soured. Ceausescu blamed the IMF and "unjustifiably high" interest rates charged by Western banks for his country's economic plight. For its part, the West charged Romania with unfair trade practices, resistance to needed economic reform, and human rights abuses. In 1988 the United States suspended most-favored-nation status, and the following year, the EEC declined to negotiate a new trade agreement with Romania. Meanwhile, attempts to increase trade with the less-developed countries had also met with disappointment. After peaking in 1981 at nearly 29 percent of total foreign trade, relations with these countries deteriorated, largely because the Iran-Iraq War had cut off delivery of crude oil from Iran.

Evolution of Romania

Frustrated by the downturn in trade with the West and the lessdeveloped countries, Romania reluctantly returned to the Soviet fold during the 1980s. By 1986 socialist countries accounted for 53 percent of its foreign trade. But the Ceausescu regime continued to assert its independence, refusing to endorse the Comecon program that would allow enterprises to circumvent routine bureaucratic channels and establish direct business relationships with enterprises in other member countries. And he refused to cooperate in Comecon attempts to establish mutual convertibility of the currencies of the member states.

Structure of Exports and Imports

The assortment of export products changed dramatically during the postwar era. Before the war, raw materials and agricultural products accounted for nearly all export income, but in the 1970s and 1980s, the primary exports were metallurgical products, especially iron and steel; machinery, including machine tools, locomotives and rolling stock, ships, oil-field equipment, aircraft, weapons, and electronic equipment; refined oil products; chemical fertilizers; processed wood products; and agricultural commodities.

Import, export statistic of Romania

Retirement of the Foreign Debt

After 1983 Ceausescu refused to seek additional loans from the IMF or the World Bank and severely curtailed imports from hardcurrency nations while maximizing exports--to the great detriment of the standard of living. As a consequence, Romania ran balanceof -trade surpluses as large as US$2 billion per year throughout the rest of the decade. With great fanfare, Ceausescu announced the retirement of the foreign debt in April 1989, proclaiming that Romania had finally achieved full economic and political independence. Shortly thereafter, the GNA enacted legislation proposed by Ceausescu to prohibit state bodies--including banks-- from seeking foreign credits.

Trade in Thailand

2012-03-05T08:13:00.000-08:00

COUNTRY

Mosjeed of Thailand

Formal Name: Kingdom of Thailand.
Short Form: Thailand (formerly Siam).
Term for Citizens: Thai.
Capital: Bangkok.

GEOGRAPHY

Thailand in map

Size: Approximately 514,000 square kilometers.
Topography: Chief topographic features include central plain dominated by Mae Nam (river) Chao Phraya and its tributaries. To northeast rises dry, undulating Khorat Plateau bordered on east by Mekong River. Mountains along northern and western borders with Burma extend south into narrow, largely rain-forested Malay Peninsula. Network of rivers and canals associated with northern mountains and central plain drain, via Chao Phraya, into Gulf of Thailand. Mae Nam Mun and other northeastern streams drain via Mekong into South China Sea. Soils vary. Topography and drainage define four regions: North, Northeast, Center, and South.
Climate: Tropical monsoon climate. Southwest monsoons arriving between May and July signal start of rainy season lasting until October. Cycle reverses with northeast monsoon in November and December, ushering in dry season. Cooler temperatures give way to extremely hot, dry weather March through May. In general, rainfall heaviest in South, lightest in Northeast.

ECONOMY

Salient Features: Mixed economy includes both strong private sector and state enterprises; government assumes responsibility for general infrastructure development. Basically capitalist, committed to free trade. Rapid economic development of 1960s and 1970s slowed by worldwide recession of early 1980s. Strong recovery by 1987. Bangkok metropolitan area faced problems of rapid modernization, including housing shortages and pressure on such basic services as water, sewage, and health care.

Statistic of Thai business

Agriculture:Food surpluses produced by dominant agricultural sector of enterprising, independent smallholders. About 69 percent of labor force engaged in sector, and nearly 80 percent of population dependent on it for livelihood in the mid1980s . Agricultural commodities accounted for some 60 percent of export values in late 1980s. Major crops included rice, maize, cassava, rubber sugarcane, coconuts, cotton, kenaf, and tobacco. Forest cover decreased from more than 50 percent in 1961 to less than 30 percent in 1987. Fisheries important for food supply and foreign exchange earnings.
Industry: Modern enterprises mainly concentrated in Bangkok and surrounding provinces. Majority Thai owned, but joint foreign ventures numerous; state enterprises form important segment. In late 1980s, sector accounted for roughly 20 percent of gross domestic product (GDP) and 30 percent of total exports. Main categories of manufacturing included food and beverages, textiles and apparel, and wood and mineral products. Mineral resources contributed about 2 percent to gross national product (GNP) and included tin, tungsten, fluorite, antimony, and precious stones, all significant foreign exchange earners.

Energy Sources: Exploited domestic resources include small oil fields, large lignite deposits, natural gas in Gulf of Thailand, and hydroelectric power. Extensive, largely unevaluated oil shale deposits also identified, but exploitation economically infeasible in 1980s. Thermal (oil, natural gas, and lignite) power generation accounted for about 70 percent of total 7,570 megawatt installed generating capacity in 1986; hydropower, which remained largely unexploited, supplied about 30 percent. Electricity generally available in Bangkok metropolitan area and in about 43,000 of nation's some 48,000 villages (mostly near Bangkok). Rural program under way for electrification of remaining villages by late 1990s.
Foreign Trade: Major exports primary and processed agricultural products, tin, clothing, and other manufactured consumer goods. Major imports capital goods, intermediate products, and raw materials; petroleum products largest single import by monetary value since mid-1970s. Largest trading partners Japan and United States; trade with Japan characterized by large deficit.

ECONOMIC AND FINANCIAL DEVELOPMENT

In the 1960s and 1970s, the country's abundant natural resources, an enterprising and competitive private sector, and cautious and pragmatic economic management resulted in the emergence of one of the fastest growing and most successful economies among the developing countries. Between 1960 and 1970, the country's average annual growth rate of gross domestic product was 8.4 percent, compared with 5.8 percent for all middle-income, oil-importing countries. Between 1970 and 1980, the GDP rate of growth was 7.2 percent, compared with 5.6 percent for the middle-income oil-importing countries.

Bridge of business

The world slowdown by the late 1970s was mainly caused by the rise in oil prices. The Thai GDP in 1982 was US$36.7 billion. It rose to US$42 billion in 1985. The projected rate of growth for GDP during the early 1980s was around 4.3 percent as a result of falling demand and prices for Thai exports despite a drop in oil price. It was apparent that in the 1980s Thailand had lost its momentum; its Fifth Economic Development Plan targets had not been met because of serious macroeconomic imbalances, such as decreasing savings and investment rates, increasing budget deficits, and increasing debt and debt- servicing obligations. Whether Thailand could regain its former momentum depended on the success of its Sixth Economic Development Plan (1987-91).
Between 1970 and 1980, investment represented on the average 25.2 percent of GDP, compared with 24.7 percent by the mid-1980s. This proportion was one of the lowest investment rates in Southeast Asia. The national savings rate had fallen even more, from an average of 22 percent during the 1970s to around 17.8 percent by the mid-1980s. Hence, the average current-account deficit of 7 percent of GDP during the early 1980s had been caused by a declining savings rate rather than by an increase in investment rate. This imbalance was more serious than one caused by rising investment because rising investment could pay for itself with increased output and, possibly, increased savings so that debt could be repaid. With falling savings, foreign borrowing was used not to raise investment but merely to fill the investment-savings gap, which was mirrored in the external debt ratio of 39 percent of GDP and 146 percent of exports by the mid1980s . The total debt service ratio went up from 17.3 percent in 1980 to more than 25 percent by the mid-1980s. The increase was an important factor in the decision of the government to sharply reduce authorization for new commitments of public debt.

Financial Institutions

Thailand had many types of financial institutions, subject to different laws and regulated by different agencies. Most of them were privately owned, but some were state owned. The primary state-owned facility was the Bank of Thailand, which had responsibility and authority for monetary control in its role as the central bank. It served as the fiscal agent and the financier of the government; regulated the money supply, foreign exchange, and the banking system; and also served as the lender of last resort to the banks. Other state-owned facilities included the Government Savings Bank, the Bank for Agriculture and Agricultural Cooperatives, the Industrial Finance Corporation of Thailand, the Government Housing Bank, and the Small Industry Finance Corporation of Thailand.

By the mid-1980s, the 30 commercial banks had 1,526 branches handling the majority of all financial transactions in Thailand. The 16 largest banks accounted for over 90 percent of assets, deposits, and loans of the commercial banks, indicating a high concentration and little competition in the banking industry. Moreover, despite the impressive growth of banks, entrance by new banks was limited.
Finance and security companies comprised the second largest group of financial institutions with assets equaling nearly 22 percent of those of commercial banks. Concentration also existed in the securities industry, the 5 largest companies (out of 112) holding 19 percent of all finance and security assets. The finance companies were created by many domestic and foreign banks to overcome banking restrictions. Although they were intended to increase competition with commercial banks, the objective was not met because many banks used the companies as an extension of their own activities.

INTERNATIONAL TRADE AND FINANCE

International Trade

Thailand sustained a trade balance deficit from the early 1970s to the mid-1980s. Although the trade balance had improved during the first part of the 1970s, it worsened after the oil shocks of 1973 and 1979. In fact the net value of oil imports went from US$52.5 million in 1970 to US$684.7 million in 1982, with dependence on foreign oil reaching 75 percent in 1980 and declining to 50 percent by 1985. Although there was a general decline in the export performance of developing countries in the early 1980s, Thailand's recovery from the oil shock was further delayed by a loss in export competitiveness, a slowdown in the economies of major trading partners, and a growing debt service obligation resulting in part from rising interest rates. The current account balance deficits were not as severe as the trade deficits as a result of improving service balances. By 1986 the balance of payments had moved into surplus on current account. The major contribution to the service balance surplus was tourism, which increased from 630,000 tourists in 1970 to 2.6 million in 1986. Tourism was the top foreign exchange earner from 1981 to 1986. The trade deficit was caused in part by a decreasing growth rate of exports between 1980 and 1983, which improved slightly by 1985. The growth rate of imports also declined, but at a slower rate. Despite an increase in tourism, the trade deficit reached a peak in 1983 of US$3.9 billion. In 1985 exports totaled US$7.1 billion and imports US$9.2 billion, leaving an unfavorable trade balance of US$2.1 billion. By 1986 the deficit had decreased even further, with some of the reduction a result of the lower cost of imported oil.

The composition or structure of merchandise exports changed substantially between 1965 and 1985. Primary commodities accounted for 95 percent of Thailand's exports in 1965, and manufactured exports accounted for only 4 percent. By 1986 manufactured products comprised 55 percent of total exports, with textile products increasing from less than 1 percent in 1965 to 13 percent by 1986. Other major manufacturing exports in the mid-1980s included rubber products, processed foods, integrated circuits, metal products, jewelry, footwear, and furniture. Although agricultural exports as a percentage of total exports declined during this period, rice and other agricultural exports remained important for the Thai economy. By the mid-1980s, rice took the highest share of total agricultural exports. Cassava products, maize, sugar, rubber, fruit, and marine products were the other main exports in this category.
Between 1965 and 1985, the destinations of merchandise exports shifted from 54 percent of 1965 exports destined for developing countries to 56 percent of 1985 exports going to industrialized countries. This increase in the percentage of exports to industrialized countries, in combination with the changing structure of merchandise exports from predominantly agricultural to manufactured products, has fueled Thailand's economic growth. Thailand's major industrialized trading partners included the EEC, the United States, Japan, and the Netherlands. Furthermore, Thailand has developed significant trade relations with the newly industrializing countries (NICs) of Singapore, Hong Kong, the Republic of Korea (South Korea), and Taiwan. Additionally, Thailand has developed trade relations with Malaysia, the Philippines, Indonesia, and China.
Tariff barriers on imports from the developing countries had dropped with the implementation of the Tokyo Round (1973-79) of the General Agreement on Tariffs and Trade. Rising nontariff barriers, resulting from domestic and international economic conditions in industrial countries, had more than offset the tariff reductions. In the United States the proportion of imports subject to such barriers more than doubled, and in the other industrial countries it rose by as much as 40 percent. Examples of nontariff barriers were quotas, voluntary exports restraints, the Multifiber Arrangements, sanitation rules, and subsidies.
Thai rice exports encountered the stiffest barriers in Japan, where the tariff rate was 15 percent and a global quota was in force. In the United States, tariff on rice was only 2.6 percent, and no explicit nontariff barriers existed except for stringent controls by the United States Food and Drug Administration. In the other industrialized countries, Thai rice exports faced varying levies. Thai agricultural exports to the developing countries met with stiff competition from subsidized United States cereal exports. Thailand entered into a voluntary export restraint with France for its cassava exports because of strong resistance to imports from the French producers of cereal-based animal feed. Rubber did not face major barriers except for quotas imposed by Japan. Maize exports did relatively poorly because of subsidized production and high tariffs in the industrialized countries. Sugar exports also faced subsidy problems in Western Europe and a 50 percent quota reduction by the United States. Despite nontariff barriers, Thai agricultural and manufactured exports faced less protectionism than the NICs in the early 1980s.

Of Thailand's manufactured exports, textiles were most affected by barriers because Thailand had to enter into bilateral agreements with industrial countries, which were similar to the voluntary export restraints under the Multifiber Arrangements. In addition, tariffs escalated with the degree of processing. For example, in the United States the average tariff for cotton fabrics was 9.6 percent, whereas it was 18 percent for garments. The United States imposed countervailing duties on Thai textile exports in protest against Thai government subsidies to textile exporters in the form of export packing credits, rediscount facilities for industrial bills, electricity discounts, and tax certificates.
Tariffs in Thailand before the 1970s were primarily used to generate revenues rather than to influence domestic production. The rates ranged from 15 to 30 percent, with higher rates applied to finished consumer goods imports. In the 1970s, however, tariff rates on finished consumer goods imports increased 30 to 50 percent. Rising protectionism continued in the late 1970s and early 1980s, with high tariff rates and the application of surcharges, quantitative restrictions, price controls, and domestic contents requirements.

External Debt

The Thai total long-term public and private debt grew from US$728 million in 1970 to US$13.3 billion in 1985. The external debt was increasing at a faster rate during this period than the growing gross national product. In 1970 the external debt was 11.1 percent of GNP, increasing to 36 percent of GNP by 1985. The ratio of debt payments or debt service to the total export of goods and services, one indicator of Thailand's ability to meet debt payments, increased from 14 percent in 1970 to 25.4 percent in 1985. The growth of external indebtedness averaged 25.2 percent between 1970 and 1980, compared with an average of 21 percent for Southeast and East Asian middle-income oil-importer countries. Public debt as a percentage of exports went from 47.9 percent to 75.9 percent between 1980 and 1983, but the proportion of public borrowing from foreign sources dropped from 52 percent to 42 percent during the same period. This was indicative of the growing concern of the public sector with the enlarged foreign debt and hence a higher reliance on domestic borrowing, which went from 48 percent to 55 percent during the same period. In the early 1980s, Thailand was characterized by high competition between the government and the private sector for scarce domestic savings, which forced private firms to rely more on external borrowing.

The composition of Thai indebtedness in terms of interest rates, maturity, and currency structure appeared to be better than that in most other developing countries. Because of its high credit rating, Thailand could borrow at about 8.4 percent in late 1983, compared with an average rate of 10.1 percent for other middle-income oil-importer countries. It had also the longest loan average maturity, 17.2 years compared with 12.2 years.
In terms of currency denomination, the Thai external debt consisted mostly of two currencies: the United States dollar and the Japanese yen, with increasing reliance on the yen because of the willingness of Japanese banks to lend at a lower spread than the other banks. Thailand was exposed to the risk of yen appreciation in the early 1980s because Japan received only 14 percent of Thai exports while accounting for 26 percent of imports. Meanwhile, the value of the yen had appreciated substantially relative to the baht. The baht was pegged to the United States dollar until 1984 when it had a fixed exchange rate of B23 per US$1. Thereafter, the baht was pegged to a basket of currencies and devalued by 14.8 percent against the dollar. According to some observers, Thailand needed to revise its external debt portfolio as well as limit its reliance on external debt.

Trade in Japan

2012-03-04T06:23:00.000-08:00

Japan

Beauty of Japan

Formal Name: Japan (Nihon Koku or Nippon Koku; literally, Source of the Sun Country or Land of the Rising Sun).
Short Form: Japan.
Term for Citizens: Japanese.
Capital: Tokyo.

GEOGRAPHY

Japan in map

Size: Total 377,835 square kilometers; land area 374,744 square kilometers.
Topography: Mountainous islands with numerous dormant and active volcanoes. Four main islands (Hokkaido, Honshu, Shikoku, and Kyushu) and numerous smaller islands to north and south, all prone to earthquakes. Highest point Mount Fuji (3,776 meters). Numerous, rapidly flowing rivers largely unnavigable but provide water for irrigation and hydroelectric-power generation.
Climate: Generally rainy; high humidity. Diverse climatic range: warm summers and long cold winters in north; hot humid summers and short winters in center; and long, hot, humid summers, and mild winters in southwest.

Japan

ECONOMY

Gross National Product (GNP): US$3.7 trillion; per capita GNP US$29,760 in 1992.
Gross Domestic Product (GDP): US$3.3 trillion; per capita GDP US$27,005 in 1991.
Resources: Coal reserves in north and southwest; otherwise, minerals negligible. Most resources, including almost all nonrenewable energy sources, imported.
Mining and Manufacturing: 29.3 percent of GDP in 1991. Basic industries: automobile manufacturing and consumer electronics. Nonferrous metals, petrochemicals, pharmaceuticals, bioindustry, aerospace, textiles, and processed foods also important. Older heavy industries--mining, steel, and shipbuilding- -in decline but still important worldwide. High-technology industries prevalent, e.g., semiconductors, computers, optical fibers, optoelectronics, video discs, facsimile and copy machines, and industrial robots.
Services: 55.7 percent of GDP in 1991. Wholesale and retail trade dominant. Advertising, data processing, publishing, tourism, leisure industries, and entertainment growing rapidly.
Agriculture: 2.3 percent of GDP in 1991. Intense cultivation of diminishing arable land, already in short supply. Rice grown on most farmland, and intercropping common. Heavy use of fertilizers, mechanization, and experimental high-yield crops. About 70 percent of country covered with forests; large lumber industry. World's largest fishing nation; seafood essential to food industry.

Relation with the world

Exports: Approximately US$287 billion in 1990. Major partners United States, Germany, Hong Kong, South Korea, and Taiwan.
Imports: Approximately US$235 billion in 1990. Major partners United States, South Korea, Australia, China, Indonesia, and Taiwan.
Balance of Payments: Large and growing positive trade balance since early 1980s. Exports represented 55 percent, imports 45 percent of total annual trade in 1990.
Fiscal Year: April 1-March 31.
Exchange Rate: ¥110.42 = US$1 (December 1993).

FOREIGN TRADE POLICIES

Export Policies

For many years, export promotion was a large issue in Japanese government policy. Government officials recognized that Japan needed to import to grow and develop, and it needed to generate exports to pay for those imports. After the war, Japan had difficulty exporting enough to pay for its imports until the mid1960s , and resulting deficits were the justification for export promotion programs and import restrictions.
The belief in the need to promote exports is strong and part of Japan's self-image as a "processing nation." A processing nation must import raw materials but is able to pay for the imports by adding value to them and exporting some of the output. Nations grow stronger economically by moving up the industrial ladder to produce products with greater value added to the basic inputs. Rather than letting markets accomplish this movement on their own, the Japanese government feels the economy should be guided in this direction through industrial policy.

Export report of Japan

Japan's methods of promoting exports has taken two paths. The first was to develop world-class industries that can initially substitute for imports and then compete in international markets. The second was to provide incentives for firms to export.
During the first two decades after World War II, export incentives took the form of a combination of tax relief and government assistance to build export industries. After joining the IMF in 1964, however, Japan had to drop its major export incentive- -the total exemption of export income from taxes--to comply with IMF procedures. It did maintain into the 1970s, however, special tax treatment of costs for market development and export promotion.

Main Exportable product of Japan

Once chronic trade deficits came to an end in the mid-1960s, the need for export promotion policies diminished. Virtually all export tax incentives were eliminated over the course of the 1970s. Even JETRO, whose initial function is to assist smaller firms with overseas marketing, saw its role shift toward import promotion and other activities. In the 1980s, Japan continued to use industrial policy to promote the growth of new, more sophisticated industries, but direct export promotion measures were no longer part of the policy package.
The 1970s and 1980s saw the emergence of policies to restrain exports in certain industries. The great success of some Japanese export industries created a backlash in other countries, either because of their success per se or because of allegations of unfair competitive practices. Under GATT guidelines, nations have been reluctant to raise tariffs or impose import quotas. Quotas violate the guidelines, and raising tariffs goes against the general trend among industrial nations. Instead, they have resorted to convincing the exporting country to "voluntarily" restrain exports of the offending product. In the 1980s, Japan was quite willing to carry out such export restraints. Among Japan's exports to the United States, steel, color television sets, and automobiles all were subject to such restraints at various times.

Import Policies

Japan began the postwar period with heavy import barriers. Virtually all products were subject to government quotas, many faced high tariffs, and MITI had authority over the allocation of the foreign exchange that companies needed to pay for any import. These policies were justified at the time by the weakened position of Japanese industry and the country's chronic trade deficits.
By the late 1950s, Japan's international trade had regained its prewar level, and its balance of payments displayed sufficient strength for its rigid protectionism to be increasingly difficult to justify. The IMF and GATT strongly pressured Japan to free its commerce and international payments system. Beginning in the 1960s, the government adopted a policy of gradual trade liberalization, easing import quotas, reducing tariff rates, freeing transactions in foreign exchange, and admitting foreign capital into Japanese industries, which continued through the 1980s.
The main impetus for change throughout has been international obligation, that is, response to foreign, rather than domestic, pressure. The result has been a prolonged, reluctant process of reducing barriers, which has frustrated many of Japan's trading partners.

Exchange report of Japan

Japan has been a participant in the major rounds of tariffcutting negotiations under the GATT framework--the Kennedy Round completed in 1967, the Tokyo Round completed in 1979, and the Uruguay Round completed in 1993. As a result of these agreements, tariffs in Japan fell to a low level on average. Upon complete implementation of the Tokyo Round agreement, Japan had the lowest average tariff level among industrial countries--2.5 percent, compared with 4.2 percent for the United States and 4.6 percent for the European Union (known as the European Community before November 1993).
Japan's quotas also dropped. From 490 items under quota in 1962, Japan had only twenty-seven items under quota in the mid1980s , and that number dropped again late in the decade to twentytwo with further agreements scheduled to come into effect in the early 1990s, which would reduce the number again. But those products still under quota proved to be highly visible and were the object of complaints by exporting countries. The reduction of controlled items in the late 1980s resulted from Japan's loss of a GATT case brought by the United States concerning import restrictions on twelve agricultural products. In addition, heavy pressure from the United States led to an agreement that Japan would end import quotas on beef and citrus fruit in 1991. The one restricted product that continues to prompt objections from other countries is rice, imports of which until 1994 were prohibited. Rice has traditionally been the mainstay of the Japanese diet, and farm organizations played upon the deep cultural importance as a reason for prohibiting imports. Farm organizations also had a disproportionate political voice because of the shift of the population to the cities without any significant redistricting for seats in the Diet. Despite such entrenched political and cultural opposition, foreign rice gradually found its way into Japanese markets and even on to the emperor's dining table by 1994.
Despite Japan's rather good record on tariffs and quotas, it continued to be the target of complaints and pressure from its trading partners during the 1980s. Many complaints revolved around nontariff barriers other than quotas--standards, testing procedures, government procurement, and other policy that could be used to restrain imports. These barriers, by their very nature, were often difficult to document, but complaints were frequent.
In 1984 the United States government initiated intensive talks with Japan on four product areas: forest products, telecommunications equipment and services, electronics, and pharmaceuticals and medical equipment. The Market Oriented Sector Selective (MOSS) talks were aimed at routing out all overt and informal barriers to imports in these areas. The negotiations lasted throughout 1985 and achieved modest success.
Supporting the view that Japanese markets remained difficult to penetrate, statistics showed that the level of manufactured imports in Japan as a share of the gross national product was still far below the level in other developed countries during the 1980s. Frustration with the modest results of the MOSS process and similar factors led to provisions in the United States Trade Act of 1988 aimed at Japan. Under the "Super 301" provision, nations were to be named as unfair trading partners and specific products chosen for negotiation, as appropriate, with retaliation against the exports of these nations should negotiations fail to provide satisfactory results. Japan was named an unfair trading nation in 1989, and negotiations began on forest products, supercomputers, and telecommunications satellites.
By the end of the 1980s, however, some internally generated changes in import policy appeared to be under way in Japan. The rapid appreciation of the yen after 1985, which made imports more attractive, stimulated a domestic debate over nontariff barriers and other structural features of the economy impeding imports. Greater openness in policies and structures began to be sought in response to domestic pressures rather than in response to foreign pressure and international obligation.
External pressure for change also increased when the United States initiated a series of bilateral talks in 1989 parallel to negotiations under the "Super 301" provision. These new talks, known as the Structural Impediments Initiative, focused on structural features in Japan that seemed to impede imports in ways outside the normal scope of trade negotiations. Issues raised in the Structural Impediments Initiative, and by the Japanese themselves in domestic discussions, included the distribution system (in which manufacturers continued to have unusually strong control over wholesalers and retailers handling their products, inhibiting newcomers, especially foreign ones) and investment behavior that made it very difficult for foreign firms to acquire Japanese firms. These discussions highlighted some of the fundamental differences in the Japanese and United States economies, but how quickly change might result from the talks is unclear.

MAJOR FOREIGN POLICY GOALS AND STRATEGIES

Japan's geography--particularly its insular character, its limited endowment of natural resources, and its exposed location near potentially hostile giant neighbors--has played an important role in the development of its foreign policy. In premodern times, Japan's semi-isolated position on the periphery of the Asian mainland was an asset. It permitted the Japanese to exist as a self-sufficient society in a secure environment. It also allowed them to borrow selectively from the rich civilization of China while maintaining their own cultural identity. Insularity promoted a strong cultural and ethnic unity, which underlay the early development of a national consciousness that has influenced Japan's relations with outside peoples and cultures throughout its history.

Trade in South Africa

2012-03-01T08:32:00.000-08:00

Country

National Mosjeed of South Africa

Formal Name: Republic of South Africa.
Short Form: South Africa.
Term for National(s): South African(s).
Administrative Capital: Pretoria.
Legislative Capital: Cape Town.
Judicial Capital: Bloemfontein.
Independence: May 31, 1910, as Union of South Africa, self-governing British dominion; sovereignty recognized May 1, 1934, under Britain's Statute of Westminster. Republic of South Africa, May 31, 1961.
Public Holidays: New Year's Day (January 1), Human Rights Day (March 21), Good Friday, Family Day (Easter Monday), Freedom Day (April 27), Workers' Day (May 1), Ascension Day, Youth Day (June 16), Women's Day (August 9), Heritage Day (September 24), Day of Reconciliation (December 16), Christmas Day (December 25), and Day of Goodwill (December 26).

Geography

Size: South Africa occupies 1,227,200 square kilometers at the southern tip of Africa; seventh largest African country; twice the size of Texas. Coastline nearly 3,000 kilometers. Extraterritorial holdings: Prince Edward Island and Marion Island (Indian Ocean).

South Africa in map

Topography: Interior highlands continuation of African plateau stretching north to Sahara, 1,200 meters average elevation. Plateau rises to Drakensberg Mountains (3,300 meters) south and east; Great Escarpment descends to coastal lowlands. Marginal coastal lowlands vary from eighty to 240 kilometers wide. Regular coastline, few natural harbors.
Climate: Variable; warm temperate climate overall; Mediterranean conditions far southwest; subtropical northeast; desert northwest. Moderating influence of ocean currents: East coast warmed by Agulhas current, west coast cooled by Benguela current. Dry, sunny winters (April-October), summer rains (November-March) except in southwest, where rainfall yearround; average annual rainfall 484 millimeters.
Time: 2 hours ahead of Greenwich Mean Time.

Society

Population: 41.2 million, 1995 estimate (1996 census not yet final). Annual population growth 2.2 percent. Fertility: 4.4 births per female; crude birth rate: 23.4 per 1,000; 12 percent of births to teenagers. Population to double in twenty-five years. Life expectancy: sixty-three years males, sixty-eight years females, marked racial differences. Crude death rate: 9.4 per 1,000. Median age 19.2, declining; 37 percent under age fifteen. Density 33.8 persons per square kilometer, uneven distribution; concentrations in KwaZulu-Natal (21 percent of population), Gauteng (17 percent), Eastern Cape (17 percent). Estimated urban population, 57 to 63 percent; rural, 37 to 43 percent. Major urban areas: Cape Town, 2.2 million; Johannesburg, 1.9 million; Durban, 1.1 million; Pretoria, 1.1 million; Port Elizabeth, 854,000. Ethnic heterogeneity: estimated 76 percent black Africans--Nguni (Zulu, Xhosa, Swazi, Ndebele), Sotho-Tswana, Venda, Tsonga-Shangaan, Khoisan; 13 percent whites--Afrikaners, British, other Europeans; 11 percent Asians and others. Government estimates at least 2 million foreign workers (1996).
Languages: Eleven official languages. Most widely used: isiZulu, isiXhosa, Afrikaans, English, and sePedi; also seSotho, seTswana, xiTsonga, siSwati, tshiVenda (luVenda), and isiNdebele. English important in commerce.
Religion: No government restrictions. Population 80 percent Christians, mostly Protestant. Of these, 8 million members of African Independent churches; 4 million, of Dutch Reformed churches. Traditional African beliefs remain important, especially in rural areas. Asians almost equally Hindu and Muslim; Islamic community growing rapidly.
Education and Literacy: Superior education system primarily served racial minority until 1990s. Nine years compulsory education universal after 1994; shortages of schools, teachers. Estimated 7.17 million primary pupils, 4.59 million secondary pupils; 20,780 primary and secondary schools, of which 20,303 government operated; 336,653 primary and secondary teachers. Adult literacy estimated 61 percent. Nineteen major universities, two correspondence; extensive vocational and technical training available.
Health: Health problems reflect racial, class differences. Physicians 1 per 1,200 people in wealthy areas (1 per 10,000 in poor, rural areas). Acquired immune deficiency syndrome (AIDS): 10,351 reported cases (1996); human immunodefi-ciency virus (HIV) infection estimated close to 1 million. Infant mortality declining: 43.1 deaths first year per 1,000 live births (54.3 blacks, 7.3 whites). National health insurance system being phased in.

Economy

Character and Structure: Economy based on market-oriented, private enterprise, bolstered by state subsidies; traditionally strong public sector undergoing initial privatization. Industry and manufacturing crucial to growth. Government's five-year Reconstruction and Development Programme emphasizes public services, job creation to ameliorate most severe impacts of apartheid. Gross domestic product (GDP) estimated US$133.6 billion; US$3,010 per capita (1995). Major contributions to GDP: manufacturing, 25.2 percent; trade, 15.5; finance, 15.3; general government, 14.1; mining, 8.9. Economic growth, 3.1 percent (1996), predicted 2.5 percent (1997). Inflation, 8.7 percent (1995); 7.4 percent (1996).

Economical relation

Government budget: FY1997-98 proposed expenditures, R186.7 billion; revenues R162.0 billion; projected deficit R24.7 billion. Budget allocations: military, 5.7 percent; police, 7.0 percent; interest on government debt, 20.4 percent; education, 21.3 percent; allocations to provinces, 43.2 percent. Proposed relaxation of exchange controls, tax reductions in lower income brackets (1997).
Mining and Minerals: Mining based on unparalleled reserves: gold, diamonds, platinum, chromium, manganese, vanadium; also coal, iron ore, uranium, copper, silver, fluorspar, asbestos, limestone. Mineral concentrations greatest in Gauteng, Northern Province, Mpumalanga. One offshore oilfield, further exploration underway.
Manufacturing: Steel, steel products, chemicals, electronics, automobiles, textiles, paper, food processing. Strong growth in export-oriented manufacturing, increasing capacity utilization, mid-1990s. Substantial foreign investment. Factors favoring investment: broad technological base, highly trained managerial class, abundant labor supply, specialized financial institutions. Factors countering investment: abundance of unskilled, uneducated workers; crime, violence; labor militancy. Industrial interests protected by South African Chamber of Business (SACOB), Steel and Engineering Industries Federation of South Africa (SEIFSA), Afrikaner Trade Institute (Afrikaanse Handelsinstituut--AHI), National African Federated Chamber of Commerce (NAFCOC).
Agriculture, Forestry, and Fishing: Arable land roughly 11 percent of total, mostly eastern provinces, far southwest. Principal crops: cereals and grains, especially corn; wool; sugar; peanuts; tobacco; fruits and vegetables; affected by early 1990s periods of drought. Flourishing wine industry. Livestock, dairy farming. Government marketing boards being phased out. Land claims disputes arising out of apartheid era being adjudicated, could affect 30 percent of farm land. Small timber industry meets most domestic demand. Large commercial fishing industry exports more than 60 percent of catch.
Energy: Extensive coal reserves expected to last through most of twenty-first century; uranium plentiful. Limited hydroelectric potential, plans to import electric power from cooperative ventures in Lesotho, Mozambique. Imported petroleum, refined domestically. World leader in coal liquefaction to synthesize oil and gas; one nuclear power facility, plans for additional nuclear facilities after 2000.
Labor: Work force estimated 14.5 million (1995). Employment in manufacturing (16.6 percent), agriculture (12.2 percent), commerce and trade (11 percent), domestic service (8.5 percent), education (7.8 percent), mining (6.9 percent). Unemployment, 29-32 percent of formal work force. Job creation proceeding slowly. Looming shortage of skilled labor, oversupply of unskilled labor. Public-sector employment increasing, especially in provincial governments. At least 194 recognized trade unions; roughly 25 percent of labor force. Wage disparities among racial groups persist, especially in manufacturing.
Tourism: More than 4.6 million international arrivals (1995), including more than 3.4 million Africans; also British, Germans; growing Asian interest. Well-developed tourism industry; key attractions Kruger National Park, Western Cape, Blue Train (Pretoria-Cape Town).
Foreign Economic Relations: Major exports: gold, precious metals, precious stones, base metals, textiles, chemicals, paper products, agricultural products. Increasing coal exports. Major imports: machinery, vehicles, petroleum products, chemicals, scientific instruments, base metals, textiles. Early 1990s growth in imports slowed in mid-1990s; exports rose steadily, but declining value of rand reduced impact on trade balance. Value of exports US$27.9 billion, value of imports US$27.1 billion (1995). Major trading partners: United States, Britain, Germany, Japan, Italy. Trade with United States: exports US$2.21 billion, imports US$2.75 billion (1995). Binational Commission with United States, binational chambers of commerce in other countries promote trade, investment. Southern African Customs Union with Botswana, Lesotho, Namibia, and Swaziland. Trade with other African countries: exports US$2.5 billion, imports US$664 million (1994). Major South African investments in Africa: tourism, telecom-munications, railways, ports, breweries, mining. Pursuing stronger trade, investment ties to China, Japan, Singapore, India, Australia.
Currency: Rand (R)=100 cents. As of March 1, 1997, US$1=R4.66; conversely, R1=US21.4 cents, following uneven decline through 1996.
Fiscal Year: April 1 through March 31.

Foreign Trade and Investment

South Africa's foreign trade and investment were affected by sanctions and boycotts, especially during the 1980s and early 1990s. These measures included a voluntary arms embargo instituted by the United Nations (UN) in 1963, which was declared mandatory in 1977; the 1978 prohibition of loans from the United States Export-Import Bank; an oil embargo first instituted by OPEC in 1973 and strengthened in a similar move by Iran in 1979; a 1983 prohibition on IMF loans; a 1985 cutoff of most foreign loans by private banks; the United States 1986 Comprehensive Antiapartheid Act, which limited trade and discouraged United States investors; and the 1986 European Economic Community (EEC) ban on trade and investment. The Organization of African Unity (OAU) also discouraged trade with South Africa, although observers estimated that Africa's officially unreported trade with South Africa exceeded R10 billion per year in the late 1980s.

Export rate of South Africa

The most effective sanctions measure was the withdrawal of short-term credits in 1985 by a group of international banks. Immediate loan repayments took a heavy toll on the economy (see External Debt, this ch.). More than 350 foreign corporations, at least 200 of which were United States owned, sold off their South African investments. In 1991 both the EEC and the United States lifted many official sanctions in view of measures taken by Pretoria to begin dismantling apartheid. Foreign investors were slow to return to South Africa, however; most banking institutions considered the country too unstable, and foreign corporations faced high labor costs and unrest if they tried to operate there.
In 1994 and 1995, many of the United States companies that had sold off shares or operations in South Africa in the past decade returned to do business there. By early 1996, at least 225 United States companies employed more than 45,000 South African workers.

Foreign Trade

Throughout the twentieth century, South Africa's economy has depended heavily on foreign trade--a trend that continued even under pressure from international sanctions and recession. Gold dominated its exports to the point that the government occasionally intervened to promote nongold exports. During the 1970s and the 1980s, the price of gold directly affected the value of the rand and, therefore, the prices at which exports were sold overseas. As the gold price fluctuated, the exchange rate of the rand rose and fell, and export revenues responded accordingly. Under these uncertain conditions, few manufacturers were willing to risk large investments to increase their export capacity.

South Africa rate

One of the 1970s programs that promoted nongold mineral exports was the development of new harbor facilities, railway lines, and mines, which helped to increase revenues from the export of metal ores at the impressive rate of nearly 18 percent per year, on average, during the 1980s. Also during the 1980s, the Board of Trade and Industry implemented structural adjustment programs for various industries and a General Export Incentive Scheme, which reduced import tariffs on raw materials to be used to manufacture goods for export, in proportion to their value and local content. One effect of these programs was to reduce the importance of gold in South African exports from 56 percent of revenues in 1980 to 36 percent in 1992, according to government statistics. Gold exports increased slightly in 1993 and 1994, as a fraction of export revenues, but remained below 40 percent of the total.
The government also took direct action to limit imports, in part to protect local industries. The government has the power to do so through tariffs, surcharges, and import licenses. Import tariffs provided some protection against dumping by foreign manufacturers. Import surcharges helped reduce import demand and raise government revenues. In August 1988, the surcharge on some items was raised as high as 60 percent in a bid to hold down imports, but in May 1989 the surcharge on capital goods was eased from 20 percent to 15 percent, and most import tariffs were being phased out in the 1990s.
Government pressures in the 1970s and the 1980s succeeded in reducing South Africa's import levels but did not succeed in changing the pattern of imports. By 1987, when total imports were down about 30 percent from their peak 1974 volume, industrial inputs continued to dominate imports. Machinery was the most important among these, followed by vehicles and transportation equipment, a variety of chemicals, and oil. After the OPEC boycott of 1973 and Iran's cutoff of oil to South Africa in 1979, however, official figures on oil trade were not available. Observers estimated that 1987 oil import costs reached US$1.75 billion.
The pattern of trade dominated by gold exports and industrial imports continued in the early 1990s (see table 9; table 10, Appendix). The government continued to promote exports and to limit imports in an effort to create the trade surplus (and foreign exchange reserve surplus) necessary for debt repayment. In 1993 exports were valued at roughly R79.5 billion (almost 35 percent of GDP) according to official estimates, and imports were valued at approximately R59 billion. In 1994 exports were valued at an estimated R89.1 billion, and imports, at R75.9 billion. In early 1995, imports began to outstrip exports, and South Africa's trade surplus declined at an uneven pace for the rest of the year. South African Reserve Bank estimates in early 1996 placed the value of exports in the previous year at R81 billion in merchandise and R20.2 billion in gold. Merchandise imports were about R98.5 billion, leading officials to predict that the trade balance could lapse into deficit. In early 1996, however, exporters took advantage of the sharp depreciation of the rand, and the trade surplus rose sharply. In dollar values, however, the trade balance remained almost flat as the benefits of the lower rand were offset by lower commodity prices
Foreign trade delegations began arriving in South Africa as international sanctions were being lifted in the early 1990s. Among its most dramatic turnabouts, South Africa sent a delegation to Moscow in mid-1991 to discuss strengthening trade ties, and for the first time, South African companies participated in a trade fair there.
South Africa's main trading partners in the mid-1990s are West European countries, the United States, and Japan. Members of the European Union (EU--see Glossary) receive roughly 40 percent of South African exports and provide one-third of South Africa's imports. In 1994 Switzerland, an important destination of South African diamonds, purchased the largest share of South African exports. Other markets for South African goods are the United Kingdom, the United States, Japan, and Germany, in that order. Leading sources of South African imports are Germany, the United States, the United Kingdom, Japan, and Italy.
The EU accorded South Africa duty-free entry on most of its industrial exports in early 1995, and the two were negotiating terms for the purchase of South Africa's agricultural products. In 1996 the EU granted South Africa a qualified membership in the Lomé Convention, to take effect in 1997. The Lomé Convention gives African, Pacific, and Caribbean countries preferential access to European markets.
South Africa's trade with the United States increased rapidly after 1994. In 1995 South Africa imported roughly US$2.75 billion worth of United States exports, mostly manufactured goods. This represented more than half of all United States exports to Africa. South Africa exported roughly US$2.21 billion worth of metals, alloys, and precious stones to the United States in that year, representing the only significant source of African products other than petroleum.
South Africa's trade with the rest of Africa, the natural market for its manufactured goods and agricultural products, was carried on both openly and clandestinely until the early 1990s, because of the OAU's long-standing trade ban. As commercial ties expanded in the 1990s, African countries purchased about 10 percent of South Africa's exports; Zimbabwe, Zambia, and Mozambique were the largest African markets. Only Zimbabwe supplied significant exports (primarily tobacco) to South Africa.
Official South African trade statistics include all members of the Southern African Customs Union (SACU). SACU arose out of a customs agreement between South Africa and the territories that became Botswana, Lesotho, and Swaziland, dating back even before the Union of South Africa was formed in 1910. SACU was formally established when the agreement was renegotiated in 1969, and Namibia joined the customs union when it became independent in 1990. Goods move freely among SACU member states, which share a common accounting procedure and impose a common tariff structure. Each country contributes to a shared fund and receives a fixed portion of revenues based on its approximate share of production and consumption. In the mid-1990s, South Africa was considering either dismantling SACU or restructuring its participation in the alliance.

Investment

During the 1960s, foreign investment in mining and manufacturing grew steadily, reaching over 60 percent of total foreign investment by 1970. After that, foreign investment in South Africa stagnated and in some cases declined, increasing the government's reliance on loans rather than on equity capital to finance development. In 1984 loans constituted over 70 percent of South Africa's foreign liabilities, as compared with only 27 percent from direct investments. As a result, when most loans were cut off in 1985, available investment capital dropped sharply, and the economy suffered. In 1989 a substantial proportion of gross investment--R39 billion out of R49 billion--represented depreciation.
Although international opposition to South Africa eased in the early 1990s and bans on investment were lifted, investment as registered on the Johannesburg Stock Exchange (JSE) continued to decline and South African share prices on the JSE and on the London Stock Exchange were low. Industrial shares fared better than other sectors, but even the industrial index showed only sluggish growth through 1991. The overall JSE index improved slightly in 1992, and this trend continued after that. In 1993 the index rose by nearly 50 percent, although the volume of trade continued to be low by international standards. By late 1995, foreign purchases on the JSE had risen to more than R4.5 billion.

Transport system

Foreign purchases were primarily in portfolio investment rather than direct investment through the mid-1990s. Most foreign direct investment was in the form of joint ventures or buying into existing enterprises. There was very little foreign direct investment in new enterprises, a trend that hit hardest in the struggling black business sector in South Africa. United States direct investment in South Africa rose during this time, from about US$871 million in 1992 to more than US$1.34 billion in 1995.
South Africans invested heavily in other African countries, even during the years of declining investments in South Africa. Tourist facilities were a favorite target for South African investments during the sanctions era. South Africans invested in tourist parks in Madagascar, for example, and in hotel development in the Comoro Islands and in Mozambique in the early 1990s. South African tourists, banned from many other tourist locales at the time, then shared in the benefits of these developments.

Balance of Payments

Before the debt crisis of 1985, South Africa's current-account position traditionally mirrored its business cycle, showing alternate surpluses and deficits. Whenever the economy grew faster than about 3 percent a year, local demand for imports increased, and when the economy slowed, imports decreased. In times of growth, when current-account deficits became too large, the government implemented restrictive monetary and fiscal policies in order to slow demand. After the 1985 debt crisis, however, South Africa had no choice but to run continuous current-account surpluses to meet repayment commitments. By the early 1990s, South Africa had become a capital-exporting nation because creditors wanted repayment on loans, and almost no new capital inflows other than replacement or rollover trade credits were available.
South Africa's current-account surplus, which had averaged about 3 percent of GDP in the late 1980s, increased sharply to exceed R6 billion in 1991, before declining slightly in 1993, according to the Central Statistical Service. In 1994 and 1995, import growth forced the current account into a deficit for the first time in more than a decade and officials estimated that the current-account deficit could reach R10 billion by 1997.
South Africa's gold and foreign currency reserves were hit hard by the need to repay the nation's loans in 1985 and 1986. At that time, gold holdings were sufficient to cover only about ten weeks of imports, and by the end of 1988 the reserve position had deteriorated to little more than six weeks of import cover. Although the capital account started to improve in 1990, and total gold and other foreign reserves rose to US$2.39 billion, this amount was still equivalent to the cost of only about six weeks of imports of goods and services. Net foreign currency reserves were still very low in the mid-1990s, at about R15.7 billion (about two months of import cover) in late 1995, and R10 billion (only about one month's import cover) in mid-1996.

Foreign Relations

The Ministry of Foreign Affairs is responsible for South African foreign policy decisions. The Department of Foreign Affairs (DFA) within the Ministry of Foreign Affairs conducts liaison with foreign governments and international organizations on all matters affecting official relations. These relations are conducted through foreign government officials, through diplomats accredited to South Africa, and through South Africa's accredited embassies, consulates, and other missions abroad. Until the early 1990s, the DFA and the diplomatic corps competed against numerous counterestablishment "diplomatic services" run by antiapartheid organizations in exile, especially the ANC. The aim of these parallel communication channels was to isolate the South African government within the international community as a means of pressuring Pretoria to abolish apartheid.

Shipping trade statistic

After the abolition of apartheid and the inauguration of the democratically elected Government of National Unity, South Africa's foreign relations were dramatically transformed. The country's diplomatic isolation ended, and existing relations with other countries and with international organizations improved. South Africa reestablished diplomatic and trade relations with many countries, particularly in Africa, and established new relations with some former sanctions "hardliners," such as India, Pakistan, Bahrain, Malaysia, Jordan, Libya, and Cuba. Several regional and international organizations invited South Africa to join, or to reactivate its membership, including the Organization of African Unity (OAU), the Southern African Development Community (SADC), and the United Nations (UN). In addition, South Africa participated in international and bilateral sport, academic, and scientific activities, often for the first time in decades. Relations with the countries of the former Soviet Union, Eastern Europe, and Central Europe improved. South Africa had full diplomatic ties with thirty-nine countries in 1990; that number increased to sixty-nine in 1993, and to at least 147 in 1995.
After the April 1994 elections, President Mandela appointed two ANC members, Alfred Nzo and Aziz Pahad, as minister and deputy minister of foreign affairs. He refused to make immediate sweeping changes in the diplomatic corps. The pillars of South Africa's future foreign policy had been enunciated by Mandela in late 1993, in an article published in Foreign Affairs . These principles are the promotion of human rights and democracy; respect for justice and international law in interstate relations; the achievement of peace through "internationally agreed and nonviolent mechanisms, including effective arms-control regimes"; incorporation of African concerns and interests into foreign policy choices; and economic development based on "cooperation in an interdependent world." In southern Africa, Mandela denounced South Africa's earlier economic domination of the region and its deliberate destabilization of neighboring states. Instead, Mandela called for "cooperation in regional construction, infrastructure and resource development projects . . . in virtually every sector and area." Finally, Mandela advocated the full reintegration of South Africa into global trade networks.
These foreign policy principles were being implemented even before Mandela's inauguration. For example, in early 1994 de Klerk and Mandela, along with the presidents of Botswana and Zimbabwe, helped mediate an end to a military revolt in neighboring Lesotho. In mid-1994, South Africa provided its first assistance to a UN peacekeeping operation when it supplied hospital equipment for Rwanda. Also in 1994, President Mandela agreed to help resolve the intractable civil war in Angola, although he cautioned against unrealistically high expectations in this and other deep-rooted political and ethnic conflicts.

Relations with African States

Official delegations from almost every other African state visited Pretoria in 1992 or 1993 to discuss ways to strengthen bilateral ties. South Africa's estimated 100 assistance projects in twenty-two African countries in 1991 more than doubled by 1994 and provided technical aid and training in agriculture, wildlife conservation, education, and health care. The effects of the early-1990s drought in southern Africa would have been even more devastating to the region's agriculture and wildlife if South Africa had not provided transportation and food assistance to its neighbors.
The change in South Africa's regional standing was dramatically marked by its admission to the Southern African Development Community (SADC) in August 1994. The twelve-member organization (also including Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Swaziland, Tanzania, Zambia, and Zimbabwe) aims to promote regional cooperation in economic development and security affairs. The SADC annual meeting of heads of state and government was held in Johannesburg on August 28, 1995. The assembled leaders agreed to create a regional common market with the elimination of all internal trade barriers by the year 2000. They also signed an agreement to share water resources among SADC member nations.

Relation map

Almost all African countries had depended on South African trade even during the sanctions era, despite their strong rhetorical condemnation of the apartheid regime. In 1991 South Africa's trade with the rest of the continent was at least US$3.5 billion, and this figure increased steadily as apartheid was being dismantled.
For the five landlocked countries of southern Africa (Botswana, Lesotho, Swaziland, Zambia, and Malawi), South Africa's well-developed system of roads, railroads, and port facilities provides a vital trade link. The Southern African Customs Union (SACU), headquartered in South Africa, provides a common customs area, including Botswana, Lesotho, Swaziland, and Namibia (see Foreign Trade, ch. 3).

Trade in Spain

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COUNTRY

Mosjeed of Spain

Formal Name: Spanish State.
Short Form: Spain.
Term for Citizens: Spaniard(s).
Capital: Madrid.

GEOGRAPHY

Spain in Map

Size: Peninsular Spain covers 492,503 square kilometers. Spanish territory also encompasses the Balearic Islands (Spanish, Islas Baleares) in the Mediterranean Sea and the Canary Islands (Spanish, Canarias) in the Atlantic Ocean, as well as the city enclaves of Ceuta and Melilla in North Africa.
Topography: Peninsular landmass predominantly a vast highland plateau--the Meseta Central--surrounded and dissected by mountain ranges. Major lowland areas include narrow coastal plains, Andalusian Plain in southwest, and Ebro Basin in northeast. Islands, especially Canary Islands, mountainous.
Climate: Predominantly continental climate with hot, dry summers and rather harsh, cold winters. Wide diurnal and seasonal variations in temperature and low, irregular rainfall. Maritime climate prevails in northern part of country, characterized by relatively mild winters, warm but not hot summers, and generally abundant rainfall spread throughout year. Slight diurnal and seasonal variations in temperature. Mediterranean climate experienced from Andalusian Plain along south and east coasts, characterized by irregular, inadequate rainfall, mostly in autumn and winter.

ECONOMY

Gross Domestic Product (GDP): US$340.1 billion in 1988 (US$8,702 per capita). Economy stagnant during late 1970s and first half of the 1980s, but real gross domestic product growth averaged 3.3 percent in 1986 and 5.5 percent in 1987, roughly double the West European rate.

Innovative ship of Spain for business

Agriculture: Made up about 5 percent of GDP in 1988 and employed about 15 percent of population. Very important producer of citrus fruits, olive oil, vegetables, and wine. Agricultural products made up more than 15 percent of country's exports. Productive and modern farming along southern and eastern coasts able to meet foreign competition. Small antiquated farms of northwestern region threatened by Spain's membership in European Community.
Industry: Made up about 30 percent of GDP and employed about one-third of work force in late 1980s. Consisted of unprofitable heavy industry segment, mainly government-owned, and profitable chemical and manufacturing components that accounted for most of Spain's exports.
Services: Accounted for about half of GDP in 1988. Tourism vital to the economy, and it alone made up about a tenth of GDP. In 1987 more than 50 million foreign tourists visited Spain.
Imports: US$49.1 billion in 1987. Because of a surging economy, approximately one-fourth of this amount consisted of capital goods and about one-fifth of consumer goods. Fuels made up approximately one-sixth.
Exports: US$34.2 billion in 1987. Raw materials, chemicals, and unfinished goods made up about one-third of this amount, as did non-food consumer goods, most notably cars and trucks. Agricultural products and wine supplied about one-sixth of total exports.
Major Trade Partners: In 1987 63.8 percent of Spain's exports went to the EC, which it supplied Spain with 54.6 of its imports. France was single biggest buyer of Spanish exports, taking 18.9 percent in 1987. Federal Republic of Germany (West Germany) most important exporter to Spain, supplying 16.1 percent that year. United States accounted, respectively, for 8.3 and 8.1 of Spain's imports and exports.
Balance of Payments: Spain without a positive merchandise balance since 1960. However, large earnings from tourism and remittances from Spaniards working abroad guaranteed a positive current account balance up through 1987.
General Economic Conditions: Strong growth since mid-1980s and controlled inflation made Spain's economy one of Western Europe's healthiest. Full membership in EC posed a threat for weaker sectors of the economy, both industrial and agricultural. Spain had long had Western Europe's highest unemployment rate, more than 20 percent.
Exchange Rate: In March 1988, 113.49 pesetas (see Glossary) to US$1.
Fiscal year: Calendar year.

FOREIGN ECONOMIC RELATIONS

Spain has had a long legacy of tariff protectionism and economic isolationism, and until the 1960s it remained outside the West European and international economic mainstreams. Spain's effort in the late 1980s to accelerate its integration into the EC customs and economic structures resulted in a drastic accommodation to international and West European trading standards.

Major export and import field

When Spain embarked on a period of economic modernization in the 1960s, its foreign trade, as a percentage of overall economic activity, was below the average for other major West European countries. Exports and imports amounted to about 16.5 percent of the Spanish GDP in 1960. During the 1960s, Spain's foreign trade increased at an annual rate of about 15 percent; in the 1970s, it grew at an even higher rate. After the oil price increases of the 1970s slowed the world economy, Spanish trade expanded less rapidly. By 1984, after a period of sluggish growth, foreign trade made up about 25 percent of the country's GDP. According to the Economist, in 1987 Spanish imports and exports, respectively, accounted for 16.8 and 11.7 percent of the nation's GDP. These figures indicated an increasing linkage with the world economy, but even in the 1980s foreign trade played a smaller role in Spain's economy than it did in most other European countries.
Spain has not had a positive trade balance since 1960, when exports of US$725 million exceeded imports by US$4 million. In 1961 imports were about one-third larger than exports--a quantitative relationship that, for the most part, has held steady ever since then, despite enormous increases in Spanish exports. In the mid-1980s, Spain's trade deficits ranged from just over US$4 billion in 1984 and in 1985 to US$13 billion in 1987, when merchandise imports amounted to US$49.1 billion, and exports, to US$34.2 billion. A booming economy with strong domestic demand was responsible for a surge of imports in 1987-- an increase of 25 percent, compared to 1986.
Spain's chronic trade deficits were often offset by large earnings from the tourist industry and by remittances from Spaniards working abroad. The revenue from these two sources often allowed invisible receipts to exceed the trade deficit, the result being a surplus in the nation's current account balance. In 1983 Spain's current account balance registered a deficit of US$2.7 billion, but this was followed by surpluses during the next four years. In 1985 the surplus amounted to US$2.8 billion, and in 1986 it was US$4.2 billion. The surplus for 1987 was only US$184 million but, as capital goods made up much of that year's imports, economists were not alarmed.
Although famous for its production of citrus fruits, olives, and wine, about three-quarters of Spain's exports consisted of manufactured products in the mid-1980s. In 1986 and in 1987, manufactured goods made up 74.4 and 72.4 percent of the country's exports, respectively, while foodstuffs accounted for 16.1 and 17.6 percent, respectively. In these two years, raw materials made up about 4 percent of Spain's exports, and fuel products, about 6 percent. Merchandise imports generally exceeded merchandise exports by about one-third. In the 1980s, manufactured goods constituted about two-thirds of all imports, fuels as much as one-fifth, and other raw materials and foods about one-tenth each.

Trading Partners

Trading sector of Spain

Ever since steps were taken in the 1960s to liberalize Spain's economy, its trade with West European countries had steadily expanded. In 1973 EC countries accounted for 47.8 percent of Spain's exports, and they provided 37 percent of its imports. In the early 1980s, this ratio had not changed significantly; in 1982 the respective figures were 48.6 and 31.8 percent. After Spain's accession to the EC, however, the balance shifted radically; in 1987, some 63.8 percent of Spain's exports went to the EC, while the EC supplied Spain with 54.6 percent of its imports. In 1987 France was Spain's most important trading customer, taking 18.9 percent of its merchandise exports; West Germany was the largest source of imports, supplying 16.1 percent of the total. The United States, which was Spain's single most important trading partner in the 1970s, accounted for just over 8 percent of both imports and exports in 1987. Increased trade with the EC caused Spain's economic interaction with most of the rest of the world to decline on a relative basis. This decline was most marked with regard to the Organization of Petroleum Exporting Countries (OPEC), which supplied Spain with 26.8 percent of its imports and received 5.3 percent of its exports in 1982, compared with 9.5 and 6.5 percent in 1987.

Foreign Investment

Since the late 1950s, foreign investment has played an increasingly crucial role in Spain's economic modernization. One of the first and most significant steps included in the Stabilization Plan of 1959 was granting foreigners permission to buy Spanish securities. In 1963 this measure was supplemented by allowing foreigners the right to secure majority interest in Spanish companies, except those engaged in fields deemed to have strategic importance. As a result of these actions, there was a large influx of foreign capital into Spain.

Statistic

Spain was attractive to foreign investors not merely because it offered opportunities for participating in a rapidly expanding domestic market, but also because it served as a base for further export and trade with EC countries. This was a leading factor in Ford Motor Company's 1974 decision to build an assembly plant near Valencia, and in General Motors' entry into the Spanish market. Japanese companies also intensified their investments and presence in Spain with similar goals in mind. Low-cost labor was another attraction for foreign investors, though not to the same extent as in the 1960s and the 1970s.
In compliance with the EC accession agreement, rules governing foreign investment in Spain were adapted to EC standards in 1986. The new measures streamlined administrative procedures and reduced the number of sectors in which foreign ownership was restricted. The requirement for prior authorization of investments was replaced by one calling merely for prior notification. Notification had to be given when the investment was for more than 50 percent of a Spanish enterprise, when it constituted a re-investment by foreigners, or when its goal was the establishment of branches of foreign companies on Spanish soil.
The influx of foreign investment was extremely large during the 1980s, almost tripling between 1982 and 1987. Some of it took the form of speculative investment, attracted by high Spanish interest rates. More than half of all new foreign investments in Spain represented an expansion of previously existing investments; nearly one-third were in the chemical industry and in the nonfuel mineral processing sector. EC countries became the most important source of investment. The United States, nonetheless, still accounted for about 20 percent of the cumulative foreign investment total. It was expected that, if negotiations being conducted in 1988 for a United States-Spain treaty to avoid double taxation were successful, United States investment might increase.
Spanish direct investment abroad, for which regulatory restrictions were liberalized in 1986, doubled to 101 billion pesetas in 1987. EC countries accounted for 64 percent of the total, with the Netherlands, West Germany, and Portugal being the largest recipients. Investments in the United States fell to 8 percent of the total. Spanish investments in Latin America, especially in Mexico and in Argentina, declined sharply because of heavy debt burdens in that region. By the late 1980s, analysts estimated that Latin America accounted for only 4 percent of Spain's foreign investments.

Spain and the European Community

The year 1992 promised to be one of the most momentous for Spain in the twentieth century. The Summer Games of the XXVth Olympiad were to be held in Barcelona; the five hundredth anniversary of the discovery of the New World was to be celebrated in Seville, with an ambitious international exposition known as Expo 92; and Madrid had been designated as Europe's cultural capital for that year. Moreover, 1992 would mark the culmination of a forced march to modernize the country's economic, social, and financial institutions, because Spain would be fully exposed to the bracing winds of unfettered economic competition from the members of the EC. By the end of 1992, the EC's plan to eliminate barriers to trade, employment, and the flow of capital across the twelve member states' borders was to take effect.
Spain's long adherence to protectionism had been a major factor in its technological and economic backwardness. The Socialist government's commitment to economic modernization and to Spain's integration into the European economic mainstream thus represented a historic landmark. The end of authoritarian rule in 1975 led Spain to embrace a system of political democracy, but changes in the economic sphere proved more difficult. In the 1980s, true economic modernization was only beginning, as the Gonzalez government cast Spain's national goals in terms of increasing its competitiveness, both within Europe and around the world.
The Spanish economy had long functioned on a two-tiered basis. One part--including most notably the automobile manufacturing and chemical industries--was technologically advanced. An even larger part was accustomed to operating inefficiently, protected from outside competition and highly fragmented into a host of small and medium-sized enterprises that accounted for as much as 90 percent of Spain's commerce and industry. It was in this second economic area that the brunt of accelerated change was being felt in the second half of the 1980s, as many small, inefficient concerns faced the effects of free market competition.
Spain had been trying to join, or to align itself with, the EC since 1962. The barriers to Spanish membership were primarily political, and they reflected varying degrees of European hostility to the Franco government rather than fear of economic competition. Among the members of the EC, only Italy and France, with similar agricultural export commodities, had substantial economic motives for opposing Spain's entry into the EC.
After long negotiations, which began in 1962, Spain and the EC signed a preferential trade agreement in June 1970. The agreement called for mutual tariff reductions, ranging from 25 to 60 percent, to be applied gradually over a six-year period. Quantitative restrictions for a number of items were eased under a special quota system.

At the end of the Franco era, little attention was given to Spain's urgent economic problems. Spaniards and their postFrancoist governments tended to regard membership in the EC as a symbolic political act that obtained recognition for Spain's return to democracy, rather than as a portentous economic policy decision irretrievably linking Spain's economic future with that of Europe. The result was that, although Spain had applied for membership nearly a quarter of a century earlier, little national debate took place prior to the signing of the 1985 accession agreement, which was concluded only after arduous negotiations.
The accession agreement called for gradual integration to be carried out over a seven-year period, beginning on January 1, 1986. This adjustment transition involved a number of significant features. Customs duties were to be phased out as of March 1, 1988, and industrial tariffs on EC goods were to be phased out on a reciprocal basis until January 1, 1993. Additional import levies, most notably Spain's tax rebate on exports, were to disappear upon its entry into the EC. With some exceptions, import quotas were to be removed immediately. Quotas on color television sets and tractors were to be eliminated by the end of 1988, and those for chemicals and textiles, by the close of 1989.
In principle, EC-based companies were free to invest in Spain. National assistance programs for industrial projects were subject to strict EC regulations, but special allowances were made for the steel industry, and Spain was allowed to keep its 60 percent local content rule for automobile manufacturing until the end of 1989. Spain became subject to EC antitrust rules immediately, however.
Spain was obliged to adhere to EC product and consumer protection standards at once. Like other EC members, Spain was required to levy a value-added tax, which was the EC's principal source of revenue. Spanish workers were to be able to circulate freely and seek employment in the EC by 1993.
Phased alignment with the EC's Common Agricultural Policy (CAP) was to be completed only in 1996. The Spanish widely regarded this as a discriminatory action taken by EC countries to prevent imports of Spanish tomatoes, olive oil, and wines until as late a date as possible. Spain's fishing industry, the largest in Western Europe, received the right to fish in most EC waters, but its catch was sharply restricted until 1995.
Despite a favorable attitude toward the establishment of an eventual EC-wide monetary union in the late 1980s, the government was reluctant to commit the peseta to stabilization within the European Monetary System (EMS) because of its over-valued exchange rate. In mid-1988 the Bank of Spain took what was regarded as a symbolic step toward full membership in the EMS by formally accepting the 1979 Basel agreement. By the terms of the agreement, EC central banks made 20 percent of their gold and foreign currency reserves available to the European Monetary Cooperation Fund, against the equivalent in European Currency Units. The subject of the peseta's inclusion in the ECUs, in all likelihood a prerequisite of Spain's full participation in the EMS's exchange-rate system, was to be taken up in September 1989, when the composition of the next ECU would be determined.
The Spanish government sought special treatment for the peseta, the exchange rate of which was considered inflated. Such an arrangement would permit relatively wide margins of fluctuation similar to those enjoyed by the Italian lira. The International Monetary Fund urged Spain's early membership in the EMS, and the pressure to reach a decision on this EMS question was bound to increase when Spain assumed the EC presidency during the first half of 1989.
In the late 1980s, some of the more painful aspects of Spain's integration into the EC were cushioned by the country's expansionary economic boom, the continuing fall in oil prices, a sharp reduction in the exchange value of the United States dollar, and the massive inflow of foreign investment, as numerous foreign multinational companies endeavored to participate in Spain's expanding consumer market. Observers expected that Spain's industrial enterprises, especially the more inefficient and backward ones, would be absorbed by more modern domestic and foreign entrepreneurs or would cease operations. Over the long term, however, the Spanish economy was expected to resemble that of its more advanced EC counterparts much more closely by the year 2000 than it had in the past.

* * *

Although there is a growing literature in Spanish and in English on the Spanish economy during the Franco regime (1939- 75), there is little available in English on the post-Franco period, with the notable exception of Ramon Tamames's classic and encyclopedic The Spanish Economy. Among the more useful books on the Franco period, in English, are Joseph Harrison's The Spanish Economy in the Twentieth Century and Stanley Payne's The Franco Regime, 1936-1975. For information and analysis of industrial, financial, and economic developments in more recent years, readers should consult the annual country surveys of the OECD and the quarterly Country Report: Spain and the Country Profile: Spain, both published by the Economist Intelligence Unit. The annual reports of the Bank of Spain also are particularly useful. Current statistical data can be found in the Anuario Estadistica, a yearbook issued by the Spanish government's statistics bureau, the Instituto Nacional de Estadistica. For up-to-date information on government and private-sector economic activities, London's Financial Times and the Economist provide some of the most comprehensive coverage and also publish survey supplements on various aspects of Spanish economic and financial activities.

Trade in Kuwait

2012-02-28T07:47:00.000-08:00

COUNTRY

Fatma Mosjeed of Kuwait

Formal Name: State of Kuwait.
Short Form: Kuwait.
Term for Citizens: Kuwaiti(s); adjectival form, Kuwaiti.
Capital: Kuwait (city of Kuwait frequently used to distinguish it from country).
Date of Independence: June 19, 1961.

GEOGRAPHY

Size: About 17,818 square kilometers.
Topography: Almost entirely flat desert.
Climate: Hot, dry, desert climate; sandstorms in June and July; some rain, mainly in spring.
NOTE--The Country Profile contains updated information as available.
Boundaries: Mostly defined; United Nations post-Persian Gulf War 1992 boundary settlement accepted by Kuwait but rejected by Iraq.

Kuwait in map

ECONOMY

Gross Domestic Product (GDP): In 1990 United Nations Development Programme estimated US$15,984 per capita GDP.
Oil Industry: Provided 41 percent of GDP and 87 percent of government revenues in 1989, 58 percent of government revenues in 1990, and 11 percent of government revenues in 1991, showing effects of Persian Gulf War. Crude oil production in 1992 (after oil well restoration during year) about 41 million barrels, compared with about 387 million barrels in 1985.
Industry: About 14 percent of GDP in 1989. Largest industries petrochemicals and building materials.
Agriculture: Little farming--mostly vegetables and fruits. Most food imported. Some fishing.
Exports: US$11.5 billion in 1989; mostly crude oil and refined products. Asia and Western Europe main markets.
Imports: US$6.3 billion in 1989--largely such finished products as appliances and vehicles from industrialized nations, particularly Japan, United States, and Western Europe.
Currency and Exchange Rate: Kuwaiti dinar. On March 1, 1994, exchange rate US$1 = KD3.55.
Fiscal Year: July 1 to June 30.

Statistic for Kuwait economy

Foreign Investment

From the very beginning, government officials were keenly aware that oil was a depletable asset, that the country had few other resources, and that preparations had to be made for the day when there would be no more oil. As soon as the government began to receive oil revenues, officials spent less than the treasury received, leaving a surplus in the state's general reserve to be invested. Because of limited domestic investment opportunities, most investments were made abroad. World Bank economists estimate that about 25 percent of revenues were placed in foreign assets during the 1950s, although the Kuwaiti government's published data have always been vague about reserves as well as about some other economic variables.
In the 1950s and 1960s, Kuwait began investing overseas in property and businesses in Britain. In 1952 Kuwait established an office in London, staffed with experienced British investment counselors who guided the government's placement of funds. In the same year, Kuwait created investment relations with a large New York bank. Because of the vastly expanded oil revenues of the 1970s, Kuwait's overseas investment program grew tremendously. In 1976 the government established the Reserve Fund for Future Generations, into which it placed an initial US$7 billion. It resolved to invest 10 percent of its revenues annually in the reserve fund. Money from the fund, along with other government revenues, was invested in overseas property and industry. In the 1970s, most of these funds were invested in the United States and in Western Europe: in German firms (such as Hoechst and DaimlerBenz , in each of which Kuwait owned 25 percent), in property, and in most of the United States Fortune Five Hundred firms. In the 1980s, Kuwait began diversifying its overseas investments, placing more investments in Japanese firms. By the late 1980s, Kuwait was earning more from these overseas investments than it was from the direct sale of oil: in 1987 foreign investments generated US$6.3 billion, oil US$5.4 billion. The Financial Times of London estimated Kuwait's overseas investments in early 1990 at more than US$100 billion, most of it in the Reserve Fund for Future Generations.

Relation map of Kuwait

The Iraqi invasion proved the importance of these investment revenues. With oil revenues suspended, the government and population in exile relied exclusively on investment revenues, including sales of investments for sustenance, for their share of ongoing coalition expenses and for postwar reconstruction and repair of the vital oil industry.

Foreign Aid and Trade

Foreign trade has always dominated Kuwait's economy. Before the discovery of oil, merchants developed large transshipment and reexport businesses that, along with the sale of pearls to foreign dealers, yielded a substantial part of the population's income. The discovery of large quantities of oil provided a new and increasingly important export because Kuwait needed only small amounts of oil products domestically. Nonetheless, even after the discovery of oil, Kuwait's merchants continued to develop transshipment and reexport businesses with neighboring countries. During the Iran-Iraq War, goods for Iraq passed through Kuwaiti ports. Oil, however, overwhelmingly dominated Kuwait's exports.
Kuwait's significant foreign-exchange earnings from oil exports and investment income largely removed any constraints on imports in the pre-invasion period. Almost any commodity could be imported, and most import duties were modest. Imports for Kuwait's high-income economy were mainly finished products because of the small domestic manufacturing sector. These imports came predominantly from Asian countries, followed by those from European countries. Imports of all kinds came primarily from Japan and the United States. After the Persian Gulf War, imports from the United States increased dramatically. Huge oil revenues, paid in foreign currencies, freed Kuwait for the most part from balance of payments worries. The government accumulated surplus funds that were invested abroad. A large part of these reserve investments abroad, however, were cashed in during the Iraqi occupation and the liberation period that followed in order to pay the expenses of Kuwait and the allied coalition.

Statistic

Historically, Kuwait also invested part of its revenues in foreign aid, primarily to Arab states. This foreign aid increased substantially as oil revenues rose in the 1970s. It took many forms, such as loans, joint financing, equity participation, and direct grants, particularly in support of Arab causes. In the 1960s, the government began placing funds in the Kuwait Fund for Arab Economic Development (KFAED), established in 1961. The best known of Kuwait's investment organizations and one that was used as a model by other oil exporters, KFAED functioned as both an investment and an aid agency, providing loans for specific projects, often on concessionary terms. KFAED's charter was changed in 1974, when capitalization was increased to KD1 billion, and the fund began expanding its provision of funds to developing countries worldwide. Most KFAED aid went to development projects, especially in agriculture, to provide basic services such as electricity, water, and transportation and to develop human resources through education and health care. A large amount of aid went directly from the government to other states. In per capita terms, Kuwait's aid program was one of the most generous in the world. In the early 1980s, when oil prices were high, nearly 4 percent of Kuwait's gross national product went to the aid program. But in the late 1980s, the levels of aid declined along with declining revenues. After the Iran-Iraq War started, in 1980, Kuwait increasingly directed its aid toward Iraq. During the 1980s, Kuwait lent Iraq an estimated US$13 billion. Kuwait's foreign aid slowed considerably after the Iraqi invasion in August 1990 and is expected to remain limited as Kuwait deals with the costs of reconstruction.

Kuwait -- FOREIGN RELATIONS

As the Iraqi invasion demonstrated, Kuwait's large oil revenues and inherently small defense capabilities gave it tremendous vulnerability. Historically, until the Iraqi invasion, Kuwaiti leaders had always dealt with that vulnerability through diplomacy, trying to find allies that would protect them while maintaining as much independence as possible from those allies by playing them off against each other. Historically, the most important ally was Britain. Kuwait's relationship with Britain came about at the bidding of the early Kuwaiti leader Shaykh Mubarak in an effort to deter a still more troublesome actor, the Ottoman Empire. As one consequence of the 1899 treaty, which gave Kuwait a better status than was the case in British treaties with other possessions, the British presence remained somewhat distant, and British officials meddled less frequently in local politics.

GDP of Kuwait

The relationship with Britain continued beyond independence on June 19, 1961, and the new agreement between independent Kuwait and Britain promised continued British protection as necessary. That protection proved necessary when Iraq, six days after Kuwait's independence, declared Kuwait a part of Iraq and sent troops toward the amirate in support of that claim. Because Kuwait's army was too small to defend the state, British troops arrived, followed soon after by forces from the League of Arab States (Arab League), in the face of which Iraqi forces withdrew.
As Britain increasingly withdrew from the gulf in the 1970s and 1980s, Kuwait was forced to look for other sources of support. Although Kuwaiti leaders tried to maintain a degree of neutrality between the superpowers--Kuwait had an early and sustained economic, military, and diplomatic relationship with the Soviet Union--in the end it was obliged to turn to the United States for support. The Iran-Iraq War was the decisive factor in consolidating closer ties with the United States. Although at the outset of the war Kuwait was an outspoken critic of United States military presence in the gulf, during the war this position changed. When Kuwaiti ships became the target of Iranian attacks, Kuwait's security situation deteriorated, and Kuwait approached the Soviet Union and the United States with requests to reflag and thus protect its beleaguered tankers. As soon as the Soviet Union responded positively to the request, the United States followed. The ground was thus laid for subsequent United States support.

Economic Reconstruction

Despite the devastation of the Kuwaiti economy during the invasion and occupation, recovery has proceeded with surprising speed. This was partly because some damage, particularly of the infrastructure, was not as serious as first feared and partly because the government, anxious to restore the population's weakened confidence in its ability to administer, has given reconstruction and recovery of basic services a high priority.
The oil industry, which was badly damaged, has been a top priority because it is the source of revenues to sustain other government spending programs. The most dramatic economic reconstruction effort went toward capping the more than 700 oil wells set afire by retreating Iraqi forces. In addition to an estimated 2 percent of the country's 100 billion barrels of reserves lost in the oil fires, Kuwait had to pay for putting out fires and repairing damaged refineries, pipelines, and other oil infrastructure. By January 1992, oil output had risen to 550,000 bpd. By June 1992, it was back to nearly 1 million bpd. Nineteen new wells were drilled to replace those damaged by the occupation.
The government hoped to raise production to 2 million bpd by the end of 1993. During the invasion, Iraq destroyed or incapacitated Kuwait's entire 700,000 bpd refining capacity at its three refineries. But by April 1992, production levels rose to 300,000 bpd. Nonetheless, there was concern that the rapid return to production might have damaged Kuwait's oil reservoirs beyond the damage done by retreating Iraqi forces, lowering its total future reserves. Accordingly, KOC contracted with several international companies to assess reservoir damage. However, the government also has been under tremendous pressure to increase oil production quickly to pay for war and postwar expenses. In the mid-1980s, overseas investments outstripped oil as the primary source of revenues. The expenses of war, postwar reconstruction, and investment irregularities that were being uncovered in late 1992 have forced the government to use substantial portions of its investment principal, and in the 1990s oil is again expected to be the major revenue source.

Kuwait business center

Restoring oil operations was expensive. In January 1992, the minister of oil announced Kuwait had already spent US$1.5 billion for putting out fires and planned to spend another US$8 to US$10 billion to repair further damage. A National Bank of Kuwait report in mid-1992 estimated that reconstruction expenses in the oil sector for the 1992-95 period would reach US$6.5 billion.
The rest of the economy also suffered, although the effects were not as severe as the oil-well fires. The banking sector, suffering the shock waves of the Suq al Manakh stock market crash in 1982, recovered slowly from the combined effects of that crash and the invasion. The agenda of the returned government included bank reform. In December 1991, the government announced a comprehensive settlement plan for bad debts, the outstanding issue of the Suq al Manakh crash. The plan involved government purchase of the entire domestic loan portfolio of the country's local banking system. The government agreed to buy US$20 billion of domestic debt from eleven commercial banks and investment companies in exchange for bonds. This plan removed the concerns of Kuwaitis, who would be obliged to repay debts, if at all, on more modest terms, and of banks, concerned about nonperforming loans. Although Shaykh Salim al Abd al Aziz Al Sabah, governor of the Central Bank of Kuwait, said the plan is needed to prevent the collapse of banks, it clearly also is intended as part of a series of government payments to Kuwaiti nationals and businesses aimed at restoring confidence in the government prior to the October election. The plan, announced but as yet incomplete, left the entire banking system in a state of limbo in late 1992.
Banks have suffered less from the physical damage of the war and more from the sudden reduction in the number of employees, many of whom in the prewar period were foreigners. Some banks reported postwar staff levels at half that before the invasion. Although there has been speculation that postwar reform will include mergers involving state-controlled banks (notably the Kuwait Investment Company, the Kuwait International Investment Company, and the Kuwait Foreign Trading, Contracting, and Investment Company, known together as the three Ks) and privatesector banks, no formal action had been taken as of late 1992. The bank that survived the invasion in the best shape was the largest commercial bank, the National Bank of Kuwait. It handled the exiled government's finances during the crisis.
According to a National Bank of Kuwait report issued in mid-1992, several additional factors hurt the private sector's recovery. The first was the government's decision to restrict the number of nonnationals, which hampered efforts to import skilled and unskilled labor and left Kuwait with a smaller market. The second was the lower level of government investment in industry as a result of reduced government income and the government decision to invest more in defense and focus in the short run on restoring basic services. The non-oil manufacturing sector, although small, was hurt by the looting and damage done by Iraqi troops. The government has been in no position to subsidize industries at the level it had in the past. Infrastructure projects incomplete before the invasion have not been resumed or have been delayed.
The only sector of the economy to prosper in the immediate postwar period is trade because of the need to replace inventory emptied during the occupation. Returning Kuwaitis and the government have created a small boom for investors. By mid-1992, however, the return demand largely had been met, and many goods, notably automobiles and consumer durables, were available in excess supply. In an effort to boost the private sector, the government approved an offset program in July 1992 requiring foreign companies to reinvest part of their government-awarded contracts locally. Companies with contracts valued at more than US$17 million have been obliged to reinvest 30 percent of the contract sum.
Despite some speculation that the government would turn more functions over to the private sector following its return, widespread privatization has not occurred. In February 1992, the government announced plans to start privatizing the public telecommunications network, a move that was expected to generate US$1 billion for the government. In May the government announced it would privatize seventy-seven local gas stations. There have been, however, no indications of more substantial denationalizations.
Reconstruction costs, which some foreign observers initially put as high as US$100 billion, appear to be more modest, perhaps in the range of US$20 to US$25 billion. The largest postwar expense the government faces is not reconstruction, but the debt it incurred to coalition allies to help pay for Operation Desert Storm, an amount that came to at least US$20 billion, and continuing high defense expenditures. Reconstruction costs have been met largely from Kuwait's reduced investments (the Financial Times estimated in February 1992 that Kuwait had lost as much as US$30 billion of its prewar investment portfolio); from returning oil revenues, which for fiscal year 1992 were only expected to generate US$2.4 billion; and from borrowing on international money markets. In October 1991, the government announced plans to borrow US$5 billion for the first phase of a five-year loan program. The loan would be the largest in history. In mid-1992 one study indicated that as much as 30 percent of 1993 revenue will be needed to pay interest on various government debts, which were expected to exceed US$37 billion by the end of 1992.
Despite the apparently dire economic situation, the government has felt politically obliged to sustain insofar as possible the prewar standard of living. Some of the largest domestic postwar government expenditures have gone directly to Kuwaiti households. The banking debt buyout was but one of a series of measures taken by the government to help nationals hurt by the invasion. The government decided to pay all government employees (the majority of working nationals) their wages for the period of the occupation. In March 1992, the government raised state salaries. The government also agreed to write off about US$1.2 billion in consumer loans, a measure benefiting more than 120,000 Kuwaitis. It wrote off US$3.4 billion worth of property and housing loans made before the invasion. Each Kuwaiti family that stayed in Kuwait through the occupation received US$1,750. In July 1992, the government exempted Kuwaitis from charges for public services due as a result of the occupation, such as bills for electricity, utilities, and telephone service and for rents on housing.

Trade in Finland

2012-02-27T04:30:00.000-08:00

Finland Mosjeed

Country Profile

Formal Name: Republic of Finland
Short Form: Finland
Term for Citizens: Finns
Capital: Helsinki
Date of Independence: December 6, 1917.

GEOGRAPHY

Size: About 338,145 square kilometers, slightly larger than Missouri and Illinois combined. About 10 percent of area made up of inland water. A quarter of the country above Arctic Circle.

Finland in Map

Topography: Four natural regions. Archipelago Finland begins in southwestern coastal waters and culminates in Aland Islands. Coastal Finland a band of clay plains, extending from Soviet to Swedish border. Seldom exceeding width of 100 kilometers, plains slope upward to central plateau that forms basis of interior lake district. This core region contains more than 55,000 lakes set within country's densest forests. Rising above central plateau, upland Finland extends into Lapland, where forests gradually yield to harsh climate. Above timber line are barren fells and numerous bogs. Upland Finland crossed by country's largest and longest rivers.
Climate: Gulf Stream and North Atlantic Drift Current moderate temperatures somewhat, but winter still lasts up to seven months in north, and most years gulfs of Finland and Bothnia freeze, making icebreakers necessary for shipping. Long days in summer permit farming far to north. Continental weather systems can bring quite warm summer temperatures and severe cold spells in winter.

ECONOMY

Gross Domestic Product (GDP): US$70.5 billion in 1986 (US$14,388 per capita). Economy grew faster than other Western industrialized countries throughout 1980s, averaging about 3.3 percent per year from 1980 to 1986.
Agriculture and Forestry: Below 8 percent of GDP and about 10 percent of employment in 1986, but sufficient to make country self-sufficient in staple foods and provide raw material to crucial wood-processing industries.
Industry: Major growth sector, contributing nearly 35 percent of GDP and 32 percent of employment in 1986. Main engine of postwar structural change, industry faced increasing competition in 1980s causing restructuring and a shift to hightechnology products.
Services: Largest sector, providing nearly 58 percent of GDP and about 57 percent of employment in 1986. Generally labor-intensive and uncompetitive, but banking, engineering, and consulting showed promise.
Imports: Raw materials, especially fuels, minerals, and chemicals, but growing share of foods and consumer goods.
Exports: Primarily industrial goods, especially forestry products and metal products; growing high-technology exports.

Goods Trade

Major Trade Partners: Soviet Union largest single trade partner, but West European countries together accounted for nearly two-thirds of trade.
Balance of Payments: Despite positive trade balance, Finnish tourist expenditures abroad and debt service caused continuing current account deficits in 1980s.
General Economic Conditions: Standard of living high despite difficult environment. Inflation traditionally exceeded that of other industrialized countries, but fell below 4 percent in 1986; unemployment, at about 6 percent in 1987, was considered Finland's most serious economic problem.
Exchange Rate: In March 1988, Finnish mark (Fmk) 4.08=US$1. Fully convertible, but some capital controls maintained by Bank of Finland.

Economic Development

Export rate

Material conditions were difficult at the birth of the Finnish republic. The country's industries had started to develop after about 1860, primarily in response to demand for lumber from the more advanced economies of Western Europe, but by 1910 farmers still made up over 70 percent of the work force. Finland suffered from food shortages when international trade broke down during World War I. The fledgling metal-working and shipbuilding industries expanded rapidly to supply Russia during the early years of the conflict, but the empire's military collapse and the Bolshevik Revolution in 1917 eliminated trade with the East. The Finnish civil war and the subsequent massacres of the Reds spawned lasting labor unrest in factories and lumber camps, while the plight of landless agricultural laborers remained a pressing social problem.
During the immediate postwar years, Finland depended on aid from the United States to avoid starvation, but by 1922 industrial production had reached the prewar level. While trade with the Soviet Union languished for political reasons, West European, especially German, markets for Finnish forest products soon reopened. In exchange for lumber, pulp, and paper--which together accounted for about 85 percent of exports--Finland obtained needed imports, including half the nation's food supply and virtually all investment goods.
Despite political instability, the state built a foundation for growth and for greater economic independence. The first and most important step was an agricultural reform that redistributed holdings of agricultural and forest land and strengthened the class of smallholders who had a direct stake in improving farm and forest productivity. The government also nationalized large shares of the mining and the wood-processing industries. The subsequent public investment program in mines, foundries, wood and paper mills, and shipyards improved the country's ability to process its own raw materials. By the late 1920s, agricultural modernization was well under way, and the country had laid the foundations for future industrialization.
Although Finland suffered less than more-developed European countries during the Great Depression of the 1930s, the country nonetheless experienced widespread distress, which inspired further government intervention in the economy. Comprehensive protection of agricultural produce encouraged farmers to shift from exportable animal products to basic grains, a policy that kept farm incomes from falling as rapidly as they did elsewhere and enabled the country to feed itself better. Similar policies spurred production of consumer goods, maintaining industrial employment. As in other Nordic countries, the central bank experimented with Keynesian demand-management policies.
In the 1930s, Britain replaced Germany as Finland's main trading partner. The two countries made bilateral agreements that gave Finnish forest goods free access to British markets and established preferential tariffs for British industrial products sold to Finland. Consequently, Finland's largest industry, paper production, expanded throughout the depression years (although falling prices led to declining export revenues). The economic growth of Finland resumed in 1933 and continued until 1939.
Production and employment had largely recovered from the effects of the depression when the Winter War began in 1939. The struggle marked the beginning of five years of warfare and privation. By 1944, after two defeats at the hands of the Soviet Union and severe losses suffered while expelling German troops, Finland's economy was nearly exhausted. Under the terms of the 1944 armistice with the Soviet Union, the country ceded about 12 percent of its territory, including valuable farmland and industrial facilities, and agreed to onerous reparations payments. To many Finns, it appeared that most of the achievements of the interwar years had been undone.
Postwar reconstruction proved difficult. Resettling refugees from the areas ceded to the Soviet Union required another land reform act, subsidies for agricultural infrastructure, and support payments for displaced industrial workers. Reparations deliveries to the Soviet Union absorbed much of the country's export potential. The need to remain politically neutral precluded participation in the Marshall Plan (European Recovery Program), but Finland arranged substantial loans from the United States Export-Import Bank to finance expansion in the forest industries. High inflation rates inherited from the war years fed labor militancy, which further threatened output.
Despite these setbacks, the tenacious Finns soon fought their way back to economic growth. Reparations turned out to be a blessing in disguise--at least for the metalworking industries, which supplied about three-fourths of the goods delivered to the Soviet Union. In effect, forced investment in metalworking laid the foundations for Finland's later export successes. The fulfillment of the reparations payments in 1952 symbolized the end of the postwar difficulties, but the real turning point probably came in about 1950, with the Korean War boom in the West. During the 1950s, the metalworking industries continued to export to the Soviet Union, a market in which the Finns faced virtually no competition from other Western countries. Extensive borrowing in Western financial markets--especially in Sweden and in the United States--financed investments in infrastructure, agriculture, and industry. The consumer goods and construction sectors prospered in the booming domestic market, which remained protected by import controls until the end of the decade.

ERU billion of Finland

From 1950 to 1974, Finland's gross national product grew at an average annual rate of 5.2 percent, considerably higher than the 4.4 percent average for members of the Organisation for Economic Co-operation and Development. However, partly as a result of continued dependence on volatile lumber exports, this growth was more unstable than that in other OECD countries. The business cycle caused fluctuations in output that averaged 8 percent of gross domestic product. Finland's structural transformation was brutally quick, driving workers out of agriculture more quickly than had been the case in any other Western country. Although manufacturing output increased sharply, many displaced farm workers could not be placed in industry. At the same time, Finnish inflation, which tended to exceed that of the country's major trading partners, necessitated regular currency devaluations. Yet, despite the costs of economic growth, most Finns were happy to have escaped the hardships of the depression and the war years.
Rapid structural transformation led to innovative economic policies. During the 1950s, the state had maintained strict controls on many aspects of economic life, protecting the country's fragile economic balance, but it had lifted many restrictions by the end of the decade. Moreover, in 1957 policy makers chose to liberalize foreign trade in industrial goods, strongly influencing future economic developments. The achievement of prosperity in the 1960s made possible the extension of the welfare state, a development that did much to reduce tensions between workers and management. Finland's increased foreign trade made industrial competitiveness more important, causing greater interest in restraining the inflationary wage- price spiral. Starting in 1968, the government succeeded in sponsoring regular negotiations on wages, benefits, and working conditions. The political consensus that developed around incomes settlements helped to slow inflation and to increase productivity. Liberalization, welfare programs, and incomes policy thus helped to maintain economic growth during the 1960s and facilitated stronger economic relations with both Eastern and Western Europe.
In the 1970s and 1980s, changes in domestic and international economic conditions posed new challenges. At home, Finland was reaching the limits of extensive economic growth. Expansion was incorporating ever- greater amounts of raw materials, capital, and labor in the production process. The economy needed to shift to intensive growth through better resource management, improved labor productivity, and newer technologies. In international markets, the oil crises of 1973 and 1979 caused particular difficulties for the Finns, who imported over 80 percent of their primary energy supplies. The country did suffer less than other West European countries from increased oil prices because of its special trading relationship with the Soviet Union, which supplied petroleum in exchange for Finnish industrial goods. However, recession in Western markets, growing technological competition, and tighter financial markets made Finland's traditional cycles of inflation and devaluation untenable. Thus, although the country managed to delay austerity measures for five years, in 1978 balance-of-payments considerations compelled the government to introduce a far-reaching reform package designed to ensure the competitiveness of Finnish industry in world markets.
Although the austerity package pursued after 1978 slowed growth in personal consumption, the consensus approach to wage and benefit negotiations remained reasonably intact. In addition, many Finnish workers proved sufficiently flexible to accept transfers from declining sectors to those in which the country enjoyed a comparative advantage. As a result of competent macroeconomic management and favorable trading relations with both Eastern and Western Europe, Finland was able to sustain growth in GDP at an average annual rate of about 3.3 percent from 1980 to 1986--a rate well above the OECD average.

Trade rate of Finland

During the 1980s, structural developments in the Finnish economy paralleled those in other West European economies. Although surplus production of animal products plagued agriculture and led to cutbacks in agricultural subsidies, the country preserved family farming. Policy makers continued to monitor forestry, energy, and mineral resources closely, even when falling petroleum prices reduced pressures on the economy. Industry underwent intensive restructuring, eliminating many inefficient producers and consolidating healthy enterprises. Despite mergers and rationalization, Finland lost fewer industrial jobs than most OECD countries, so that unemployment was held below the double-digit levels common elsewhere on the continent. Private services, especially banking and insurance, expanded more rapidly than other sectors, also helping to limit unemployment.

Structure of the Economy

By 1986 postwar economic growth had raised Finland's GDP to about US$70.5 billion, making the country one of the most prosperous in the world. Economic expansion over the years had substantially altered the structure of the economy. By 1986 agriculture, forestry, and fishing had fallen to a little under 8 percent of GDP from nearly 26 percent in 1950. Industry, including mining, manufacturing, construction, and utilities, accounted for about 35 percent of GDP, down from about 40 percent in 1950. Within industry, metalworking had grown most rapidly, its output almost equalling that of wood processing by the late 1970s. In the late 1980s, industrialists looked forward to a shift toward electronics and other high-technology products.
While agriculture and industry had declined in relative terms during the postwar years, the service sector had grown from about 34 percent of GDP to almost 58 percent, leading some observers to characterize Finland as a postindustrial society. Several factors accounted for the expansion of the service sector. Government, very small under the Russian Empire, grew rapidly between the Great Depression and the early 1970s as the state took responsibility for an increasingly greater share of economic life. In addition, transportation, communications, engineering, finance, and commerce became more important as the economy further developed and diversified.

Currency picture of Finland

Control and ownership of Finland's economic life were highly concentrated, especially after the industrial and financial restructuring of the 1980s. Thus, by 1987 three firms controlled most shipbuilding, a small number of woodworking enterprises dominated the forest industries, and two main commercial banks exercised wide-reaching influence over industrial development. Large state-owned firms provided most of the energy, basic metals, and chemicals. The country's farmers, workers, and employers had formed centralized associations that represented the vast majority of economic actors. Likewise, a handful of enterprises handled most trade with the Soviet Union. Some observers suggested that the trend toward internationalization might increase the influence of foreign firms and executives in Finnish enterprises, but this effect would make itself felt slowly. Thus, while Finland remained a land of family farms, a narrow elite ran the economy, facilitating decision making, but perhaps contributing to the average worker's sense of exclusion, which may have contributed to the country's endemic labor unrest.

FOREIGN ECONOMIC RELATIONS

International economic relations--especially foreign trade-- have been vital for Finland throughout the twentieth century, but never have they been more so than during the 1980s. The country was self-sufficient in staple foods, and domestic supplies covered about 70 percent of the value of the raw materials used by industry. However, imports of petroleum, minerals, and other products were crucial for both the agricultural and the industrial sectors. From the end of World War II until the late 1970s, the development of modern infrastructure and new industries required substantial capital imports. Sound foreign economic relations made it possible to exchange exports for needed imports and to service the large foreign debt. A policy of removing obstacles to the mobility of commodities, services, and factors of production facilitated economic modernization.

Foreign trade growth

Business leaders and government policy makers devised innovative strategies to manage economic relations. Close economic ties to the Soviet Union grew out of the postwar settlement under which Finland agreed to pay reparations and to maintain a form of neutrality that would preclude threats to Soviet security. Except for agriculture, which remained strictly protected, postwar commercial policy sought to link Finland's economy with the economics of the Nordic area and of Western Europe as closely as possible without aggravating Soviet fears that such economic ties would undermine loyalty to the East. Thus, since 1957 Finland had pursued trade liberalization and had established industrial free-trade agreements with both West European and East European countries. Spurred by these liberal policies, exports and imports had each grown to account for roughly one-quarter of GDP by the mid-1980s. By the late 1980s, Finnish industrial and service firms were going beyond trade to internationalize production by attracting foreign partners for their domestic operations and by acquiring foreign firms. Most observers believed that Finnish firms needed to follow an international tack not only to protect export shares but also to maintain their positions in domestic markets.

Foreign Trade

Trade in agricultural commodities, consumer products, and services had been relatively limited, but exchanges with the outside world were crucial for industry. Not only had the forest industries grown largely in response to foreign demand for wood and paper, but the metal-working industry had also taken off only under the goad of postwar reparations deliveries to the Soviet Union. By the mid-1980s, exports accounted for half of all industrial output and for as much as 80 percent of the output of the crucial forest industries. Similarly, imports of energy, raw materials, and investment goods remained essential for industrial production. The development of export-oriented industries had driven Finland's postwar structural transformation, indirectly affecting the rest of the economy. Industrial competitiveness would largely determine the economy's overall health into the 1990s.
During the postwar period, Finnish exports shifted from lumber and other raw materials to increasingly sophisticated products, a change which reflected the increasing diversification of the country's economic structure. The forest industries continued to dominate exports, but, while they had accounted for about 85 percent of total exports in 1950, they accounted for only 40 percent by the mid-1980s. The relative shares of different forest exports also shifted. Sawn timber and various board products accounted for more than one-third of total exports in 1950, but by 1985 they had fallen to only 8 percent. Exports of pulp and paper fell more gradually during the same period, from 43 percent of exports to about 30 percent. Pulp and cardboard, the main exports of the chemical wood-processing branch, declined in importance, while specialized paper products incorporating higher value added, such as packing material, printed paper, and coated paper, grew in importance.
Taking the place of forest products, exports of metal products grew rapidly during the postwar period from a little over 4 percent of exports to about 28 percent. Here, too, exports of more sophisticated manufactured goods grew faster than those of basic products. By the late 1980s, basic metals accounted for about 20 percent of metal exports, ships for about 25 percent, and machinery and equipment for about 20 percent. Advanced products such as electronics and process-control equipment were gaining on conventionally engineered products. The chemical industry had exported relatively little until the 1970s, but by 1985 it had grown to account for about 12 percent of exports. By contrast, the textile, confectionery, and leather goods industries had peaked at over 10 percent in the late 1970s and early 1980s, and then they had fallen to about 6 percent of exports by the mid-1980s. Minor export sectors included processed foods, building materials, agricultural products, and furs.
Up to the 1970s, Finland tended to export wood-based products to the West, and metal and engineering products to the East. By the mid-1980s, however, Finnish machines and high-technology products were also becoming competitive in Western markets.

Statistic of foreign trade

Finland's imports had consisted primarily of raw materials, energy, and capital goods for industrial production, and in the late 1980s these categories still accounted for roughly twothirds of all imports. The commodity structure of imports responded both to structural changes in domestic production and to shifts in world markets. Thus, the heavy purchases of raw materials, energy, and capital goods up until the mid-1970s reflected Finland's postwar industrial development, while the subsequent period showed the influences of unstable world energy prices and Finland's shifts toward high-technology production. Imports of investment goods climbed from about 15 percent in 1950 to almost 30 percent in the late 1960s and early 1970s, only to fall again by the 1980s to about 15 percent. Foodstuffs and raw materials for the textile industry accounted for about half of all raw material imports during the 1950s, but by the 1980s inputs for the chemical and metal-processing industries took some 75 percent of raw material imports. World energy prices had strongly influenced Finnish trade because the country needed to import about 70 percent of its energy. After rising slowly until the early 1970s, the value of oil imports had jumped to almost one-third of that of total imports in the mid-1970s, then had fallen with world oil prices to about 13 percent by the late 1980s.
Like its export markets, Finland's import sources were concentrated in Western Europe and the Soviet Union. The country usually obtained raw materials, especially petroleum, from the East and purchased capital goods from the West.
Finnish service exports had exceeded service imports until the early 1980s. Up until this time, shipping and tourism earnings had generally exceeded interest payments to service the national debt. In the mid-1980s, however, the balance was reversed as the earnings of the merchant marine declined and Finns began to spend more on tourism abroad. Although Finnish businesses tried to compete in these labor-intensive sectors, the country's high wage levels made shipping and tourism difficult to export.
Like other Nordic countries, Finland's trade was concentrated in the Nordic area and in Europe. Unlike the others, however, Finland had, as its most important trading partner, the Soviet Union. During the postwar years, trade with the Soviets had expanded and contracted in response to political developments and market forces. During the immediate postwar period, the Soviet share of Finland's trade, spurred by reparations payments, rose to over 30 percent. However, the following two decades saw this share gradually decline as Finland expanded exports to Western Europe. A second cycle began after the 1973 oil crisis, when recession in Western markets cut demand for Finnish products while the increased value of Soviet oil deliveries to Finland allowed expanded exports to the East. Finnish exports to the Soviet Union rose sharply during the years after 1973, only to fall--along with world petroleum prices--by 1986.
By the late 1980s, the geographical distribution of Finland's trade was moving back to the pre-1973 pattern. In 1986, for example, although the Soviet Union continued to be Finland's single largest trade partner, trade with West European countries, which together accounted for about 61 percent of Finnish trade, was much more important than trade with the Soviet Union. Finland's main trade partners in Western Europe were Sweden, which took the biggest share of Finnish exports, and the Federal Republic of Germany (West Germany), which supplied the largest slice of Finnish imports. East European countries other than the Soviet Union accounted for only slightly over 2 percent of trade. Non-European countries were responsible for some 19 percent of trade. The United States, Finland's main non-European trade partner, accounted for over 5 percent of Finnish exports and imports in 1987.
As in many small European countries, the postwar trade policy of Finland had been to pursue free trade in industrial products while protecting agriculture and services. During the 1980s, strict quotas still blocked imports of most agricultural commodities (except for tropical products that could not be produced domestically), but liberalized regulations allowed increased imports of services, especially financial services. Most industrial imports and exports were free of surcharges, tariffs, and quotas under multilateral and bilateral agreements between Finland and its major trading partners. Health and security concerns, however, inspired restrictions on imports of products such as radioactive materials, pharmaceuticals, arms and ammunition, live animals, meat, seeds, and plants. With a few exceptions, Finland discontinued export licensing in the early 1960s. The State Granary, however, controlled all trade in grains, while the Roundwood Export Commission reviewed all lumber exports.

Finnish Direct Investment Abroad

From the end of World War II until the 1970s, Finland imported large amounts of capital to finance infrastructure investment and industrial development; however, by 1987 Finnish capital exports exceeded capital imports by about six to one. During the earlier period, foreign firms had set up subsidiaries in Finland, but few Finnish enterprises had established branches abroad. In the 1970s, the forest industry led a shift toward capital exports by founding sales outlets in the most important foreign markets, especially in Western Europe. The metalworking and chemical industries did not begin to expand overseas until the late 1970s, but they made up for lost time during the following decade. These industries first invested in Sweden, Norway, and Denmark, important markets sharing Nordic culture. Next came subsidiaries in the United States, which by the mid1980s became the second-largest recipient of Finnish investments after Sweden and which hosted more than 300 Finnish manufacturing and sales firms. In the late 1980s, some firms targeted markets in the rapidly expanding economies of the Pacific basin. Beginning in the late 1980s, the service sector began to follow industry abroad. Banks, insurance companies, and engineering and architectural firms established branches in major business centers worldwide. By the late 1980s, Finnish firms owned more than 1,600 foreign concerns, of which some 250 were engaged in manufacturing; more than 900, in sales and marketing; and 450, in other functions.
Businessmen had many motives for setting up overseas operations. In general, the Finns wanted to deepen ties with industrialized countries where consumers and businesses could afford high-quality Finnish goods. Maintaining access to important markets in an era of increasing protectionism and keeping up with new technologies had become crucial. Finnish enterprises, generally small by international standards, needed additional sources of capital and know-how to develop new technologies. Analysts believed that, despite their small size, Finnish firms could succeed abroad if they followed a comprehensive strategy, not only selling finished products but also offering their services in the management of raw materials and energy, development of new technologies, and design of attractive products.

GDP of Finland

Government policies helped achieve greater international integration of productive facilities. During the 1980s, legislation relaxed limits on foreign investment in Finnish firms, allowing foreigners to hold up to 40 percent of corporate equities; likewise, the BOF loosened restrictions on capital exports. The Technology Development Center (TEKES), under the Ministry of Trade and Industry, sponsored international cooperation in research and development. The government also arranged for Finnish participation in joint projects sponsored by the European Space Agency (ESA) and the European Community, including the EC's Eureka technology development program. Although it was still too early to predict how Finland would perform in international joint ventures, many observers felt that such enterprises were the best way for the country to achieve industrial progress.

Trade in Brazil

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Brazil

Mosjeed of Brazil

Country

Official Name: Federative Republic of Brazil (República Fede-rativa do Brasil).
Short Name: Brazil (Brasil).
Term for Citizen(s): Brazilian(s).
Capital: Brasília.
Independence: September 7, 1822 (from Portugal).

Geography

Size and Location: Standard figure is 8,511,996 square kilometers (including oceanic islands of Arquipélago de Fernando de Noronha, Atol das Rocas, Ilha da Trindade, Ilhas Martin Vaz, and Penedos de São Pedro e São Paulo). According to revised figure of Brazilian Institute of Geography and Statistics (Fundação Instituto Brasileiro de Geografia e Estatística--IBGE), which takes into account new measurements, total area is 8,547,403.5 square kilometers. Brazil occupies about 47 percent of continental area. Country situated between 05°16'20" north latitude and 33°44'32" south latitude, and between 34°47'30" east longitude and 73°59'32" west longitude. Its boundaries extend 23,086 kilometers, of which 7,367 kilometers on Atlantic Ocean. To north, west, and south, Brazil shares boundaries with all South American countries except Chile and Ecuador.

Brazil in Map

Standard Time: With an east-to-west territorial dimension of 4,319 kilometers, Brazil has four time zones. In most of country, time is three hours earlier than Greenwich time. Between summer months of October and February, country adopts daylight savings time, setting clock forward by one hour, in Southeast (Sudeste), Center-West (Centro-Oeste), and South (Sul) regions, and in states of Bahia in Northeast (Nordeste) and Tocantins in North (Norte).
Maritime Claims: Exclusive economic zone 322 kilometers (200 nautical miles).
Boundary Disputes: A short section of boundary with Paraguay, just west of Salto das Sete Quedas (Guairá Falls) on Paraná; and two short sections of boundary with Uruguay--Arroio Invernada area of Cuareim and islands at confluence of Quaraí and Uruguai.
Topography and Climate: Consisting of dense forest, semiarid scrub land, rugged hills and mountains, rolling plains, and long coastal strip, Brazil's landmass dominated by Amazon Basin and Central Highlands. Principal mountain ranges (Serra do Mar) parallel Atlantic coast. Climate varies from mostly tropical in North, where it is seldom cold, to more temperate in South, where it snows in some places. Also wide range of subtropical variations. World's largest rain forest located in Amazon Basin. Higher annual measurements (26°C to 28°C) occur in Northeast's interior and mid- and lower Amazon River. Lowest values (under 18°C) occur in hilly areas of Southeast and largest part of South. Highest absolute values, over 40°C, are recorded in Northeast's low interior lands; in Southeast's depressions, valleys, and lowlands; in Center-West's Pantanal (Great Wetlands) and lower areas; and in South's central depressions and Uruguai Valley. Lowest absolute temperatures often show negative values in most of South, where frosts and snow usual. Rainy areas correspond to Pará's coastal lands and western Amazonas, where annual rainfall greater than 3,000 millimeters. In Southeast on Serra do Mar (São Paulo State), recorded annual rainfall exceeds 3,500 millimeters. Drought areas located in interior Northeast, where annual rainfall under 500 millimeters. Maximum precipitation occurs during summer-autumn in most parts of country, except for Roraima and north Amazonas, where rainy season occurs during winter because these two states are located in Northern Hemisphere.
Principal Rivers: Vast, dense drainage system consisting of eight hydrographic basins. Amazon and Tocantins-Araguaia basins account for 56 percent of total drainage area. World's greatest fluvial island, Bananal, located in Center-West Region on Araguaia. With ten of world's twenty greatest rivers, Amazon (Amazonas) is world's largest in volume of water and one of world's longest (6,762 kilometers, of which 3,615 kilometers are in Brazil), discharging 15.5 percent of all fresh water flowing into oceans from rivers. Union of Paraná and Iguaçu in South, at border between Brazil, Argentina, and Paraguay, forms Iguaçu Falls at Foz do Iguaçu.

Economy

Gross Domestic Product (GDP): Economist Intelligence Unit (EIU) estimated US$775 billion for 1997, as compared with US$387 billion for 1992. EIU's estimated GDP real growth rate for 1997, 3.7 percent; and 1998, 4.0 percent. Of 1995 GDP of US$717 billion, 47.3 percent generated by trade and services, 42.0 percent by industry, and 10.7 percent by agriculture.

Brazilian GDP

Per Capita GDP and Minimum Wage: Per capita GDP US$5,128 (1997). GDP per capita average annual growth rate, 0.8 per-cent (1985-94). Minimum wage as of June 1995: US$108.46, or just over R$100 a month (for value of real--see Glossary), as compared with US$68.93, or R$70 a month, in July 1994, amounting to an actual increase of only 10 percent because of inflation. Minimum wage raised by 12 percent in May 1996.
Inflation: Inflation reached 50 percent per month by June 1994 and averaged 31.2 percent a month in 1994, for total of 2,294.0 percent that year. As result of Real Plan, declined to monthly rates of between 1 and 3 percent in 1995, for an annual rate of 25.9 percent. In 1996: 16.5 percent; 1997: 7.2 percent.
Employment and Unemployment: Estimated labor force in 1997: 65.5 million. Services sector employed 66 percent of women and 42 percent of men; industry, 14 percent of women and 23 percent of men; business, 15 percent of women and 15 percent of men; civil construction, 11 percent of men; other activities, 5 percent of women and 9 percent of men. Men held 61 percent of total jobs. Women's wages averaged 62 percent of those of men but declined to 54 percent in services sector. Recorded unemployment rate (includes only people actively looking for work and over age fifteen) in 1997: 5.5 percent.
Agriculture: One of world's leading exporters of agricultural products. Grain production in 1996: 73 million tons. According to estimates of Food and Agriculture Organization (FAO) of United Nations, Brazil produced 79.4 million tons of grains (record crop) in 1995, as compared with 56.1 million tons in 1990. Center-West and South and Rondônia account for 90 percent of crops. In 1995, 81.6 million tons of crops har-vested, but producers saw their income reduced by about US$10.4 billion, or 26 percent, owing to price decreases. Country has 46.5 million hectares under cultivation, 174.1 million hectares in grazing lands, and 140.6 million hectares in arable land. Crop year runs from June to May. From 1982 to 1992, total cultivated area fell by 30 percent, but production of certain grains, in tons per hectare, increased by 14.9 percent. Agricultural sector employed 29.4 percent of labor force in 1992. It accounted for 10.7 percent of GDP in 1996. It accounts for almost 40 percent of exports. Except for wheat, Brazil largely self-sufficient in food. Each farmer feeds 3.6 city dwellers, whereas 2.5 farmers were needed to feed each city dweller in 1940. Brazil is world's largest exporter of coffee, orange juice concentrate, and tobacco, and second largest exporter of sugar and soybeans. In addition to sugar, Brazil produces a large quantity of ethanol (mainly used as fuel) from crushed sugarcane. Other important crops: manioc, corn, and rice. In addition to oranges, principal fruits are lemons, mangoes, guavas, passion fruit, and tangerines.
Industry: Capital goods (see Glossary) production increased in 1970s with creation of new companies and large capital investments in transportation, communications, and energy infrastructure. New technologically sophisticated industries begun in that decade included weapons, aircraft, and computer manufacturing and nuclear power production. Industrial growth slowed by economic crisis of 1980s. After start of Real Plan, industrial production increased vigorously by 7.5 percent from 1993 to 1994. Manufacturing accounted for 62 percent of exports in 1996. Industrial growth in 1997 was 3.9 percent.

Industry of Brazil

Energy: 94 percent of current energy capacity hydroelectric. Electricity consumption expanded by 7.6 percent in 1995 (versus 4.2 percent for GDP) and by 5.7 percent in first half of 1996 (versus projected GDP growth rate of 3 percent). A dozen hydroelectric and thermal plants being privatized because electricity demand expected to outstrip supply by 1999, and state unable to pay off energy-sector debts. A blackout in April 1997 affecting 20 million people expected to become an increasingly common occurrence. Predominance of highland rivers presents great potential for hydroelectric power pro-duction. Hydropower generating potential: 106,500 to 129,046 megawatts/year, of which 24.4 percent in operation or under construction, 35.8 percent inventoried, and 39.8 percent esti-mated (1994 estimate). In 1992, of 233,682 gigawatt-hours generated, 217,782 hydroelectric, 14,454 thermal, and 1,446 nuclear. Nuclear power generation in early 1998 was still negligible. About 60 percent of energy supply derived from renewable sources, such as hydroelectricity and ethanol. National oil production surpassed a record 840,000 barrels per day (bpd) in 1997. Petroleum imports in 1995: 760,000 bpd (442,000 bpd crude; 318,000 bpd derivatives). Brazil relies on natural gas for only 2 percent of energy needs. Produced more than 17 million cubic meters of natural gas per day in early 1990s.
Services: In 1994 services accounted for approximately 43.6 percent of work force.
Trade Balance: Total trade in 1997: US$109.4 billion, com-pared with US$77.3 billion in 1994. In ten years, 1985-95, foreign trade of Brazil accounted for US$521.8 billion, with surplus of US$129.3 billion. Foreign trade deficit in 1997: US$10.9 billion.
Imports: Totaled US$60.1 billion in 1997, as compared with US$20.5 billion in 1993. Average import duties dropped to 14 percent from 51 percent since 1988. Major suppliers in 1996: United States, 22.2 percent; Germany, 9.0 percent; Argentina, 12.7 percent; and Japan, 5.2 percent. Half of Brazil's imports of manufactured goods come from United States. Brazil only other major Latin American country besides Chile to import oil, which in 1996 cost an estimated US$6.4 billion.
Exports: Totaled US$49.2 billion in 1997, as compared with US$39.6 billion in 1993. Brazil's strengthened currency has made its exports less competitive. Brazil exports large part of world's production of tin, iron, manganese, and steel. Also one of world's largest exporters of food, mainly sugar, coffee, cocoa, soybeans, and orange juice. Major markets in 1996: United States, 19.5 percent; Argentina, 10.8 percent; Japan, 6.4 percent; and the Netherlands, 7.4 percent.
Tariffs: Average tariff rate: 14.0 percent; tariff ceiling: 70 percent on automobiles (imposed in mid-1995).

Ethanol exports in Brazil

Reserves: International reserves in first quarter of 1998: US$63 billion.
Budget Deficit: Current account deficit in 1997: US$32.3 billion. EIU's current account deficit estimate for 1998: US$33.6 billion.
Internal Debt: Total debt of public sector (federal, state, and municipal governments): US$77 billion (1994). Totaled record US$213 billion (36.8 percent of GDP) in 1995, according to official figures, or US$267 billion (46 percent of GDP), if some unregistered existing debts included. IBGE calculated total domestic debt to be R$304.8 billion in September 1995, or 60.9 percent of estimated 1995 GNP. Public Sector Borrowing Requirement reached 5.6 percent of GDP in 1996, as compared with 5.1 percent in 1995.
External Debt: US$177.6 billion (public and private) in 1997; US$193.2 billion estimated by EIU for 1998. Total debt service: US$15 billion (1996). Debt-service ratio: 58.7 percent (1997).
Official Exchange Rate: On July 1, 1994, new currency, the real (pl., reais), introduced. As of January 31, 1996, government widened to 7.07 percent range within which value vis-à-vis United States dollar may vary. Exchange rate on April 13, 1998: R$1.140=US$1.
Foreign Investment: US$52 billion in 1996, US$38 billion in 1995, and US$25 billion in 1994.
Fiscal Year: Calendar year.
Fiscal Policy: Stabilization program in 1994-96 developed originally by Fernando Henrique Cardoso (president, 1995- ) as minister of finance (May 1993 to April 1994). End of inflation in 1994 quickly increased demand and spending power of poorer Brazilians especially. Government endeavoring to dampen inflationary pressures. In order to consolidate stabilization program and put Brazil on path to long-term sustainable growth, government must implement wide-ranging structural reforms. Restrictive monetary policy has kept interest rates high and reduced aggregate demand and inflation, while improving trade balance. Fiscal position deteriorated considerably in 1995. Expansion of internal public debt a major threat to government's control over fiscal and monetary policy. Monetary policy somewhat more flexible since August 1995 because of lower level of economic activity, declining inflation rate, and abundance of foreign capital to finance current account.

Exchange Rates and Foreign Trade

The single most important policy tool for influencing Brazil's balance of payments is the exchange rate. Brazilian exchange-rate policy has evolved over the past several decades. Policy makers and Brazilian exporters believed that trade flows in the 1960s and 1970s were most effectively managed through trade policies such as tariffs (see Glossary), import controls, or export incentives. Beginning in the 1980s, they began to recognize that balance of payments adjustments may be more efficiently pursued using the exchange rate, rather than tariffs, subsidies, and direct controls on trade. This evolution in thinking reflects in part the increasing skepticism among many Brazilians, both economists and policy makers, about the government's ability to maintain external balance using trade policy without creating severe economic distortions.
Even more important, however, was the exchange-rate experience of the early 1980s. Following the onset of Mexico's debt crisis in 1982 and the resulting inability of Brazil to continue to finance its current-account deficit through external borrowing, the cruzeiro was devalued sharply against the dollar in February 1983. Unlike the earlier "maxidevaluation" of December 1979, which was soon undermined by rapid increases in internal cruzeiro prices, the real depreciation of the cruzeiro resulting from the 1983 adjustment was maintained for the next several years. Exports increased substantially in 1983 and 1984, and the value of imports fell by over US$5 billion between 1982 and 1984. Although some of this decline resulted from the fall in petroleum prices from their record levels in 1981, the response of the trade deficit to the large and sustained real depreciation of the cruzeiro provided clear evidence that Brazil's external adjustment problem could be addressed through exchange-rate policy. The experience of the early 1980s, in fact, led to the recognition that Brazil's real problem was not the private sector's lack of response to the exchange rate, but the inability of the domestic economy, particularly the public sector, to generate the net saving that is the counterpart of a current-account surplus.
Brazil's success in moving the current account into surplus after 1982 implied a corresponding adjustment in either net private saving (private saving minus private investment) or in public-sector saving (tax receipts and other public revenues minus public expenditures). Because net public-sector saving actually deteriorated in the 1980s, the burden of adjustment fell on the private sector, particularly on investment. The dramatic fall in investment after 1982 had important consequences for Brazilian competitiveness and hence for the potential benefits that Brazil would derive from trade reform.

Brazil cotton statistic

Thus, the experience of the early 1980s suggests that the Brazilian economy had responded to real exchange rates that facilitated external adjustment, but the policy also reduced domestic private investment and future economic growth. In retrospect, the delay among policy makers in using the exchange rate as the primary tool for achieving external balance is surprising. Their approach may have been influenced in part, however, by the success of the "crawling-peg" policy instituted in August 1968. This policy consisted of small but frequent adjustments in the nominal exchange rate in line with Brazilian inflation and price changes in Brazil's major trade partners, primarily the United States. It ushered in a long period of real exchange-rate stability, broken only a decade later by the December 1979 devaluation. The crawling-peg policy was a marked improvement over the earlier exchange-rate regime, in which the combination of domestic inflation and a nominal exchange rate fixed for long periods of time resulted in large fluctuations and uncertainty about the real exchange rate. The real rate may in fact have been too stable, however, leading Brazil to delay the appropriate exchange-rate response to the external shocks of the 1970s.
A rise in the real exchange rate represents an increase in Brazilian price competitiveness in international markets. Such an increase in price competitiveness could be caused by a depreciation of the cruzeiro against the dollar, a rise in United States prices, or a fall in Brazilian prices. A slowing of inflation in the 1970s made Brazil more competitive, while the rapid acceleration of inflation in the second half of the 1980s substantially eroded Brazil's price competitiveness. Unlike other episodes in which the actual effects of a devaluation were rapidly undercut by Brazilian inflation, the 1983 real devaluation was maintained through frequent adjustments in the nominal exchange rate, sufficient to maintain Brazil's price competitiveness in international markets until the 1986 Cruzado Plan froze the nominal exchange rate.
A number of implications for Brazil's balance of payments policy are clear from exchange-rate trends and movements in the current account. First, by the 1980s it was clear that Brazilian trade flows were strongly responsive to the real exchange rate. If "elasticity pessimism," which hypothesizes that trade responses to relative prices are low, was ever justified in the Brazilian case, those days were long past. Since the late 1960s, Brazil has ceased to be a developing country in terms of its trade flows. Traditional primary products, such as coffee, cocoa, or sugar, in recent years have accounted for less than a third of the value of Brazilian exports. The increasing importance of manufactured exports, as well as the variety of local import substitutes, makes Brazil's trade balance responsive to real exchange-rate changes. This responsiveness removes one of the traditional justifications for extensive tariff and import restriction policies and for administrative intervention in trade to attain external balance. The evidence of the past several decades suggests that Brazil can attain external balance without extensive market intervention, however harsh the domestic effects of external adjustment.
Second, the introduction of a degree of indexation of the nominal exchange rate in the form of the crawling-peg policy has permitted the external sector to avoid some of the consequences of domestic inflation that would otherwise have produced much more severe external payments crises. Real exchange rates remained relatively stable for a decade after the policy's introduction in 1968. Unlike several other Latin American countries such as Argentina, Brazil avoided the sharp swings in the real exchange rate resulting from domestic inflation and infrequent adjustment of the nominal rate. When Brazil departed from this pattern, as it did in 1986 during the Cruzado Plan, policy makers soon learned that this was a mistake. Subsequent stabilization plans, even if they were failures for other reasons, at least did not succumb to the temptation to use the exchange rate as an anti-inflationary weapon.
Finally, and perhaps more negatively, Brazilian exchange-rate policy transformed Brazil's external adjustment problems of the early 1980s into more intractable domestic balance problems in the early 1990s. Contrary to the initial expectations of many observers, Brazil was able to solve its external balance problem after the 1982 debt crisis with surprising speed. The cost was a sharp increase in the demand for domestic saving to replace lost foreign capital inflows. With little increase in net public-sector saving or in private-sector gross saving, investment fell substantially, undercutting the growth of the Brazilian capital stock and the economy's potential growth in competitiveness.

Capital Flows and the External Debt

Much of Brazil's economic experience in the past two decades has been dominated by large capital inflows that attained record levels in the 1970s, only to collapse after 1983 in the wake of the Mexican debt crisis. For the rest of the decade, Brazil coped with the consequences of this collapse, and only in the 1990s did capital again begin to flow into the Brazilian economy, with a substantial increase after the Real Plan.
The enormous inflow of external capital to Brazil that ended in 1982 had its roots in a number of policies and institutional changes in the preceding two decades. The military government that seized power in April 1964 quickly reformed existing laws governing direct foreign investments, including liberalizing restrictions on remittances of profits and simplifying procedures for reinvestment of profits. The changes did not address the effects of inflation in the currency of the lending country, however, so that the real returns on a direct investment were affected negatively by inflation in dollar prices. The negative effect of dollar inflation on a direct foreign investment in Brazil arose because the original investment was registered in a fixed dollar amount, on which allowances for profits and remittances were calculated. A million-dollar investment in 1964, for example, would still be registered as a million-dollar investment in 1974. Higher nominal dollar profits in 1974 would then result in a substantially higher nominal profit rate and a heftier Brazilian tax, thus lowering the real return.

Foreign Trade of Brazil

Financial lending to Brazil was different because the interest rate on the loan, usually denominated in dollars, incorporated the market's expectations of inflation. The asymmetrical treatment of financial capital flows and direct investment was one of the reasons total capital flows to Brazil in the post-1964 period were dominated by bank lending, which at times was ten times as great as foreign direct investment.
Among the other changes that encouraged large financial capital flows to Brazil was Law 4,131, which allowed final borrowers to deal directly with foreign lenders after approval by the Central Bank of Brazil (Banco Central do Brasil--Bacen; see Glossary). Another vehicle for capital flows was Resolution 63, which permitted Brazilian banks and authorized subsidiaries of foreign banks to obtain dollar loans abroad and reloan the proceeds to one or more domestic borrowers. Finally, the increasing participation of the Brazilian government as a borrower itself, backed by explicit "full faith and credit" guarantees and by the implicit assumption that taxes could be levied to pay for loans to the government, made lending to Brazil an increasingly attractive option for foreign banks.
Equally important in explaining the sharp rise in financial lending to Brazil after the mid-1960s were changes in international financial markets. International banks began to negotiate variable interest rate loans, in which the borrower and the lender agreed to reset the loan's interest rate at specified intervals, usually six months, on the basis of a rate that neither the borrower nor lender controlled (usually the London Interbank Offered Rate--LIBOR), or the United States prime rate. Added to this underlying rate was a "spread," or premium charged to borrowers like Brazil, based on the market's assessment of any additional risk compared with the risks associated with prime borrowers. Finally, the rise in syndicated bank lending, in which one "lead" bank organized the loan and then sold portions of it to other international lenders, permitted banks to expand substantially their loans to borrowers like Brazil.
Together, these innovations cleared the way for lending on a scale that was unprecedented in Brazil's history and with few parallels elsewhere in the world. Because the loans were denominated in the creditor country's currency, they were isolated effectively from inflation in cruzeiro prices. As long as the value of Brazil's export revenues grew at rates exceeding the interest rates charged on the loans, an assumption that appeared valid throughout the 1970s, the burden of the external debt in relation to Brazil's capacity to repay it would fall.
Although it is easy from the vantage point of the 1990s to criticize the volume and terms of much of the bank lending to Brazil, at the time it appeared to be an extremely attractive option for a borrower like Brazil. When inflation in the currencies of the lending countries is subtracted from the rates charged on loans to Brazil, real interest rates on these loans in the 1970s were negligible and often negative. The nominal and real interest rates in the markets in which Brazilian external borrowing occurred do not include the spread paid by Brazil, which during the 1970s and early 1980s was generally between 1 percent and 2 percent. Nevertheless, these rates do show clearly why foreign borrowing appeared to be such an attractive option for Brazil.
The debt crisis that began in Mexico in August 1982 had an almost immediate impact on the ability of other Latin American borrowers to maintain capital inflows. Even though Brazil's trade balance and current account had improved slightly in 1981, loans from international lenders became increasingly scarce. Interest on new loans increased, and most lenders refused to roll over on existing loans. New lending dried up in the second half of 1982, reducing capital inflows, which had reached a peak in 1981, by more than a third. Private borrowers in Brazil encountered a total cutoff of loans from foreign lenders, while official borrowing dropped sharply. By 1984 net capital inflows (public and private) were negligible by comparison with earlier years, and by 1986 the country was experiencing a net capital outflow of US$7.3 billion, a sum nearly equal to Brazil's trade balance. The principal components of Brazil's balance of payments show this sharp drop in the net inflow of foreign capital after 1982.
The 1982 crisis interrupted for many years private Brazilian external borrowing. Private loans contracted under Law 4,131 had leveled off in the late 1970s, and after 1982 net private borrowing under this law became negative. The fall in private borrowing under Resolution 63 was even more pronounced. After a rapid rise in such borrowing between 1979 and the 1982 debt crisis, this source of financing virtually collapsed, as the level of outstanding Resolution 63 debt was more than cut in half between 1982 and the end of 1987.
Part, if not all, of the increase in external debt reported by the Central Bank after 1982 was simply forced lending to finance interest payments. It did not have a real counterpart in the form of new resources entering the country through the capital account. As a result, Brazil's ability to tap external saving to finance either public-sector borrowing or private-sector investment collapsed after 1982.
A number of Brazilian economists have made the point that before 1982 net capital inflows more than covered service payments (net interest, profits and dividends, and reinvested profits). After 1982 interest payments alone far exceeded net capital inflows, which turned negative after 1985. Although 1982 is usually viewed as the turning point, the net capital transfer from the rest of the world actually began to decline in the mid-1970s. Brazil was only able to avoid an external payments crisis in the late 1970s because lenders were willing to finance debt service through further lending. After the Mexican debt crisis in 1982, Brazil's own crisis could no longer be postponed.
The 1986 Cruzado Plan exacerbated capital outflows. Real exchange-rate overvaluation, with increasing expectations of a future adjustment, was one factor. A second factor was the increase in uncertainty about future fiscal and monetary policy, as the shortages and informal markets produced by the price controls undercut the euphoria of the first few months.
During the rest of the 1980s, net capital outflow continued, further reducing Brazil's capacity to finance investments needed for future economic growth. In real terms, however, the external debt began to decline in the late 1980s, both as a result of debt renegotiation and a marking down of some of the debt by public and private lenders. Despite temporary interruptions in debt servicing, domestic political pressures in Brazil for a permanent repudiation of the external debt were rejected. As interest rates in international financial markets declined substantially in the early 1990s, the costs of servicing the remaining external debt were reduced further.
Although the debt crisis that exploded in Brazil in the early 1980s had not disappeared a decade later, it was no longer regarded as Brazil's central economic problem. Its effects, however, lingered on in several forms. First, the steep fall in the availability of international reserves after 1982 sharply curtailed Brazilian investment. The resulting decline in capital formation was evident a decade later, as Brazilians faced the consequence of lower levels of investment in plant, equipment, and essential infrastructure. Second, international confidence in the financial soundness of external lending to Brazil remained low. When foreign capital began to return to Brazil in the early 1990s, it took a rather different form from the capital inflows of the 1970s. Foreign capital inflows to Brazil in the early 1990s were smaller and were no longer dominated by loans from international banks. Instead, foreign lenders sought equity investments in Brazilian enterprises. Foreign firms with the capacity to manage direct investments in Brazil began to replace commercial banks as the primary source of foreign capital.

Foreign Relations

The Foreign Service

Chart of foreign business of Brazil

The Rio Branco Institute (Instituto Rio Branco--IRBr) recruits from twenty to thirty candidates each year among college graduates. After four semesters of intensive study of language and diplomacy, graduates receive a certified bachelor of arts degree in diplomacy and begin their careers as third secretaries. In 1996 the IRBr began studies to upgrade the course to an M.A. program. The IRBr teaching staff is composed of senior diplomats and some academics from the University of Brasília (Universidade de Brasília). Some foreign students are admitted, mostly from Latin America and Africa.
After three or four years experience within several divisions of the Ministry of Foreign Affairs (known as Itamaraty, after the building it formerly occupied in Rio de Janeiro), the junior diplomat is posted overseas. Promotion to second and first secretary is by merit (evaluation by immediate superiors). Before promotion to minister second class, the diplomat goes through a mid-career course and produces a monograph, which is defended before an examining board. Many diplomats also acquire graduate degrees during their career. Promotion to the final positions of counselor (minister first class) and ambassador involves a combination of merit and political considerations; the president makes the final decision. Because Itamaraty has more diplomats than posts overseas and in Brasília, diplomats frequently fill key positions in other ministries, state enterprises, and the president's office. Brazilian diplomats generally are considered skilled and patient negotiators by their peers.

Trade in Portugal

2012-02-24T02:55:00.002-08:00

Portugal

Mosjeed of Portugal

Formal Name: Portuguese Republic.
Short Form: Portugal.
Term for Citizen(s): Portuguese (singular and plural); adjective--Portuguese.
Capital: Lisbon (Portuguese, Lisboa).
Geography: 92,080 square kilometers; land area: 91,640 square kilometers; includes Azores (Portuguese, Açores) and Madeira Islands.
Topography: Hills and mountains north of Rio Tejo; rolling plains to south.
Climate: Varied with considerable rainfall and marked seasonal temperatures in north; dryer conditions in south with mild temperatures along coast but sometimes in low 40°Cs in interior.

Portugal in map

Economy

Gross Domestic Product (GDP): purchasing power equivalent--estimated at US$87.3 in 1991 (US$8,400 per capita). Economy stagnant during second half of 1970s and first half of 1980s because of world economic slump and extensive nationalizations during revolution of mid-1970s. Between 1986 and 1990, GDP grew at 4.6 percent each year.
Agriculture: Made up 6.2 percent of GDP and employed about 17.8 percent of labor force in 1990. Small farms in north, larger farms in the south; productivity and mechanization below European Community levels; imports more than half of food needs. Major crops: grain, corn, rice potatoes, olives, grapes, cork; important livestock: pigs, cattle, sheep, and chickens; dairy farms mostly in north. EC membership threated long-term servival of southern grain-growing and cattle-raising farms; farms producing rice, vegetables, and wine likely to fare well.
Industry: 38.4 percent of GDP in 1990. Concentrated in two regions: Lisbon-Setúbal, much heavy industry (steel, ship building, oil refineries, chemicals); and Porto-Aveiro-Braga, mostly light industry (textiles, footwear, wine, food processing). Ownership of industries varies: light industry usually privately owned; heavy industry often state owned; high technology manufacturing often foreign owned.
Services: 55.5 percent of GDP in 1990; accounted for 47 percent of work force. Tourism important component of service sector; 19.6 million visitors in 1991.
Imports: In 1990 imports of goods and services accounted for about 47 percent of GDP. Manufactured goods (machinery, transport equipment, chemicals) accounted for about 75 percent of merchandise imports, food and beverages for about 10 percent, and raw materials (mostly petroleum) for about 16 percent.

Export value of Portugal

Exports: in 1990 exports of goods and services accounted for about 37 percent of GDP. Manufactured goods accounted for 80 percent of merchandise exports in 1989. In 1990 textiles, clothing, and footwear made up 37 of total export value; machinery and transport equipment, 20 percent; forest products, 14 percent; and agricultural products, 8 percent.
Major Trade Partners: EC major trading partner, buying 74 percent of Portugal's exports in 1990, and supplying 69 percent of its imports. Germany and Spain the most important trading partners. Only 3.4 percent of Portugal's imports in 1990 came from the United States; Organization of Petroleum Exporting Countries (OPEC) accounted for less than 7 percent.
Balance of Payments: Despite negative trade balences, large earnings from tourism and remittances from Portuguese living abroad, in addition to direct foreign investment and EC tranfers, resulted in generally favorable balances of payments (US$4.6 billion in 1989, US$3.5 billion in 1990).
Exchange Rate: in March 1992, 143.09 escudos per US$1.
Fiscal Year: Calendar year.

The Economy of the Salazar Regime

The First Republic was ended by a military coup in May 1926, but the newly installed government failed to solve the nation's precarious financial situation. Instead, President Óscar Fragoso Carmona invited António de Oliveira Salazar to head the Ministry of Finance, and the latter agreed to accept the position provided he would have veto power over all fiscal expenditures. At the time of his appointment as minister of finance in 1928, Salazar held the Chair of Economics at the University of Coimbra and was considered by his peers to be Portugal's most distinguished authority on inflation. For forty years, first as minister of finance (1928-32) and then as prime minister (1932-68), Salazar's political and economic doctrines were to shape the Portuguese destiny.
From the perspective of the financial chaos of the republican period, it was not surprising that Salazar considered the principles of a balanced budget and monetary stability as categorical imperatives. By restoring equilibrium both in the fiscal budget and in the balance of international payments, Salazar succeeded in restoring Portugal's credit worthiness at home and abroad. Because Portugal's fiscal accounts from the 1930s until the early 1960s almost always had a surplus in the current account, the state had the wherewithal to finance public infrastructure projects without resorting either to inflationary financing or to borrowing abroad.

Commercial Trade

At the bottom of the Great Depression, Premier Salazar laid the foundations for his Estado Novo, the "New State." Neither capitalist nor communist, Portugal's economy was cast into a quasi-traditional mold. The corporative framework within which the Portuguese economy evolved combined two salient characteristics: extensive state regulation and predominantly private ownership of the means of production. Leading financiers and industrialists accepted extensive bureaucratic controls in return for assurances of minimal public ownership of economic enterprises and certain monopolistic (or restricted-competition) privileges.
Within this framework, the state exercised extensive de facto authority regarding private investment decisions and the level of wages. A system of industrial licensing (condicionamento industrial), introduced by law in 1931, required prior authorization from the state for setting up or relocating an industrial plant. Investment in machinery and equipment designed to increase the capacity of an existing firm also required government approval. Although the political system was ostensibly corporatist, as political scientist Howard J. Wiarda makes clear, "In reality both labor and capital--and indeed the entire corporate institutional network--were subordinate to the central state apparatus."
Under the old regime, Portugal's private sector was dominated by some forty great families. These industrial dynasties were allied by marriage with the large, traditional landowning families of the nobility, who held most of the arable land in the southern part of the country in great estates. Many of these dynasties had business interests in Portuguese Africa. Within this elite group, the top ten families owned all the important commercial banks, which in turn controlled a disproportionate share of the national economy. Because bank officials were often members of the boards of directors of borrowing firms in whose stock the banks participated, the influence of the large banks extended to a host of commercial, industrial, and service enterprises.
Portugal's shift toward a moderately outward-looking trade and financial strategy, initiated in the late 1950s, gained momentum during the early 1960s. A growing number of industrialists, as well as government technocrats, favored greater Portuguese integration with the industrial countries to the north as a badly needed stimulus to Portugal's economy. The rising influence of the Europe-oriented technocrats within Salazar's cabinet was confirmed by the substantial increase in the foreign investment component in projected capital formation between the first (1953-58) and second (1959-64) economic development plans. The first plan called for a foreign investment component of less than 6 percent, but the plan for the 1959-64 period envisioned a 25-percent contribution. The newly influential Europe-oriented industrial and technical groups persuaded Salazar that Portugal should become a charter member of the European Free Trade Association (EFTA) when it was organized in 1959. In the following year, Portugal also added its membership in the General Agreement on Tariffs and Trade (GATT), the International Monetary Fund, and the World Bank.
In 1958 when the Portuguese government announced the 1959-64 Six-Year Plan for National Development, a decision had been reached to accelerate the country's rate of economic growth--a decision whose urgency grew with the outbreak of guerrilla warfare in Angola in 1961 and in Portugal's other African territories thereafter. Salazar and his policy advisers recognized that additional claims by the state on national output for military expenditures, as well as for increased transfers of official investment to the "overseas provinces," could only be met by a sharp rise in the country's productive capacity. Salazar's commitment to preserving Portugal's "multiracial, pluricontinental" state led him reluctantly to seek external credits beginning in 1962, an action from which the Portuguese treasury had abstained for several decades.

Chief export markets

Beyond military measures, the official Portuguese response to the "winds of change" in the African colonies was to integrate them administratively and economically more closely with Portugal through population and capital transfers, trade liberalization, and the creation of a common currency--the so-called Escudo Area. The integration program established in 1961 provided for the removal of Portugal's duties on imports from its overseas territories by January 1964. The latter, on the other hand, were permitted to continue to levy duties on goods imported from Portugal but at a preferential rate, in most cases 50 percent of the normal duties levied by the territories on goods originating outside the Escudo Area. The effect of this two-tier tariff system was to give Portugal's exports preferential access to its colonial markets.
Despite the opposition of protectionist interests, the Portuguese government succeeded in bringing about some liberalization of the industrial licensing system, as well as in reducing trade barriers to conform with EFTA and GATT agreements. The last years of the Salazar era witnessed the creation of important privately organized ventures, including an integrated iron and steel mill, a modern ship repair and shipbuilding complex, vehicle assembly plants, oil refineries, petrochemical plants, pulp and paper mills, and electronic plants. As economist Valentina Xavier Pintado observed, "Behind the facade of an aged Salazar, Portugal knew deep and lasting changes during the 1960s."
The liberalization of the Portuguese economy continued under Salazar's successor, Prime Minister Marcello José das Neves Caetano (1968-74), whose administration abolished industrial licensing requirements for firms in most sectors and in 1972 signed a free trade agreement with the newly enlarged EC. Under the agreement, which took effect at the beginning of 1973, Portugal was given until 1980 to abolish its restrictions on most community goods and until 1985 on certain sensitive products amounting to some 10 percent of the EC's total exports to Portugal. EFTA membership and a growing foreign investor presence contributed to Portugal's industrial modernization and export diversification between 1960 and 1973.
Notwithstanding the concentration of the means of production in the hands of a small number of family-based financial-industrial groups, Portuguese business culture permitted a surprising upward mobility of university-educated individuals with middle-class backgrounds into professional management careers. Before the revolution, the largest, most technologically advanced (and most recently organized) firms offered the greatest opportunity for management careers based on merit rather than on accident of birth.

FOREIGN ECONOMIC RELATIONS

After becoming a charter member of EFTA in 1959, Portugal became increasingly open to the rest of the world through international trade and other payment flows. In 1990 exports of goods and services accounted for about 37 percent of Portugal's GDP, and imports of goods and services represented about 47 percent of GDP. The accession of Portugal to the EC on January 1, 1986 required fundamental changes in the country's commercial and foreign investment policies. A seven-year transition period ending in 1993 would eliminate most barriers to trade, capital flows, and labor mobility among the twelve EC member countries. During this period, Portugal was a net recipient of EC financial transfers to help modernize its agricultural and industrial sectors for competition in the single market.

Portugal Current Account Deficit

To rein in domestic demand growth--mainly the result of the public sector deficits after 1973--the Portuguese government was obliged to pursue IMF-monitored stabilization programs in 1977-78 and 1983-84 to help achieve a return to current account equilibrium in the balance of international payments. Building on the 1983-85 stabilization program and in the context of Portugal's accession to the EC, the Council of Ministers introduced in March 1987 the Program for the Structural Adjustment of the Foreign Deficit and Unemployment (Plano de Correcção Estrutural do Déficit Externo e Desemprêgo--PCEDED), a medium-term program aimed at a lasting correction of structural imbalances--inflation, fiscal deficit, external deficit, and unemployment. The program's macroeconomic approach included a set of articulated measures involving fiscal, monetary, exchange, and incomes policy. As an instrument of the government's "controlled development strategy," this program was to be implemented in two stages covering the periods 1987-90 and 1991-94 and was designed to reduce Portugal's susceptibility to external shocks by strengthening especially the energy and agricultural sectors.

Composition and Direction of Trade

Portugal's rising share of manufactured goods in total merchandise exports, which reached 80 percent in 1989, was indicative of the country's newly industrialized status. Between 1980 and 1988, exports of manufactured goods increased by 10 percent per year by volume, which was double the rate of its European neighbors, and Portugal gained market share. The country's major commodity exports in 1990 included textiles, clothing, and footwear (accounting for 37 percent of total export value); machinery and transport equipment (20 percent); forest products (10 percent, including pulp and paper and cork products); agricultural products (8 percent, mainly wine and tomato paste); chemicals and plastic products (5 percent); and energy products (about 4 percent). Portugal's comparative advantage appeared to lie with high forestry resources content (wood and cork products, including pulp and paper) and labor-intensive products (textiles, clothing, and footwear). With the participation of multinational firms, Portugal was also gaining competitive strength in the export of automobiles and automotive components and electrical and electronic machinery.

Consumer oriented Exports to portugal

When compared with the other EC member countries and the United States, Portugal had a strong competitive advantage because of its low wage scale. As an example, 1989 hourly labor costs in Portuguese manufacturing (in United States dollars) averaged approximately half those of Greece (a country with a similar per capita GDP), a third those of Spain, and about a fifth of most other West European countries and the United States.
Manufactured goods (notably machinery, transportation equipment, and chemicals) accounted for about 75 percent of merchandise imports in 1989, food and beverages for about 10 percent, and raw materials (mainly crude petroleum) for about 16 percent. Portugal imported about 60 million barrels of oil yearly during the late 1980s, but the share of crude petroleum varied between 8 and 20 percent of total imports depending on fluctuations in world oil prices.
Portugal's commodity trade was increasingly dominated by the EC. In 1990 the EC member countries purchased nearly 74 percent of Portugal's exports and supplied over 69 percent of its imports; in 1985, the year prior to Portugal's membership in the EC, the EC member counties purchased about 63 percent of Portugal's exports and supplied nearly 46 percent of Portugal's imports. Within the EC, the former West Germany, France, and Britain were Portugal's leading trading partners. But after the accession of both Iberian countries to the EC in 1986 (and the dismantling of trade restrictions between them), Spain suddenly emerged as a significant trading partner, taking over 13 percent of Portugal's exports in 1990 and providing 14.4 percent of the latter's imports. Thus, Spain ranked with West Germany as Portugal's premier national supplier in 1990, ahead of France, Britain, and Italy.
The relative position of the United States in Portugal's import trade declined sharply from nearly 10 percent of the total in 1985 to 3.9 percent in 1990. Because Portugal heavily imported grain, soybeans, and animal feedstuffs, its adoption of the CAP led to costly trade diversion from former, more efficient sources, mainly the United States, to higher-cost continental EC member countries. On the other hand, Portugal's full membership in the EC would permit its manufacturers to capture a larger share of exports to EC member countries at the expense of lower-cost exporters from Latin America and East Asia; similarly, Portuguese producers of quality wine were expected to gain market share at the expense of wine producers in Southern Mediterranean countries that were not fully integrated into the EC. In both these cases, trade diversion would favor Portuguese entrepreneurs.
Portugal's trade with the previous Escudo Area (its former African colonies) had fallen sharply since the revolution. Still, a restructured Angola under a competent, non-Marxist regime could once more offer Portugal significant opportunities for two-way trade in the late 1990s. The share of Portuguese imports supplied by the Organization of the Petroleum Exporting Countries (OPEC), which amounted to over 17 percent in 1985 (the year before the collapse of world oil prices), shrank to below 7 percent in 1990.

Tourism and Unilateral Transfers

Measured in terms of arrivals and foreign exchange receipts, Portuguese tourism had grown at a phenomenal rate since the early 1980s. Foreign arrivals, which averaged about 7.3 million in 1981-1982, expanded sharply each year thereafter, stabilized at between 16 and 17 million during 1987-89, and then increased to an estimated 18.4 million in 1990. Receipts from tourism rose from US$1.15 billion in 1980 to US$3.58 billion in 1990.

Portugal loss

In 1990 unilateral transfers reached US$6.5 billion (22 percent of Portugal's current account receipts), of which 73 percent were private, mainly emigrant remittances. About three-fourths of the emigrant remittances originated in Western Europe (mainly France) and one-fifth in North America (mainly the United States). These private inflows not only contributed to the country's foreign exchange earnings, but also represented a significant component of Portuguese household savings.
Gross public transfers in favor of Portugal amounted to US$1,740 million in 1990, of which nearly half (US$837 million) represented structural funds from the EC in support of the country's economic and social modernization. The European Social Fund assisted in vocational and professional training; other funds participated in the Specific Plan for the Development of Portuguese Agriculture (Plano Económico para o Desenvolvimento da Agriculltura Portuguêsa--PEDAP) and the Specific Plan for the Development of Portuguese Industry (Plano Económico para o Desenvolvimento da Indústria Portuguêsa--PEDIP). The Portuguese government was required to cofinance projects funded by these EC transfers. Although Portugal no longer was a member of EFTA, the latter continued to assist the former member country in its economic restructuring efforts. Finally, included in the category of official unilateral transfers were United States government military and economic grants that totaled some US$160 million annually for the use of the large United States Air Force base in the Azores.

Foreign Direct Investment

Foreign direct investment increased at an extraordinary pace after Portugal's accession to the EC. From a modest commitment of around US$166 million in 1986, the annual inflow of investment controlled and managed by foreigners rose sharply in the following years, reaching US$2.7 billion in 1991. At the end of that year, the accumulated stock of direct foreign investment exceeded US$8 billion, or eight times its value at the end of 1986.
From the perspective of multinational firms, Portugal was a strong export base to the emerging single market of 327 million high-income consumers, and since the mid-1980s the country had become especially competitive in attracting foreign investment. These attractions included political stability and a hospitable investment climate that included EC investment subsidies, the lowest wage scale among the EC-12, and programs of economic deregulation and privatization, as well as robust national economic and export growth.

Sliding Euro

The participation of EC-based investors in the annual investment flow to Portugal increased from less than half of the total in 1985-86 to about 70 percent from 1987 to 1990, Britain being the principal country source. Interesting trends in the composition of this investment could be discerned. Britain was the leading country of origin throughout this period, but the United States share fell sharply from 18 percent of the total investment in 1985-86 to less than 3 percent in 1989-90. Within the recently enlarged EC, Spain emerged as a significant direct investor, increasing its share from only 3 percent of Portuguese new investment in 1985-1986 to over 13 percent in 1989-90. Brazilian investors, whose share was negligible in 1985-86, increased their participation to around 7 percent in 1989-90.
Manufacturing, the destination of just under half of foreign investment inflow in 1985-86, received only 27 percent of the total in 1988-89; by contrast, the services sector's share in total investment flow rose from 45 percent in 1985-86 to over 60 percent in 1988-89. Within that sector, banking and insurance increased their participation, although investment in wholesale and retail trade and in hotels and restaurants continued to be significant, reflecting foreign investor participation in Portugal's booming tourism industry. Several new investment projects in the automotive industry were being considered in the spring of 1991, including participation by Japanese and South Korean firms. None, however, approached in scale the Ford-Volkswagen commitment to organize an automotive complex at Sines. This joint venture capitalized at US$3.2 billion was to manufacture a new European minivan.
Portugal, unlike many other middle-income countries, was remarkably hospitable to foreign investment (foreign-owned enterprises were legally exempted from nationalization during 1975-76). The growing pace of privatization since 1988, however, gave rise to debate regarding the ultimate ownership and control of major state firms being divested. One school of thought anticipated that privatization would "de-Portugalize" vital sectors of the economy. To some degree, Prime Minister Cavaco Silva shared this anxiety: "At the same time, we shall have to foster economic groups in Portugal. These were destroyed at the time of the revolution with nationalization. We need them, as otherwise foreigners will come in and take over our enterprises and economic strategy will be determined from abroad. Thus we are supporting the new entrepreneurs in industry and agriculture."
Despite the formation of new Portuguese groups able to compete against foreign-based multinational companies, it was doubtful that these national firms were sufficient in number, risk capital, and managerial-technical know-how to absorb most of the large enterprises scheduled for divestiture.
Although the government had succeeded in limiting foreign participation in a number of key enterprises, including the withholding of a temporary "golden share" for the state, such limits on foreign direct investment were to become illegal in 1995, when Portugal's capital movement regulations would come fully into compliance with those of the rest of the EC members.
Consequently, the prospect of losing national control over large branches of the economy appeared to be the inevitable price of securing Portugal's economic future and closing the income gap between the Portuguese and their more prosperous neighbors.

Trade in Indonesia

2012-02-23T08:02:00.000-08:00

Indonesia

Beautiful Mosjid of Indonesia

Formal Name: Republic of Indonesia (Republik Indonesia; Indonesia coined from Greek indos--India--and nesos--island).
Short Form: Indonesia.
Term for Citizens: Indonesian(s).
Capital: Jakarta (Special Capital City Region of Jakarta).
Date of Independence: Proclaimed August 17, 1945, from the Netherlands. The Hague recognized Indonesian sovereignty on December 27, 1949.
National Holiday: Independence Day, August 17.

GEOGRAPHY

Indonesia in Map

Size: Total land area 1,919,317 square kilometers, which includes some 93,000 square kilometers of inland seas. Total area claimed, including an exclusive economic zone, 7.9 million square kilometers.
Topography: Archipelagic nation with 13,667 islands, five main islands (Sumatra, Java, Kalimantan, Sulawesi, and Irian Jaya), two major archipelagos (Nusa Tenggara and Maluku Islands), and sixty smaller archipelagos. Islands mountainous, with some peaks reaching 3,800 meters above sea level in western islands and as high as 5,000 meters in Irian Jaya. Highest point Puncak Jaya (5,039 meters), in Irian Jaya. Region tectonically unstable with some 400 volcanoes, of which 100 are active.
Climate: Tropical, hot, humid; more moderate climate in highlands. Little variation in temperature because of almost uniformly warm waters that are part of the archipelago. In much of western Indonesia dry season June to September, rainy season December to March.

ECONOMY

Chart of Indonesian economy

Salient Features: Economy transformed from virtually no industry in 1965 to production of steel, aluminum, and cement by late 1970s. Indonesia exporter of oil; responsible for about 6 percent of total Organization of the Petroleum Exporting Countries production in 1991. Emphasis in early 1990s on less government interference in private business and greater technology inputs. Agriculture predominates and benefits from infusion of modern technology by government. Indonesia major aid recipient. Major trade partners Japan and United States; trade with ASEAN fellow members increasing.
Gross Domestic Product (GDP): Rp166.3 trillion in 1989. GDP annual average growth rate 6 percent in 1985-91.
Agriculture: Declining share (20.6 percent) of GDP but employed majority of workers (55 percent of total labor force) in 1989. Only 10 percent of total land cultivated, another 20 percent potentially cultivable. Farming by smallholders and on large plantations (estates); cropland watered by flooding, and slash-and- burn farming used. Rice dominates production but cassava, corn, sweet potatoes, vegetables, and fruits important; estate crops-- sugar, coffee, peanuts, soybeans, rubber, oil palm, and coconuts-- also important. Green Revolution technological advances and increased irrigation improved production in 1970s and 1980s. Poverty in rural areas of Java, Bali, and Madura partially ameliorated with government-sponsored Transmigration Program that moved people to more plentiful farmland in Outer Islands. Animal husbandry, fishing, and forestry smaller but valuable parts of agricultural sector.
Industry: Increasing share (37 percent in 1989) of GDP, but employed only about 9 percent of the work force in 1989. Basic industries: oil and natural gas processing, cigarette production, forestry products, food processing, metal manufactures, textiles, automotive and transportation manufactures, and various light industries. Nearly 50 percent of production in Java, 32 percent in Sumatra.

Relation with foreign countries

Minerals: Crude petroleum and natural gas predominant. About 70 percent (about 500 million barrels valued at US$6 billion in 1989) of petroleum exported. World's largest exporter of liquefied natural gas (20.6 million tons valued at US$3.7 billion in 1990). Also significant reserves of coal, tin, nickel, copper, gold, and bauxite.
Services: Some 29 percent of GDP projected for 1991, employing about 35 percent of work force in 1989. Government service one of fastest growing sources of employment and with most educated personnel. Mix of modern government-operated utilities, stable private services, and numerous self-employed operators in informal, personal services sector. Interisland maritime transportation crucial; supported by large fleet of traditional and modern boats and ships.
Foreign Trade: Principal export trade with Japan, the United States, Republic of Korea (South Korea), and Taiwan. Most important commodities crude petroleum and petroleum products; natural gas (mostly to Japan), natural rubber, clothing, and plywood also important. About 25 percent of GDP exported in 1980s. Major imports (37 percent of total) from Japan and the United States, primarily manufactured products. Growth in trade with other ASEAN members in 1980s and early 1990s.
Balance of Payments: Positive trade balance throughout 1980s despite oil market collapse. 1990 exports US$26.8 billion versus US$20.7 billion imports. Foreign debt increasing quickly (US$1.1 billion in 1989; US$2.4 billion one year later) in late 1980s and early 1990s.
Foreign Aid: Traditionally important part of central government budget. From 1967 to 1991, most coordinated through Inter-Governmental Group on Indonesia founded and chaired by the Netherlands; since 1992 without Netherlands through Consultative Group on Indonesia. Major CGI aid donors (80 percent) Japan, World Bank, and Asian Development Bank.
Exchange Rate: Rupiah (Rp). US$1 = Rp2,060 (January 1993), Rp1,998 (January 1992), Rp1,907 (January 1991).
Fiscal Year: April 1-March 31.

Financial Reform

The president's technocratic advisers on financial policy, who had unsuccessfully resisted growing government regulations during the 1970s, spearheaded the return to market-led development in the 1980s. The financial sector is often the most heavily regulated sector in developing countries; by controlling the activities of relatively few financial institutions, governments can determine the direction and cost of investment in all sectors of the economy. From the 1950s to the early 1980s, the Indonesian government frequently resorted to controls on bank lending and special credit programs at subsidized interest rates to promote favored groups. Toward the end of this period, the large state banks that administered government programs were often criticized as corrupt and inefficient. Sweeping reforms began in 1983 to transform Indonesia's government-controlled financial sector into a competitive source of credit at market-determined interest rates, with a much greater role for private banks and a growing stock exchange. By the early 1990s, critics were more likely to complain that deregulation had gone too far, introducing excessive risk taking among highly competitive private banks.

Balance of economy

Like many developing countries, the Indonesian financial sector historically was dominated by commercial banks rather than by bond and equity markets, which require a mature system of accounting and financial information. Several established Dutch banks were nationalized during the 1950s, including de Javasche Bank, or Bank of Java, which became the central bank, Bank Indonesia, in 1953. Under Sukarno's Guided Economy, the five state banks were merged into a single conglomerate, and private banking virtually ceased. One of the first acts of the New Order was to revive the legal foundation for commercial banking, restoring separate state banks and permitting the reestablishment of private commercial banks and a limited number of foreign banks.
During the 1970s, state banks benefited from supportive government policies, such as the requirement that the growing state enterprise sector bank solely with state banks. State banks were viewed as agents of development rather than profitable enterprises, and most state bank lending was in fulfillment of governmentmandated and subsidized programs designed to promote various economic activities, including state enterprises and small-scale pribumi businesses. State bank lending was subsidized through Bank Indonesia, which extended "liquidity credits" at very low interest rates to finance various programs. By 1983 such liquidity credits represented over 50 percent of total state bank credit. Total state bank lending in turn represented about 75 percent of all commercial bank lending. The nonstate banks--which by 1983 numbered seventy domestic banks and eleven foreign or joint-venture banks--had been curtailed during the 1970s by licensing restrictions, even though they offered competitive interest rates on deposits and service superior to that offered by the large bureaucratic state banks. Bank Indonesia also imposed credit quotas on all banks to reduce inflationary pressures generated by the oil boom.
The first major economic reform of the 1980s permitted a greater degree of competition between state and private banks. In June 1983, credit quotas were lifted and state banks were permitted to offer market-determined interest rates on deposits. Many of the subsidized lending programs were phased out, although certain priority lending continued to receive subsidized refinancing from Bank Indonesia. Also, important restrictions remained, including the requirement that state enterprises bank at state banks and limitations on the number of private banks. By 1988 state banks still accounted for almost 70 percent of total bank credit, and liquidity credit still accounted for about 33 percent of total state bank credit.
In October 1988, further financial deregulation essentially eliminated the remaining restrictions on bank competition. Limitations on licenses for private and foreign joint-venture banks were lifted. By 1990 there were ninety-one private banks--an increase of twenty-eight in a single year--and twelve new foreign joint-venture banks, bringing the total foreign and joint-venture banks to twenty-three. State enterprises were permitted to hold up to 50 percent of their total deposits in private banks. Later, in January 1990, many of the remaining subsidized credit programs were eliminated.
The extensive bank deregulations promoted a rapid growth in rupiah-denominated bank deposits, reaching 35 percent per year when controlled for inflation in the two years following the October 1988 reforms. This rapid growth led to concerns that competition had become excessive; concern was heightened by the near failure of the nation's second largest private bank, Bank Duta. The bank announced in October 1990 that it had lost more than US$400 million, twice the amount of its shareholders' capital, in foreign exchange dealings. The bank was saved by an infusion of capital from its shareholders, which included several charitable foundations chaired by Suharto himself. The spectacular crash of Bank Summa in November 1992 was not protected by Bank Indonesia. Its owner, a highly respected wealthy businessman, was forced to liquidate other assets to cover depositors' losses.

Currency of Indonesia

Unrestricted transactions in foreign exchange by Indonesian residents had been a unique feature of the financial sector since the early 1970s. While many developing countries attempt to outlaw such so-called capital flight, the New Order continued to permit Indonesian residents to invest in foreign financial assets and to acquire the foreign exchange necessary for investments through Bank Indonesia without limit. Commercial banks in Indonesia, including state banks, were also permitted since the late 1960s to offer foreign currency--usually United States dollar--deposits, giving rise to the so-called Jakarta dollar market. By 1990 20 percent of total bank deposits were denominated in foreign currency. This freedom to invest in foreign exchange served the financial institutions well. During the 1970s, when banks' domestic credit activities were heavily restricted, most banks found it profitable to hold assets abroad, often well in excess of their foreign exchange deposits. When demand for domestic credit was high, banks resorted to international borrowing to finance expanding domestic loans. To control the domestic supply of credit by plugging the offshore leak, in March 1990, Bank Indonesia issued a new regulation that limited the net foreign position of a bank (the difference between foreign assets and liabilities) to 25 percent of the bank's capital.
Prior to bank reforms in October 1988, some private banks were essentially the financial arm of large business conglomerates and consequently did not make loans to businesses outside those connected with the bank's owners. The 1988 bank reforms limited loans to businesses owned by bank shareholders. When many of the government-subsidized credit programs targeted to small businesses were eliminated in January 1990, the government required banks to lend a 20 percent share of their loan portfolio to small businesses, defined as those businesses with assets, excluding land, worth less than Rp600 million (about US$300,000). This aspect of financial reform ran counter to the overall effort to improve bank efficiency, since the rule applied to all banks regardless of their expertise in small-scale lending. However, the policy reflected the government's persistent concern that the public might perceive the benefits of economic growth as limited to the wealthy few.
One of the most striking outcomes of financial reform was the revival of the Jakarta stock market in the late 1980s. Established in 1977, the stock market had become lifeless during the early 1980s because of extensive regulation of stock issues and price movements. In conjunction with substantial bank reforms, many restrictions on the Jakarta Stock Exchange were lifted in the mid1980s , broadening the range of firms that could issue equity and permitting stock prices to reflect market supply and demand. To tap the growing international interest in Asian investments, foreign ownership was permitted for up to 49 percent of an Indonesian firm's issued capital. The market's response to these reforms was dramatic. The number of firms listed on the exchange rose from 24 in 1988 to 125 in January 1991, and the market capitalization--the total market value of issued stocks--reached more than Rp12 billion. Although this amount of market capitalization was less than 15 percent of the volume of bank credit to private firms, the stock market promised to become an increasingly important source of finance.

FOREIGN AID, TRADE, AND PAYMENTS

Aid and Trade Policies

Indonesia's exports were vital to its economic development, as exports earned the foreign exchange that permitted Indonesia to purchase raw materials and machinery necessary for industrial production and growth. During the 1980s, about 25 percent of domestic production, or GDP, was exported. Although petroleum was the most important export, other exports included agricultural products such as rubber and coffee and a growing share of manufactured exports. In the late 1980s, the government classified about 70 percent of imports as raw materials or auxiliary goods for industry, about 25 percent of imports as capital goods, primarily transportation equipment, and only around 5 percent of imports as consumer goods.
Export earnings also contributed to Indonesia's ability to borrow from world financial markets and international development agencies. On average, about US$3 billion per year was borrowed during the 1980s. These borrowings primarily financed governmentsponsored development projects. However, increasing interest payment obligations in the late 1980s helped bring more restraint to government borrowing.
Indonesian exports were traditionally based on the country's rich natural resources and agricultural productivity, making the economy vulnerable to the vicissitudes of changing world prices for these types of products. For example, the Dutch colonial economy suffered when world sugar prices collapsed during the Great Depression, and fifty years later, the New Order endured the dramatic oil market collapse in the mid-1980s. Manufactured exports offered the prospect of more stable export markets during the 1980s, but even these products were threatened by increased trade protection among industrial countries. To avoid heavy reliance on a few trade partners, the government pursued several measures to diversify export markets, especially to other developing nations such as China and Indonesia's fellow members of the Association of Southeast Asian Nations.

Tourism statistic of Indonesia

Substantial trade reforms during the 1980s contributed to the surge in manufactured exports from Indonesia. The most important manufactured export was plywood, whose domestic production was facilitated by the ban on log exports in the early 1980s. In 1990 plywood accounted for over 10 percent of total merchandise exports. Although not yet significant individually, a wide range of manufactured products, including electrical machinery, paper products, cement, tires, and chemical products, helped bring overall manufactured exports to 35 percent of merchandise exports, or a total of US$9 billion in 1990, up from less than US$2 billion in 1984.
The growth in non-oil exports helped Indonesia maintain a positive trade balance throughout the 1980s in spite of the oil market collapse. However, increases in imports, service costs such as foreign shipping, and interest payments on outstanding foreign debt all contributed to a worsening current account deficit in the late 1980s. The deficit more than doubled from US$1.1 billion in 1989 to US$2.4 billion in 1990. The 1991 current account deficit was predicted to reach as high as US$6 billion.
The government had successfully avoided a debt crisis in the early 1980s when many developing countries, including the neighboring Philippines, were forced to temporarily halt debt repayments. In a comparative study of Indonesia and other debtor nations, economists Wing Thye Woo and Anwar Nasution argued that Indonesia's success was due to two main factors: heavy reliance on long-term concessional loans and sustained high exports because of a willingness to devalue the exchange rate even when oil export revenues were buoyant. When dollar interest rates soared in the early 1980s, Indonesia's average interest rate on long-term debt was 16 percent compared with over 20 percent paid by Brazil and Mexico.
By 1990 Indonesia's total outstanding foreign debt had reached US$54 billion, more than double the amount in 1983. Over 80 percent of this debt was either lent directly to the government or guaranteed by the government. Measures to reduce foreign borrowing together with the rise in export earnings brought the debt service ratio from 35 percent in 1989 to 30 percent in 1990. Indonesia continued to rely heavily on borrowing from official creditors rather than private sources such as commercial banks or bond issues. In 1990 US$33 billion, or 75 percent, of government debt was from official creditors; of this amount, US$18.5 was at concessional terms. In 1990 US$5 billion in new loan commitments from official creditors were secured at an average interest rate of 5.7 percent, with an average maturity of twenty-three years, whereas US$1 billion in new commitments from private creditors entailed a 7.4 percent interest rate and an average of fifteen years maturity.
The mounting government concern over foreign debt led to the establishment of a Foreign Debt Coordinating Committee in 1991, which included ten cabinet ministers chaired by the coordinating minister for economics, finance, industry, and development supervision. The committee was given broad powers to document and coordinate all foreign borrowing that was related to either the central government budget or the state enterprise sector. Although in theory this debt excluded private-sector foreign borrowing, such borrowing could be included if the investment project received any state financing or supply contracts from state enterprises. The power of this committee was made apparent in its first initiative in 1991, which postponed until 1995 four major energy and petrochemical projects representing a total investment of US$10 billion.
Multilateral aid to Indonesia was long an area of international interest, particularly with the Netherlands, the former colonial manager of Indonesia's economy. Starting in 1967, the bulk of Indonesia's multilateral aid was coordinated by an international group of foreign governments and international financial organizations, the Inter-Governmental Group on Indonesia. The IGGI was established by the government of the Netherlands and continued to meet annually under Dutch leadership, although Dutch aid accounted for less than 2 percent of the US$4.75 billion total lending arranged through the IGGI for FY 1991.
The Netherlands, together with Denmark and Canada, suspended aid to Indonesia following the Indonesian army shootings of at least fifty demonstrators in Dili, Timor Timur Province, in November 1991. The shootings led to international protests against government policy in the former colony of Portuguese Timor, which had been forcefully incorporated into the Indonesian nation in 1976 without international recognition. Indonesian minister of foreign affairs Ali Alatas announced in March 1992 that the Indonesian government would decline all future aid from the Netherlands as part of a blanket refusal to link foreign assistance to human rights issues, and requested that the IGGI be disbanded and replaced by the Consultative Group on Indonesia formed by the World Bank.
Indonesia's major aid donors--Japan, the World Bank, and the Asian Development Bank contributed about 80 percent of IGGI-coordinated assistance, and were willing to continue assistance outside the IGGI framework. Other donors, however, such as the European Community, had charter clauses refusing financial assistance to governments that violated human rights. Although European Community did not sever its aid ties to Indonesia following the 1991 events in East Timor, human rights concerns were expected to affect subsequent negotiations.

Direction of Trade

In the early 1990s, Indonesia's trade partners included dozens of countries throughout the world. Imported goods came from markets as near as Singapore, one of the newly industrializing economies (NIEs) of

Trade in North Korea

2012-02-22T07:05:00.000-08:00

North Korea

DRPK of North Korea

Formal Name: Democratic People's Republic of Korea.
Short Form: North Korea.
Term for Nationals: North Koreans.
Capital: P'yongyang.

GEOGRAPHY

Map of North Korea

Size: North Korea occupies about 55 percent of total land area of the Korean Peninsula, or approximately 120,410 square kilometers of land area; it is about the size of the state of New York or Louisiana.
Topography: Approximately 80 percent of land area mountain ranges and uplands. All mountains on peninsula over 2,000 meters high are in North Korea.
Climate: Long, cold, dry winters; short, hot, humid summers. Approximately 60 percent of rainfall falls in June through September.

ECONOMY

Character and Structure: Socialized, centralized, planned, and primarily industrialized command economy. Principal means of production owned by state through state-run enterprises or cooperative farms. Prices, wages, trade, budget, and banking under strict government control. Growth rate 1984-90 averaged about 3 percent annually. Poor domestic economic performance; gross national product (GNP) down 3.7 percent in 1990 and down 5.2 percent in 1991. Total 1991 GNP US$22.9 billion, or US$1,038 per capita. Withdrawal of Soviet aid in 1991 negatively affected economy.

North Korea

Agriculture, Forestry, and Fisheries: Traditional source of employment and income but, under party rule, secondary to industry. Completely collectivized by 1958. Estimated 18 percent land, agricultural use; approximately 25 percent GNP. Principal crops: rice, corn, potatoes, soybeans, and pulses. Largely self-sufficient in food production, but reported food shortages. Growth in agriculture, forestry, and fisheries sector 2.8 percent in 1991; increase in rice and other crops offset decrease in fish products.
Industry: Machine building, military products, electric power, chemicals, mining, metallurgy, textiles, and food processing. Manufacturing concentrates on heavy industry; ratio of heavy to light industry in 1990 was 8:2. In 1991 oil imports fell 25 percent; coal production, 6.5 percent; and electricity generation, 5.2 percent. Shortages in oil, coal, and electricity in 1991 led to idled plants and 13.4 percent decrease in manufacturing output.
Labor: Labor force estimated at about 11.2 million in mid-1990; approximately 33.5 percent agricultural, down from about 43 percent agricultural in mid-1980. Shortage of skilled and unskilled labor.
Currency and Exchange Rate: 1 wn = 100 chon. As of December 1991, US$1 = 97.1 chon.

Trade Statistic

Foreign Trade: Major exports: minerals, metallurgical products, agricultural products, and manufactures, for a total of US$1.95 billion (free on board, 1989). Trade statistics according to North Korean source: imports US$2.28 billion, exports US$1.24 billion, and deficit US$1.04 billion in 1991. Estimated 1991 trade decreased by approximately 25 percent, especially affected by withdrawal of Soviet trade concessions beginning January 1991- -almost 40 percent--but trade with China up about 17 percent and increased trade with South Korea. Major imports: petroleum, machinery and transport equipment, coking coal, and grain, for a total of US$2.85 billion (free on board, 1989). Major trading partners: Russia, China, and Japan; to a lesser degree, Hong Kong, Germany, India, Canada, and Singapore. Trade with South Korea classified as internal, not international; major hardcurrency source. Lack of foreign investors. Joint Venture Law enacted in 1984, but few projects to mid-1993 and mostly Ch'ochongryn (General Association of Korean Residents in Japan) firms. Foreign investment, contractual joint venture, and foreign enterprise laws enacted October 1992 to induce investment.

FOREIGN ECONOMIC RELATIONS

Foreign economic relations have been shaped largely by chuch'e ideology and the development strategy of building a virtually autarkic economy. These factors have led to an inward-looking and import-substituting trade policy, which has resulted in a small scale of foreign trade and a chronic trade deficit. North Korea's main trade partners have been communist countries, principally the Soviet Union and China, and Japan has been a major trading partner since the 1960s.
Although still adhering to the basic principle of selfreliance , P'yongyang is flexible in its application whenever the economic need arises. After the Korean War, North Korea received a substantial amount of economic aid from communist countries for reconstructing its war-torn economy. In the early 1970s, the country accepted a massive infusion of advanced machinery and equipment from Western Europe and Japan in an effort to modernize its economy and to catch up with South Korea. By the late 1980s, P'yongyang had moved towards making exporting a priority in order to garner foreign exchange so as to be able to import advanced technologies needed for industrial growth and to pay for oil imports.
The most recent and important manifestation of a flexible and practical application of self-reliance--prompted by severe economic difficulties--is the gradual move toward an open-door policy. This policy shift, which involves North Korea's attitudes toward foreign trade, tourism, direct foreign investment, joint ventures, and economic cooperation with South Korea, has the potential to significantly change the country's foreign economic relations.

Statistic of North Korean dollar

The importance of trading with Western developed countries was expounded by Kim Il Sung as early as 1975. The origin of the open-door policy, however, was Kim Il Sung's 1979 New Year's address, in which he mentioned the need to expand foreign trade rapidly in order to meet the requirements of an expanding economy. Kim publicly alluded to some serious problems impeding North Korean exports, exhorting the population to adhere to a reliability-first principle: improving product quality, strictly meeting delivery dates, and expanding harbor facilities and the number of cargo vessels. In his 1980 New Year's address, Kim repeated this theme and announced that foreign trade had increased 30 percent in 1979 over 1978. This speech marked the first time in a decade that trade statistics had been made public--even in this limited and relative form. Unexpectedly and uncharacteristically, North Korea joined the UNDP in 1979 and accepted US$8.85 million in technical assistance. This action was further evidence of a small opening to outside economic involvement.
The year 1984 was the benchmark in officially launching the open-door policy. The Supreme People's Assembly's policy statement, entitled "For Strengthening South-South Cooperation and External Economic Work and Further Developing Foreign Trade," stressed the need to expand economic relations with the developing world as well as to promote economic and technical cooperation with advanced industrial countries. The document also repeated the export bottlenecks listed by Kim in his 1979 and 1980 New Year's addresses. North Korea indicated its readiness to accept direct foreign investment by enacting a joint venture law in 1984. And, since 1986, the country has begun to encourage tourism by accepting some tour groups from the West.
The most far-reaching change in foreign economic relations occurred in 1988 when North Korea began to trade with South Korea. Inter-Korean trade has grown rapidly, and by 1993 the two Koreas expanded into joint ventures and other forms of economic cooperation. North Korea's readiness to open its economy to the West and to South Korea is, no doubt, prompted by its need to import sophisticated Western industrial equipment, plants, and up-to-date technologies in order to modernize and jump-start the economy, and to catch up with South Korea. Given its sizable foreign debt, sagging exports, and the dissolution of the Soviet Union, its largest trade partner, North Korea does not have much choice and recognizes the need to revise its trade laws so as to encourage foreign investment.

Foreign Trade

North Korea's foreign trade is characterized by its relatively low value, chronic trade deficits, and small number of trading partners. In 1990 almost 83 percent of total trade was conducted with the Soviet Union, China, and Japan. Although modest in scale, accompanied by wide and frequent swings from year to year, and even negative growth in some years, trade levels have grown over the years. Based on estimates from the returns of trading partners, exports and imports grew from US$307.7 million and US$434.1 million, respectively, in 1970, to US$1.86 billion and US$2.92 billion, respectively, in 1990. North Korea's total exports were comparable to only 2.9 percent of South Korea's exports of US$65.02 billion in 1990. North Korea's trade value also is small in relative terms when compared with that of South Korea and other newly industrializing economies. The trade ratio (total trade value relative to GNP) in 1990 was 20.7 percent, with export and import ratios of 8.1 percent and 12.6 percent, respectively. The comparative ratio for South Korea was 56.7 percent--with 27.3 percent and 29.4 percent, respectively, for exports and imports.
Except for a few years since 1946, the trade balance has been characteristically unfavorable. North Korea attracted worldwide notoriety in 1976 when it defaulted on its payment of foreign debt to Western countries. The debt had resulted from massive purchases of capital goods from West European countries and Japan in the early 1970s, which had drastically increased the trade deficit. Imports are supposed to be paid for by increased export earnings and short-term credits, neither of which has occurred. The oil shock of late 1973 and the onset of the recession and worldwide stagflation also took their toll. Prices of North Korea's minerals declined sharply because of a worldwide recession that lowered demand. Foreign exchange reserves dwindled, leading to the debt crisis. After suspending payments, North Korea tried to reschedule the payments, but its payment record is erratic; the debts continue in the early 1990s, and unpaid interest continues to mount. At the end of 1989, the total foreign debt was estimated at US$6.78 billion: 45.9 percent, or US$3.13 billion, was owed to the Soviet Union; US$900 million to China; and US$530 million to Japan. According to South Korean sources, the total debt had increased to US$7.86 billion at the end of 1990.
Despite North Korea's flirtation with Western developed countries, the Soviet Union, China, and Japan remain its principal trading partners. In the late 1940s and 1950s, more than 90 percent of trade was conducted with communist countries. In the 1960s, this dependency began to gradually decrease, and in the mid-1970s, with P'yongyang's sudden turn to the West for imports of machinery and equipment, the slide accelerated. This dependency fell to its lowest point in 1974--only 51.5 percent of total trade; it began to rise again when North Korea, having defaulted on payment of its debt, found it difficult to obtain credit to finance imports from the West. The ratio of trade with communist countries was 72.7 percent and 71.4 percent, respectively, in 1989 and 1990.

Korea Dom

The Soviet Union has consistently been North Korea's largest trading partner, accounting for about half of total two-way trade in the late 1980s and 55.9 percent and 56.8 percent in 1989 and 1990, respectively. It is followed by China, with 12.5 percent and 11.4 percent in 1989 and 1990, respectively. Since the early 1960s, Japan has emerged as the third largest trading partner-- 10.7 percent and 19.7 percent in 1989 and 1990, respectively. Japan remains a major continuing link with the advanced market economies. For some years in the mid-1980s, imports from Japan exceeded those of China. Most of the trade deficits originate in communist countries; an exception was in 1974-75 when an import surplus from Western countries exceeded that from communist countries.
The Soviet Union also is the largest source of import surpluses. In 1989 and 1990, trade deficits with the Soviet Union constituted 63.5 percent and 57.7 percent, respectively, of the total deficit. The corresponding ratio for China was 20.3 percent and 28.6 percent, respectively. North Korea had depended predominantly on the Soviet Union and China for its trade credits in the late 1980s, but in 1990 P'yongyang began to lean more toward Beijing. From 1987 to 1990, North Korea consistently accumulated a trade surplus with Japan.
A major factor in North Korea's renewed reliance on the Soviet Union in the 1980s--both as supplier of imports as well as the chief destination for exports--was the difficulty of marketing its products elsewhere; a second important factor was the West's reluctance to extend additional credits. In a trade agreement signed in November 1990, North Korea was required, for the first time, to use hard currency in its commercial transactions with the Soviet Union beginning in 1991. China also notified North Korea to use hard currency in their mutual trade beginning in 1992. This requirement will have a serious adverse effect on the trade value, the balance of payments, and the domestic energy situation. There are signs that the initial attempts to enforce the hard currency rule caused Soviet-North Korean trade to plummet in early 1991. For example, petroleum deliveries from the Soviet Union plunged from 410,000 tons in 1990 to 45,000 tons in the first half of 1991. In order to prevent a further decline, the Soviets conceded some unidentifiable amount of transition time before fully enforcing hard currency payments. Because of the decline in oil imports, the Soviet-aided Sngri oil refinery in Ch'ngjin was at least temporarily closed. Consequently, North Korea has increasingly turned to China and Iran for petroleum.
North Korea's principal exports are non-ferrous metals-- mostly zinc, lead, barites, gold, iron and steel, and textile yarn and fabrics, magnesium, metal-working machine tools, military equipment, cement, vegetables, and fishery products. Its main imports are advanced machinery, transport equipment, highgrade iron and steel products, crude petroleum, wheat, and chemicals. Of almost US$1.7 million of imports from the Soviet Union in 1990, machinery and transport equipment constituted by far the largest category of imports--22.4 percent; garments constituted 53.6 percent of exports amounting to approximately US$1 million that same year. Petroleum and petroleum products imported from the Soviet Union declined sharply from 21.5 percent in 1987, to 10.9 percent in 1988, and to 6.7 percent in 1990.

North Korea's main imports from China are energy-related products--coal, briquettes, petroleum, and petroleum products; they constituted 38.4 percent and 38.5 percent of imports, respectively, for 1989 and 1990. Other imports include cereals and cereal preparations, oil seeds, rubber products, textile fibers, fruits and vegetables, foodstuffs, and machinery and equipment. Metallurgical exports, including magnesium, steel, and nonferrous metals, are the largest category of exports to China, comprising 37.2 percent of total exports in 1990. Other exports to China include anthracite coal, cement, fish, and seafood.
Machinery is the largest import from Japan, making up 23 percent of the total, followed by textile fibers and products, base metal and products, chemicals, plastic and rubber products, and electric and transport equipment. Making up about 40 percent of the total in 1989-90, the main exports to Japan are minerals, in particular iron and steel, zinc, magnesium, aluminum, and lead. Other export items to Japan are vegetables, marine products, textile fibers, anthracite coal, apparel and clothing accessories, and precious metals.

Foreign Investment and Joint Ventures

Direct foreign investment in North Korea had been virtually absent until 1984, when North Korea made a surprising turnabout by proclaiming the Joint Venture Law. The twenty-six-article law on joint ventures appears to have been fashioned after China's law on the same subject. Joint ventures are allowed in "industries necessary for the people's economy," specifically electronics, automation equipment, metals, machine building, chemicals, food processing, clothing-processing industries, consumer goods, construction, transportation, and tourism. Overseas Koreans, particularly those in Japan, are singled out as parties who might wish to participate in joint ventures. Foreign participants are allowed to repatriate profits. There are no stated limits on foreign equity shares. A Ministry of Joint Venture Industry was created in 1988 but in 1990 was scaled down to a bureau, presumably under the Ministry of External Economic Affairs, which handled foreign market development, foreign investment, and joint ventures.

Crane of North Korea

Attempts to accelerate the transfer of hoped-for and muchneeded advanced technology and the infusion of capital through joint ventures has had limited success. Until the early 1990s, North Korea was unable to attract major investment by West European or mainstream Japanese firms. Many factors influence the slow pace and low level of participation in joint ventures by firms other than those owned by Choch'ongryn (General Association of Korean Residents in Japan) an organization of North Korea-supporting Korean residents of Japan. In fact, the majority of joint venture deals have been concluded with Choch'ongryn firms. Of a total of 100 joint ventures reported toward the end of 1991, with a total capitalization of 13 billion yen (approximately US$96.5 million), over 70 percent involve Choch'ongryn firms.
Because the foreign debt problem still is unresolved, North Korea has not improved its shaky credit rating. As a result, Western firms consider any venture with North Korea highly risky. Although the joint venture law is liberal with regard to the repatriation of profits, the dearth of hard currency holdings make profit repatriation questionable, thus discouraging potential investors. Another inhibiting factor is the relatively small size of the domestic market, particularly in terms of per capita income. Moreover, the market's restrictive nature--with prices and distribution channels controlled by the state--make the prospect of successful penetration both dim and problematic.
Approximately ten joint ventures have Chinese participation; other partner countries include the Soviet Union and Bulgaria. The largest joint venture project is the Hamhng Rare Earth Separator Plant, which has both Chinese and Choch'ongryn participation and an investment of approximately US$10.25 million. There also are thirty overseas joint ventures; they are mostly in the former Soviet Union with a few in China. The majority of the firms are engaged in light manufacturing. The first joint venture with China, begun in 1989, was a marine fishery products firm located in Ch'ngjin that had an initial capitalization of US$1 million. The Hich'n-Gorky joint venture company run by the Hich'n Machine Tool General Works of North Korea and the Gorky Machine Production Complex of the Soviet Union was commissioned in October 1989. Other projects under way include a joint shipping company, a luxury hotel, a store selling soft drinks, a department store, an apparel plant, a restaurant, a silk fabric plant, and a gold mine. Both Kim Il Sung and Kim Jong Il attended an exhibition of goods produced by a joint venture with Choch'ongryn firms from Japan in P'yongyang on April 13, 1991; the first such event ever held in North Korea.

Trade in Singapore

2012-02-21T01:07:00.000-08:00

Singapore

Beautiful Singapore

Formal Name: Republic of Singapore
Short Form: Singapore
Term for Citizens: Singaporeans
Capital: Singapore
Date of Independence: August 9, 1965 (from Malaysia)

GEOGRAPHY

Singapore in map

Location and Size: Located at narrow point of Strait of Malacca off southern tip of Malay Peninsula; connected with Malaysia by causeway. Land area in 1988 about 636 square kilometers, consisting of one main island and 58 islets. Main island 42 kilometers long and 23 kilometers wide, with coastline of 138 kilometers.
Topography: Mainly low-lying, with hills reaching 165 meters in island's center. Extensive reclamation and landfill along coasts.
Climate: Tropical climate, with daily high temperatures moderated by sea breezes. Rainfall throughout the year but usually heaviest from November to January.

ECONOMY

Salient Features: Export-oriented economy with large government role. Dependent on international trade, sale of services, export of manufactures. Consistently high rates of economic growth (11 percent in 1988), balance of payments surplus, large foreign investment, large foreign reserves (S$33 billion in 1988), minimal foreign debt.
Gross Domestic Product (GDP): S$47.9 billion in 1988, S$17,950 per capita. Manufacturing contributed 29 percent, financial and business services 27 percent, commerce 18 percent, transport and communications 14 percent, other services 12 percent.
Industry: Major industries: electronics, petroleum refining and petrochemicals, machinery, shipbuilding, and ship repair.
Foreign Trade: S$167.3 billion in 1988. Usual deficit in merchandise trade offset by surplus in services for positive balance of trade. Major exports: electronics, machinery, refined petroleum products. Major imports: machinery and electronic components, chemicals, fuels, and food. Major trading partners: United States, Japan, Malaysia, and European Community.
Exchange Rates: Singapore dollar allowed to float since 1973. In late 1989, US$1=S$1.94.

Economic Boards

Under the appropriate government ministries, statutory boards-- a concept carried over from colonial days--were established to manage specific parts of the economy and foster overall and sectoral development. Each worked somewhat autonomously, using a hands-on approach to the problems in the areas in which it operated.

Economic Development Board

Singapore Trade Statistics

The Economic Development Board was established in 1961 to spearhead Singapore's industrialization. Initially its function was to promote industrial investment, develop and manage industrial estates, and provide medium- and long-term industrial financing. The latter function was taken over in 1968 by the newly created Development Bank of Singapore. When the limits of import substitution became evident, given the small domestic market, policy was redirected toward promoting an export-oriented, labor-intensive industrialization program. After 1986 the board's portfolio was enlarged to include the promotion of services in partnership with other government agencies responsible for the various service sectors and the development of local small- and medium-sized enterprises. In the first two decades following independence, the board evolved industrial strategies in response to changes in the international and domestic business environments, as well as negotiating the public-private consensus necessary for implementing them. The board was not an economic tsardom but, rather, a consensus maker among agencies and corporations that commanded larger financing. In 1989 the Economic Development Board focused its attention on attracting investments in manufacturing and other high value-added services, which met the technological skills and employment needs of Singapore's future economic development.

Foreign Trade

Trade in goods and services was Singapore's life blood as truly in 1989 as it was in the early twentieth century or a century earlier when the British East India Company first began business there. Trade, along with domestic savings and foreign investment, remained key to the country's growth. Singapore traditionally had a merchandise-trade balance deficit (in part at least because food was imported), which it customarily offset with a surplus on the services account. It was one of the world's few countries where total international trade (domestic exports and reexports plus imports) was greater than total GDP. In 1988 trade (S$167.3 billion) was more than three times GDP (S$48 billion), and two-thirds of the goods and services Singapore produced were exported.
Singapore, however, was more than simply a trade and manufacturing center in the late 1980s. Trade and manufacturing were closely tied to the country's expanding business services and international financial market; each enhanced the other. In addition to the more than 650 multinational companies that had set up manufacturing plants and technical support facilities, several thousand international financial institutions, service companies, and trading firms also maintained a presence in Singapore. The increasing internationalization of the economy and the continuing centrality of external trade meant that world trade fluctuations and the state of the global economy were significant factors-- largely out of the country's direct control--in what happened to Singapore's trade and wider economy.

Statistic

As a British colony in the nineteenth and early twentieth centuries, Singapore was an entrepôt for the exchange of raw materials from Southeast Asia--mainly present-day Indonesia and Malaysia--for European merchandise. Newly independent Singapore's decision in 1965 to emphasize industrial development and the growing success of that plan gradually resulted in a significant change in the nature of trade. By the mid-1970s, the proportion of reexports and domestic exports had been roughly reversed, with reexports accounting for less than 41 percent.
In the 1980s, the somewhat diminished entrepôt trade remained important, and Singapore continued to act as a regional processing and distribution center. Reexports' share of total exports averaged 35 percent from 1980 to 1987. Although primary commodities (crude rubber, nonferrous metals, and to a lesser extent palm and coconut oil) were still a factor in trading activities, machinery and transportation equipment dominated. Singapore also served as a back door to trade with Asian communist countries for third countries, such as Indonesia.
Between 1980 and 1984, total exports grew an average of 5.5 percent per year. The strongest impetus came from the newer electrical and electronics industries. The trade deficit declined steadily after 1982, reflecting lower commodity prices paid to foreign producers, greater levels of internal efficiency, and industrial upgrading. In 1985, however, total exports decreased by 2.26 percent. Higher value-added exports declined, both as a function of weaker demand and a worldwide saturation in many areas, such as computer peripherals. Petroleum exports, still a major sector, virtually stagnated.
Trade, along with the rest of the economy, reasserted itself by 1987, resulting partly from government economic decisions and partly as a reflection of rising world commodity prices. In 1988 Singapore's total trade amounted to about S$167.3 billion (US$80.8 billion), with a global trade deficit of about S$8.18 billion. Singapore's GDP grew by 10.8 percent in 1988, the best growth rate in fifteen years. Disk drives were the largest non-oil item exported, worth S$4.89 billion. Other major exports were integrated circuits, data processing equipment and parts, telecommunications equipment, radio receivers, clothing, and plastics.
By early 1989, signs of slowing down and leveling off had appeared with the first export declines in eighteen months. Analysts agreed the weak external demand for electronics and computer parts resulted, in part, from an oversupply on the world market of disk drives, semiconductors, and related items. Imports surged, however, widening the trade deficit sharply.
Although their volume was not large, food products were a significant aspect of Singapore's trade. The urban nation produced only a small proportion of its own food, requiring it to import large quantities. Some food products, such as soy sauce and juices, were processed in Singapore for export, and Singapore continued its historical role as the regional center for the spice trade.

Trade in Germany

2012-02-20T08:13:00.000-08:00

Germany

Beautiful Germany

Formal Name: Federal Republic of Germany.
Short Form: Germany or Federal Republic.
Term for Citizen(s): German(s).
Capital: Berlin.

Geography

Germany in Map

Size: 356,959 square kilometers.
Topography: Terrain rises from northern coastal lowlands to belt of central uplands, complex and varied in form. To south of uplands, a high plain suddenly rises to Alps in country's extreme south. Most important rivers: Rhine, flowing to north; Elbe, flowing to northwest; and Danube, flowing to southeast.
Climate: Cool, continental climate with abundant rainfall and long overcast season. Lower temperatures with considerable snowfall in east and south. Prone to rapid weather variations from merging of Gulf Stream and extreme northeastern climate conditions.

Society

Population: 81,338,000 (July 1995 estimate) with growth rate of 0.26 percent (July 1995 estimate).
Ethnic Groups: 95.1 percent German, 2.3 percent Turkish, 1.7 percent Italian, 0.4 percent Greek, and 0.4 percent Polish; remainder mainly refugees from former Yugoslavia.
Languages: Standard German, with substantial differences in regional dialects. Three very small linguistic minorities, which speak Sorbian, Danish, or Frisian.
Religion: Protestants, mostly in Evangelical Church in Germany, 30 million; Roman Catholics, 28.2 million; Muslims, 2.5 million; free churches, 195,000; and Jews, 34,000.
Education and Literacy: 99 percent literacy rate in population over age fifteen (1991 estimate). Education compulsory until age eighteen. At age ten, after primary school (Grundschule), students attend one of five schools: short-course secondary school (Hauptschule); intermediate school (Realschule); high school (Gymnasium); comprehensive school (Gesamtschule); or a school for children with special educational needs (Sonder-schule). At about age fifteen, students choose among a variety of vocational, technical, and academic schools. Higher education consists of many kinds of technical colleges, advanced voca-tional schools, and universities.
Health and Welfare: About 90 percent of population covered by comprehensive compulsory insurance for sickness, accidents, disability, long-term care, and retirement. Most of remainder enrolled in voluntary insurance programs; the very poor are covered by state-financed welfare programs. Quality of medical care generally excellent. Comfortable pensions paid according to life-time earnings and indexed to meet cost-of-living increases. Wide variety of other social welfare benefits managed by both government and private agencies available to those in need. Life expectancy 76.6 years for total population (73.5 years for males and 79.9 years for females) (1995 estimates). Infant mortality rate 6.3 deaths per 1,000 live births (1995 estimate). Total fertility rate 1.5 children born per woman (1995 estimate).

Economy

Gross Domestic Product (GDP): In 1994 US$1,840 billion, or about US$27,800 per capita. Real growth rate 2.4 percent, inflation rate 3.0 percent, and unemployment rate 8.2 percent.
Agriculture: 3 percent of labor force and 1 percent of GDP in 1992. Main crops wheat, potatoes, sugar beets, and barley.

Industry of Germany

Industry: 38 percent of labor force and 38 percent of GDP in 1992. Products highly specialized goods, including machine products of all varieties, chemicals, electrical products, construction, food and beverages, lignite, textiles, and petroleum and gas refining.
Services: 59 percent of labor force and 61 percent of GDP in 1992.
Exports: US$428 billion in 1994, mainly highly specialized industrial products, including motor vehicles, machines, electronic goods, and chemicals.
Imports: US$376 billion in 1994, including food, petroleum products, manufactured goods, electrical products, automobiles, and apparel.
Foreign Trade by Region: Imports in 1994: European Union (EU) 47.6 percent, European Free Trade Association (EFTA) 14.0 percent, developing countries 11.5 percent, former European communist bloc countries 8.1 percent, United States and Canada 7.7 percent, Japan 5.6 percent, other dynamic Asian economies 3.7 percent, and Organization of the Petroleum Exporting Countries (OPEC) 2.0 percent. Exports in 1994: EU 48.9 percent, EFTA 15.1 percent, developing countries 11.5 percent, United States and Canada 8.5 percent, former European communist bloc countries 7.1, Japan 2.6 percent, other dynamic Asian economies 3.5 percent, and OPEC 2.6 percent.
Balance of Payments: In 1994 trade balance US$52 billion; current account showed deficit of US$20 billion; capital account balance US$24 billion.
Fiscal Year: Calendar year.
Currency and Exchange Rate: Deutsche mark (DM). In April 1996, exchange rate US$1 = DM1.51.

Germany in the World Economy

Germany in World Finance and in the Group of Seven

Along with the United States and Japan, Germany has one of the world's biggest economies and most dominant central banks. Of the three, Germany has the smallest and most vulnerable economy. Germany's GDP of DM3 trillion (for value of the deutsche mark--see Glossary) is less than one-third of United States GDP and less than one-half of Japan's.
Despite Germany's relatively small size, it has consistently exerted a powerful influence on the world economy. Since the end of World War II, the Federal Republic has played a key role in beginning, managing, or ending each crisis and each phase experienced by the global monetary system.
The first phase was the Bretton Woods era, named after the New Hampshire resort where the Allied monetary conference of July 1944 created the IMF and shaped the global postwar order. The dollar was pegged to gold at a fixed rate of US$35 per troy ounce, constituting the official backing of the global monetary system; other currencies were linked to the system through their own fixed, dollar-pegged exchange rates. Countries could devalue or revalue with respect to the dollar, and the dollar price of gold could at least theoretically remain constant even as rates of exchange between separate currencies fluctuated.
By the late 1960s, there was a surplus of dollars in the international financial system. Largely for domestic reasons, the United States had put far more emphasis on expanding dollar liquidity than on maintaining dollar value. Growing fear of United States inflation had made those dollars less desirable, and many central banks held more dollars than they wanted. The United States proposed that other countries revalue their currencies as provided under the Bretton Woods Agreement. But those other countries, and West Germany in particular, were not prepared to revalue. Money poured into purchases of the deutsche mark, sometimes for the purchase of German goods, but more often to hedge against the dollar or to make a profit when--as was widely expected--the deutsche mark would have to be revalued. West German foreign-exchange reserves rose from US$2.7 billion in December 1969 to US$12.6 billion by December 1971, and to US$28.1 billion by September 1973. The steady flow of foreign money into deutsche marks not only undercut the Bretton Woods system (see Glossary) but also threatened to import inflation into Germany by expanding the German money supply.

Car garage

West Germany tried to help support the dollar during the late 1960s and early 1970s. Bundesbank president Karl Blessing sent a letter to the chairman of the United States Federal Reserve Board pledging not to purchase United States gold but to maintain West German reserves in dollars. West German chancellor Ludwig Erhard (1963-66) agreed to make large purchases of United States dollar instruments and to make "offset" payments to lessen demands in the United States Congress for a reduction in United States forces stationed in West Germany. The United States and several other nations pressed West Germany to revalue in order to compensate for the dollar glut. Although the Bundesbank would have favored revaluation to reduce the risk of inflation, the West German government was afraid that a revaluation would cut into West Germany's global competitiveness and curtail exports.
Finally, after intensifying waves of speculation, the Bretton Woods system collapsed in August 1971. The United States stopped the sale of gold at US$35 per troy ounce and thus removed the fixed link between the dollar and gold. With that step, the system lost its anchor.
The deutsche mark remained under strain throughout the post-Bretton Woods period. It was alternately used in interventions to support the dollar or as a hedge against it. Other currencies again flooded into purchases of deutsche marks. To ease pressure within Europe, West Germany and other European states agreed to peg their currencies to a special system of relatively narrow exchange-rate bands formally entitled the "European narrow-margins agreement" but informally known as the "snake." But the snake also failed to hold. The domestic policies and even the economic philosophies of its leading member states--West Germany, France, Britain, and Italy--diverged too widely. The deutsche mark was the strongest currency, and others could not hold their value against it.
The United States and West Germany played key roles in trying to arrange a new global monetary system. But they had opposite objectives: the United States was determined not to have the dollar reassume responsibility for maintaining an international arrangement, fearing the great cost to its exports and economic stability. The United States government believed that countries with a trade surplus, such as West Germany, should accept part of the responsibility for solving exchange-rate crises and should be prepared to revalue, and it insisted on advance agreement for sanctions against any country that refused to do so. Despite its readiness to make minor exchange-rate adjustments for the sake of new currency alignments, West Germany refused to commit itself to any arrangement that would oblige it to revalue in the future.
In March 1973, the United States and other governments and central banks gave up trying to preserve the Bretton Woods system by setting new fixed exchange rates. With that decision, the next phase of the postwar international system, "floating," began. With floating, the relationship between the United States dollar and the deutsche mark became subject to market forces rather than official negotiations. West Germany was not certain whether floating would serve its needs but was not prepared to pursue any alternative.
The economic consequences of floating for Germany were not uniformly beneficial. The Bundesbank welcomed floating because it gave the bank more flexibility. The bank, in fact, could virtually control the deutsche mark's exchange rate if it was prepared to manipulate interest rates to that end. But West German industry, and especially West German exporters, did not welcome the unpredictability that flexible exchange rates introduced into commercial arrangements and production plans.
West German exporters also faced a particular problem that persisted in the 1990s. The Bundesbank's favorite instrument for fighting inflation, a high real domestic interest rate, is also the instrument that attracts capital to the deutsche mark and keeps the currency valuable. Many businesspeople feared then, as they have since, that the Bundesbank's anti-inflationary policy would always keep the deutsche mark stronger than most other currencies and would thus jeopardize exports.
German exchange-rate policy has been constantly caught on the horns of that dilemma. When a decision absolutely needed to be made during the floating era, however, German governments and the Bundesbank have almost always chosen an anti-inflationary course of action. They have preferred a strong currency, which might adversely affect trade, to a weak one, which would jeopardize the stability of the German monetary system. With that choice, they set policy for others as well as for themselves. As long as the deutsche mark is strong and German interest rates remain high, even the United States can diverge from German policy only at the risk of seeing its own currency fall in value. Because of Germany's monetary dilemma, and because the German government as well as the nation's bankers and industrialists have recognized German limitations and vulnerabilities, all have been anxious to establish the highest possible level of international predictability. The Germans have become regular participants in international economic consultations, and they have emphasized the value of such consultations at every opportunity.

Exports by province

Global economic coordination after the end of the Bretton Woods system has resulted in the development of a number of coordinating institutions. One, first known informally as the Group of Five (G-5), consisted of the United States, West Germany, Japan, Britain, and France. After Canada and Italy joined, the association became known as the Group of Seven (G-7). The G-7 includes the finance ministers and central bankers of the principal economic powers, who meet periodically and consult regularly between meetings.
In addition to the meeting of G-7 finance ministers, there is an annual G-7 economic summit at which the heads of state or government of the same seven countries meet to coordinate economic and political policies or at least to attempt to understand each other better. The summits have been held annually since 1975 on a rotating basis among the summit states, usually in the capital. At the Naples summit of the G-7 in 1994, Russia joined the political discussions, essentially turning the gathering into the Group of Eight (G-8).

The Deutsche Mark as an International Currency

At the core of Germany's success and influence lies its currency. The deutsche mark gave concrete expression to West Germany's international financial and economic success and also contributed to it. Since unification, it has become even more important as a symbol as well as an instrument of Germany's new central role in Europe. The success of the deutsche mark has been anchored in the success of West German exports, in the Bundesbank's solicitous management of the currency's value, and in the confidence generated by the country's prosperity.
The deutsche mark has been a model of stability since it became fully convertible in 1958. No other major currency, including the Japanese yen or the Swiss franc, has been stronger. The United States dollar, the cornerstone of the global system, has lost about two-thirds of its value against the deutsche mark since 1958.
The deutsche mark is not used as widely for transactions as it is to supply central-bank reserves. Global commodity prices are still largely denominated in United States dollars. Whatever the deutsche mark's strengths may be, it does not offer the kind of liquidity that the dollar does. Invoicing in deutsche marks is concentrated on Germany's own commerce, but almost 15 percent of world trade is conducted on a deutsche mark basis. The deutsche mark figures much less significantly than the dollar in the creation of international credits or in debt servicing. But a growing quantity of international bond issues--including some being floated in the United States--are denominated in deutsche marks. Major United States banks offer deutsche mark accounts for Americans who want to hedge some of their assets against a fall in the dollar. The World Bank has floated Eurodeutsche mark bonds, as have various United States corporations. In Europe the deutsche mark has virtually become a parallel currency, with prices in Western Europe and Eastern Europe increasingly quoted in deutsche marks as well as in local currencies.
Bundesbank officials worry constantly that the growing circulation of the deutsche mark makes it difficult to control the supply of the central bank's own currency. Deutsche marks held abroad, circulating abroad, and perhaps even used for currency intervention abroad are still part of the total German money supply. Sudden, large flows could have undesirable impacts on German interest rates or German prices, materially complicating the execution of German monetary policy. The bank fears that any decline in the deutsche mark's value or in the German current-account surplus could set off a selling wave that would force it to intervene massively and perhaps unsuccessfully. Bundesbank president Tietmeyer has warned that the high deutsche mark holdings abroad place a particular burden on the Bundesbank because any loss of faith in the German currency could provoke large-scale selling. The deutsche mark has thus become a burden for Germany as well as a blessing. The Bundesbank stated in May 1991 that one reason it had to maintain high interest rates was to avoid the kind of decline and subsequent market effects that Tietmeyer had cited. The German currency risks finding itself on a treadmill where the stronger it gets, the stronger it must remain until the German monetary authorities no longer dare to reduce interest rates significantly for fear that they might spark a deutsche mark sell-off.

The IMF recognized the reality of German monetary power in 1990, when it promoted Germany and Japan to share the second rank just below the United States and ahead of Britain and France. German government and banking officials were not certain that they welcomed such prominence, but they were prepared to accept it as a reflection of international appreciation of German monetary policies.
The West German role in the development of the global financial and monetary system has been replete with ironies. No state consistently had a greater interest in developing a stable system and in cooperating in such a system. Nonetheless, West German policy helped undermine and even destroy some of the arrangements that West Germany wanted to maintain. During the Bretton Woods era, pressures on the dollar almost always expressed themselves in massive purchases of deutsche marks. The strength of the deutsche mark weakened the system because any currency--including the United States dollar--could come under attack if it were not defended and preserved as solicitously as the deutsche mark was by Germany. The only currencies and systems that survived this pressure were those whose governments determined from the beginning that they would follow a strict monetary discipline similar to that applied by the Bundesbank to the deutsche mark.

Germany in the European Community

If Germany's global role is beset with complications, its European role seems relatively clear. Germany has always concentrated its economic interests and activities, whether in trade, investment, or finance, within whatever form was being taken by West European integration.
Although German economic and political interests cover all of Europe, they have been most immediately reflected in the EU and the European Monetary System (EMS). The Germans have found that these two systems complement each other. But the German government and German business and banking establishments have long had separate attitudes toward the two institutions, and they play a different role in each.
The EC was West Germany's economic home, and the country remains one of the organization's strongest supporters. Chancellor Kohl on several occasions made special efforts to promote European cooperation, especially concentrating on the drive to create a European Single Market and on the negotiation and ratification of the Treaty on European Union (commonly known as the Maastricht Treaty--see Glossary) (see The European Single Market, this ch.). Kohl also intervened on occasion to avert potential conflicts between Germany's European interests and its ties with the United States, although he had great difficulty resolving the dispute over agricultural trade that broke out between the United States and France during negotiation of the Uruguay Round of the GATT talks. He also followed up German unification with efforts to draw the EU further toward Eastern Europe.

Global economic perspective

Germans have consistently pressed for closer integration of the states of Western Europe, officially and in public opinion. They have also been among the staunchest European advocates of open trade between Europe and the outside world. German officials and political leaders have strongly and consistently asserted that United States fears about a "Fortress Europe" are misplaced. Whereas several other European states--especially France and Italy--have tried to limit imports of various foreign products to the EU, the German government has argued for open markets, imposing fewer controls or restrictions on trade than most European states.
West Germany, and especially West German industry, carved out an important export niche within the EC. In the process, it made the EC an essential market for German goods and an important factor in German prosperity. Because one-third of West German GDP was exported and because one-half of all exports went to countries of the EC, at least one of every six West German jobs depended directly on the EC market. Many other jobs depended on imports from EC states or on the general prosperity the EC had brought to all its members.
The intimate connection with the EC was reflected in West German trade statistics (see table 19, Appendix). Not only did more than half of West German exports go to other EC countries, but many West German industries relied on the EC for a major share of their total market--whether domestic or international. Before unification in 1990, 48 percent of West Germany's production of office machinery was exported to other EC countries, as was 24 percent of its chemical goods and machinery, 23 percent of its motor vehicles, 17 percent of its electronic goods, 16 percent of its textiles, and 14 percent of its iron and steel.
But if West European trade was vital to West Germany and remains so for united Germany, West Germany was vital to the success of the EC. Even before German unification, there were more Germans--more than 60 million--than any other nationality in the EC. With unification the figure came to about 80 million. West Germany alone already had the largest share of the EC's GDP, over 25 percent; the largest amount of private consumption, more than DM1.2 trillion in 1988; and the largest investment in other EC countries, DM56.7 billion. Because the German share of EC production and consumption was expected to grow in the aftermath of unification, the EC recognized the impact of this process by allotting united Germany a larger number of seats--ninety-nine--in the European Parliament than any other state.
The Federal Republic was often termed the EC's "paymaster." Its net contribution to the EC budget was often four times as large as the next-largest contribution because West Germany never drew as heavily as such states as France or the poorer Mediterranean countries on either the agricultural or the developmental support programs. West Germany regularly provided over 25 percent of the EC budget, with no other state contributing more than 20 percent; and united Germany's projected share of the 1994 EU budget was 30 percent, or DM44.1 billion. Although Germany was receiving some EU aid in 1994 to develop the economy of the former East Germany, united Germany will in the future be expected to contribute an even larger share to the EU than West Germany did--in part because Germany itself is larger and in part because many prospective East European members will need support. This was one reason Germany strongly supported the EU membership applications of such relatively well-to-do states as Norway, Sweden, Finland, and Austria. Germany's contribution to the EU is becoming increasingly controversial, however, as more and more Germans complain about the growth of the EU budget. Several German political figures, including Bavaria's political leader, Minister President Edmund Stoiber, have said that Germany must reduce its contribution.
Management of the EU's Common Agricultural Policy (CAP--see Glossary) illustrates some of the conflicts in intra-German interests. That system, by its commitment to subsidize both production and exports, has become increasingly expensive. It consumes more than half of the EU budget, or more than US$35 billion a year. Germany's Ministry of Agriculture has often tried to use the EU to drive support prices higher and to prevent or restrict foreign imports. The Ministry of Finance, by constrast, has sought to reduce the CAP in order to cut the German contribution to the EU.

The European Single Market

To advance the EC toward a truly integrated and borderless internal market--the European Single Market--the EC's European Commission (see Glossary) in 1985 submitted a white paper to the European Council (see Glossary) in which it listed a series of 225 steps needed to create such a market. It also proposed a schedule for completing these steps in time for the internal market to begin functioning by the end of 1992. The council accepted the commission's proposals, with West Germany strongly supporting the concept. West Germany later advanced the process significantly during its presidency of the council in the second half of 1988.
Once Germany was united, it remained among the European states the most determined to implement the conditions of the European Single Market. Even before the formal implementation of the single market on January 1, 1993, Germany had already incorporated 80 percent of the single-market regulations into its own legislation, a higher percentage than any European state except Denmark or France. Notably, the German government also applied those new regulations in the five new states (Länder ; sing., Land ) of the former East Germany, as well as in the old Länder of western Germany.

Not all Germans welcomed the coming of an open internal market. Many worried that the guidelines for such a market would give so much power to the bureaucrats within the European Commission that economic initiative within the member states might be stifled. Many German businesspeople dreaded the prospect of more EU offices in Brussels enforcing more regulations. Some Länder , especially Bavaria, as well as a number of German communities, became disturbed by prospects that the EU would in the future have such immense powers over economic life that the German federal system itself could be placed in jeopardy. As a result, Germans have become strong advocates of the principle of Subsidarität (subsidiarity), under which matters not specifically covered by EU laws are left to the practices and the laws of the individual national states.
Despite steady German government support for the internal market, attitudes in German business and economic circles also have remained mixed, depending on the size and interests of the affected firms. The largest German firms with strong export positions strongly favor the internal market. The midsized firms, which are unable to relocate their main production sites or develop subsidiary sites abroad, have a more cautious reaction. Smaller firms, especially those involved in handicrafts or services, are fearful of the competition that might come from other European countries with lower production costs.
Just as firms of different sizes have reacted differently to the internal market, so have firms in different industries. The producers of Germany's most competitive products--whether automotive manufacturers, toolmakers, chemical firms, or electronics firms--regard the single market as an opportunity. By constrast, Germany's relatively inefficient service firms, whether in telecommunications, banking, or insurance, see the market as a threat because it would eliminate national regulations that had given them privileged positions.
German trade unions particularly fear the internal market. They have warned that it will cause production to move to countries and regions where wages are lowest and social benefits most limited. Despite the existence of strict EU standards governing the rights and privileges of workers, the trade unions have consistently warned of "social dumping," the temptation for manufacturers to look for those sites where regulations are less stringent or are less vigorously enforced than in Germany.
German environmentalists, for their part, fear that German manufacturers might shade their environmental commitments in order to keep their costs as low as possible against competitors who face fewer environmental problems in less densely settled countries (see The Environment, ch. 3). Environmentalists have also expressed concern that manufacturers will be tempted to locate production facilities abroad, where environmental standards might be less rigorously enforced or where less severe population and land-use pressures might make pollution seem less onerous. As German trade unions fear social dumping, the environmental groups fear "environmental dumping."
With the continued development of the internal European market, many Germans began to perceive another danger--that the EU might become so internally focused that it could become too protectionist. The Board of Advisers to the German Ministry for Economics warned in 1990 that such protectionist thinking, if not promptly countered, could jeopardize European prosperity. German industry and trade associations have expressed similar concerns, warning that the protectionist risk of the internal market must be fought at every level to avoid driving Germany ever more into a limited European mold. German industry has consistently pointed out that Germany stands to lose far more than any other European state if the global trading system collapses because of the protectionist proclivities of the EU.
The increasing power of protectionist forces in the EU has raised concerns in Germany about the potential for the emergence of three separate and competitive regional trading areas, the EU, the Americas, and Asia, with some form of negotiated--or managed--trade among them. Any such arrangement negotiated by the EU would establish quotas for each side, and Germany almost certainly would not obtain as large a share of any European quota as that which German exporters could obtain on their own.
Kohl, in fact, has sought to use EU cooperation to help cement a close German relationship with France. He and French president François Mitterrand promised in early 1994 that they would use the successive German and French presidencies of the European Council during the last half of 1994 and the first half of 1995 to plan and execute a joint program for the further development of the EU.

Trade Philosophy and the Trade Balance

West Germany has been one of the world's major trading nations, almost from the first days of the economic miracle that began in the early 1950s (see The Economic Miracle and Beyond, ch. 5). It also had high trade and current-account surpluses during most of these years, especially during the latter half of the 1980s (see table 20, Appendix). It was the world's largest exporter in 1988, second largest after the United States in 1989, and first again in 1990 if East German exports before monetary unification in mid-1990 are included. West Germany was also consistently one of the world's largest importers.
Ludwig Erhard set the tone for the future of German trade policy and practice when he was minister for economics in the early days of the Federal Republic. He made his own sentiments very clear, saying in 1953 that "foreign trade is not a specialized activity for a few who might engage in it, but it is the very core and even the precondition of our economic and social order." Commentators and authors on the German economy speak of a German "export mystique," of deliberate domestic underconsumption to facilitate exports and increase competitiveness, and of an "almost unconscious" German mercantilism. The export sector has a powerful voice in German economic and commercial policy making, including a special Foreign Trade Advisory Council located in the Ministry for Economics. Senior German political figures rarely make visits abroad without including select German businesspeople in their official delegations.

Trade at Austria

2012-02-18T23:44:00.000-08:00

Austria

City hall Austria

Formal Name: Republic of Austria.
Short Form: Austria.
Term for Citizens: Austrian(s).
Capital: Vienna.

GEOGRAPHY

Austria in Map

Size: Approximately 83,859 square kilometers.
Topography: Most of country Alpine or sub-Alpine; heavily wooded mountains and hills cut by valleys of fast-flowing rivers. Plains around Vienna and Danube Valley in northeast only lowland areas and contain most of population. Danube, flowing east through northern provinces and Vienna, principal river. Of total area, 20 percent arable land, 29 percent pasture, 44 percent forest, and 7 percent barren.
Climate: Continental weather systems predominate; temperatures and rainfall vary with altitude. Temperate, cloudy, cold winters with frequent rain in lowlands and snow in mountains; cool summers with occasional showers. Humidity highest in wetter western regions, diminishing toward east.

ECONOMY

Gross National Product (GNP): US$174.8 billion in 1992 with 2 percent growth rate; US$22,110 per capita with 2.4 percent growth rate.
Agriculture and Forestry: Agriculture and forestry accounted for 2.8 percent of gross domestic product (GDP) and 7.4 percent of labor force in 1991. Principal crops: grains, fruit, potatoes, sugar beets, sawn wood, cattle, pigs, and poultry. About 80 to 90 percent self-sufficient in food.

Industries of Austria

Industry: Major sector with 36.3 percent of GDP and 36.9 percent of employment in 1991.
Services: Services accounted for 60.9 percent of GDP and 55.8 percent of employment in 1991. Largest growth sector; 10 percent growth in share of GDP and 14 percent growth in share of labor force since 1970.
Major Trading Partners: Most trade with European Union (EU). Germany largest single trading partner (in 1993 accounted for 38.9 percent of exports and 41.5 percent of imports), followed by Italy and Switzerland.
Imports: US$48.6 billion in 1993. Major imports: machinery and equipment, manufacturing products, chemical products, fuels and energy, and foodstuffs.
Exports: US$40.2 billion in 1993. Major exports: machinery and equipment, paper and paper products, transport equipment, metal manufactures, and textiles and clothing.
Balance of Payments: Current account deficit US$900 million in 1993. Persistent trade deficit. Per capita income from tourism strongest in world; helps balance deficit.
General Economic Conditions: Stable economy with generally good rates of growth; high living standards, comparable with other countries of Western Europe. In 1992 real GDP growth 1.6 percent, inflation 4.1 percent, and unemployment 5.9 percent; in 1993 real GDP growth -0.3 percent, inflation 3.6 percent, and unemployment 6.8 percent.
Currency and Exchange Rate: Schilling. In March 1994, exchange rate US$1 = S12.1.

FOREIGN ECONOMIC RELATIONS

Foreign Trade and the Balance of Payments

Like any small country, Austria depends heavily on foreign trade. Its central location in Europe reinforces that dependency and gives Austria a wide range of trading partners in both Eastern Europe and Western Europe. Austria also consistently seeks to avoid isolation and has joined international trading systems to ensure markets for its products and access to the goods it needs.

Foreign Trade Ties

As the economy has evolved and produced a more sophisticated range of products, foreign trade has become more important. Foreign trade made up about one-fourth of GDP in 1955, one-third by 1975, and two-fifths by 1990. Austria's export structure has also evolved. One-half the country's exports were once raw materials, foods, and semifinished goods, but by the early 1990s two-thirds of its exports were finished products. Imports have came to reflect this change and consist mostly of industrial and semifinished goods that require further processing and finishing. The largest category of exports in 1991 was machinery and equipment, accounting for almost one-third of all exports. Other major items included chemical products, paper and paper products, transportation equipment, metal manufactures, and textiles and clothing. The largest single import item was also machinery and equipment; other items were manufactured products, chemical products, fuels and energy, and petroleum.
Austria's main trading partners are in continental Europe, especially Germany, Italy, and Switzerland. Because of a heavy dependency on imports, Austria usually has a negative trade balance, which is compensated for by positive services and capital accounts. Income from tourism is especially important in reducing the negative trade balance. The trade balance deteriorated particularly during the 1970s because of increased oil prices, and Austria had to make special efforts during the 1980s to redress the balance.

Austria and European Integration

Given its dependence on international trade, Austria has always been interested in some form of customs union. Although it was recognized that there might be some competitive disadvantages in such associations, especially with countries that produced at more competitive prices, the Austrian government and Austrian manufacturers have always been even more afraid of being excluded. They feared that exclusion would prevent them from reaping any economies of scale and would ultimately consign them to an economic backwater.

2002-2007 study foreign exchange

The government, therefore, was anxious to join in some form of European economic association as several organizations were being shaped after World War II. It could not join the European Community (EC) as it was being formed, however, because of fear that this would violate the 1955 State Treaty prescription for neutrality. The member states of the EC called their organization the Common Market when they created it in 1958, but they made it clear from the beginning that it had a political as well as an economic purpose. Under those circumstances, Austria had to hold back as long as Europe was divided by the Cold War.
However, such considerations did not prevent Austria from joining the European Free Trade Association when it was formed in 1960. EFTA was a purely economic association, and its members included Finland, Sweden, and Switzerland, all neutral states that were not members of the North Atlantic Treaty Organization (NATO). Moreover, EFTA had no intention of becoming anything more than a trade association. EFTA was far from an ideal trading arena for Austria because most of its members were located on the periphery of Europe. EFTA countries came to account for less than 15 percent of Austria's trade, while 66 percent of its foreign trade was with the EC countries.
EFTA, however, did have a very important specific advantage from the Austrian standpoint because it did not require common tariffs. Thus, Austria could retain some control over the conditions under which its foreign trade operated, while expanding its close commercial links with a number of EC states (even as it remained formally outside the EC).
Austria attempted to obtain associate status in the EC despite the political barrier to full membership. As it became clear in the 1960s that some EFTA members, such as Britain, were beginning to edge toward EC membership, Austria began its own negotiations to obtain a special arrangement with the community. In 1972, after ten years of negotiations, Austria and the EC reached an agreement providing for a gradual lowering of tariffs to zero. Austria nonetheless remained outside the EC Common Agricultural Policy (CAP).
The Austrian government applied to join the EC in the summer of 1989, as the Soviet empire was crumbling and Moscow was no longer either disposed or able to use the neutrality restrictions of the State Treaty to bar Austria from membership. Like other EFTA states, Austrian officials agreed in 1991 to the formation of the European Economic Area (EEA) between EFTA and the EC as a preliminary step, but it also wanted to join the organization on its own.
Although Austria will probably not be able to join the European Union (EU)--as the EC came to be known in November 1993- -until 1995, by which time the Single Market should be well advanced, the government has taken steps to begin adapting the economy to EC standards. Along with adopting many EC laws and regulations through the EEA in 1991, the government has adopted a number of additional EC rules, including those governing the freedom of capital flows. These measures have been taken to ensure that the social partners and the economy as a whole would not be at a disadvantage when Austria becomes an EU member.

Structure of Employment in Austria

Under the terms of the agreement reached at the EC summit at Maastricht in December 1991, Austria's membership in the EU will also lead to membership in the new European Monetary Union (EMU) if Austria can meet the convergence requirements by 1997. These requirements include a number of features: an inflation rate within 2.5 percent of the three lowest in the EU; long-term interest rates within 2 percent of the three lowest rates; a government deficit below 3 percent of GDP; and a public-sector debt of less than 60 percent of GDP. As of 1993, Austria was able to meet these requirements, but there is no guarantee that that will be the case in 1997.
Austria tied the schilling to the deutsche mark in the 1960s, largely because the country could not function without a predictable exchange rate with its largest trading partner, West Germany. In part to reinforce that linkage, Austria joined the EMS and its ERM in 1979. This membership has meant that Austrian interest rates have matched those of the Bundesbank and, as a result, to all intents and purposes have been set in Frankfurt. Therefore, Austrian adherence to the EMU would be a logical extension of long-established policies, and Austrian currency would become whatever the EMU adopted, whether it is called the European Currency Unit (ECU) or the Euro-Mark as some have proposed.
The link to the deutsche mark has had a major advantage for Austria in that it has given the country a long period of low inflation and the kind of monetary stability that those who suffered through the terrible inflation of 1921-23 well appreciate. It is, however, also a disadvantage for Austria's international competitive position. Goods denominated in schillings, like goods denominated in deutsche marks, cannot count on any sales increases because of devaluation of the currency. In fact, the schilling has consistently increased in value since the end of the Bretton Woods fixed exchange-rate era in 1971. It has generally moved with the deutsche mark vis-à-vis the United States dollar.

Openings Toward the East

Austria had maintained close trade relations with various states of Central and Eastern Europe under the Council for Mutual Economic Assistance (Comecon) arrangements. Those arrangements collapsed at the end of the 1980s and, as of the early 1990s, had not yet been renegotiated. Because of the turmoil in several East European states, for example in the former Yugoslavia, precise trade arrangements will likely require some time to be negotiated.
Nonetheless, Austrian firms have proceeded actively to strengthen their position in Eastern Europe. Austrian firms soon were a major part of the thousands of joint venture agreements established with Hungary, the Czech Republic, and Slovakia. Austrian firms have also become involved in many joint ventures in the former Yugoslavia, but their fate remains uncertain as long as the region is unstable. Austrian firms have always been well placed in Slovenia and Croatia, both of which were once part of Austria-Hungary, and Austria resumed economic links with them as soon as they became independent in 1992.

GDP per capita

Austrian foreign investment, which has always remained closely in balance with foreign investment in Austria, although both had risen over the years, suddenly doubled to S11.4 billion in 1989 and rose to a new high of S18.3 billion in 1990. Much of the new investment was destined for Eastern Europe.
One of the hopes of the government is that many companies wanting to expand their operations in Eastern Europe will establish offices in Vienna. The city offers office space with modern facilities, often at modest prices. As of the early 1990s, a number of companies had set up operations there for these reasons.
In a broader sense, many of Austria's domestic and international policies will need to be adjusted to take into account developments taking place around Austria. Such concerns have been expressed before, by Austrians and by others, but may be more urgent in the future than in the past. The opening toward Eastern Europe and the creation of the EEA and the Single Market have changed the foundations on which Austria has functioned since the 1950s and will present new competitive challenges for production, marketing, and services.
As of late 1993, however, there were no indications that Austria had changed its patterns of behavior and operations, largely because they have been successful. The pressures that might provoke such a revision have not risen to the level where change is imperative. Moreover, if Austria needs to make changes to adjust to new pressures, many arguments could be made that some form of social partnership or social consensus mechanism may be more necessary than ever.

As is the case with many small countries, few studies of Austria exist in English, and the economy receives even less attention than other areas. Except for one collection of essays dating back to 1982, The Political Economy of Austria, edited by Sven W. Arndt, nothing comprehensive is available on the economy. Even books in other languages are rare, in part because most German-language books are highly technical. Instead, those who want to read about the Austrian economy must look for economic chapters in general texts about Austria, many of which are unsatisfactory.
However, a number of publications exist that contain relatively good information. The most useful are the annual publications of the Organisation for Economic Co-operation and Development that not only contain statistical information but also essays on various basic aspects of the economy. The quarterly and annual surveys published by the Economist Intelligence Unit, Country Report: Austria and Country Profile: Austria, also offer useful statistical information as well as summary analyses.
A number of German-language periodicals are published in Austria, including some published by major banks and some that are published by the Österreichisches Institut für Wirtschaftsforschung. These periodicals offer some useful up-to- date analyses as well as complete statistics. Thus, although the Austrian economy does not receive the kind of bibliographic attention that larger economies attract, basic information is available and reliable.

Trade in China

2012-02-17T22:35:00.000-08:00

China

Country Profile

COUNTRY

Formal Name: People's Republic of China.
Short Form:China.
Term for Nationals: Chinese.
Capital: Beijing.

GEOGRAPHY

China in Map

Size: Area about 9.6 million square kilometers; east to west distance about 5,000 kilometers, from the Heilong Jiang (Amur River) to Pamir Mountains in Central Asia; north to south distance approximately 4,050 kilometers, from Heilongjiang Province to Hainan Island in south, and another 1,450 kilometers further south to Zengmu Shoal, territorial claim off north coast of Malaysia.
Topography:Main topographic features include Qing-Zang (Qinghai-Tibet) Plateau 4,000 meters above sea level and Kunlun, Qin Ling, and Greater Hinggan ranges. Longest of country's numerous rivers, Chang Jiang (Yangtze River) and Huang He (Yellow River), extend for some 6,300 and 5,400 kilometers, respectively.
Climate: Most of country in temperate belt. Complex climatic patterns ranging from cold-temperate north to tropical south. Precipitation varies regionally; temperatures range from minus 30°C in north in January to 28°C in south in July. Alternating wet monsoon in summer, dry monsoon in winter.

ECONOMY

China Currency

Salient Features:Economic system in transition, cautiously moving away from Soviet-style central planning and gradually adopting market economy mechanisms and reduced government role. Industry, largely based on state and collective ownership, marked by increasing technological advancements and productivity. China's people's communes eliminated by 1984--after more than twenty-five years--and responsibility system of production introduced in agricultural sector. Private ownership of production assets legal, although major nonagricultural and industrial facilities still state owned and centrally planned. Restraints on foreign trade relaxed and joint ventures encouraged.

Industry of China

Industry: In 1985 employed about 17 percent of labor force but produced more than 46 percent of gross national product (GNP). Fastest growing sector; average annual growth of 11 percent from 1952 to 1985. Wide range of technological levels; many small handicraft units; many enterprises using machinery installed or designed in 1950s and 1960s; significant number of big, up-to-date plants, including textile mills, steel mills, chemical fertilizer plants, and petrochemical facilities but also burgeoning light industries producing consumer goods. Produced most kinds of products made by industrialized nations but limited quantities of high-technology items. Technology transfer by importing whole plants, equipment, and designs an important means of progress. Major industrial centers in Liaoning Province, Beijing-Tianjin- Tangshan area, Shanghai, and Wuhan. Mineral resources included huge reserves of iron ore; adequate to abundant supplies of nearly all other industrial minerals. Outdated mining and ore processing technologies gradually being replaced with modern techniques.
Agriculture: In 1985 employed about 63 percent of labor force; proportion of GNP about 33 percent. Low worker productivity because of scanty supplies of agricultural machinery and other modern inputs. Most agricultural processes still performed by hand. Very small arable land area (just above 10 percent of total area, as compared with 22 percent in United States) in relation to size of country and population. Intensive use of land; all fields produce at least one crop a year; wherever conditions permit, two or even three crops grown annually, especially in south. Grain most important product, including rice, wheat, corn, sorghum, barley, and millet. Other important crops include cotton, jute, oilseeds, sugarcane, and sugar beets. Eggs a major product. Pork production has increased steadily; poultry and pigs raised on family plots. Other livestock relatively limited in numbers, except for sheep and goats, grazed in large herds on grasslands of Nei Monggol Autonomous Region (Inner Mongolia) and northwest. Substantial marine and freshwater fishery. Timber resources mainly located in northeast and southwest; much of country deforested centuries ago. Wide variety of fruits and vegetables grown.
Energy Sources:Self-sufficient in all energy forms; coal and petroleum exported since early 1970s. Coal reserves among world's largest; mining technology inadequately developed but improving in late 1980s. Petroleum reserves very large but of varying quality and in disparate locations. Suspected oil deposits in northwest and offshore tracts believed to be among world's largest; exploration and extraction limited by scarcity of equipment and trained personnel; twenty-seven contracts for joint offshore exploration and production by Japanese and Western oil companies signed by 1982, but by late 1980s only handful of wells producing. Substantial natural gas reserves in north, northwest, and offshore. Hydroelectric potential greatest in world, sixth largest in capacity; very large hydroelectric projects under construction, others in planning stage. Thermal power, mostly coal fired, produced approximately 68 percent of generating capacity in 1985; expected to increase to 72 percent by 1990. Emphasis on thermal power in late 1980s seen by policy makers as quick, shortterm solution to energy needs; hydroelectric power seen as longterm solution. Petroleum production growth to continue in order to meet needs of nationwide mechanization and provide important foreign exchange but domestic use to be restricted as much as possible.

The Banking System

The history of the Chinese banking system has been somewhat checkered. Nationalization and consolidation of the country's banks received the highest priority in the earliest years of the People's Republic, and banking was the first sector to be completely socialized. In the period of recovery after the Chinese civil war (1949-52), the People's Bank of China moved very effectively to halt raging inflation and bring the nation's finances under central control. Over the course of time, the banking organization was modified repeatedly to suit changing conditions and new policies.
The banking system was centralized early on under the Ministry of Finance, which exercised firm control over all financial services, credit, and the money supply. During the 1980s the banking system was expanded and diversified to meet the needs of the reform program, and the scale of banking activity rose sharply. New budgetary procedures required state enterprises to remit to the state only a tax on income and to seek investment funds in the form of bank loans. Between 1979 and 1985, the volume of deposits nearly tripled and the value of bank loans rose by 260 percent. By 1987 the banking system included the People's Bank of China, Agricultural Bank, Bank of China (which handled foreign exchange matters), China Investment Bank, China Industrial and Commercial Bank, People's Construction Bank, Communications Bank, People's Insurance Company of China, rural credit cooperatives, and urban credit cooperatives.
The People's Bank of China was the central bank and the foundation of the banking system. Although the bank overlapped in function with the Ministry of Finance and lost many of its responsibilities during the Cultural Revolution, in the 1970s it was restored to its leading position. As the central bank, the People's Bank of China had sole responsibility for issuing currency and controlling the money supply. It also served as the government treasury, the main source of credit for economic units, the clearing center for financial transactions, the holder of enterprise deposits, the national savings bank, and a ubiquitous monitor of economic activities.
Another financial institution, the Bank of China, handled all dealings in foreign exchange. It was responsible for allocating the country's foreign exchange reserves, arranging foreign loans, setting exchange rates for China's currency, issuing letters of credit, and generally carrying out all financial transactions with foreign firms and individuals. The Bank of China had offices in Beijing and other cities engaged in foreign trade and maintained overseas offices in major international financial centers, including Hong Kong, London, New York, Singapore, and Luxembourg.
The Agricultural Bank was created in the 1950s to facilitate financial operations in the rural areas. The Agricultural Bank provided financial support to agricultural units. It issued loans, handled state appropriations for agriculture, directed the operations of the rural credit cooperatives, and carried out overall supervision of rural financial affairs. The Agricultural Bank was headquartered in Beijing and had a network of branches throughout the country. It flourished in the late 1950s and mid-1960s but languished thereafter until the late 1970s, when the functions and autonomy of the Agricultural Bank were increased substantially to help promote higher agricultural production. In the 1980s it was restructured again and given greater authority in order to support the growth and diversification of agriculture under the responsibility system.
The People's Construction Bank managed state appropriations and loans for capital construction. It checked the activities of loan recipients to ensure that the funds were used for their designated construction purpose. Money was disbursed in stages as a project progressed. The reform policy shifted the main source of investment funding from the government budget to bank loans and increased the responsibility and activities of the People's Construction Bank.

Market Share by Assets of China

Rural credit cooperatives were small, collectively owned savings and lending organizations that were the main source of small-scale financial services at the local level in the countryside. They handled deposits and short-term loans for individual farm families, villages, and cooperative organizations. Subject to the direction of the Agricultural Bank, they followed uniform state banking policies but acted as independent units for accounting purposes. In 1985 rural credit cooperatives held total deposits of -Y72.5 billion.
Urban credit cooperatives were a relatively new addition to the banking system in the mid-1980s, when they first began widespread operations. As commercial opportunities grew in the reform period, the thousands of individual and collective enterprises that sprang up in urban areas created a need for small-scale financial services that the formal banks were not prepared to meet. Bank officials therefore encouraged the expansion of urban credit cooperatives as a valuable addition to the banking system. In 1986 there were more than 1,100 urban credit cooperatives, which held a total of -Y3.7 billion in deposits and made loans worth -Y1.9 billion.
In the mid-1980s the banking system still lacked some of the services and characteristics that were considered basic in most countries. Interbank relations were very limited, and interbank borrowing and lending was virtually unknown. Checking accounts were used by very few individuals, and bank credit cards did not exist. In 1986 initial steps were taken in some of these areas. Interbank borrowing and lending networks were created among twenty-seven cities along the Chang Jiang and among fourteen cities in north China. Interregional financial networks were created to link banks in eleven leading cities all over China, including Shenyang, Guangzhou, Wuhan, Chongqing, and Xi'an and also to link the branches of the Agricultural Bank. The first Chinese credit card, the Great Wall Card, was introduced in June 1986 to be used for foreign exchange transactions. Another financial innovation in 1986 was the opening of China's first stock exchanges since 1949. Small stock exchanges began operations somewhat tentatively in Shenyang, Liaoning Province, in August 1986 and in Shanghai in September 1986.
Throughout the history of the People's Republic, the banking system has exerted close control over financial transactions and the money supply. All government departments, publicly and collectively owned economic units, and social, political, military, and educational organizations were required to hold their financial balances as bank deposits. They were also instructed to keep on hand only enough cash to meet daily expenses; all major financial transactions were to be conducted through banks. Payment for goods and services exchanged by economic units was accomplished by debiting the account of the purchasing unit and crediting that of the selling unit by the appropriate amount. This practice effectively helped to minimize the need for currency.
Since 1949 China's leaders have urged the Chinese people to build up personal savings accounts to reduce the demand for consumer goods and increase the amount of capital available for investment. Small branch offices of savings banks were conveniently located throughout the urban areas. In the countryside savings were deposited with the rural credit cooperatives, which could be found in most towns and villages. In 1986 savings deposits for the entire country totaled over -Y223.7 billion.

FOREIGN TRADE

History of Chinese Foreign Trade

Chinese foreign trade began as early as the Western Han dynasty (206 B.C.-A.D. 9), when the famous "silk route" through Central Asia was pioneered by Chinese envoys. During later dynasties, Chinese ships traded throughout maritime Asia, reaching as far as the African coast, while caravans extended trade contacts in Central Asia and into the Middle East. Foreign trade was never a major economic activity, however, and Chinese emperors considered the country to be entirely self-sufficient. During parts of the Ming (1368-1644) and Qing (1644-1911) dynasties, trade was officially discouraged.

Export and import port of china

In the nineteenth century, European nations used military force to initiate sustained trade with China. From the time of the Opium War (1839-42) until the founding of the People's Republic in 1949, various Western countries and, starting in the 1890s, Japan compelled China to agree to a series of unequal treaties that enabled foreigners to establish essentially autonomous economic bases and operate with privileged status in China. Foreign privileges were abolished when the People's Republic came into being.
Foreign trade did not account for a large part of the Chinese economy for the first thirty years of the People's Republic. As in most large, continental countries, the amount of commerce with other nations was small relative to domestic economic activity. During the 1950s and 1960s, the total value of foreign trade was only about 2 percent of the gross national product (GNP). In the 1970s trade grew rapidly but in 1979 still amounted to only about 6 percent of GNP.
The importance of foreign trade in this period, however, far exceeded its volume. Foreign imports alleviated temporary but critical shortages of food, cotton, and other agricultural products as well as long-term deficiencies in a number of essential items, including raw materials such as chrome and manufactured goods such as chemical fertilizer and finished steel products. The acquisition of foreign plants and equipment enabled China to utilize the more advanced technology of developed countries to speed its own technological growth and economic development.
During the 1950s China imported Soviet plants and equipment for the development program of the First Five-Year Plan (1953-57). At the same time, the Chinese government expanded exports of agricultural products to repay loans that financed the imports. Total trade peaked at the equivalent of US$4.3 billion in 1959, but a sudden decline in agricultural production in 1959-61 required China's leaders to suspend further imports of machinery to purchase foreign grain. Under a policy of "self-reliance," in 1962 total trade declined to US$2.7 billion. As the economy revived in the mid-1960s, plants and equipment again were ordered from foreign suppliers, and substantial growth in foreign trade was planned. But in the late 1960s, the chaos and antiforeign activities of the Cultural Revolution (1966-76) caused trade again to decline.
The pragmatic modernization drive led by party leaders Zhou Enlai and Deng Xiaoping and China's growing contacts with Western nations resulted in a sharp acceleration of trade in the early 1970s. Imports of modern plants and equipment were particularly emphasized, and after 1973 oil became an increasingly important export. Trade more than doubled between 1970 and 1975, reaching US$13.9 billion. Growth in this period was about 9 percent a year. As a proportion of GNP, trade grew from 1.7 percent in 1970 to 3.9 percent in 1975. In 1976 the atmosphere of uncertainty resulting from the death of Mao and pressure from the Gang of Four, whose members opposed reliance on foreign technology, brought another decline in trade.

Export Growth of china

Beginning in the late 1970s, China reversed the Maoist economic development strategy and, by the early 1980s, had committed itself to a policy of being more open to the outside world and widening foreign economic relations and trade. The opening up policy led to the reorganization and decentralization of foreign trade institutions, the adoption of a legal framework to facilitate foreign economic relations and trade, direct foreign investment, the creation of special economic zones and "open cities," the rapid expansion of foreign trade, the importation of foreign technology and management methods, involvement in international financial markets, and participation in international foreign economic organizations. These changes not only benefited the Chinese economy but also integrated China into the world economy. In 1979 Chinese trade totaled US$27.7 billion--6 percent of China's GNP but only 0.7 percent of total world trade. In 1985 Chinese foreign trade rose to US$70.8 billion, representing 20 percent of China's GNP and 2 percent of total world trade and putting China sixteenth in world trade rankings.

Organization of Foreign Trade

The increasingly complex foreign trade system underwent expansion and decentralization in the late 1970s and 1980s. In 1979 the Ministry of Foreign Trade's nine foreign trade corporations lost their monopoly on import and export transactions as the industrial ministries were permitted to establish their own foreign trade enterprises. The provincial branch corporations of the state foreign trade corporations were granted more autonomy, and some provinces, notably Fujian, Guangdong, and the special municipalities of Beijing, Tianjin, and Shanghai were permitted to set up independent, provincial-level import-export companies. Some selected provincial enterprises were granted autonomy in foreign trade decisions. In 1982 the State Council's Import-Export Control Commission, Foreign Investment and Control Commission, Ministry of Foreign Trade, and Ministry of Foreign Economic Relations were merged to form the Ministry of Foreign Economic Relations and Trade. In 1984 the foreign trade system underwent further decentralization. Foreign trade corporations under this and other ministries and under provincial-level units became independent of their parent organizations and were responsible for their own profits and losses. An agency system for foreign trade also was established, in which imports and exports were handled by specialized enterprises and corporations acting as agents on a commission basis.

Composition of Foreign Trade

The dominant pattern of foreign trade after 1949 was to import industrial producer goods from developed countries and to pay for them with exports of food, crude materials, and light manufactures, especially textiles. The pattern was altered as circumstances demanded; in the period of economic collapse following the Great Leap Forward (1958-60; see Glossary), food imports increased from a negligible amount in 1959 to 39 percent of all imports in 1962. At the same time, imports of machinery and equipment dropped from 41 percent to 5 percent of the total. From this time on, food and live animals remained a significant, although declining, share of imports, amounting to 14.8 percent of the total in 1980 but dropping to 4.1 percent in 1985. The pattern also shifted over time as China's industrial sector expanded, gradually increasing the share of exports accounted for by manufactured goods. Manufactures provided only 30 percent of all exports in 1959, 37.9 percent in 1975, and grew to 44.9 percent in 1985.
Important changes occurred in several specific trade categories in the 1970s and 1980s (see table 17, Appendix A). Imports of textile fibers rose from 5.8 percent in 1975 to 10.7 percent in 1980 as the Chinese textile industry grew faster than domestic cotton supplies but then fell to 4 percent in 1985 as domestic cotton production increased. Imports of unfinished textile products also increased from 1.3 percent in 1975 to 5.3 percent in 1985 as a result of textile industry growth. Iron and steel accounted for approximately 20 percent of imports in the 1970s, fell to 11.6 percent in 1980, then rose to 14.9 percent in 1985. Imports of manufactured goods, machinery, and transportation equipment represented 62.6 percent of total import value in 1975, fell to 53.9 percent in 1980 as imports were cut back during the "period of readjustment" of the economy (1979-81), and rose again to 75.2 percent in 1985. On the export side, the share of foodstuffs fell to 12.5 percent in 1985. The fastest growing export item in the 1970s was petroleum, which was first exported in 1973. Petroleum rocketed to 12.1 percent of all exports in 1975, 22 percent in 1980, and 21.2 percent in 1985. In the 1980s textile exports grew rapidly. Although exports of unfinished textiles remained about 14 percent of total exports, all categories of textile exports rose from 5 percent in 1975 to 18.7 percent in 1984. In 1986 textiles replaced petroleum as China's largest single export item.

Trade in Mexico

2012-02-03T23:25:00.000-08:00

Mexico

Formal Name: United Mexican States (Estados Unidos Mexicanos).
Short Form: Mexico.
Term for Citizen(s): Mexican(s).
Capital: Mexico City (called México or Ciudad de México in country).
Date of Independence: September 16, 1810 (from Spain).
National Holidays: May 5, commemorating the victory over the French at the Battle of Puebla; September 16, Independence Day.

Geography

Mexico in Map

Size: 1,972,550 square kilometers--third largest nation in Latin America (after Brazil and Argentina).
Topography: Various massive mountain ranges including Sierra Madre Occidental in west, Sierra Madre Oriental in east, Cordillera Neovolcánica in center, and Sierra Madre del Sur in south; lowlands largely along coasts and in Yucatan Peninsula. Interior of country high plateau. Frequent seismic activity.
Drainage: Few navigable rivers. Most rivers short and run from mountain ranges to coast.
Climate: Great variations owing to considerable north-south extension and variations in altitude. Most of country has two seasons: wet (June-September) and dry (October-April). Generally low rainfall in interior and north. Abundant rainfall along east coast, in south, and in Yucatan Peninsula.

Society

Population: Estimated population of 94.8 million persons in mid-1996. Annual rate of growth 1.96 percent.
Language: Spanish official language, spoken by nearly all. About 8 percent of population speaks an indigenous language; most of these people speak Spanish as second language. Knowledge of English increasing rapidly, especially among business people, the middle class, returned emigrants, and the young.
Ethnic Groups: Predominantly mestizo society (60 percent); 30 percent indigenous; 9 percent European; 1 percent other.
Education and Literacy: Secretariat of Public Education has overall responsibility for all levels of education system. Compulsory education to age sixteen; public education free. Government distributes free textbooks and workbooks to all primary schools. Official literacy rate in 1990 was 88 percent.
Health and Welfare: Health care personnel and facilities generally concentrated in urban areas; care in rural areas confined to understaffed clinics operated mostly by medical graduate students. Life expectancy in 1996 estimated at seventy-three years. Infant mortality twenty-six per 1,000 live births. Leading causes of death infections, parasitic diseases, and respiratory and circulatory system failures.
Religion: About 90 percent of population Roman Catholic, according to 1990 census. Protestants (about 6 percent) ranked second. Number of Protestants has increased dramatically since 1960s, especially in southern states.

Economy

Companies of Mexico in map

Overview: From a colonial economy based largely on mining, especially silver, in the twentieth century, the economy has diversified to include strong agriculture, petroleum, and industry sectors. Strong growth from 1940-80 interrupted by series of economic crises, caused in part by massive overborrowing. 1980s marked by inflation and lowering standard of living. Austerity measures and introduction of free-market policies led to a period of growth from 1990-94. Membership in North American Free Trade Agreement (NAFTA) in 1993 led to hopes of continued economic growth. However, growing trade deficit and overvalued exchange rate in 1994 financed by sale of short-term bonds and foreign- exchange reserves. Series of political shocks and devaluation of new peso in late 1994 caused investor panic. Inflation soared, and massive foreign intervention was required to stabilize situation. Although overall economy remains fundamentally strong, lack of confidence makes short-term prospects for strong growth unlikely.
Gross Domestic Product (GDP): Estimated at US$370 billion in 1994; approximately US$4,100 per capita.
Currency and Exchange Rate: Relatively stable throughout most of twentieth century, the peso (Mex$) began to depreciate rapidly during economic crisis of 1980s. In January 1993, peso replaced by new peso (NMex$) at rate of NMex$1 = Mex$1,000. Exchange rate in January 1993, US$1 = NMex$3.1; rate in April 1997, US$1 = NMex$7.9.
Agriculture: Contributed 8.1 percent of GDP in 1994. Main crops for domestic consumption corn, beans, wheat, and rice. Leading agricultural exports coffee, cotton, vegetables, fruit, livestock, and tobacco.
Industry: Mining, manufacturing, and construction contributed 28 percent of GDP in 1994. Industrialization increased rapidly after 1940. By 1990 large and diversified industrial base located largely in industrial triangle of Mexico City, Monterrey, and Guadalajara. Most industrial goods produced, including automobiles, consumer goods, steel, and petrochemicals. World's sixth largest producer of petroleum and major producer of nonfuel minerals.
Energy: More than 120 billion kilowatt-hours produced in 1993, about 75 percent from thermal (mostly oil-burning) plants, 20 percent from hydroelectric, and the rest from nuclear or geothermal plants. One nuclear plant with two reactors at Laguna Verde in Veracruz State. Huge petroleum deposits discovered in Gulf of Mexico in 1970s. In 1995 sixth-largest producer of oil and had eighth-largest proven reserves.
Exports: US$60.8 billion in 1994. Manufactured exports include processed food products, textiles, chemicals, machinery, and steel. Other important export items are metals and minerals, livestock, fish, and agricultural products. Major exports to United States are petroleum, automotive engines, silver, shrimp, coffee, and winter vegetables.
Imports: US$79.4 billion in 1994. Main imports are metal-working machines, steel-mill products, agricultural machines, chemicals, and capital goods. Leading imports from United States include motor vehicle parts, automatic data processing parts, aircraft repair parts, car parts for assembly, and paper and paperboard.
Debt: Massive foreign debt. Buoyed by discovery of large petroleum reserves, government borrowed heavily in 1970s. When severe recession hit in 1982, government declared moratorium on debt payments, precipitating international economic crisis. Austerity measures and renegotiation of the debt eased crisis, but in 1995 debt stood at US$158.2 billion.
Balance of Payments: Large trade deficits from 1989 to 1993 pushed current account deeply into deficit. Dramatic improvement in trade balance in 1994 and 1995, however, nearly eliminated deficit. Heavy international borrowing allowed international reserves to rise to US$15.7 billion at end of 1995.
Fiscal Year: Calendar year.

Financial System

Banking System

Mexico has one of Latin America's most developed banking systems, consisting of a central bank and six types of banking institutions: public development banks, public credit institutions, private commercial banks, private investment banks, savings and loan associations, and mortgage banks. Other components of the financial system include securities market institutions, development trust funds, insurance companies, credit unions, factoring companies, mutual funds, and bonded warehouses.
The central bank, the Bank of Mexico (Banco de México), regulates the money supply and foreign exchange markets, sets reserve requirements for Mexican banks, and enforces credit controls. It serves as the fiscal agent of the federal government, the issuing bank for the new peso, and a discount house for private deposit banks. It supervises the private banking sector through the National Banking Commission, and it provides funds for government development programs. Legislation in 1984 required the Bank of Mexico to limit its lending to the government to an amount fixed at the beginning of each year. To ensure continued control of inflation, the central bank was made autonomous in April 1994.

Mexico gun shop

Mexico has a number of other official banks for agriculture, foreign trade, cooperatives, public works, housing, transportation, and the sugar industry, among other specialized purposes. The most important such development institution is the Nafinsa, which provides financial support for Mexico's industrialization program. Nafinsa provides medium-term financing and equity capital for productive enterprises, promotes Mexican investment companies, oversees the stock market and the issuance of public securities, and serves as the legal depository of government securities. By 1993 Nafinsa had divested itself of some of its interests, but it remained under state ownership. Mexico's other most important state development bank is the National Bank of Public Works and Services (Banco Nacional de Obras y Servicios Públicos).
The private banking sector consists of more than 200 banks, which together have more than 2,500 branches. The proliferation of banking institutions resulted from regulations that prohibited any single bank from combining more than two banking functions. Mexico's two largest private banks are the Bank of Commerce (Banco de Comercio--Bancomer), comprising thirty-five affiliated banks with more than 500 branches, and the National Bank of Mexico (Banco Nacional de México--Banamex). Development banks, known as financieras and organized by commercial banks in association with major industrial enterprises, provide most of the private sector's development financing.
In an effort to stem massive capital flight, President López Portillo decreed the nationalization of the country's private banks in September 1982. In August 1983, the government authorized the return of up to 34 percent of the equity shares in these banks to the private sector, and it eliminated eleven banks and merged fifty others into twenty-nine national credit institutions in an effort to improve the banking system's efficiency. In March 1985, the government announced a further reduction in the number of commercial banks, from twenty-nine to eighteen.
The government took its first actual step toward reprivatizing the commercial banks in 1987, when it returned 34 percent of their capital to private investors in the form of nonvoting stock. In 1990 it allowed the sale to foreign investors of 34 percent of nonvoting shares in state-owned commercial banks. Reprivatization began in earnest in June 1991. By July 1992, all eighteen commercial banks had been sold to private owners, yielding more than US$12 billion. The privatization program dramatically increased the number of investors holding stock in Mexican commercial banks from just 8,000 on the eve of the 1982 nationalization to 80,000 in January 1993.
To improve the availability of credit, the government allowed the establishment of new domestic banks in Mexico in 1993, and the following year it allowed United States and Canadian banks to begin operating in Mexico. At the end of 1994, there were some fifty commercial banks in operation in Mexico, up from nineteen at the end of 1992. Mexico had forty-five brokerage houses, fifty-nine insurance companies, seventy-four leasing companies, sixty-five factoring houses, and forty-nine exchange houses.
Following the currency crisis of late 1994, the government was forced to raise interest rates sharply in order to protect the new peso by retaining existing short-term foreign investment and attracting new capital inflows. High interest rates during 1995 sharply increased the payments owed by Mexican individual and business borrowers, many of whom could not shoulder the increased burden. As a result, the share of nonperforming to performing loans held by Mexican banks rose significantly, creating a major crisis for the financial sector. During the first three quarters of 1995, the ratio of bad debts to the banking system's total loan portfolio increased from 8 percent to 17 percent. Partially as a result, the rate of growth in commercial bank financing of private-sector activities declined to just 1 percent during this period, compared with 19 percent a year earlier.
The interest rate increase also raised the cost to banks and the government of the various efforts to resolve the problem of banks' nonperforming loans. In late 1994, the government took over Banca Cremi, and a year later it was forced to take control of Inverlat. The government also agreed to assume problem loans held by Banamex and Bancomer.

World Tread Center of Mexico

In the wake of the financial sector crisis, the government introduced in mid-1995 a program for rescheduling bank loans using index-linked investment units. In September 1995, the government unveiled another emergency program of aid for bank debtors, which was to provide relief for 8 million bank debtors. By February 1996, 83 percent of eligible loans had been restructured under this program. By mid-1996, the cost of the government's various efforts to prevent a banking system collapse was estimated at 91 billion new pesos. The government held control of 25 percent of bank assets, despite having privatized the banking system only four years earlier. The government's efforts to restore the financial sector's stability were rewarded by a sharp drop in interest rates in late 1995 and early 1996.

Foreign Trade

Stabilization and adjustment policies implemented by the Mexican government during the 1980s caused a sharp fall in imports and a corresponding increase in exports. Average real exchange rates rose, domestic demand contracted, and the government provided lucrative export incentives, making exportation the principal path to profitable growth. The 1982 peso devaluation caused Mexico's imports to decline 60 percent in value to US$8.6 billion by the end of 1983. After years of running chronic trade deficits, Mexico achieved a net trade surplus of US$13.8 billion in 1993.

Imports

After 1983 the government eliminated import license requirements, official import prices, and quantitative restrictions. This trade liberalization program sought to make Mexican producers more competitive by giving them access to affordable inputs. By 1985 the share of total imports subject to licensing requirements had fallen from 75 percent to 38 percent. In 1986 Mexico acceded to the General Agreement on Tariffs and Trade (GATT), now the World Trade Organization (WTO), and in 1987 it agreed to a major liberalization of bilateral trade relations with the United States.
As a consequence of trade liberalization, the share of domestic output protected by import licenses fell from 92 percent in June 1985 to 18 percent by the end of 1990. The maximum tariff was lowered from 100 percent in 1985 to 20 percent in 1987, and the weighted average tariff fell from 29 percent in 1985 to 12 percent by the end of 1990. The volume of imports subject to entry permits was reduced from 96 percent of the total in 1982 to 4 percent by 1992. The remaining export controls applied mainly to food products, pharmaceuticals, and petroleum and oil derivatives.

Top trade partners of Mexico

The value of Mexico's imports rose steadily from US$50 billion in 1991 to US$79 billion in 1994 (19 percent of GDP). It rose in response to the recovery of domestic demand (especially for food products); the new peso's new stability; trade liberalization; and growth of the nontraditional export sector, which required significant capital and intermediate inputs (see table 11, Appendix). As a result of the new peso devaluation of December 1994, Mexico's imports in 1995 were US$73 billion, 9 percent lower than the 1994 figure. In 1995 Mexico imported US$5 billion worth of consumer goods (7 percent of total imports), US$9 billion worth of capital goods (12 percent), and US$59 billion worth of intermediate goods (81 percent). Renewed growth and the new peso's real appreciation were expected to increase demand for foreign products during 1996. Imports rose by 12 percent in the first quarter of 1996 to US$20 billion.
The government tried to curb the early 1990s' rise in imports by acting against perceived unfair trade practices by other countries. In early 1993, Mexico retaliated against alleged dumping of United States, Republic of Korea (South Korean), and Chinese goods by imposing compensatory quotas on brass locks, pencils, candles, fiber products, sodium carbonate, and hydrogen peroxide. Antidumping duties were applied to steel products, and all importers were required to produce certification of origin.
But Mexico also was subject to complaints by other countries, which charged that Mexico itself engaged in unfair practices. The European Community (now the European Union--EU) and Japan lodged complaints with the GATT about Mexico's invocation of sanitary standards in late 1992 to limit meat imports.

Exports

The mid-1980s decline in world petroleum prices caused the value of Mexico's exports to fall from US$24 billion in 1984 to US$16 billion in 1986, reflecting the country's continued heavy dependence on petroleum export revenue. Lower oil earnings helped to reduce Mexico's trade surplus to almost US$5 billion in 1986. Export revenue rose slightly to US$21 billion in 1987, as oil prices began to recover. Exports continued to rise modestly but steadily thereafter, reaching US$28 billion in 1992. The government promoted exports vigorously in an effort to close a trade gap that began in 1989 and widened in subsequent years. The state-run Foreign Commerce Bank channeled finance to a wide range of potential exporters, especially small and medium-sized firms and agricultural and fishing enterprises. In 1993 it provided US$350 million for the tourist sector, representing a 35 percent increase over 1992.

Exportable products of Mexico

The value of Mexico's exports rose steadily from US$43 billion in 1991 to US$61 billion in 1994, despite the new peso's overvaluation. The currency devaluation of late 1994 contributed to a significant jump in the value of Mexico's exports to US$80 billion in 1995, a 31 percent increase over the previous year.
Total export earnings for the first quarter of 1996 were US$22 billion. Manufactures accounted for US$67 billion (84 percent) of Mexico's exports in 1995, followed by oil exports (US$9 billion or 11 percent), agricultural products (US$4 billion, or 5 percent), and mining products (US$545 million, or less than 1 percent). This improved export performance resulted from the new peso devaluation, weak domestic demand because of the recession, new export opportunities opened by NAFTA, and improved commodity prices. Export growth was expected to slow during 1996, as a result of recovery of domestic demand, expected drops in the prices of oil and other nonfood items, capacity constraints, and strengthening of the new peso.

Composition of Exports

The 1985 peso devaluations and the 1986 oil price collapse produced a dramatic shift in the composition of Mexico's exports. The value of Mexico's oil exports plummeted from US$13 billion in 1985 to less than US$6 billion in 1986. The oil sector's share of total export revenue consequently fell from 78 percent in 1982 to 42 percent in 1987. Oil export revenue recovered in 1987 to US$7.9 billion as petroleum prices rose. Prompted by the peso devaluation and low domestic demand, nonoil exports rose 41 percent in 1986 and an additional 24 percent in 1987. In 1987 manufactured exports (especially engineering and chemical products) constituted 48 percent of total exports by value, eclipsing petroleum and reducing Mexico's vulnerability to fluctuations in the world oil price. Between 1988 and 1991, petroleum exports fell 22 percent in value because of lower world oil prices and declining sales, while nonoil exports rose 15 percent in value. By 1992 petroleum contributed only 30 percent of total exports by value.

Exchange road of Mexico

In 1994 petroleum and its derivatives accounted for US$7 billion, or 12 percent, of Mexico's total export revenue of US$62 billion. Transport equipment and machinery exports earned US$33 billion, or 54 percent of total exports. Chemicals earned US$3 billion, or 5 percent, and metals and manufactured metal products earned US$3 billion, or 5 percent. Agricultural, processed food, beverage, and tobacco products accounted for US$3 billion, or 5 percent of total exports.

Foreign Investment Regulation

Restrictions on direct foreign investment were eased during the administrations of presidents de la Madrid and Salinas. In 1990 the government revised Mexico's 1973 foreign investment law, opening up to foreign investment certain sectors of the economy that previously had been restricted to Mexican nationals or to the state. The new regulations permitted up to 100 percent foreign ownership in many industries.
However, in 1992 the government continued to retain sole rights to large parts of the economy, including oil and natural gas production, uranium production and treatment, basic petrochemical production, rail transport, and electricity distribution. Economic sectors reserved for Mexican nationals included radio and television, gas distribution, forestry, road transport, and domestic sea and air transport. The government limited foreign investors to 30 percent ownership of commercial banks, 40 percent ownership of secondary petrochemical and automotive plants, and 49 percent ownership of financial services, insurance, and telecommunications enterprises. However, foreign investors could obtain majority ownership of certain activities by means of a fideicomiso , or trust.
In November 1993, the government announced a new foreign-investment law that vastly expanded foreign-investment opportunities in Mexico. The new law replaced Mexico's protectionist 1973 investment code and united numerous regulatory changes that Salinas previously had imposed by decree without congressional approval. The new law allowed foreigners to invest directly in industrial, commercial, hotel, and time-share developments along Mexico's coast and borders, although such investment had to be carried out through Mexican companies. Foreigners previously had been prohibited from owning property within fifty kilometers of Mexico's borders, and their investments in areas beyond fifty kilometers had to be carried out through bank trusts. In practice, however, foreigners already had invested in many of the listed border industries and areas through complex trust and stock ownership arrangements, although risk and bureaucratic requirements had deterred some potential investors and financiers.
The new investment code also opened the air transportation sector to 25 percent direct foreign investment and the secondary petrochemical sector to full 100 percent direct foreign investment. Mining also was opened to 100 percent direct foreign ownership; previously foreigners could provide 100 percent investment but had to invest through bank trusts for limited periods of time. Other sectors opened to foreign investors included railroad-related services, ports, farmland, courier services, and cross-border cargo transport. The new code eliminated performance requirements previously imposed upon foreign investors, along with minimum domestic content requirements.

The Future of the Economy

The market-oriented structural reforms of the 1980s and early 1990s transformed Mexico's economy from a highly protectionist, public-sector-dominated system to a generally open, deregulated "emerging market." President Salinas's moves to privatize and deregulate large sectors of the Mexican economy elicited widespread support from international investors and the advanced industrial nations. With its positive effect on trade and capital flows, NAFTA was widely interpreted by Mexican decision makers as a validation of their market-oriented economic policies. The currency collapse of December 1994 and the ensuing deep recession, however, erased the economic gains that Mexico had achieved in previous years, shook the nation's political stability, and depressed hopes for an early return to growth.
Although Mexico remained in a difficult economic condition in mid-1996, the worst of the recession had passed and the country appeared headed toward recovery. The economy registered positive growth in the second quarter of 1996, inflation and interest rates abated, and portfolio investment returned, as reflected in Mexico's rising stock exchange index. Despite continuing problems exacerbated by low investor confidence, analysts agreed that Mexico's economy in the mid-1990s was fundamentally sound and capable of long-term expansion.

Trade in Russia

2012-01-07T01:36:00.000-08:00

Russia

Formal Name: Russian Federation.
Short Form: Russia.
Term for Citizen(s): Russian(s).
Capital: Moscow.
Flag: Three equal-sized horizontal bands of white (top), red, and blue.

Beautiful Russia

RUSSIA IS THE LARGEST of the fifteen geopolitical entities that emerged in 1991 from the Soviet Union. Covering more than 17 million square kilometers in Europe and Asia, Russia succeeded the Soviet Union as the largest country in the world. As was the case in the Soviet and tsarist eras, the center of Russia's population and economic activity is the European sector, which occupies about one-quarter of the country's territory. Vast tracts of land in Asian Russia are virtually unoccupied. Although numerous Soviet programs had attempted to populate and exploit resources in Siberia and the Arctic regions of the Russian Republic, the population of Russia's remote areas decreased in the 1990s. Thirty-nine percent of Russia's territory but only 6 percent of its population in 1996 was located east of Lake Baikal, the geographical landmark in south-central Siberia. The territorial extent of the country constitutes a major economic and political problem for Russian governments lacking the far-reaching authoritarian clout of their Soviet predecessors.

Geography

Russia map

Size: 17,075,200 square kilometers.
Topography: Broad plain with low hills west of Urals in European Russia and vast coniferous forests and tundra east of Urals in Siberia. Uplands and mountains along southern border regions in Caucasus Mountains. About 10 percent of land area swampland, about 45 percent covered by forest.
Climate: Ranges from temperate to Arctic continental. Winter weather varies from short-term and cold along Black Sea to long-term and frigid in Siberia. Summer conditions vary from warm on steppes to cool along Arctic coast. Much of Russia covered by snow six months of year. Weather usually harsh and unpredictable. Average annual temperature of European Russia 0°C, lower in Siberia. Precipitation low to moderate in most areas; highest amounts in northwest, North Caucasus, and Pacific coast.
Land Boundaries: Land borders extend 20,139 kilometers: Azerbaijan 284 kilometers, Belarus 959 kilometers, China 3,645 kilometers, Estonia 290 kilometers, Finland 1,313 kilometers, Georgia 723 kilometers, Kazakstan 6,846 kilometers, Democratic People's Republic of Korea 19 kilometers, Latvia 217 kilometers, Lithuania 227 kilometers, Mongolia 3,441 kilometers, Norway 167 kilometers, Poland 432 kilometers, and Ukraine 1,576 kilometers.
Water boundaries: Coastline makes up 37,653 kilometers of border. Arctic, Atlantic, and Pacific oceans touch shores.
Land Use: 10 percent arable, 45 percent forest, 5 percent meadows and pasture, and 40 percent other, including tundra.

Economy

Business area of Russia

Salient Features: After years of double-digit declines, gross domestic product (GDP) shrank by only 4 percent in 1995. GDP per capita in 1995 US$4,224. Unemployment rising steadily, to estimated 8.5 percent in 1996; official Russian numbers about half that amount. Inflation, very high in 1994, under much better control under new government policy in 1995-96; April 1997 rate 1.2 percent. Economy increasingly dependent on foreign investment, multilateral loan agencies, and rescheduling of foreign debt. Privatization nearly complete but meeting political opposition to transformation of large state firms. Most prices determined by market. Role of organized crime significant, and much economic activity officially unaccounted for.
Agriculture: 6.3 percent of GDP in 1994. Major products grain, sugar beets, sunflower seeds, vegetables, fruits, meat, and milk.
Manufacturing: 28.3 percent of GDP in 1994. Principal products machine tools, rolling mills, high-performance aircraft, space vehicles, ships, road and rail transportation equipment, communications equipment, agricultural machinery, tractors and construction equipment, electric-power generating and transmitting equipment, medical and scientific instruments, and consumer durables.
Services: 50 percent of GDP in 1994. Tourism important source of foreign currency. Expansion of financial, communications, and information enterprises contributes to growth. Shipping services also major foreign-exchange earner.
Mining: Considerable mineral wealth, especially iron ore, copper, phosphates, manganese, chromium, nickel, platinum, diamonds, and gold. Production declined steadily 1990-95.
Energy: Russia self-sufficient in fuels and energy production. Natural gas and oil main fuels exploited, coal production declining but still significant; long-distance fuel transportation a significant problem. Main electricity sources: coal 18 percent, nuclear 13 percent, hydroelectric 19 percent, and natural gas 42 percent. Industry consumes 61 percent of energy production. Generation capacity 188 gigawatts. Energy exports most important source of foreign exchange.
Foreign Trade: Trade liberalization ongoing, abolishing export duties, restructuring import tariffs, and ending export registration in 1996. Main trading partners Germany, Italy, the Netherlands, Switzerland, Britain, the United States, Ukraine, Kazakstan, Belarus, China, and Japan. Exports for 1995 estimated at US$77.8 billion, imports US$57.9 billion. Balance of payments US$13.1 billion in 1995. Capital flight expected to drop to US$1 billion in 1996. Foreign investment strongly encouraged in some sectors, but unpredictable commercial conditions hinder growth. Outstanding Soviet-era debt by Third World countries, between US$100 and US$170 billion, could make Russia creditor country on balance.

Foreign Economic Relations

Integrating the Russian economy with the rest of the world through commerce and expanded foreign investment has been a high priority of Russian economic reform. Russia has joined the IMF and the World Bank and has applied to join the World Trade Organization (WTO--see Glossary) and the OECD. It also has been included in some functions of the Group of Seven (G-7; see Glossary).

Foreign exchange is easy

Foreign Trade

By the end of 1993, the Russian government had liberalized much of its import regime. It eliminated nontariff customs barriers on most imports, although it still requires some licenses for health and safety reasons. In mid-1992 the government took control of imports of some critical goods, including industrial equipment and food items, which it sold to end users at subsidized prices. In the early 1990s, government-controlled imports constituted about 40 percent of total Russian imports, but by 1996 most such controls had been phased out.
Russia also established a two-column tariff regime in harmony with the United States and other members of the General Agreement on Tariffs and Trade (GATT), which in January 1995 became the WTO. Russia differentiates between those trade partners that receive most-favored-nation trade treatment and, therefore, relatively low tariffs, and those that do not.
Although Russia has eliminated many nontariff import barriers, it still maintains high tariffs and other duties on imports of goods to raise revenue and protect domestic producers. All imports are subject to a 3 percent special tax in addition to import tariffs that vary with the category of goods. Some of the high tariffs include those of 40 to 50 percent on automobiles and aircraft and 100 percent on alcoholic beverages. Excise taxes ranging between 35 and 250 percent are applied to certain luxury goods that include automobiles, jewelry, alcohol, and cigarettes.

Busy road in Russia

The Government has used licensing and quotas to restrict the export of certain key commodities, such as oil and oil products, to ease the effect of price differentials between controlled domestic prices and world market prices. Without such restrictions, Russian policy makers have argued, the domestic market would experience shortages of critical materials. The government finally eliminated quotas on oil exports in 1995 and export taxes on oil in 1996. In addition to customs restrictions, the government imposes other costs on exporters. It charges a 20 percent VAT on most cash-transaction exports and a 30 percent VAT on barter transactions. It applies additional tariffs on the exports of industrial raw materials. By the mid-1990s, much of Russia's foreign trade, even that with the former communist countries of Central Europe, was conducted on the basis of market-determined prices. Immediately after the dissolution of the Soviet-dominated Comecon in 1991, the Soviet Union sought to maintain commercial relations in Central Europe through bilateral agreements. But as market economies developed in those countries, their governments lost control over trade flows. Since 1993 Russian trade with former Comecon member countries has been at world prices and in hard currencies.
In the mid-1990s, Russia still maintained hybrid trade regimes with the other former Soviet states, reflecting the web of economic interdependence that had dominated commercial relations within the Soviet Union. The sharp decrease in central economic control that occurred just before and after the breakup of the Soviet Union virtually destroyed distribution channels between suppliers and producers and between producers and consumers throughout the region. Many of the non-Russian republics were dependent on Russian oil and natural gas, timber, and other raw materials. Russia bought food and other consumer goods from some of the other Soviet republics. To ease the effects of the transition, Russia concluded bilateral agreements with the other former Soviet states to maintain the flow of goods. But, as in the case of the Central European agreements, such arrangements proved impractical; by the mid-1990s, they covered only a small range of goods. Russia now conducts trade with former Soviet states under various regimes, including free-trade arrangements and most-favored-nation trading status.
The volume of Russia's foreign trade has generally declined since the beginning of the economic transition. Trade volume peaked in 1990 and then declined sharply in 1991 and 1992. Between 1992 and 1995, however, exports rose from US$39.7 billion to US$77.8 billion, and imports rose from US$34.7 billion to US$57.9 billion. Many factors contributed to the decline of the early 1990s: the collapse of Comecon and trade relations with Eastern/Central Europe; the rapid decline of the domestic demand for imports; contraction in foreign currency reserves; a decline in the real exchange value of the ruble; the Government's imposition of high tariffs, VATs, and excess taxes on imports; and the reduction of state subsidies on some key imports. Russia's declining production of crude oil, a key export, also has contributed significantly. Until 1994 Russia's arms exports declined sharply because the military-industrial complex's production fell and international sanctions were placed on large-scale customers such as Iraq and Libya (see Foreign Arms Sales, ch. 9).
The geographical distribution of Russian foreign trade changed radically in the first half of the 1990s (see table 21; table 22, Appendix). In 1985 some 55 percent of Soviet exports and 54 percent of Soviet imports were with the Comecon countries. By contrast, 26 percent of Soviet exports and 28 percent of Soviet imports were with the fully developed market economies of Western Europe, Japan, the United States, and Canada. By the end of 1991, Russia and its former allies of Central Europe were actively seeking new markets. In 1991 only 23 percent of Russian exports and 24 percent of Russian imports were with the former Comecon member states. In 1994 some 27 percent of Russian imports and 22 percent of exports involved partners from Central Europe, with Poland, Hungary, and the Czech Republic generating the largest volume in both directions. Western Europe's share of Russian trade continued to grow, and in 1994 some 35 percent of Russia's imports and 36 percent of its exports were with countries in that region. Germany was by far the West European leader in exports and imports, and Switzerland and Britain were other large export customers. In 1994 the United States accounted for US$2.1 billion (5.3 percent) of imports and US$3.7 billion (5.9 percent) of exports; however, United States purchases of Russian goods had increased by more than 500 percent between 1992 and 1994. The total value of trade with the United States in 1995 was US$7 billion; trade for the first half of 1996 proceeded at virtually the same rate (see table 23, Appendix).
Russian trade with the so-called near abroad--the other former Soviet states--has greatly deteriorated. This trend began before the final collapse of the Soviet Union as Russian producers sought hard-currency markets for raw materials and other exportables. As Russia raised fuel prices closer to world market levels, the other republics found it increasingly difficult to pay for Russian oil and natural gas. The RCB extended credits to these countries to permit some shipments, but eventually the accumulation of large arrearages forced the Russian government to curtail shipments. At the end of 1995, Russian trade with the near abroad accounted for 17 percent of total Russian trade, down from 59 percent in 1991. Belarus, Kazakstan, and Ukraine remained Russia's largest partners, as they had been in the Soviet era. The failure to restore inter-republic trade was an important factor in the economic collapse that gripped the region around 1990.
Raw materials, especially oil, natural gas, metals, and minerals, have dominated Russia's exports, accounting for 65 percent of total exports in 1993. Exports as a whole are heavily concentrated in a few product categories. In 1995 ten commodities, all of which are raw materials, accounted for 70 percent of Russian exports. By contrast, for the United States the top ten export commodities account for only 37 percent of its exports.
The lack of diversity in Russian exports is a legacy of the Soviet period, when the central planning regime called for production of manufactured goods for domestic consumption with little consideration for the export market. Given this priority, most of the Soviet Union's consumer goods were of low quality by world standards. Post-Soviet concentration of Russian exportables in a few categories restricts Russia's potential sources of foreign currency to a few markets. And the frequent price fluctuations typical of world raw materials markets also make Russia's export revenues vulnerable to unforeseen change.
Manufactured goods dominate Russian imports, accounting for 68 percent of total imports in 1992. The largest categories of imported manufactured goods are machinery and equipment (29 percent of the total); foods, 16 percent; and textiles and shoes, 13 percent.

Trade in France

2012-01-05T03:30:00.000-08:00

France is the largest country in Western Europe. Similar in terms of population to the UK (around 63.6 million people live in France), it has a land mass twice the size and is situated at the crossroads of major road and rail transport systems throughout Europe France is also the world’s number‐one tourist destination with 79.3 million visitors in 2008.

France earns a huge number of money using their tourist spots

Economic overview

France is a leading industrialised country with a mature and sophisticated market economy. GDP is dominated by the services sector. France is the world’s fifth largest exporter — the European Union as a bloc is France’s most important trading partner. Paris is a leading financial market in the Eurozone. France is the most energy independent of the G8 industrialised countries owing to its heavy reliance on nuclear energy. Over 75 per cent of electricity is generated by nuclear power plants.
France performed better than most other European countries during the global financial crisis, despite contracting by 2.5 per cent in 2009, (the contraction for the euro area as a whole was 4.1 per cent). Recovery was assisted by a €26 billion (A$51.3 billion) stimulus package announced in December 2008 and the provision of bank guarantees and funding to recapitalise French banks. The government also established a sovereign investment fund to help maintain France’s manufacturing capacity, with the automotive sector a key recipient. France followed the lead of the UK by implementing a temporary one-year tax on bank bonuses. Despite this, a number of large-scale strikes were held in 2009 over the government’s handling of the crisis, driven by an unemployment rate that had risen to 9.9 per cent.

Trade starts here

President Sarkozy has identified the country’s various deficits and unemployment as the most important challenges facing France in exiting the global financial crisis. France has committed in its 2010-2013 Stability Program, presented to the European Commission on 1 February 2010, to reducing its high national budget deficit (7.8 per cent of GDP in 2010) to 3 per cent of GDP by 2013. Public debt in France reached record levels of 81.7 per cent of GDP in 2010, and the Government expects it to increase to around 88 per cent in 2012, after which it is projected to decline as a result of the Government’s austerity program.
Figures released on 13 May by the INSEE (National Institute for Statistics and Economic Studies) showed that in the first quarter of 2011, GDP grew by 1.0 per cent, the most significant increase since the second quarter of 2006. Manufacturing production rose by 3.4 per cent, the highest increase in 30 years, and around 60,000 new jobs were created, principally in the services sector. Loans provided to French banks during the financial crisis were repaid in full. The OECD revised upwards its forecast for economic growth in France to 2.2 per cent. However, the French government recently revised downwards its economic growth rate projections for the fourth quarter of 2011, indicating that growth might be zero, with the OECD revising its growth figures for France for 2012 down to 0.3 per cent.
The Government will continue its policy of not replacing one in two retiring public servants and has announced a freeze of public sector salaries for 2011. President Sarkozy’s controversial pension reforms, which will see the minimum retirement age for a partial pension progressively raised from 60 to 62 and for a full pension from 65 to 67 by 2018, were approved by the French Parliament in October 2010. France’s new Financial Regulation and Systemic Risk Council – which seeks to forestall risks in the financial sector – was also established in October 2010. The Council met for the first time in February 2011.

Foreign Trade Overview
France is one of the 10 leading exporters in the world, exports accounting for more than 50% of the country's GDP.

Main Business is Fashion

However, the country registers a strong trade deficit. Imports are developing quickly, as the French population buys a lot of imported goods which are sold relatively cheaply on the local market in comparison to products "Made in France". In addition to this, despite the government's efforts to favor innovation, French exports have relatively low added value.
In 2009, under the effects of the economic recession, both exports and imports devreased. Exports, however, rebounded in 2010 with the resumption of Asian trade, and imports have risen dramatically in response to the upturn in activity.

Doing Business in France

There are many opportunities for UK Business in France. We provide a wealth of information and guidance on doing business in France.

This includes:

Doing Business Guide
Sector Briefings
FCO Country Updates
Overseas Business Risk

Market of France

What are the Opportunities?

France is an open and highly competitive market, with opportunities in most sectors, especially for small and medium-sized business. French place a premium on non-price factors such as design, quality, delivery and after sales service. UK goods and services are generally held in high regard, but must be of high quality and competitively priced.

Business in Rome(Italy)

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Doing business in Rome is like doing business in any other Italian city a nightmare for the retailer and most customers. The scheme launched a few years back aimed to maximize the possibilities opened up by tourism and to encourage major national and multinational corporations to have a presence in Rome has more or less failed to have any real impact on the city.


Business hall of past in Rome

Most of the American Multinationals did not choose Rome when it came to having a presence in Europe instead they choose Ireland or the Uk as their European HQ.

The service sector, which accounts for over 50% of GDP replies heavely on tourism, which is actually Romes main industry, Other significant industries in the capital include finance, banking, insurance, printing, publishing and fashion.

The business district is largely clustered in and around the city centre.

Rome does have many annual trade fairs and large business conventions are normally held in EUR, a modern suburb six kilometres (four miles) south of the city centre.

Historical place of Rome

Unemployment in Rome, which as in most other cities was 11.2% in 2010, is higher than the national average and is on an upward spiral due to the worldwide crisis.

Business Etiquette is like in most other places, a friendly firm handshake, business is business and is treated as a serious affair (social kissing is reserved for friends and family). When meeting a business person or attending a business metting or lunch, business cards are exchanged. English is becoming more and more important all over the world so it is not unusual to have cards printed in duel languages, with English on one side Italian on the other.

Business Root

Colleagues are normally addressed by their surname and academic/professional titles respected. Although some of the Italian business community will speak some English or French, Italian is still the dominant language of business. It is wise to take the precaution of employing an interpreter, to minimise the degree of misunderstandings.

In Rome, appearance counts. It is best to dress in a smart suit (with tie for men and stylish accessories for women). The odd designer label does no harm. Personal relationships are extremely important and it is unlikely that decisions will be made before trust has been established between the two parties. Business lunches provide the ideal opportunity to build relationships and small talk is an essential part of any business meeting. Standard office hours are 0900-1700, with an hour-long lunch break.

In the majority of cases, the public authority selects a supplying business with a public auction open to all businesses that wish to participate. A committee then awards the contract taking into account the price and technical characteristics of the offers submitted in respect of non-discrimination regulations.

A business wishing to provide goods or services to Rome’s public authority bodies have to check publications or notifications of auctions on a regular basis.
If a business responds to all requirements then the second step is to draw up and submit a tender according to the auction procedures and deadlines.
If the tender is selected the business must finalise the contract with the public sector body.

Welcome

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Welcome world to the new and vary innovative web blog "Trade Around The World".

Business of that time with slaves

In this blog you will be able to know a lot of information about business of this world. Business did not start a few days ago. from the centuries it has been running the world. Moreover, the present decade is mostly depending on business. In past people used to make business with their slaves as well. Today most of the trade is depending on fashion, clothing, food etc.

However, business is depending on the market value of a particular product. Now what is product?

Companies which are guided by the product concept philosophy believe that :

customers favors product that are highly engineered.
customers favors products that are of the highest quality.
customers are interested in innovative products.

The Product Life Cycle

A new product progresses through a sequence of stages from introduction to growth, maturity, and decline. This sequence is known as the product life cycle and is associated with changes in the marketing situation, thus impacting the marketing strategy and the marketing mix.
The product revenue and profits can be plotted as a function of the life-cycle stages as shown in the graph below:

Product life cycle

Product development is a broad field of endeavor dealing with the design, creation, and marketing of new products. Sometimes referred to as new product development (NPD), the discipline is focused on developing systematic methods for guiding all the processes involved in getting a new product to market.

There are a number of organizations dedicated to supporting product development professionals, such as the Product Development and Management Association (PDMA) and the Product Development Institute (PDI). According to the PDMA, the organization's mission is "to improve the effectiveness of people engaged in developing and managing new products - both new manufactured goods and new services. This mission includes facilitating the generation of new information, helping convert this information into knowledge which is in a usable format, and making this new knowledge broadly available to those who might benefit from it."

Trade Around the World

Trade in South Korea

COUNTRY

GEOGRAPHY

ECONOMY

FOREIGN ECONOMIC RELATIONS

Aid, Loans, and Investment

Foreign Trade Policy

Exports and Imports

The Economic Future

FINANCING DEVELOPMENT

Trade in Romania

Romania

GEOGRAPHY

SOCIETY

ECONOMY

ECONOMIC STRUCTURE AND DYNAMICS

Evolution

FOREIGN TRADE

Goals and Policy

Trading Partners

Structure of Exports and Imports

Retirement of the Foreign Debt

Trade in Thailand

COUNTRY

GEOGRAPHY

ECONOMY

ECONOMIC AND FINANCIAL DEVELOPMENT

Financial Institutions

INTERNATIONAL TRADE AND FINANCE

International Trade

External Debt

Trade in Japan

Japan

GEOGRAPHY

Japan

ECONOMY

FOREIGN TRADE POLICIES

Export Policies

Import Policies

MAJOR FOREIGN POLICY GOALS AND STRATEGIES

Trade in South Africa

Country

Geography

Society

Economy

Foreign Trade and Investment

Foreign Trade

Investment

Balance of Payments

Foreign Relations

Relations with African States

Trade in Spain

COUNTRY

GEOGRAPHY

ECONOMY

FOREIGN ECONOMIC RELATIONS

Trading Partners

Foreign Investment

Spain and the European Community

Trade in Kuwait

COUNTRY

GEOGRAPHY

ECONOMY

Foreign Investment

Foreign Aid and Trade

Kuwait -- FOREIGN RELATIONS

Economic Reconstruction

Trade in Finland

Country Profile

GEOGRAPHY

ECONOMY

Economic Development

Structure of the Economy

FOREIGN ECONOMIC RELATIONS

Foreign Trade

Finnish Direct Investment Abroad

Trade in Brazil

Geography

GEOGRAPHY