Created: 6/12/1980

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Internationalnergy Weekly

PetrodollarRroclinsI Midyear*

pile concerns about ihc continuing ability of international financial institutionsecycle large OPEC surpluses,cl-evc lhal for alalancc-of-foyments financing requirements are being metinimum of disruption. The sysiem has managedthus far because the increase in the non-OPEC current account def-til is concentrated in countries well able lo finance their payments gaps, international capital markets art highly liquid, interest rates hate declined, and ample fundi arc available ill rough international financial institution*.pJB

We expect this .purge toillion to the combined deficit of the OECD countries andillion to that oflhc non-OPEC LDCs. Last year the deficits of the developed and ihc developingrose by simitarearlyof the total rise in the current account deficit of ibe ivon-OPECipecied io be absorbed by the relatively wealthy Big Seven industrialthe smaller OECD countries and the non-OPECll each shoulder about onc-sixtb of- mm

outlook over the longer term is far less saagainc. Annual OPEC currcai account surpluses peobablycontinue in excessillion. Moreover, the countries in the bcsi position to finance large deficits *ill be reducing iheir imbalance as ihcir domestic growth slows -the United Slates. Weal Germany, and Japan This means the smaller OECO countric* will probably see ihcir deficits change little, while ihe deficiis of non-OPEC LDCs "ill rise. The economies of the latter two groups will thus be squeezed. How much depends on (a) ihe ability of intcmatwnal financial institutions lo developmethods of Daymen it financing and (b) the willingness of OPEC countriesecome more directly imufred in ihc recycling process. To ihc citeni thatproaches fail, ihoe cc-anuicsill be forced io sharply curtail imports and economicth in attempts lo shift the deficits back to the major industrial couniries. gfffj


Based on an average oil price of $J( per barrel, we currentlyillion rise in the OPEC current account surplus this year,4 billion."


The major docloevd couniries appear to be having tin It difficulty handling the subMantijt worsening In Ihcirpoymems accounts. Their external linancing policiesosit ire encouragement of capital inflowselaxation of previous resirainis on such0 current account dcfidi. no-estimaiedillion, is being eowicd by eboct-lerm capital inflows and resirainis on long-term outflows: Tokyo may also draw down iniernaiional reserves. In April. Tokyo arranged fur Saudi Arabia lo purchase0 million5 millionor an


Or related restraints, are figuring prominently in financing the estimatedillion deficitse and ll'eifand theillion dcflcii ofonn also has4 billion special Saudi purchase of govcrnmcol securities. As for ffttfy. ihc projectedillion deficit should be easily managed following three consecutive yearsof brje surploxrvhelped accumulate official reservesillion, cxclud-iruiroldfjji

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