Spain - ECONOMY

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Spain - The Economy

IN THE MID-1980s, Spain's per capita gross domestic product ranked low among the industrial countries represented in the Organisation for Economic Co-operation and Development, though well ahead of such nations as Greece, Yugoslavia, and Portugal. In the latter half of the decade, however, the Spanish economy entered a phase of strong expansion and employment.

Spain was a latecomer to economic and industrial modernization. Early in the twentieth century, economic progress was made in fitful starts, but in the 1960s the process of renewal began in earnest. Before then, the Spanish economy was one of the most underdeveloped in Western Europe, and it was sometimes characterized as a Third World economy. A spectacular period of growth and modernization during the 1960s and the early 1970s profoundly transformed the Spanish economy, bringing it much closer to the West European consumer society prototype. However, in late 1975, when the authoritarian rule of Francisco Franco Y Bahmonde (in power, 1939-75) came to an end, and democratic processes were restored, there were huge increases in the price of imported oil upon which Spain was heavily dependent for its energy needs. Vigorous economic expansion was replaced by recession, stagnation, and a dizzying increase in the number of unemployed wage earners.

The Socialist government, headed by Felipe Gonzalez Marquez, that came to power in late 1982--the first post-Franco government with an absolute parliamentary majority--was committed to a program of industrial renewal and economic modernization and, at the same time, to lowering the rate of inflation. Under its guidance, in the second half of the 1980s the economy experienced a growth rate and a level of foreign capital investment that were the highest in Europe. Budget deficits were reduced, inflation was lowered, foreign currency reserves were greatly increased, private enterprise enjoyed record profits, and consumer spending grew. A major accomplishment during this period was the liquidation of excess personnel and overcapacity in key industries, such as steel and shipbuilding, and the redirection of substantial capital resources to more promising hightechnology industries.

Despite the excellent economic performance of the late 1980s, the Gonzalez government was unable to reduce an unemployment rate that was then the highest among the members of the European Community (EC). The number of workers employed as a result of the economic boom was equivalent to the number of new entrants into the labor market, so that the boom only marginally reduced the number of job seekers. A mitigating circumstance, however, was that although the official unemployment rate was 20 percent, perhaps as many as one-third of those registered as unemployed were working in the "underground economy."

Spain's accession to the EC on January 1, 1986, was a driving force behind the country's accelerated modernization effort. Under the terms of its entry into the EC, Spain was required to adapt to EC norms and regulations, over a period of seven years. The EC plan to eliminate existing barriers to trade, employment, and the flow of capital throughout the EC by the end of 1992 was still another impetus. Observers believed that, barring unforeseeable adverse developments in the international economic situation, by the year 2000 Spain would at last closely resemble its neighbors, who, for most of the twentieth century, had been socially and economically more advanced.

<>DEVELOPMENT OF THE ECONOMY
<>ROLE OF GOVERNMENT
<>LABOR
<>AGRICULTURE
<>INDUSTRY
<>ENERGY
<>Banking
<>Tourism
<>FOREIGN ECONOMIC RELATIONS

Spain

Spain - DEVELOPMENT OF THE ECONOMY

Economic historians generally agree that during the nineteenth century and well into the twentieth, at a time when Western Europe was engaged in its great economic transformation, Spain "missed the train of the industrial revolution." Much of the chronic social and political turmoil that took place in Spain during this period can in large measure be attributed to the great difficulties the country encountered in striving for economic modernization. Throughout this period, Spanish social and economic development lagged far behind the levels attained by the industrializing countries of Western Europe. Spain's economic "take-off" began belatedly during the 1950s and reached its height during the 1960s and the early 1970s. A second cycle of economic expansion began in the mid-1980s, and if this one continues, it might catapult Spain into the company of Western Europe's more advanced industrial societies.

At the beginning of the twentieth century, Spain was still mostly rural; modern industry existed only in the textile mills of Catalonia (Spanish, Cataluna; Catalan, Catalunya) and in the metallurgical plants of the Basque provinces. Even with the stimulus of World War I, only in Catalonia and in the two principal Basque provinces, Vizcaya and Guipuzcoa, did the value of manufacturing output in 1920 exceed that of agricultural production. Agricultural productivity was low compared with that of other West European countries because of a number of deficiencies--backward technology, lack of large irrigation projects, inadequate rural credit facilities, and outmoded landtenure practices. Financial institutions were relatively undeveloped. The Bank of Spain (Banco de Espana) was still privately owned, and its public functions were restricted to currency issuance and the provision of funds for state activities. The state largely limited itself to such traditional activities as defense and the maintenance of order and justice. Road building, education, and a few welfare activities were the only public services that had any appreciable impact on the economy.

Considerable economic progress was made during World War I and in the 1920s, particularly during the regime of Miguel Primo de Rivera (1923-30). The Primo de Rivera government initiated important public works projects, including construction of new highways, irrigation facilities, and modernization of the railroad system. It also made a start on reforestation programs. Industry and mining were growing, and there was an average annual increase in the industrial and mining index of 6.4 percent between 1922 and 1931. An income tax, however ineffectively collected, was introduced in 1926, and a number of new banks were started with state backing, to invest in projects considered to have national interest. Certain economic functions were turned over to private monopolistic operations--of which the most important was the petroleum distribution company, Compania Arrendataria del Monopolio de Petroleos (CAMPSA); others, such as transportation, were put under state control.

These steps toward a modern economic structure were slowed drastically by the political turmoil of the period, which culminated in the Spanish Civil War, and they were further exacerbated by the worldwide depression of the early 1930s. When the Civil War broke out in 1936, it eliminated what little chance Spain might have had to recover from the economic malaise of the period.

<>The Franco Era, 1939-75
<>The Post-Franco Period, 1975-1980s

Spain

Spain - The Economy - The Franco Era, 1939-75

Spain emerged from the Civil War with formidable economic problems. Gold and foreign exchange reserves had been virtually wiped out, and the neglect and devastation of war had reduced the productive capacity of both industry and agriculture. To compound the difficulties, even if the wherewithal had existed to purchase imports, the outbreak of World War II rendered many needed supplies unavailable. The end of the war did not improve Spain's plight because of subsequent global shortages of foodstuffs, raw materials, and peacetime industrial products. Spain's European neighbors faced formidable reconstruction problems of their own, and, because of their awareness that the Nationalist victory in the Spanish Civil War had been achieved with the help of Adolf Hitler and Benito Mussolini, they had little inclination to include Spain in any multilateral recovery program. For a decade following the Civil War's end in 1939, the economy remained in a state of severe depression.

Branded an international outcast for its pro-Axis bias during World War II, Franco's regime sought to provide for Spain's well- being by adopting a policy of economic self-sufficiency. Autarchy was not merely a reaction to international isolation; it was also rooted for more than half a century in the advocacy of important economic pressure groups. Furthermore, from 1939 to 1945, Spain's military chiefs genuinely feared an Allied invasion of the peninsula and, therefore, sought to avert excessive reliance on foreign armaments.

Spain was even more economically retarded in the 1940s than it had been ten years earlier, for the residual adverse effects of the Civil War and the consequences of autarchy and import substitution were generally disastrous. Inflation soared, economic recovery faltered, and, in some years, Spain registered negative growth rates. By the early 1950s, per capita gross domestic product (GDP) was barely 40 percent of the average for West European countries. Then, after a decade of economic stagnation, a tripling of prices, the growth of a black market, food rationing, and widespread deprivation, gradual improvement began to take place. The regime took its first faltering steps toward abandoning its pretensions of self- sufficiency and toward inaugurating a far-reaching transformation of Spain's retarded economic system. Pre-Civil War industrial production levels were regained in the early 1950s, though agricultural output remained below that level until 1958.

A further impetus to economic liberalization came from the September 1953 signing of a mutual defense agreement, the Pact of Madrid, between the United States and Spain. In return for permitting the establishment of United States military bases on Spanish soil, the Eisenhower administration provided substantial economic aid to the Franco regime. More than 1 billion dollars in economic assistance flowed into Spain during the remainder of the decade as a result of the agreement. Between 1953 and 1958, Spain's gross national product (GNP) rose by about 5 percent per annum.

The years from 1951 to 1956 were marked by substantial economic progress, but the reforms of the period were only spasmodically implemented, and they were poorly coordinated. One large obstacle to the reform process was the corrupt, inefficient, and bloated bureaucracy. A former correspondent of London's Financial Times, Robert Graham, described the Franco era as "the triumph of paleocapitalism--primitive market skills operating in a jungle of bureaucratic regulations, protectionism, and peddled influence." By the mid-1950s, the inflationary spiral had resumed its upward climb, and foreign currency reserves that had stood at US$58 million in 1958 plummeted to US$6 million by mid-1959. The standard of living remained one of the lowest in Western Europe, and the backwardness of agriculture and of the land-tenure system, despite lip service to agrarian reform, kept farm productivity low. The growing demands of the emerging middle class--and of the ever greater number of tourists--for the amenities of life, particularly for higher nutritional standards, placed heavy demands on imported foodstuffs and luxury items. At the same time, exports lagged, largely because of high domestic demand and institutional restraints on foreign trade. The peseta fell to an all-time low on the black market, and Spain's foreign currency obligations grew to almost US$60 million.

A debate took place within the regime over strategies for extricating the country from its economic impasse, and Franco finally opted in favor of a group of neoliberals. The group included bankers, industrial executives, some academic economists, and members of the semi-secret Roman Catholic lay organization, Opus Dei (Work of God).

During the 1957-59 period, known as the pre-stabilization years, economic planners contented themselves with piecemeal measures such as moderate anti-inflationary stopgaps and increases in Spain's links with the world economy. A combination of external developments and an increasingly aggravated domestic economic crisis, however, forced them to engage in more far- reaching changes.

As the need for a change in economic policy became manifest in the late 1950s, an overhaul of the Council of Ministers in February 1957 brought to the key ministries a group of younger men, most of whom possessed economics training and experience. This reorganization was quickly followed by the establishment of a committee on economic affairs and the Office of Economic Coordination and Planning under the prime minister.

Such administrative changes were important steps in eliminating the chronic rivalries that existed among economic ministries. Other reforms followed, the principal one being the adoption of a corporate tax system that required the confederation of each industrial sector to allocate an appropriate share of the entire industry's tax assessment to each member firm. Chronic tax evasion was consequently made more difficult, and tax collection receipts rose sharply. Together with curbs on government spending, in 1958 this reform created the first government surplus in many years.

More drastic remedies were required as Spain's isolation from the rest of Western Europe became exacerbated. Neighboring states were in the process of establishing the EC and the European Free Trade Association (EFTA). In the process of liberalizing trade among their members, these organizations found it difficult to establish economic relations with countries wedded to trade quotas and bilateral agreements, such as Spain.

Spanish membership in these groups was not politically possible, but Spain was invited to join a number of other international institutions. In January 1958, Spain became an associate member of the Organisation for European Economic Co- operation (OEEC), which became the Organisation for Economic Co- operation and Development (OECD) in September 1961, and which included among its members virtually every developed country in the noncommunist world. In 1959 Spain joined the International Monetary Fund (IMF) and the World Bank. These bodies immediately became involved in helping Spain to abandon the autarchical trade practices that had brought its reserves to such low levels and that were isolating its economy from the rest of Europe.

Spain traditionally paid close attention to events in France and was often influenced by them. In December 1958, the French government adopted a stabilization program in order to overcome a severe economic slump; this program included devaluation of the franc, tax increases, and the removal of restrictions on most of France's trade with OECD countries. The French action removed whatever doubts the Spanish authorities had harbored about embarking on a wholesale economic transformation. After seven months of preparation and drafting, aided by IMF and French economists, Spain unveiled its Stabilization Plan on June 30, 1959. The plan's objectives were twofold: to take the necessary fiscal and monetary measures required to restrict demand and to contain inflation, while, at the same time, liberalizing foreign trade and encouraging foreign investment.

The plan's initial effect was deflationary and recessionary, leading to a drop in real income and to a rise in unemployment during its first year. The resultant economic slump and reduced wages led approximately 500,000 Spanish workers to emigrate in search of better job opportunities in other West European countries. Nonetheless, its main goals were achieved. The plan enabled Spain to avert a possible suspension of payments abroad to foreign banks holding Spanish currency, and by the close of 1959 Spain's foreign exchange account showed a US$100-million surplus. Foreign capital investment grew sevenfold between 1958 and 1960, and the annual influx of tourists began to rise rapidly.

As these developments steadily converted Spain's economic structure into one more closely resembling a free-market economy, the country entered the greatest cycle of industrialization and prosperity it had ever known. Foreign aid played a significant role. Such aid took the form of US$75 million in drawing rights from the IMF, US$100 million in OEEC credits, US$70 million in commercial credits from the Chase Manhattan Bank and the First National City Bank, US$30 million from the United States Export- Import Bank, and funds from United States aid programs. Total foreign backing amounted to US$420 million. The principal lubricants of the economic expansion, however, were the hard currency remittances of 1 million Spanish workers abroad, which are estimated to have offset 17.9 percent of the total trade deficit from 1962 to 1971; the gigantic increase in <> tourism that drew more than 20 million visitors per year by the end of the 1960s and that accounted for at least 9 percent of the GNP; and direct foreign investment, which between 1960 and 1974 amounted to an impressive US$7.6 billion. More than 40 percent of this investment came from the United States, almost 17 percent came from Switzerland, and the Federal Republic of Germany (West Germany) and France each accounted for slightly more than 10 percent. By 1975 foreign capital represented 12.4 percent of all that invested in Spain's 500 largest industrial firms. An additional billion dollars came from foreign sources through a variety of loans and credit devices.

The success of the stabilization program was attributable to both good luck and good management. It took place at a time of economic growth and optimism in Western Europe, which as a result was ready to accept increased Spanish exports, to absorb Spain's surplus labor, and to spend significant sums of money on vacations in Spain and on investments in Spanish industry.

Spain

Spain - The Economy - The Post-Franco Period, 1975-1980s

Franco's death in 1975 and the ensuing transition to democratic rule diverted Spaniards' attention from urgent economic problems. The return to democracy coincided with an explosive quadrupling of oil prices, which had an extremely serious effect on the economy because Spain imported 70 percent of its energy, mostly in the form of Middle Eastern oil. Nonetheless, the centrist government of Adolfo Suarez Gonzalez, which had been named to succeed the Franco regime by King Juan Carlos de Borbon, did little to shore up the economy or even to reduce Spain's heavy dependence on imported oil. A virtually exclusive preoccupation with the politics of democratization and the drafting of a new political system prevailed.

Because of the failure to adjust to the drastically changed economic environment brought on by the two oil price shocks of the 1970s, Spain quickly confronted plummeting productivity, an explosive increase in wages from 1974 to 1976, a reversal of migration trends as a result of the economic slump throughout Western Europe, and the steady outflow of labor from agricultural areas despite declining job prospects in the cities. All these factors joined in producing a sharp rise in unemployment. Government budgetary deficits swelled, as did large social security cost overruns and the huge operating losses incurred by a number of public-sector industries. Energy consumption, meanwhile, remained excessive. The years of economic recession, beginning in 1975, were not solely attributable to the oil crisis, but they revealed, in the words of one Spanish economist, Eduardo Merigo, "an institutional structure that was creaking at the seams, unable to function in a country in which output had increased nearly five times in thirty years." These structural deficiencies made Spain more vulnerable than most other modern economies to the oil crises of the 1970s.

When the Socialist government headed by Felipe Gonzalez took office in late 1982, the economy was in dire straits. Inflation was running at an annual rate of 16 percent, the external current account was US$4 billion in arrears, public spending had gotten out of hand, and foreign exchange reserves had become dangerously depleted. In coping with the situation, however, the Gonzalez government had one asset that no previous post-Franco government had enjoyed, namely, a solid parliamentary majority in both houses of the Cortes (Spanish Parliament). With this majority, it was able to undertake unpopular austerity measures that earlier weak and unstable governments had been unable even to consider.

The Socialist government opted for pragmatic, orthodox monetary and fiscal policies, together with a series of vigorous retrenchment measures. In 1983 it unveiled a program that provided a more coherent and long-term approach to the country's economic ills. Renovative structural policies--such as the closing of large, unprofitable state enterprises--helped to correct the more serious imbalances underlying the relatively poor performance of the economy. The government launched an industrial reconversion program, brought the problem-ridden social security system into better balance, and introduced a more efficient energy-use policy. Labor market flexibility was improved, and private capital investment was encouraged with incentives.

By 1985 the budgetary deficit was brought down to 5 percent of GNP, and it dropped to 4.5 percent in 1986. Real wage growth was contained, and it was generally kept below the rate of inflation. Inflation was reduced to 4.5 percent in 1987, and analysts believed it might decrease to the government's goal of 3 percent in 1988.

Efforts to modernize and to expand the economy were greatly aided by a number of factors that fostered the remarkable economic boom of the 1980s: the continuing fall in oil prices, increased <>tourism, a sharp reduction in the exchange value of the United States dollar, and a massive upsurge in the inflow of foreign investment. These exogenous factors allowed the economy to undergo rapid expansion without experiencing balance of payments' constraints, despite the fact that the economy was being exposed to foreign competition in accordance with EC requirements. Were it not for these factors, the process of integration with the EC would have been a good deal more painful, and inflation would have been much higher.

In the words of the OECD's 1987-88 survey of the Spanish economy, "following a protracted period of sluggish growth with slow progress in winding down inflation during the late 1970s and the first half of the 1980s, the Spanish economy has entered a phase of vigorous expansion of output and employment accompanied by a marked slowdown of inflation." In 1981 Spain's GDP growth rate had reached a nadir by registering a rate of negative 0.2 percent; it then gradually resumed its slow upward ascent with increases of 1.2 percent in 1982, 1.8 percent in 1983, 1.9 percent in 1984, and 2.1 percent in 1985. The following year, however, Spain's real GDP began to grow by leaps and bounds, registering a growth rate of 3.3 percent in 1986 and 5.5 percent in 1987. The 1987 figure was the highest since 1974, and it was the strongest rate of expansion among OECD countries that year. Analysts projected a rise of 3.8 percent in 1988 and of 3.5 percent in 1989, a slight decline but still roughly double the EC average. They expected that declining interest rates and the government's stimulative budget would help sustain economic expansion. Industrial output, which rose by 3.1 percent in 1986 and by 5.2 percent in 1987, was also expected to maintain its expansive rate, growing by 3.8 percent in 1988 and by 3.7 percent in 1989.

A prime force generating rapid economic growth was increased domestic demand, which grew by a steep 6 percent in 1986 and by 4.8 percent in 1987, in both years exceeding official projections. During 1988 and 1989, analysts expected demand to remain strong, though at slightly lower levels. Much of the large increase in demand was met in 1987 by an estimated 20 percent jump in real terms in imports of goods and services.

In the mid-1980s, Spain achieved a strong level of economic performance while simultaneously lowering its rate of inflation to within two points of the EC average. However, its export performance, though increasing by .5 percent, raised concerns over the existing imbalance between import and export growth.

Spain

Spain - The Economy - ROLE OF GOVERNMENT

The public sector of the postwar Spanish economy was not conspicuously large, compared with the corresponding sectors of most other West European countries. Much of it came into existence under the Franco regime. Spain's communication and transportation facilities were publicly operated, as was the case on most of the rest of the continent. State trading monopolies were maintained for petroleum products, tobacco, and some agricultural products, but most industry other than coal mining, iron and steel making, shipbuilding, and aircraft assembly, was privately owned. Most of the major financial institutions were also privately owned. Yet agriculture, which was largely in private hands, was affected by a panoply of subsidies and marketing controls. Irrigation projects and reforestation and land reform programs were also important official concerns.

The single largest component of the public sector was the National Industrial Institute (Instituto Nacional de Industria-- INI), a government holding company that was primarily, though not exclusively, involved in industry. In addition to INI, the public sector included the Grupo Patrimonio, founded in the late nineteenth century. Formally referred to as the Directorate General for State Assets (Direccion General del Patrimonio del Estado--DGPE), it functioned under the auspices of the Ministry of Economy, Finance, and Commerce. In the mid-1980s, there were about two dozen companies in the DGPE, operating in a variety of sectors, such as communications, finance, transportation, agriculture, and textiles. Three companies dominated the group: the National Telephone Company of Spain (Compania Telefonica Nacional de Espana--CTNE), the tobacco distributor (Tabacalera), and the Overseas Trade Bank (Banco Exterior de Espana). Together they accounted for the bulk of the employment and the financial holdings of the group's members. The shares of these companies were held directly by the state, rather than indirectly through a holding company, as was the case with INI. One of the main purposes of the DGPE was to channel to the government the revenues from the sale of certain commodities placed in the hands of monopoly distributors, though such monopolies were coming to an end as a result of Spain's entry into the EC. The DGPE had also taken an active role in restructuring the textile industry.

Economic Ministries

Under the Felipe Gonzalez government, the minister of economy, finance, and commerce served as "superminister" and chief government spokesman with the responsibility of advising the prime minister on economic and financial policies. The Ministry of Economy, Finance, and Commerce formulated general economic policies; prepared the budget; audited the state's accounts; supervised expenditures; managed the public debt; supervised the banks, insurance companies, and stock exchanges; and collected taxes. It therefore had a major role in the conduct of both fiscal and monetary policy. It was also responsible for all matters concerned with publicly owned properties involved in industrial, agricultural, and commercial ventures, including supervision of those under the day-to-day management of other ministries.

Other ministries having primarily economic functions included the Ministry of Agriculture, Fisheries, and Food; the Ministry of Transportation, <>Tourism, and Communications; the Ministry of Industry and Energy; the Ministry of Labor and Social Security; and the Ministry of Public Works and City Planning. There was also an interministerial Economic Affairs Committee (Comision de Asuntos Economicos), which consisted of the heads of economically important ministries and the undersecretary of state for the economy.

Budget and Fiscal Policy

The budget of the central government reflected only a part of the financial resources involved in the execution of fiscal policy. Other official receipts and expenditures, including social security revenues and payments, local and regional government taxation and spending, and the operations of autonomous organizations associated with defense, education, and agrarian development, brought the total amount of government outlays in 1987 to 13,200 billion pesetas, or 41 percent of GDP. Thus, despite the sharp rise in revenues recorded in 1987, the central government deficit narrowed only from 1,659 billion pesetas to 1,623 billion pesetas on a national accounts basis.

Government spending tended to be expansionary. Even in 1987, when government receipts were unusually high because of strong economic growth, a crackdown on tax fraud, and the introduction of a value-added tax in 1986, state expenditures outstripped state income and the government's deficit amounted to about 3.8 percent of 1987's GDP. When regional and local government expenditures were figured in, the total deficit amounted to approximately 5 percent. Budgetary estimates for 1988 indicated that the central government deficit could be held to approximately 3 percent of GDP. Initial budgets, however, have usually underestimated ultimate spending.

Spain

Spain - LABOR

Throughout much of the twentieth century, there has been a dramatic shift in the makeup of the Spanish population and in the nature of its employment. As late as the 1920s, 57 percent of Spain's active population was concentrated in agriculture. During the next 30 years, the number of people employed in this sector fell by only 10 percent. Starting in 1950, however, the sector's share of the work force fell by close to 10 percent each decade, so that by the early 1980s its share had shrunk to about 15 percent. Even after the economic transformation in the 1960s and the first half of the 1970s, agricultural employment continued to fall steadily--by an estimated 4 percent per year between 1976 and 1985. Migration from rural regions to areas where employment was available led to the virtual depopulation of a number of rural towns and provinces, especially those in the middle of the country.

The evolution in the size and the composition of the working population offered an index to the country's modernization process. Since the 1920s, the number of workers employed in industry and services had virtually doubled. Industry's share of the work force had gone from about 20 percent in 1920 to a high point of 38 percent in 1975, after which it had begun to decline, dropping to 32 percent by 1985. The service sector had grown steadily, from 20 percent of the work force in 1920 to 52 percent in 1985, declining only during the bleak 1940s. It had surpassed the industrial sector at the end of the boom years in the mid1970s , when it accounted for about 40 percent of the work-force. Despite the economic slump of the 1975-85 period, the service sector grew strongly--an indication of Spain's development toward a postindustrial society and its increasing resemblance to the economic structures of other West European countries.

Spain has been fairly constant in the portion of its population actively involved in the economy. For all of the twentieth century, just over one-third of the population has either had a job or has been looking for one. A high point was reached in 1965, when 38.5 percent of all Spaniards were in the work force. During the 1980s, the figure hovered at about 33 to 34 percent.

Compared with other West European countries, however, Spain has been distinguished by the low participation of women in the work force. In 1970 only 18 percent of the country's women were employed, compared with 26 percent in Italy and 30 to 40 percent in northern Europe. During the 1980s, female employment increased, but women still made up less than 30 percent of the economically active population, considerably less than they did in Finland, for example, where nearly half of all those employed were female and where three-quarters of all women worked outside the home. Female participation in the labor market was increasing in the second half of the 1980s, and it had jumped 2 percent between 1985 and 1987, when, according to an OECD report, it reached 29.9 percent in mid-1987. El Pais, a respected daily, reported that there were 3.5 million women in the work force of 15 million at the end of 1987, which gave them a share of about 32 percent of the total.

The Unemployment Problem

Spain's most nagging and seemingly intractable economic problem has been the persistence of high unemployment. The industry shakeout of the 1975-85 period, declining job opportunities in agriculture, and the virtual drying up of the need for Spanish workers in Western Europe led to an unemployment rate that, throughout the 1980s, rarely went below 20 percent, the highest rate in Europe. Overall employment between 1976 and 1985 declined by almost 25 percent. The sharp slowdown in labor demand, following the first oil shock, coincided with the growing exodus from rural areas. The decline in industrial employment was due not only to production cutbacks in a number of key sectors, but also to prior widespread overmanning and to the abruptly urgent need to address deteriorating economic conditions by stressing higher productivity and lower unit labor costs. The ensuing slowdown in real wage growth did not moderate before 1980. As a result, real wages surpassed productivity between 1976 and 1979 by 22 percent.

Though government programs, such as the strengthened Employment Promotion Programs, led to the hiring of more than 1 million people in 1987--more than double the average of about 450,000 per year between 1979 and 1984--they did not appreciably alter the level of joblessness. With almost 3 million people unemployed in 1988, the official unemployment level of 20.5 percent was almost double the OECD average. Record numbers of new job openings were created in the buoyant economy of 1987, and total employment increased by 3 percent, but the new jobs barely kept pace with the growth of the labor force. Undoubtedly, the unemployment rate would have been much higher were it not for the relatively low level of participation of women in the labor force. The unemployment rate for women in the labor force was about one-third higher than that for men.

Youth unemployment was particularly high. The under-25 agegroup accounted for nearly 55 percent of all unemployment, a factor that contributed to juvenile delinquency and street crime. Thus the increasing participation of young people and women in the work force contributed to a persistence of high unemployment in the booming economy of the late 1980s because of the relatively low rates of employment among both groups. Another reason was that, although the economy was growing, part of the expansion was due to improved equipment, and not to increased employment. Industrial production, for example, rose by 4.7 percent in 1987, but industrial employment grew only by 2.5 percent. Nonetheless, these official unemployment rates were believed to be too high, for they did not take account of those persons believed to be working in the underground economy.

The Underground Economy

With the growth in unemployment, rising labor costs, rigid legal regulations, increasing numbers of layoffs and discharges, and high employer social security taxes, since the 1970s Spain has experienced the growth of an increasingly important underground economy (economia sumergida). Its rise has been of growing concern to government policymakers. Observers estimated that it accounted for 10 percent to 15 percent of the GNP, and a 1985 government study suggested that the number of those employed in the underground economy amounted to 18 percent of the entire active labor force. Other analysts believed that as many as 33 percent of those officially listed as unemployed-- about 20 percent of the working population--were actually working in the shadow economy. Workers in this sector were particularly numerous in labor-intensive industries and services. According to official estimates, agriculture accounted for the largest share, estimated at perhaps 30 percent; services claimed up to 25 percent; construction, 20 percent; and industry, a little less than 20 percent. Most of those involved in the service sector worked as domestics.

Typically, workers in the underground economy were young people with minimal educational and professional qualifications. Many were single women, more often than not, those without family responsibilities. This sector of the economy was marked by high labor turnover; its employees earned substandard wages, and they often toiled in unhealthy surroundings, frequently at home. Though wages were low, those who worked in the underground economy could avoid paying taxes and social security contributions--an aspect of the sector that made it attractive to employers as well as to laborers.

<>Labor Relations in the Franco Era
<>Labor Relations in the Post-Franco Period

Spain

Spain - Labor Relations in the Franco Era

Labor relations until the late 1950s were generally of a fascist, authoritarian type. Wages and working conditions were set by decrees issued by the government, and all wage earners were required to be members of the government body, the Spanish Syndical Organization (Organizacion Sindical Espanola--OSE). Collective bargaining, independent labor organizations, and strikes were prohibited. In conjunction with the general economic liberalization of the late 1950s, the 1958 Collective Bargaining Law (Ley de Convenios Colectivos) for the first time permitted limited local collective bargaining between employers and labor within the framework of the OSE.

Despite police repression and the heavy penalties that were given to striking workers--striking was considered the equivalent of a treasonable offense--there were a number of labor conflicts during the 1950s, especially in Barcelona and in the Basque region, both pre-Civil War trade-union strongholds. Through harsh police measures and the imprisonment of workers, these conflicts were readily brought under control. They were, however, harbingers of a tidal wave of labor unrest that was to inundate the country during the late 1960s and the early 1970s.

As workers and their clandestine labor organizations grew more assertive during the mid-1960s, they sought a larger share of the country's growing prosperity. An oppositional grass-roots labor movement, which became known as the Workers' Commissions (Comisiones Obreras--CCOO), arose within the official labor organization. During the 1960s and 1970s, the CCOO became the principal opposition to government-controlled labor organizations. The CCOO had links to the Roman Catholic Church, which during the same period was undergoing a growing liberalization with the encouragement of Pope John XXIII and Pope Paul VI. The church dissociated itself from the Franco regime, and it championed Spanish trade union freedoms and collective bargaining rights. Some church-sponsored labor groups were permitted to operate openly, most notably the Catholic Action Workers' Brotherhood (Hermandad Obrera de Accion Catolica--HOAC). On July 24, 1968, the Bishops' Conference condemned Spain's government labor organizations and issued a call for free trade unions. Churches provided a sanctuary for striking workers and served as a refuge from the police.

Oppositional union groups became more active in elections for shop-level representatives. As slates of candidates sponsored by the CCOO and others increasingly won elections for factory shop stewards (jurados de empresa), the OSE became more and more dysfunctional. Meanwhile, the influence of the Catholic leadership of the CCOO lessened, as communists became increasingly dominant and as the movement became more active. Labor unrest underwent an explosive expansion. There were 777 strikes in 1963, 484 in 1965, and the number mushroomed in 1970 to 1,595. The strikes resulted in major wage gains, frequently exceeding official guidelines.

Semiclandestine independent trade unions began to emerge during the final decade of the Franco regime. In addition to the CCOO, other groups began to make their presence felt. The socialist General Union of Workers (Union General de Trabajadores--UGT), historically, the labor arm of the Spanish Socialist Workers' Party (Partido Socialista Obrero Espanol-- PSOE), belatedly emerged as a leading contender for worker leadership. In the Basque region, the Basque Workers' Solidarity (Eusko Langilleen Alkartasuna-Solidaridad de Trabajadores Vascos- -ELA-STV), the labor adjunct of the Basque Nationalist Party (Partido Nacionalista Vasco--PNV), also made a reappearance. In addition, various organizations spawned by the church's active defense of workers' rights, the most notable being the Workers' Syndical Union (Union Sindical Obrera--USO), vied for workers support. The anarcho-syndicalist National Confederation of Labor (Confederacion Nacional del Trabajo--CNT), which had been one of the two dominant trade union centers before 1939, reappeared sporadically in post-Franco Spain as a tiny, marginal force.

Spain

Spain - Labor Relations in the Post-Franco Period

The Franco regime ended amidst a wave of worker ferment and considerable strike activity. By 1975, brutal repression no longer sufficed to snuff out social discontent, as worker militancy overwhelmed an increasingly dysfunctional OSE and forced employers to negotiate directly with representatives of the semilegal independent unions. The strike waves that crested between 1974 and 1976 coincided with the huge oil price increases that began in 1973. The country's political elite, because it was engrossed with the transition to parliamentary democracy, gave only passing attention to labor unrest and to the increasing deterioration of the economy. The institutional changes of this period had not yet established channels for collective bargaining, nor did consultative machinery exist to negotiate general wage guidelines.

Industrial workers, having inadequately partaken of the growing prosperity of earlier years, resented rising inflation and sought to make up for lost time despite mounting economic difficulties. A virtual wage explosion took place as workers and their semilegal spokesmen extracted large pay increases from their employers. From 1974 to 1976, wages rose much more rapidly than did the cost of living. Analysts estimated that wage increases in those years averaged 20 to 30 percent per annum. Price controls managed to keep inflation well below these levels, at least for a time. Profits declined sharply, while the wage component of Spain's national income rose steeply--by four percentage points between 1974 and 1975. Output was maintained at fairly normal levels, as increased wage levels led to rapid growth in consumption, but depressive factors soon had an adverse effect on the economy. Unemployment rose from an insignificant 2.5 percent in 1973 to 8.5 percent in 1979, and thereafter it continued to rise steadily.

Free trade unions were formally legalized on April 28, 1977, and the first post-Franco parliamentary elections, which were held the following June, saw Suarez and his center-right Union of the Democratic Center (Union de Centro Democratico--UCD) emerge victorious, but with only a plurality of the parliamentary seats. In October 1977, government and opposition parties agreed on an economic package, the Moncloa Pacts. The pact were designed to prevent further economic deterioration and to buy time while the country awaited the October referendum on the new 1978 Constitution. The pacts called for a 22-percent wage increase ceiling. This figure was below the rate of inflation, and it signified a reduction in popular purchasing power. In 1979, however, the government-labor consensus came to an end; partisan politics resumed, as unions sought wage adjustments that were at least equal to increases in the cost of living.

The Workers' Statute, adopted in March 1980, articulated trade union rights as guaranteed by the Constitution. The statute eliminated direct government intervention in labor relations. It also included provisions for minimum wage standards, for access to social security funds, and for a delineation of the contractual nature of wage accords. Democratically elected works councils (comites de empresa) were established as spokesmen for employees, and unions were given responsibility for arriving at industry-wide, and at local wage agreements.

During the 1970s, Spain's economic recession and the critical situation confronting many firms led to the establishment of implicit or explicit social contracts in which government, employers, and unions participated. Unions tended to accept wage restraint, and they increased productivity in exchange for improved job security and for promises to create more job opportunities. In 1980 the UGT and the Spanish Confederation of Employers' Organizations (Confederacion Espanola de Organizaciones Empresariales--CEOE) negotiated a pact called the Inter-Confederation Framework Agreement (Acuerdo Marco Interconfederal--AMI), embodying these features. The agreement set the pattern for 800,000 companies. These companies had an aggregate work force of 6 million persons, or half of the country's economically active population.

Since the death of Franco, the UGT and the CCOO have been engaged in a fierce rivalry for hegemony in the labor movement. The struggle has had strong political ramifications because the UGT served as the trade union arm of the governing PSOE, and the CCOO was controlled by the Communist Party of Spain (Partido Comunista de Espana--PCE) and by other communist splinter groups. In the 1978 elections for members of the works councils, the CCOO elected 34 percent of their candidates, compared with the UGT's 20 percent. By 1980, however, the tide began to turn, and the UGT succeeded in electing close to 30 percent of its supporters, having made inroads into CCOO voting strongholds. The decision of a large number of USO affiliates to merge with the UGT also enhanced its strength. In 1982 the UGT managed to edge out the CCOO by a 36 percent to 33 percent margin, and in the succeeding election, held in October-December 1986, it gained a further 4 percentage points, garnering a total of 41 percent, while the CCOO advanced only slightly to 34 percent. The UGT's strength was concentrated in smaller enterprises, whereas the CCOO's popularity advanced in public-sector companies and in the banking sector. In the late 1980s, the CCOO dominated the works councils in all the leading companies of INI, except for the tobacco monopoly. The ELA-STV continued to maintain its position as the single largest labor organization in the Basque region, but it was closely followed by the UGT.

Not long after coming to power in late 1982, the Socialist government became increasingly embroiled in an acrimonious relationship with the equally socialist UGT. To advance its program for industrial restructuring and for the revitalization of the economy, in order to prepare for integration into the EC, the government considered it necessary to enforce wage restraint, to carry out large-scale personnel cutbacks in a number of public-sector companies, to limit social spending, and to permit employers greater latitude in hiring, firing, and laying off workers. In exchange for docility and low wages, workers during the Franco era received virtual lifetime job security, making it practically impossible for employers to engage in personnel retrenchment; however, a free-market economy, especially one linked to the EC, required the elimination of this rigid employment status--a goal toward which the Gonzalez government was gradually moving. Though such measures contributed to the economic boom of the late 1980s, they seriously undercut the standing of trade unions. Furthermore, labor militants were incensed to find that in 1987 company profits greatly increased-- an average of 40 percent--while the government continued to insist on wage restraint. The two-year Economic and Social Agreement, which covered wages and related matters and was signed by the government, employers, and workers, expired at the end of 1986. Thereafter, government efforts to persuade unions to accept a social compact failed because of union insistence on wage increases appreciably higher than those proposed by the government and because of union opposition to further personnel reductions in state enterprises that operated at a loss. The result was that union contract renewals in early 1987 led to a resurgence of labor disputes and to an increase in the number of work stoppages.

Trade unions entered the post-Franco era with great prestige and large memberships. According to the unions, their combined membership totalled 3 million workers. Since then, however, organized labor has steadily lost strength because of rising unemployment and limitations on wage increases. As a consequence, most workers professed sympathy and regard for the unions, but few bothered to pay dues. In the late 1980s, probably fewer than 15 percent of all workers possessed union cards. Nonetheless, a much larger proportion heeded union calls during negotiations for economic agreements and participated in strikes and other jobrelated actions.

Spain

Spain - AGRICULTURE

Viewed in terms of land mass, Spain is one of the largest countries of Western Europe, and it ranks second in terms of its elevation, after Switzerland. A large part of the country is semiarid, with temperatures that range from extremely cold in the winter to scorching in the summer. Rainfall, which is often inadequate, tends to be concentrated in two generally brief periods during the year. Summer droughts occur frequently. Of Spain's 50.5 million hectares of land, 20.6 million, or about 40 percent, are suitable for cultivation; however, the soil is generally of poor quality, and only about 10 percent of the land can be considered excellent. In addition, the roughness of the terrain has been an obstacle to agricultural mechanization and to other technological improvements. Furthermore, years of neglect have created a serious land erosion problem, most notably in the dry plains of Castilla-La Mancha.

Compared with other West European countries, the proportion of land devoted to agricultural purposes is low. In the 1980s, about 5 million hectares were devoted to permanent crops: orchards, olive groves, and vineyards. Another 5 million lay fallow each year because of inadequate rainfall. Permanent meadows and pastureland occupied 13.9 million hectares. Forests and scrub woodland accounted for 11.9 million hectares, and the balance was wasteland or was taken up by populated and industrial areas.

The primary forms of property holding in Spain have been large estates (latifundios) and tiny land plots (minifundios). In large measure, this was still true in the 1980s. The agrarian census of 1982 found that 50.9 percent of the country's farmland was held in properties of 200 or more hectares, although farms of this size made up only 1.1 percent of the country's 2.3 million farms. At the other end of the scale, the census showed that 61.8 percent of Spain's farms had fewer than 5 hectares of land. These farms accounted for 5.2 percent of the country's farmland. Furthermore, just under 25-percent of all farms consisted of less than 1 hectare of land, and they accounted for 0.5 percent of all farmland. Minifundios were particularly numerous in the north and the northwest. Latifundios were mainly concentrated in the south, in Castilla-La Mancha, Extremadura, Valencia, and Andalusia (Spanish, Andalucia).

Crop areas were farmed in two highly diverse manners. Areas relying on nonirrigated cultivation (secano), which made up 85 percent of the entire crop area, depended solely on rainfall as a source of water. They included the humid regions of the north and the northwest, as well as vast arid zones that had not been irrigated. The much more productive regions devoted to irrigated cultivation (regadio) accounted for 3 million hectares in 1986, and the government hoped that this area would eventually double, as it already had doubled since 1950. Particularly noteworthy was the development in Almeria--one of the most arid and desolate provinces of Spain--of winter crops of various fruits and vegetables for export to Europe.

Though only about 17 percent of Spain's cultivated land was irrigated, it was estimated to be the source of between 40 and 45 percent of the gross value of crop production and of 50 percent of the value of agricultural exports. More than half of the irrigated area was planted in corn, fruit trees, and vegetables. Other agricultural products that benefited from irrigation included grapes, cotton, sugar beets, potatoes, legumes, olive trees, strawberries, tomatoes, and fodder grasses. Depending on the nature of the crop, it was possible to harvest two successive crops in the same year on about 10 percent of the country's irrigated land.

Citrus fruits, vegetables, cereal grains, olive oil, and wine--Spain's traditional agricultural products--continued to be important in the 1980s. In 1983 they represented 12 percent, 12 percent, 8 percent, 6 percent, and 4 percent, respectively, of the country's agricultural production. Because of the changed diet of an increasingly affluent population, there was a notable increase in the consumption of livestock, poultry, and dairy products. Meat production for domestic consumption became the single most important agricultural activity, accounting for 30 percent of all farm-related production in 1983. Increased attention to livestock was the reason that Spain became a net importer of grains. Ideal growing conditions, combined with proximity to important north European markets, made citrus fruits Spain's leading export. Fresh vegetables and fruits produced through intensive irrigation farming also became important export commodities, as did sunflower seed oil that was produced to compete with the more expensive olive oils in oversupply throughout the Mediterranean countries of the EC.

Agricultural Development

Farming was only marginally affected by the Civil War, yet agricultural output during the 1940s remained below the 1933 level. This low agricultural productivity led to food rationing, substantially contributing to the great hardships endured by people residing in the cities. One of the main reasons for this dilemma was the government preoccupation with industrial selfsufficiency , which resulted in neglect for the modernization of agriculture. The government did encourage grain cultivation with the aim of achieving agricultural self-sufficiency, but heavyhanded efforts to control food prices led to the massive channeling of agricultural products into the black market.

The traditional shortcomings of Spanish agriculture-- excessive land fragmentation (minifundismo) and extremely large land tracts in the hands of a few (latifundismo)-- were, for all practical purposes, ignored. As in the past, latifundio areas with low yields and little irrigation were primarily devoted to the production of such traditional commodities as olive oil, grains, and wine. They were, moreover, the areas where casual rural laborers (braceros) were concentrated, where wage levels were lowest, and where illiteracy rates were highest.

A gradual change in Spanish agriculture began in the 1950s, when prices rapidly increased, and the surplus labor pool began to shrink, as a half million rural field hands migrated to the cities or went abroad in search of a better life. Nonetheless, more substantial changes did not take place prior to the 1960s. The Stabilization Plan of 1959 encouraged emigration from rural areas, and the economic boom in both Spain and Western Europe provided increased opportunities for employment. The subsequent loss of rural manpower had a farreaching effect on both agricultural prices and wage levels and, as a consequence, on the composition of Spanish agriculture.

Spain's economic transformation in the 1960s and in the first half of the 1970s caused tremendous outmigration from rural areas. Between 1960 and 1973, 1.8 million people migrated to urban areas. Even later, between 1976 and 1985, when the economy was experiencing serious difficulties, the fall in farm employment averaged 4 percent per annum. The results of these migrations were reflected in the changing percentage of the population involved in farming. In 1960, 42 percent of the population was engaged in agricultural work; by 1986 only about 15 percent was so employed--a marked reduction, though still twice as high as the EC average. As Spain became more industrialized, the declining share of agriculture in the economy was evidenced by its declining share of the GDP. Agriculture accounted for 23 percent of GDP in 1960; for 15 percent, in 1970; and for 5 percent, by 1986. In addition, the character of Spanish agriculture in the 1980s had changed. It had become less a way of life and more a way of making a living. Even subsistence agriculture, already in steady decline, had become increasingly market oriented.

The magnitude of the rural exodus permitted the government to undertake a program of parcel consolidation, that is, to bring together into single plots many tiny, scattered pieces of land that characterized the minifundio sector. The government managed to surpass its goal of consolidating 1 million hectares of small land holdings between 1964 and 1967; by 1981 it had brought together a total of 5 million hectares.

The decreased size of the rural work force affected Spanish agriculture because its traditionally labor-intensive practices required a large pool of cheap labor. The workers who remained in the countryside saw their wages advanced by 83.8 percent between 1960 and 1970--a rate that roughly followed the wage increases in industry. At the same time, however, increased agricultural labor costs led to the end of countless minifundios. The 1982 agrarian census recorded the disappearance of about one-half million small farms between 1962 and 1982. The resulting lack of a ready labor supply was an incentive, particularly for large landed estates, to mechanize. The number of farm tractors expanded more than tenfold between 1960 and 1983, from 52,000 to 593,000. The number of combine harvester-threshers increased almost tenfold over the same period, from 4,600 to 44,000. The process of mechanization caused agricultural productivity to grow by 3.5 percent per year between 1960 and 1978, and the productivity of farm workers grew even faster. Nonetheless, Spain's output per agricultural worker remained low. It was about half the EC average in 1985, and it surpassed only those of Greece and Portugal.

During the mid-1980s, Spanish agriculture was roughly selfsufficient in years when there were good harvests, and in nearly every year there were sizable surpluses of olive oil, citrus fruits, and wine that could be exported in quantities large enough to make it the EC's third-largest food supplier. In years of poor or average harvests, the country was obliged to import grains for use as animal fodder, but on the whole Spain was a net exporter of foodstuffs.

Spanish agriculture varied considerably with regard to regional differences in output. Some regions were distinguished by a highly inefficient variety of farming. Specialists estimated that areas dominated by minifundios would have to lose an estimated three-fourths of their farming population if they were to compete effectively with foreign producers. The variety of agriculture practiced along the Mediterranean coast or in the Rio Ebro Valley was, however, highly efficient and capable of keeping up with foreign competition.

Opinion was not united as to what EC membership would eventually mean for Spanish farmers. The EC's Common Agricultural Policy (CAP), which aimed at supporting most of each member state's farming sector, was expensive, and by the 1980s it was consuming well over half of the organization's revenues. If the CAP were continued, it would not be likely to have a considerable effect on Spanish agriculture, for a system of domestic price supports had long protected the weaker parts of the nation's farm sector. A change of EC policy that encouraged a single communitywide agricultural system might allow those parts of the Spanish agricultural sector that outperformed their rivals in the EC to prosper, while backward branches would probably disappear.

Regional Variation

Because the interior of Spain is dominated by semiarid plateaus and mountains subject to temperature extremes, the most productive agricultural areas in the late 1980s tend to be the coastal regions. Thus the north and the northwest, where there is a relatively mild, humid climate were the principal cornproducing and cattle-raising areas. Apples and pears were the main orchard crops in this area, and potatoes were another of its leading products.

Galicia, which consists of Spain's four westernmost provinces directly north of Portugal, had a concentrated farm population living on intensely fragmented plots. Accordingly, per capita farm income was low, compared with that of the northern provinces lying to the east, where there were fewer people and higher per capita income levels because of a more diversified economy that included industry, mining, and <>tourism.

Catalonia, on the northeast coast, also has a climate that permits diversified agriculture. At the end of the 1980s, livestock particularly the expanding poultry industry was important in the area. Modern farming methods, including the use of tractors, were more advanced here than they were in the rest of the country. South of Catalonia, along the narrow Mediterranean coast, or Levante, was Spain's principal area of intensive, irrigated horticulture. Orange trees, orchard fruits, rice, and vegetables were produced in this region, and farther to the south, fig trees and nut trees were grown.

Andalusia, which includes all of tillable southern Spain, was another major agricultural area in the late 1980s. It was also the target of several agricultural planning programs. Although olive trees grow throughout the Mediterranean coastal region, as well as in parts of the Meseta Central (Central Plateau), they constituted the most important crop in Andalusia, particularly in the province of Jaen. Other warm-weather crops, such as cotton, tobacco, and sugarcane, were also produced in Andalusia, as were wine and table grapes.

The vast dry plateau region of central Spain contrasted sharply with the country's relatively productive areas. The production of agricultural commodities was particularly difficult in central Spain because of a lack of rainfall, a scarcity of trees and other vegetation, extremes of temperature, and harsh, rocky soil. Nevertheless, the farmers of the region grew wheat and other grains, raised sheep and goats, maintained vineyards, and carried on other agricultural activities.

An important irrigation system lies just northwest of the northern Meseta and south of the Pyrenees in the Ebro Basin, where Spain's best known vineyard district is located in the autonomous community of La Rioja. Because of its irrigation, corn, sugar beets, and orchard fruits, were grown in this area, and the Ebro Delta was one of Spain's principal rice-growing regions.

In the Balearic Islands (Spanish, Islas Baleares), the uncertain, sparse rainfall and the lack of permanent fresh water streams were somewhat compensated for by good supplies of underground water. Irrigation permitted the production of a wide range of temperate and semitropical tree corps for export, as well as enough cereals, legumes, wines, and vegetables for local consumption. Sheep, goats, pigs, and poultry were also raised on the islands.

Agriculture in the Canary Islands (Spanish, Canarias) was limited by water shortages and mountainous terrain. Nevertheless, a variety of vegetable and fruit crops were produced for local consumption, and there was a significant and exportable surplus of tomatoes and bananas.

<>Crops
<>Livestock
<>Forestry
<>Fishing

Spain

Spain - Crops

Spain has long been Western Europe's leading producer, and the world's foremost exporter, of oranges and mandarins. In the early 1960s, the production of these commodities averaged 1.8 million tons a year, and by the 1980s the annual yield averaged about 3 million tons. Grapefruit, lemons, and limes were also grown in quantity, but Spain was second to Italy among West European producers of these fruits. Spain's citrus groves, all under irrigation, were concentrated in Mediterranean coastal provinces, the Levante, primarily in a narrow coastal strip 500 kilometers in length extending from the province of Castellon to the province of Almeria. Some citrus fruit production also was found in Andalusia.

Spain's other significant orchard crops were apples, bananas, pears, peaches, apricots, plums, cherries, figs, and nuts. Except for bananas, which were grown only in the Canary Islands, and figs, which were grown mostly in the Balearic Islands, orchard crops were produced primarily in the Levante and in Catalonia. The Catalan province of Lerida was the leading producer of apples and pears, and it ranked second to Murcia in the production of peaches. Almonds, grown along the southern and the eastern coasts, emerged as another important Spanish cash crop. Almost half of the 1985 crop was exported, approximately 70 to 75 percent of it to EC countries.

The principal vegetable crops were potatoes, tomatoes, onions, cabbages, peppers, and string beans. Spain was the leading producer of onions in Western Europe, and it was second only to Italy in the production of tomatoes. These crops were concentrated in Andalusia and in the intensively cultivated and largely irrigated Mediterranean coastal areas, where small garden plots known as huertas were common. The Canary Islands also produced a significant proportion of Spain's tomatoes. Potatoes were a prominent garden crop in the northwest.

Spain was the world's leading producer and exporter of olives and olive oil, although in some years Italy showed higher production levels because Spanish harvests were notably vulnerable to insects, frost, and storm damage. Andalusia, where about one-half of the olive groves were found, is generally free of these hazards, but olives were grown in virtually every province except the humid north and the northwest. In the 1980s, olive production fluctuated wildly, ranging from 1.2 million to 3.3 million tons per year. Olive oil production was also volatile. Spain's olive production is affected by EC quotas, and past efforts to control overproduction have included the destruction of olive groves.

Though Spain boasted the world's largest area of land devoted to vineyards, much of the wine it produced was of mediocre quality. Vineyards were usually located on poor land, and good wine-making technology was often lacking. In the past, government-guaranteed prices for wine tended to encourage quantity rather than quality and alcoholic content, but programs were instituted in the 1980s to upgrade production, and surpluses of poor quality white wine were more regularly distilled into industrial alcohol. Supported by the restructuring and reconversion program initiated by the government in 1984 and by an EC assistance program, Spain's vineyard acreage continued to decline, and it was expected to fall to 100,000 hectares by 1990. Spain's 1986 wine production was estimated at 36.7 million hectoliters.

Grains covered about 10 percent of Spain's cultivated lands, and about 10 percent of that area was irrigated. Wheat and barley were generally grown in the dry areas because corn tends to crowd such crops out of areas with more abundant rainfall or irrigation. Although most of the wheat was grown in dry upland areas, some of it also was grown on valuable irrigated land. Rice was dependent on plentiful water supplies and, accordingly, was produced in the irrigated areas of the Levante, in Andalusia, and at the mouth of the Rio Ebro. Spanish farmers also grew rye, oats, and sorghum.

During the mid-1980s, the grain crop usually hit record highs of about 20 million tons, compared to 13 million ton in 1983. This meant that Spain, long a grain-importing nation, now produced a surplus of cereals. Barley had come to account for about one-half of the grain harvest and corn for about one-sixth of it, as the government encouraged production of these crops in order to reduce imports of animal feed grains. Although the wheat crop was subject to wide fluctuations because of variable weather conditions, it generally provided about one-fourth of Spain's total grain production, which exceeded the country's needs. Rice and oats constituted the rest of the national total. Some rice and wheat were exported with the help of subsidies, and analysts expected the surplus of wheat and the deficit of corn to continue into the 1990s.

To make up for the shortage of domestic feed grains, Spain became one of the world's largest importers of soybeans, and it developed a modern oilseed-crushing industry of such high productivity that surplus soybean oil became one of Spain's most important agricultural export commodities. The government encouraged domestic production of soybeans to lessen the heavy dependence on soybean imports. To limit the impact of this production on the important, labor-intensive, olive oil industry, which provided work for many field hands in southern Spain, a domestic tax system was established that maintained a two-to-one olive oil-soybean oil price ratio. The revenues derived from this system subsidized large exports of surplus soybean oil. The United States, once the main source of soybean imports, lodged protests against this policy, both bilaterally and internationally, but with little effect as of 1988.

As a further step in reducing Spanish dependence on imported soybeans, the government encouraged sunflower production. Especially favorable growing conditions, coupled with generous government support, caused sunflower seed output to expand spectacularly, and the amount of land used for its cultivation went from virtually nothing in 1960 to approximately 1 million hectares in the 1980s. Sunflower-seed meal was not the most desirable livestock feed, and therefore was not used in this way, but by the 1980s most Spanish households used the cooking oil it provided because it was less expensive than olive oil.

About 8 percent of the cultivated land in Spain was devoted to legumes and to industrial crops. Edible legumes were grown in virtually every province; French beans and kidney beans predominated in the wetter regions; and chick peas (garbanzos) and lentils, in the arid regions. However, Spain was a net importer of legumes. Although consumption of these crops declined as the standard of living improved, domestic production also fell.

Sugar beets were Spain's most important industrial crop. Annual production in the mid-1980s averaged about 7 million tons. Cultivation was widely scattered, but the heaviest production was found in the Guadalquivir Basin, in the province of Leon, and around Valladolid. A small amount of sugarcane was grown in the Guadalquivir Basin. Sugar production, controlled to meet EC quotas, was usually sufficient to meet domestic needs.

Although small quantities of tobacco, cotton, flax, and hemp were also cultivated, they were not adequate to fulfil Spain's needs. But esparto grass, a native Mediterranean fiber used in making paper, rope, and basketry, grew abundantly in the southeastern part of the country.

Spain

Spain - Livestock

Spanish meat production in 1986 totalled 2,497,000 tons. The country's farmers produced 137,000 tons of lamb and mutton, 435,000 tons of beef and veal, 765,000 tons of poultry, and 1,160,000 tons of pork. With some fluctuations, these figures were representative of Spain's meat production during the 1980s. Spanish livestock industries had experienced significant growth and modernization since the 1950s, but their output remained well behind the levels of efficiency and productivity of EC countries. The EC states' generous subsidies and their experience in the use of expensive feed grains gave their livestock industries a decided competitive advantage. As the Spanish livestock sector was increasingly concentrated in northern Spain, where minifundio agriculture predominated, many Spanish cattleraising farms were too small fully to exploit the efficiencies of modern technology. Domestic meat production failed to meet demand, making Spain a net importer of farm animals and meat products.

Pork was Spain's most important meat product, and the number of pigs grew from 7.6 million in 1970 to 11.4 million in 1985. Pigs were raised unpenned in the central uplands, but they were generally pen-fed in the northern regions. At times African Swine Fever was a serious impediment to pork exports.

Poultry raising had also expanded rapidly, and the number of chickens had doubled between 1970 and 1985, when it reached 54 million. The emphasis was on poultry production for meat rather than for eggs, because poultry, previously a minor item in the Spanish diet, had become much more popular. The most important areas for poultry raising were in the maize-growing provinces of the north and the northwest, but Catalonia, Valencia, and Andalusia were also important.

The principal cattle areas were in the north, the northwest, and, to a lesser degree, in Extremadura, Andalusia, the Rio Duero Basin, and the Murcia-Valencia lowlands. These regions provided the suitable pastures that were available only in areas with humid climates or with irrigated land. In 1986 Spain had 5 million cattle, including 1.9 million dairy cows. About 25 percent of the cattle were raised as oxen for draft purposes, and about 2 percent were bred for the bullring. The ranches of Extremadura and Andalusia specialized in raising animals of bullring quality.

The dairy industry had grown rapidly. Milk production from cows, sheep, and goats, which had stood at 5.4 million tons in 1974, reached 6.4 million tons in 1986--well over double the production level of the early 1960s. The bulk of milk products came from Galicia, Asturias, and <"http://worldfacts.us/Spain-Santander.htm">Santander. In 1982 the government launched a program designed to modernize milk production, to improve its quality, and to concentrate it in the northern provinces. The dairy industry was not seriously hurt by Spain's entry into the EC, although the 3 percent quota reduction for each of the years 1987 and 1988 and the 5.5 percent voluntary cutback hampered development.

Spain's sheep population remained almost unchanged at about 17 million between 1970 and 1985. Sheep rearing predominated in central Spain and the Ebro Basin. Goats were kept in much the same area, but they were more prevalent in the higher, less grassy elevations because they can survive on poorer pasture. Merino sheep, the best known breed, were probably imported from North Africa, and they were well adapted to semiarid conditions. Merino sheep, noted for their fine wool, were widely used as stock for new breeds. Other prominent breeds were the churro and the manchegan. Although raised primarily for wool, milk, and cheese, Spanish farm animals, particularly sheep, were increasingly used to satisfy the country's meat consumption needs.

Spain

Spain - Forestry

Most of the natural forests of the Iberian Peninsula had long since disappeared because of erosion and uncontrolled harvesting for firewood, timber, or the creation of pastureland. In the 1980s, about 7 million hectares, or 14 percent of the land in Spain, could be considered usable forest, although another 3.5 million hectares of scrub growth were often included in forestland statistics.

A reforestation program had been under way in Spain since 1940. The aims of the program included meeting market demand for forest products, controlling erosion, and providing seasonal employment in rural areas. Eucalyptus trees, Lombardy poplars, and a variety of conifers were emphasized because of their fast growth.

Lumber output was approximately 12.3 million cubic meters in 1986, compared with 11.8 million cubic meters in 1985. Output could conceivably triple if 5.8 million hectares of the best forestland, which accounted for 50 percent of the total woodlands area, were properly developed and managed. Existing forestation programs were inadequate, however. For example, in the 1975-84 period, the balance between reforestation and the loss of forestland as a result of fires favored the latter by about 148,000 hectares. A report issued by the Forest Progress Association reported that, by the year 2000, Spain's wood deficit could reach between 8.5 and 16.9 million cubic meters.

The value of Spain's forest products in 1985 was US$302 million. Pine trees grown in the north and the northwest as well as oak and beech trees grown in the Pyrenees accounted for most of the total. Commercial forestry products produced in Spain included cork, turpentine, and resins.

Spain was the world's second largest producer of cork after Portugal. The best quality of cork, used for bottle stoppers, was grown in Catalonia. More plentiful lower grades, which went into linoleum, insulating materials, and other industrial products, came primarily from Andalusia and Extremadura. Cork production was declining, after reaching a high in the 1970s of 97,000 tons per year; only 46,000 tons were produced in 1985, as the widening use of plastics and other cork substitutes reduced demand.

Spain

Spain - Fishing

Spain was Western Europe's leading fishing nation, and it had the world's fourth largest fishing fleet. Spaniards ate more fish per capita than any other European people, except the Scandinavians. In the mid-1980s, Spain's fishing catch averaged about 1.3 million tons a year, and the fishing industry accounted for about 1 percent of GDP. Sardines, mussels, cephalopods, cod, mackerel, and tuna, most of which came from the Atlantic Ocean, were the principal components of the catch.Fishing was particularly important in the economic life of Galicia, the principal fishing ports of which were Vigo and La Coruna on the northwest coast. Also important were Huelva, Cadiz, and Algeciras in the south, and Las Palmas de Gran Canaria and Santa Cruz de Tenerife in the Canary Islands.

In the mid-1980s, the fishing fleet numbered between 13,800 and 17,500 vessels, most of which were old and small. Deep-sea vessels numbered about 2,000. Spain's 100,000 fishermen made up one-third of all EC manpower in the fishing sector, and a further 700,000 Spanish jobs depended on fishing. Prior to its admission into the EC, the undisciplined behavior of Spanish fishermen was a constant problem for the government and for other European countries. Spanish vessels were frequently charged with fishing violations in the Atlantic and the North Sea. Entry into the EC brought access to most of its waters, but it also meant catches would be sharply restricted until 1995.

Spain

Spain - INDUSTRY

Industrial Development

Spain's rapid industrial development dates from about 1960, but the underlying structure that made it possible resulted from a concerted effort by the government to reconstruct and to modernize the economy after the destruction caused by the Civil War. In the initial post-Civil War period of the early 1940s, the immediate need was for economic self-sufficiency because World War II had disrupted international trade patterns. After the war, most of the rest of Western Europe faced reconstruction problems, which left little surplus foreign capital for Spain. In addition, a political and economic boycott by the victorious Allies, the result of Franco's pro-Axis leanings, left Spain dependent on its own resources. The result was the slow, forced development of a diversified industrial sector, which would not have been economically justified if Spain had been able to trade freely with its neighbors. The high operating costs, the low rate of exports, and the inflation that consequently befell the Spanish economy made the 1940s a difficult period for the country.

In the 1950s, Spain, which had not been an original participant in the Marshall Plan, received considerable aid from the United States as part of a military basing agreement signed in 1953. Industrial development subsequently became more rapid, but it was still hampered by the country's continued isolation from the more quickly recovering economies of Western Europe. Inflation, fairly well under control in the rest of Europe, was rampant in the 1950s, and foreign exchange reserves declined because of Spain's continuing inability to export its products.

The turning point for the economy, particularly for its industrial sector, occurred in 1959, when a stabilization program went into effect. This program marked the end of Spain's economic isolation. Its outmoded system of multiple exchange rates was abandoned, and the peseta was devalued by 42.9 percent. Import duties and quotas were progressively lowered or removed, and exports were encouraged by subsidies, export credits, and other promotional efforts. The result of these initiatives was the structural transformation of Spanish industry during the 1960s. The manufacturing sector grew in real terms at an annual rate of 10.3 percent between 1958 and 1969. This growth was led by the motor vehicle and the chemical industries, both of which were stimulated by foreign capital and technology. The annual growth rates of these two key sectors were 24 and 14 percent, respectively. In the same period, labor productivity grew by nearly 8 percent per year.

Both domestic and export demand significantly contributed to the industrial growth of the 1960s and the early 1970s. The export of manufactures rose from 43.5 billion pesetas in 1960 to 191 billion pesetas in 1973, or from about 30 to 63 percent of the country's total manufacturing output.

The slowdown of the world economy caused by the increase in oil prices in the 1970s began to affect Spain in the second half of 1974. Unique among Spain's major industrial sectors, mining had been in trouble even before the price hike. It had continually experienced the slowest rate of growth during the period of expansion, and it reached its high point relatively early, in 1972. Construction was affected by the oil crises because of its relation to the booming tourist trade, which also suffered reverses in 1974. Within the manufacturing sector, textiles were particularly hard hit, and both the automobile and the shipbuilding industries faced reduced sales and cancellations. Rapidly rising unemployment and continuing inflation also indicated that the boom in Spain's industrial growth had stagnated.

The economic boom of the 1960s and the 1970s had left Spain with a large steel-producing capacity and had made it into one of the world's largest shipbuilding nations. By the mid-1970s, both of these industries experienced a production capacity glut as a result of sharply reduced global and domestic demand. Industrial retrenchment, however, was postponed during the 1970s. Sheltered to some degree from the first oil price shock by a cut in taxes on oil products--and cushioned by a high inflation rate, the persistence of negative interest rates, and protectionist tariff barriers--steel, shipbuilding, and other heavy industries continued their heavy investment in new capacity despite the downturn in world demand and the increasingly competitive international environment. Excess capacity in these industries coincided with rapidly rising labor costs and, as a consequence, with reduced competitiveness and profit margins.

One of the by-products of the country's economic difficulties was a sharp reduction in industrial employment. In addition, the 1980 recession finally forced the government to permit Spanish oil prices to rise toward world levels, while interest rates declined.

The first attempt at industrial restructuring was embodied in a 1981 law dealing with industrial reconversion. It proved difficult to implement, and a large part of the funds allocated for reconversion was siphoned off to cover losses among publicsector industrial companies. A more concerted attack was launched in 1983. The following year, a white paper on reindustrialization was issued, followed by a new law, the aims of which were to raise productivity and to restore industrial profitability by downsizing in order to restructure financial liabilities and to eliminate excess capacity and overmanning. To counterbalance these cutbacks, investment was directed toward new technologies for use in sectors that showed promise for greater growth and profit potential.

Development and expansion were encouraged in such industries as food processing, consumer electronics, defense systems, and other "growth" sectors. The industrial reconversion program was accompanied, however, by considerable worker discontent and by violent incidents. The initial financial costs of the program were high, but over time they were expected to yield considerable benefits.

By the mid-1980s, the economy had begun to emerge from a prolonged period of stagnation and crisis. The GDP commenced its expansionary growth, rising by 2.3 percent in 1984 and by a high of 4.7 percent in 1987. Meanwhile, industrial output had succeeded in shedding its sluggishness and had embarked on a vigorous cycle of growth. Industrial production grew by 0.9 percent in 1984, by 2.2 percent in 1985, by 3.5 percent in 1986, and by 4.7 percent in 1987. Observers projected that output would somewhat decrease in 1988 and in 1989, but that it would reach growth levels of 3.8 and 3.7 percent, respectively, in these years. Despite a modest decline in the mid-1980s, Spanish economic and industrial growth continued to be the strongest in Western Europe. Indicating an expanding economy, capital goods production increased by 9 percent in 1985, despite a previous decline in 1984. In the manufacturing sector, metal fabrication and the production of precision instruments increased from 1.8 percent in 1984 to 4.1 percent in 1985. Nevertheless, production increases in minerals and in chemicals were a minimal 0.2 percent in 1985, compared with 3.3 percent in 1984. Auto assembly output soared, but iron and steel production and shipbuilding experienced sharp declines. Traditional export-oriented activities, such as petroleum refining, and textile, shoe, and leather production were suffering from reduced competitiveness.

In what probably would turn out to be the peak of the economic boom, all major economic sectors posted healthy production gains in 1987. In the wake of renewed investment demand, construction grew by an estimated 10 percent, and overall industrial growth was 4.7 percent.

<>Regional Concentration
<>National Industrial Institute
<>Manufacturing
<>Mining

Spain

Spain - INDUSTRY - Regional Concentration

Spanish industry has long been concentrated in a few areas. Traditionally, the major industrial areas were in Barcelona and surrounding Catalonia, the northern region of Asturias and the Basque provinces, Madrid, and to a lesser extent the mineral-rich southwest.

Catalonia had a concentration of processing and engineering industries, rather than basic industries. It was the dominant area for food and textile industries, and it was a center for the production of electronics. Tarragona's industrial capacity, based on a large oil refinery and a petrochemical complex, was growing rapidly. Catalonia also had a highly developed machinery industry, including the country's largest automobile plant and extensive railroad foundries and workshops, as well as diesel, electrical engineering, and various industrial equipment plants.

The northern coast and the Basque region were centers of basic industry because of their coal and iron ore deposits and their port facilities, used for raw material imports. Spain's major iron and steel works were located in the northern region, as were a number of engineering industries, shipbuilding facilities, and chemical plants.

Madrid was a major manufacturing center, producing, among other items, automobiles, electrical equipment, and aircraft. Its location in the center of both Spain and the poorly endowed Meseta Central would seem to make it a poor prospect for industrial development; however, its large population, transportation facilities, and governmental role stimulated its evolution as an industrial center. By contrast, some of the country's industrially and agriculturally poorer provinces lay in a vast arc separating Madrid from the northern coast and the Catalan areas.

Spain

Spain - National Industrial Institute

Spain's industrial sector was marked by the presence of a major subsector controlled by the government. Some of this subsector was under the control of the Directorate General for State Assest (Direccion General del Patrimonio del Estado--DGPE). By far the largest component of the public sector, however, was contained within the National Industrial Institute (Instituto Nacional de Industria--INI), which, since 1968, had been under the supervision of the Ministry of Industry and Energy. The Franco regime adopted extremely protectionist policies early, and it opted for a high level of direct state intervention in the economy. When INI was founded in 1941, it was intended to create or to subsidize industries in key sectors of the economy where private enterprise alone was insufficient to achieve self-sufficiency. INI, which used both direct investments and collaboration with sources of private capital, studiously avoided any involvement in the banking sector; it especially favored industries related to national defense. INI was granted powers to take over existing enterprises and to create new ones when necessary.

Few of INI's original purposes were realized. With the signing of base agreements with the United States, the armed forces, beginning in 1953, became dependent on the United States for arms equipment. INI's efforts to fill gaps in the economy were not very effective. Instead of creating efficient new industries, it tended to establish inefficient ones and to hamper the activities of private enterprise. Political favorites of the regime were permitted to unload badly run, deficit-producing firms on INI, and many of its top positions were political sinecures.

Efforts were periodically undertaken to bring INI more into line with the rest of Spanish industry, and, as a result, a more realistic approach toward the financing of industrial companies was instituted. Government subsidies were permitted to cover the deficits of those INI firms that were considered to have incurred losses unavoidably. For example, the coal-mining conglomerate, Empresa Nacional Hulleras del Norte (HUNOSA), which was set up by INI in 1967 to reorganize the coal industry, was still losing money in the late 1980s. In general, however, firms were expected to become economically viable, although many did not.

A policy change took place in 1974, however. It was decided that INI, rather than remaining in the background of the industrial sector, was to serve as the linchpin of basic industries, such as ironmaking, steelmaking, and petrochemical production, and that it was to become the prime promoter of development in high technology areas, such as electronics and aircraft manufacture.

By the mid-1980s, the companies directly controlled by INI formed the single largest industrial group in the country, responsible for 10 percent of Spain's GDP and for the employment of 200,000 workers. INI directed more than 60 firms--sometimes having 100 percent ownership in them--as well as more than 100 of their subsidiaries. INI firms produced all of the country's aluminum; most of its ships; much of its steel, other metals, paper and pulp, and transportation equipment; and many of its commercial vehicles. It also controlled most of the country's two largest airlines: Iberia, Lineas Aereas de Espana; and Aviacion y Comercio (AVIACO).

A restructuring and investment program was launched in 1984 and 1985 to reduce INI's huge losses and to refocus industrial investment and expansion. The overhaul was prompted in part by a need to end INI's reliance on payments from the central government, which would no longer be permitted when Spain completed its transition into the EC. The program had some successes. In 1983 INI posted a record loss of 204 billion pesetas, but by the late 1980s the restructuring program had steadily reduced the shortfall. In its best performance since the late 1970s, the loss was cut to 45 billion pesetas (US$421 million) in 1987. INI's improved performance was partly the result of the 1985 sale of the auto assembly company, Sociedad Espanola de Automoviles de Turismo (SEAT), which had lost 37 billion pesetas that year. The INI concerns that registered profits were the national airline, Iberia, the electric power utilities, food processing plants, and enterprises producing electronics, aluminum, paper, and fertilizers. Among the leading contributors to the deficit were Construcciones Aeronauticas (CASA), Empresa Nacional de Santa Barbara de Industrias Militares (Santa Barbara), and the coal company, HUNOSA.

INI's losses had traditionally been the largest in the "rust belt" industries--steelmaking, shipbuilding, and mining. In each of these areas, the restructuring program downgraded INI's large holdings through personnel cutbacks and the closing down of some old, inefficient plants, production yards, and mines. Investments were undertaken to upgrade industrial facilities, such as those used in a new continuous casting plant scheduled to begin operations by mid-1989. The large steel company, Empresa Nacional Siderurgica (ENSIDESA), was expected to reach the financial break-even point by the end of 1988. In addition, the shipbuilding industry gradually was beginning to reemerge from its protracted slump.

Although INI intended to liberate itself from much of its customary heavy reliance on government subsidies, massive government support would continue to sustain the ailing shipyard and coal-mining industries. Government allocations in 1987 amounted to 150 billion pesetas (US$1.4 billion). Aid to government-supported firms was designed to keep them operating in order to maintain employment.

Of particular note in INI's renovation was its partial privatization. In the mid-1980s, INI sold a 51 percent interest in SEAT to Volkswagen (SEAT lost US $231 million in 1984). Minority interests, ranging from 25 to 45 percent, were being sold in the more profitable public-sector companies through public stock offerings. Shares in two electric power companies and a pulp-paper firm were offered, and observers expected that shares in Iberia and in two electric power companies would be offered in 1989. INI spokesmen, however, were quick to point out that such developments should not be interpreted as an ideological or policy-oriented commitment to privatization. They were conceived of as part of an effort to improve management of public-sector companies and to use private-sector resources to invest in modernization and expansion. The funds gained from the sale of stock in INI companies were to be used for strengthening them financially, for expanding existing programs, and for embarking on new investment strategies.

Another part of INI's restructuring strategy called for a major expansion of research and development. In the late 1980s, 1.6 percent of INI's revenues went to research and development, which was well above the overall Spanish corporate average of 0.5 percent, but far below that of foreign technologically oriented companies. The goal was to bring research and development expenditures up to 3 percent of INI's income by 1992. The plan also emphasized training and retraining for both white-collar and blue-collar workers.

Spain

Spain - Manufacturing

Iron and Steel

Spain's steel industry was located in the north at Vizcaya, Cantabria, and Asturias, and in the south at Sagunto, near Valencia. Though the steel industry had had an important presence in Spain since the second half of the nineteenth century, it had expanded greatly during the boom years of the 1960s and the early 1970s. Production had gone from 1.9 million tons in 1960 to 11.1 million tons in 1975, making the country the fifth largest steel producer in Europe and the thirteenth largest in the world. By the late 1970s, however, a worldwide glut in steelmaking capacity and the domestic economic slump had led to a severe crisis in the industry. Thereafter, the Spanish steel industry experienced an extensive contraction, not only in production capacity, but also in the size of its labor force.

Despite a 50 percent drop in domestic steel consumption, production remained at about 13 million tons per year during the early 1980s, and it reached a high of 14 million tons in 1985. High production levels were maintained through extensive exports; the two largest steel producers, the state firm ENSIDESA, and the Basque company, Altos Hornos de Vizcaya, were among the nation's most important exporters after the large automobile companies. Both of these companies and most other steel companies operated with heavy losses, however.

Membership in the EC and in the European Coal and Steel Community (ECSC) committed Spain to cutting back its iron and steel output and to reducing its overall capacity. Steel output declined almost 16 percent in 1986, to 11.8 million tons, and it fell to a slightly lower level in 1987. The government's efforts at restructuring the steel industry continued during the later 1980s with the creation of Acenor, which consolidated the producers of special grades of steel and became Western Europe's sixth largest firm of this kind. The large blast furnaces at Sagunta were shut down, and the government, which already controlled ENSIDESA and Altos Hornos del Mediterraneo, both INI firms, took a 40 percent interest in Altos Hornos de Vizcaya.

Automobile Assembly

The greatest success story of Spain's economic expansion was the rise of its large motor vehicle assembly industry. Although it started up only in 1950, by the early 1970s it had become the country's second most important industry in the manufacturing sector, and in the mid-1980s it was the most important producer of exports. Automobile production reached 38,000 units in 1960 and increased sixfold between 1965 and 1976. By the 1980s, Spain manufactured an average of well over a million cars per year, and in 1987 it produced 1.4 million vehicles. A good part of this production was exported. In 1985, for example, about 800,000 vehicles, out of a total of 1.2 million, went abroad. By 1986 Spain's three largest exporters were Ford Espana, General Motors Espana, and SEAT. In addition to the manufacture of personal automobiles, Spain produced substantial numbers of commercial vehicles. In the mid-1980s, commercial vehicle production ranged from 130,000 to 300,000 units per year, and annual tractor production levels stood at about 16,000 units.

Spain's motor vehicle industry was located in many parts of the country. SEAT began its operations in Barcelona, while General Motors Espana was located in the Zaragoza and Cadiz areas, Ford Espana was near Valencia, and a number of companies were placed around Madrid.

Subsidiaries of foreign firms dominated the automobile industry. In 1986, Fabricacion de Automoviles, SA (FASA Renault), with about 20,000 employees, was Spain's largest automotive company, as measured by revenues. SEAT--at one time a Spanish firm, but, since the mid-1980s, owned by Volkswagen--ranked second, followed by Ford Espana, General Motors Espana, and Citr�en Hispania. During the late 1970s and the early 1980s, both Ford and General Motors became major domestic automobile manufacturers. Other foreign firms involved in the motor vehicle industry included Peugeot, Mercedes Benz, Land Rover, and Japanese firms such as Nissan, Suzuki, and Yamaha.

In the late 1980s, Japanese investors sought to use Spain as a bridgehead to penetrate the West European market and to follow the example of Ford Espana and General Motors Espana, which exported about 75 percent of their output. Not all firms worked from this premise, however. Renault and Peugeot-Talbot began operations with the intention of catering to a highly protected Spanish home market.

The reviving economy of the second half of the 1980s was reflected by a strong growth in domestic demand, including that for consumer durables. Sales of new cars rose from 629,000 units in 1985 to 860,875 in 1987, an increase of about 37 percent. In accordance with the EC accession agreement, automobile imports were entering Spain in increasing numbers, and they were securing a large share of the market. In 1987, approximately 211,000 foreign-made cars were sold in Spain, an increase of 101 percent over 1986; imported automobiles increased their market share from 16 percent in 1986 to 25 percent in 1987.

Despite this increase in the sale of foreign cars, Spain's motor vehicle industry remained strong. Investments had been made in industrial robots in order to enhance productivity, and in the late 1980s labor costs were highly competitive with those of foreign producers. In late 1988, the Economist reported that a Spanish auto worker earned about half as much as his West German counterpart. Observers regarded Spain as well positioned to emerge as the EC's market leader in small car production.

Shipbuilding

During the economic expansion of the 1960s and the early 1970s, Spain became one of the world's leaders in shipbuilding, ranking third in 1974. Its shipbuilding industry was one of the few major industries in the country that made no use of foreign capital. Shipbuilding, both in Spain and among other shipbuilding nations, was however, one of the main casualties of the post-1974 energy crisis; following a sharp drop in orders in the late 1970s, the shipbuilding sector was in serious difficulty. Among Spain's leading industries, it was one of those most affected by production cutbacks, closings, and reductions in personnel. The number of shipbuilding yards able to build steel-hulled vessels declined from forty-three in 1975 to thirty, ten years later.

In the mid-1980s, more than half Spain's shipbuilding capacity was located in Cadiz; other major shipyards in the south were at Seville (Spanish, Sevilla) and Cartagena. In the north, important shipyards were located at El Ferrol del Caudillo and in the province of Vizcaya. The shipbuilding industry was dominated by two state-owned firms, both belonging to the INI group, and in 1986 each had about 12,000 employees. One company, Empresa Nacional Bazan de Construcciones Navales Militares (generally referred to as Bazan), constructed military vessels. The other, Astilleros Espanoles, SA (AESA), constructed civilian ships. The next three largest firms employed a total of 4,000 persons.

After years of decline and heavy losses, in 1987 the Spanish shipbuilding industry turned the corner, showing strong gains in the construction of vessels from small- to medium-size. In 1987 deliveries totaled 340,000 compensated gross registered tons, 90,000 tons more than in 1985 or 1986. Solid increases in foreign orders were exceeded by domestic demand. Rigorous restructuring measures undertaken in the 1980s were believed to have prepared the industry for the upsurge in orders on the world market that was expected in the early 1990s.

Chemical Industry

Since the 1970s, the chemical industry had been one of Spain's largest, and it continued to grow in the 1980s. By the mid-1980s, it accounted for about 7 percent of the Spanish work force and 8 percent of the country's total industrial production. With its share of exports at about 10 percent of the national total, it was the third-largest export industry. In 1985 chemical exports stood at US$1.8 billion, increasing by a further 16 percent in 1986. The Spanish chemical industry had received a substantial amount of foreign investment capital and new technology, and in 1987 about 30 percent of its output came from foreign-owned companies. Although many of it's raw materials, including those for petrochemical production, had to be imported, the industry benefited from Spain's deposits of pyrites, potash, and mercury. The largest components of the chemical industry were those producing plastics, petrochemicals, pharmaceuticals, rubber manufactures, fertilizers, paints, and dyes. All of these areas registered substantial gains in the 1980s.

As part of its policy of merging Spanish firms into larger entities better able to compete with foreign companies, the government prodded the country's largest chemical firm, Rio Tinto Explosives, to merge with the second-largest such enterprise, Cros, in 1988. By the time the merger occurred, sizable portions of both companies were controlled by the Kuwait Investment Office (KIO), which managed both public and private Kuwaiti funds. The fertilizer interests of the two companies were combined to form a new company, Fosforico Espanol, and Rio Tinto ceded its considerable defense interests.

Textiles and Footwear

Since the early nineteenth century, the Spanish textile industry has been concentrated in Catalonia. Though an established industry, it lacked the dynamism of many of the newer industries and had the least impressive growth rate among Spain's manufacturing industries. It was an industry that suffered from excessive fragmentation, and, although its operations were export-based, it depended on a protected domestic market. Spain's entry into the EC removed tariff barriers to textile imports, and the industry generally found itself in difficulty. Foreign investors showed little interest in the Spanish textile industry, and in the late 1980s it was being subjected to extensive industrial modernization for greater efficiency.

The Spanish shoe-manufacturing industry was concentrated chiefly in the Valencia area and in the Balearic Islands. According to a Spanish government study, 90 percent of the country's 2,100 shoe factories had fewer than 50 employees, and a large part of the industry operated in the underground economy.

Spain

Spain - Mining

Though Spain's mining sector, including the coal-mining industry, employed only 80,000 persons and was responsible for only about 1 percent of the country's GDP in the late 1980s, Spain was an important producer of minerals. It was one of the world's leading producers of slate and strontium. It ranked second in the production of granite and marble; third, in pyrites and natural sodium sulfate; sixth, in fluorspar; seventh, in kyanite and other refractory minerals; eighth, in magnesite and potash; ninth, in tantalite; and tenth, in anthracite, asphalt, and bentonite.

Spanish mineral production was of particular significance to the EC because Spain was its sole producer of mercury, natural sodium sulfate, and tantalite. Moreover, Spain mined approximately 9 percent of all EC copper, 86 percent of its antimony, 65 percent of its gold and pyrite, 47 percent of its silver, 41 percent of its lead and magnesite, 38 percent of its iron ore and tungsten, and 28 percent of its fluorspar and zinc. In addition to mining, Spain was an important processor of raw minerals, both those produced domestically and those imported from abroad. Although Spain was the most self-sufficient member of the EC with regard to minerals, imports were needed to meet about 30 percent of its needs.

In the mid-1980s, Spain's mining industry suffered from the depressed state of the world minerals market, and the production of most substances had declined. The drop in the value of the dollar, the dominant currency in the mineral trade, further reduced the sector's profits, which had already been damaged by declining sales. Spanish production of copper, tin, and wolfram all declined by more than 75 percent in 1987. The production of iron, pyrites, and fluorspar also dropped significantly in the same year. Zinc, potassium salts, uranium, and lead production remained steady during this period, however.

Spain

Spain - ENERGY

Spain is poor in energy resources, with the exception of coal. Rapid industrial growth has intensified the problems caused by insufficient oil reserves, dwindling supplies of easily accessible high-quality coal, and inadequate water for power generation. Until the early 1980s, Spain increasingly depended upon imported petroleum, and overall energy consumption continued to grow in the 1973-79 period. Following adjustment to a slower rate of economic growth and to the changed energy market of the 1970s, Spanish energy consumption declined in the early 1980s.

The National Energy Plan (Plan Energetico Nacional--PEN), the basic statement of official energy policy, was first formulated in 1978. Revised in 1983 to cover the 1984-93 period, the new PEN aimed at a rationalization of energy consumption and a reduction in Spain's dependence on imported energy. It pressed, in addition, for a reorganization of the oil industry and for a financial reorganization of the electricity industry. In contrast to the 1978-87 plan, it reduced the role of nuclear energy.

Petroleum

Although oil continued to be Spain's major source of energy, it had diminished in importance significantly since 1973. Oil consumption grew steadily between 1973 and 1979, reaching 50 million tons in that last year, but by 1985 it had declined to 39 million tons. Oil accounted for two-thirds of the country's primary energy requirements throughout the 1970s, but by the mid1980s the figure had dropped to just over half. In 1985 alone, Spanish industry saved 40 billion pesetas (US$260 million) by replacing 500,00 tons of oil consumption with coal and natural gas.

In 1985 Mexico, responsible for 19.7 percent of Spain's petroleum imports, was the largest single supplier of Spain's energy needs, and in the mid-1980s Latin American countries provided Spain with about one-quarter of its imported oil. Africa's share--Nigeria being the most important supplier-- dropped from 36.5 percent in 1985 to 29.3 percent in 1987. Middle Eastern countries provided 27.4 percent in 1985 and 29.6 percent in 1987. Western Europe's share rose from 10.6 percent in 1985 to 16.5 percent in 1987. Efforts were under way to lessen Spain's dependence on Middle Eastern oil and to increase imports from Mexico.

In the 1980s, imported petroleum entered Spain via eight ports. The three largest, in terms of vessel capacity, were Algeciras (330,000 deadweight tons), Malaga (330,000 tons), and Cartagena (260,000 tons).

Spain possessed a small domestic oil production capability that yielded only 1.6 million tons in 1987. Despite a sizable exploration effort, only a few small fields and two medium-sized ones were discovered. The Casablanca oil field, discovered in 1983, yielded 90 percent of Spain's domestic oil production in 1987, but it was not large enough to offset an overall decline in Spanish production. The fall in oil prices in the 1980s further reduced the country's exploration efforts.

The Spanish oil industry imported and refined foreign crude petroleum; it distributed petrochemical products within Spain; and, in the mid-1980s, it exported about 10 million tons of finished petroleum products per year.

As with some other sectors of the Spanish economy, the domestic oil industry had been brought under state control. Distribution of petroleum products had been in the hands of the state monopoly, Compania Arrendataria del Monopolio de Petroleos (CAMPSA), since 1927, and large portions of the shipping and refining system were state owned. To rationalize the petroleum industry and to make it able to withstand foreign competition, the National Institute for Hydrocarbons (Instituto Nacional de Hidrocarburos--INH) was formed in 1981 in order to direct CAMPSA and those parts of the oil, gas, and petrochemical industry supervised by INI. By the mid-1980s, INH was responsible for more than 1 percent of the Spanish GDP, and it claimed 20,000 employees. To prepare for Spain's entry into the EC, after which state monopolies were required to be phased out, all of INH's holdings, with the exception of the state gas company, Empresa Nacional del Gas (ENAGAS), were placed under a new holding company in the late 1980s. The company, Repsol, which had a stock market listing, was gradually to allow a greater role for private capital in the petroleum industry. By 1988 Repsol had become Western Europe's seventh largest petroleum company, and its management planned to continue to control about half of the Spanish market once that market was fully opened to foreign firms in 1992. EC membership rendered CAMPSA's future uncertain, for it would no longer be allowed its distribution monopoly. The Treaty of Accession that brought Spain into the EC stipulated that specific amounts of nine groups of petroleum products from foreign suppliers would have access to the Spanish market. In 1986 these products were to have a 5 percent share of the domestic market--a share that was to increase by 20 percent (of this 5 percent) each year thereafter.

Coal

Spain's coal reserves are found primarily in Asturias, with smaller deposits located near southwestern Seville, Cordoba, and Badajoz, and in northeastern Catalonia and Aragon (Spanish, Aragon). Most of the country's lignite is located in Galicia. Domestic coal is generally of poor quality, and, because of the structure of Spanish deposits, it is more expensive than imported coal. In 1967 HUNOSA, a state holding company under the control of INI, was founded to direct most of Spain's coal mining, and it gradually took over the larger coal companies.

Higher oil prices have spurred domestic coal production. Annual production in the early 1970s amounted to about 10 million tons of coal and 3 million tons of lignite. By the mid-1980s, the industry produced 15 million tons of coal and 23 million tons of lignite annually. This higher rate of production was insufficient to meet domestic needs because coal had come to supply about 25 percent of Spain's needed energy, compared with about 16 percent in the early 1970s. About 5 million tons of foreign coal were imported per annum.

Over the years, there had been little change in patterns of coal consumption. Hard coal, used mainly for the generation of electricity, accounted for 65 percent of total demand. The steel and cement industries were the two next-largest consumers.

In line with the energy rationalization policies set by PEN, the government sought to increase the efficiency of the coalmining sector by closing down high-cost mines and by providing financial aid for the industry's modernization. To encourage the cement and other industries to convert from oil to coal, the government allowed them to import duty-free coal. The government also made efforts to substitute the use of oil for coal in urban areas.

Natural Gas

In order to reduce Spain's dependence on imported oil, PEN encouraged natural gas consumption. Efforts to redirect the use of fuels were successful, and in the 1980s the consumption of natural gas increased faster than that of any other fuel. Total natural gas demand doubled between 1973 and 1984, and in 1987 it accounted for 3.85 percent of all energy consumption. Energy planners hoped to increase this share to 7 percent by 1992.

Domestic production of natural gas began in 1984 with the development of the Serrablo field; two years later the Gaviota field went into operation. In 1987 domestic production supplied about one-sixth of Spain's natural gas consumption, and observers anticipated that its share might rise to as much as one-third by 1990. Domestic production shortfalls were taken up by imports from Algeria and Libya under long-term contracts. In 1988 it was agreed that Spain's gradually expanding gas pipeline network would be connected to the European network, and Norwegian gas was scheduled to begin arriving in Spain in 1992.

Electricity

Although Spain's mountainous terrain would appear to be wellsuited to hydroelectric power production, the scarcity of water limited such potential and was the principal reason for Spain's heavy dependence on thermal power. In 1986 only 27.2 percent of the country's electricity came from hydroelectric plants, while 50.6 percent came from conventional thermal plants, and 22.2 percent came from nuclear plants. The most important fuel for the production of electricity was coal, which generated about 40 percent of the total. In 1987 the production of electricity amounted to 132,000 million kilowatt hours--about six times the amount produced in 1960 and twice the production level of 1970. The total installed capacity of the predominantly privately owned electrical system was about 40 gigawatts--an amount large enough to meet the country's needs and to allow some exports. In the second half of the 1980s, the growth of the demand for electrical power was less than anticipated, and Spain had a supply adequate to last until the mid-1990s. The Spanish level of per capita electrical power consumption was among the lowest in Western Europe, surpassing only those of Greece and Portugal.

A key element in the future of Spain's electrical power industry was the role to be assigned to nuclear power. Nuclear power was an important factor because of scarce petroleum reserves, the limited potential for hydroelectric power production, and the presence of significant uranium deposits. The first PEN, drawn up in 1978, emphasized the role that nuclear power would play in meeting the nation's ever-increasing need for electricity. The revised PEN of 1984 postponed the opening of the Lemoniz Nuclear Power Plant for political reasons, and it continued the mothballing of three other nuclear plants. The government decided, nonetheless, that if the demand for electricity increased by more than 3 percent, work on one of the plants might be restarted. The new PEN also emphasized the benefits of increased natural gas consumption.

Spain

Spain - Banking

By the late 1980s, the Spanish banking system had been undergoing sweeping changes for some time. Its structure was largely a throwback to the post-Civil War period of the Franco era, when Spanish private banks played a leading role in financing the development of industry. As financial backers of the Nationalist cause, they had won Franco's confidence and gratitude, and they were given a relatively free hand during the reconstruction period. With the adoption of an economic policy that emphasized self-sufficiency and barred foreign investment capital and banking competition, their role was strengthened. It has been estimated that, by 1965, the five leading private banks controlled over 50 percent of Spain's capital. Their influence extended not only to the private sector, but also to such autonomous institutions as INI and the state railroads. Subsequently, as industry grew stronger, many of the banks' equity holdings were sold to the public through stock exchanges. The banks, however, continued to play a vital role in providing new funds for industry.

Supervision of all Spanish financial institutions rested with the Ministry of Economy, Finance, and Commerce. Subordinate to this ministry, and responsible for overseeing the country's banking system, was the country's central bank, the Bank of Spain. Formed in 1847, and granted the sole right to issue currency in 1874, the bank was nationalized by the Bank Reform Law of 1962. In addition to supervising the rest of the banking system and setting reserve requirements, it carried out the government's monetary policy through open market operations, and it oversaw foreign exchange along with the Directorate General for Foreign Transactions. In 1977 the Bank of Spain had helped set up the Deposit Guarantee Fund, which protected deposits in troubled banking institutions.

Of the three main groups of banks in the Spanish banking system--private banks, savings banks, and official credit institutions--private banks were the most important. In 1962 private banks were divided into commercial banks and industrial banks. The latter had the right to invest a higher proportion of their resources in equity holdings than the former, and they specialized in industrial investments. Commercial banks, which were larger and more numerous, served the general public; they were the principal source of short-term credit for the private sector, though they also competed for long-term loans. By the late 1980s, the distinction between the two kinds of banks had lost much of its meaning, for each had gradually been allowed to operate in the other's area of specialization.

Although in the second half of the 1980s Spain had about 100 private banks--a quarter of which were industrial banks--the field had long been dominated the Big Seven, seven large commercial institutions: Banco Espanol de Credito or, as it was more commonly known, Banesto; Banco Central; Banco de Bilbao; Banco Popular Espanol; Banco de Santander; Banco de Vizcaya; and Banco Hispano Americano. By the 1980s, these banks had direct or indirect control of approximately 80 percent of the country's banking resources.

The leading banks controlled huge industrial portfolios, by far the largest in Spain. The market value of these holdings was not known, but analysts estimated that Banesto possessed about US$3 billion, and Banco Central, about US$1 billion. These large Spanish banks were present in virtually every area of finance. Beyond their industrial holdings, they also possessed extensive retail networks. Because Spain did not have an adequate pension fund system, many Spaniards invested their savings in order to provide for their retirement. Consequently, there were 5 million retail investors among Spain's 39 million people, the highest proportion in Europe.

Banking can be said to be the last redoubt of Francoist economic autarchy. Banks had grown during the Franco period by borrowing cheaply from their customers and then selling their services at huge margins. During the late 1970s and the early 1980s, when a number of banks found themselves in serious difficulties, the government, for the first time, permitted their purchase by foreign banks. When it became clear that the more sophisticated foreign banks were rapidly making inroads into the traditional preserves of the large Spanish banks, however, the government closed the door to their further influx. Foreign banks were no longer to be allowed entry into Spain before the 1992 deadline set by the EC integration agreement, so that the Spanish banking system would have the maximum amount of time to modernize.

By the second half of the 1980s, Spanish banks were still not internationally competitive. The banks tended to be greatly overstaffed, and they possessed far too many branches, compared with their West European counterparts. Only in Belgium were there more branches per capita. In addition, the inadequate investments of Spanish banks were compensated for financially by the overpricing of services for bank clienteles. An EC report of the late 1980s indicated that, in order for the costs of financial services in member states to be harmonized, those of the Spanish banking system would have to be cut by 34 percent. In comparison, those of French banks would have to be reduced by 24 percent, and those of British banks, by 13 percent.

The pressure to revamp Spain's banking industry was, therefore, very great. Mergers were undertaken with the government's encouragement in order to create large Spanish financial holdings that could adequately compete with their European rivals. Although an attempted merger of the Banco de Bilbao and Banesto fell through in 1987, in early 1988 a successful union took place between the Banco de Bilbao and the Banco de Vizcaya. This merger resulted in the creation of Western Europe's thirty-second largest financial institution, the Banco Bilbao-Vizcaya. In 1988 the planned merger of the two largest private banks, Banco Central and Banesto, fell through, but analysts expected that, before 1992, the Big Six of the Spanish banking industry might, through various mergers, become the Big Three or the Big Four.

The second major group in the banking system consisted of savings banks, which predominated in rural areas that could not attract branches of the leading private banks. These banks did not come under the control of the Bank of Spain until 1971, having previously had their own official governing body, the Credit Institute for Savings Banks. Heretofore, they had generally accounted for about one-quarter of total lending in the private sector. Since the late 1970s, savings banks have raised their share of total national deposits from 34 percent to 45 percent--a feat that was accomplished despite severe restrictions. In the mid-1980s, these restrictions were gradually being relaxed. For example, barriers that limited their operations to specific areas or regions were lifted in June 1988, and by 1992 they were to be free to open up branches anywhere in the country. In terms of deposits, the Barcelona-based Caja de Pensiones para la Vejez y de Ahorros de Cataluna y Baleares, popularly known as La Caixa, was the country's largest savings bank. Another large savings bank was La Caja de Madrid. After the relevant restrictions were lifted, a large-scale merger process commenced among savings banks. This trend appeared likely to become a substantial factor in the country's savings banks' operations.

Legally, savings banks were nonprofit institutions, but in reality they were quite profitable; in 1987, for example, they were more profitable than rival commercial banks. One reason for this was that savings banks were self-financed foundations without stockholders. The seventy-seven savings banks operating in the late 1980s lent mostly to families and to small and medium-sized businesses.

The third leg of the Spanish banking industry consisted of official credit institutions, each with a specialized sphere of influence. These credit institutions were under the control of the Directorate General for State Assets (Direccion General del Patrimonio del Estado--DGPE), and they were supervised by the Official Credit Institute (Instituto de Credito Oficial--ICO), which received funds from the state that were then lent to the credit institutions. The largest of these was the Industrial Credit Bank (Banco de Credito Industrial), which specialized in general industrial loans. The Mortgage Bank of Spain (Banco Hipotecario de Espana) provided mortgage loans for urban and rural properties. The Agricultural Credit Bank (Banco de Credito Agricola) provided credit for agriculture and related sectors. Provincial and municipal administrative bodies were served by the Local Credit Bank (Banco de Credito Local).

Also under the ICO, but only partially so, was the Overseas Trade Bank (Banco Exterior de Espana), which had been founded in 1923 to promote exports. More than half the bank's capital was in private hands. In addition to its participation in foreign trade, it competed with domestic commercial banks and ranked just below the former Big Seven in terms of its size. Like the official credit institutes, the Overseas Trade Bank was among those bodies belonging to the DGPE.

Analysts expected the increasing financial liberalization of the Spanish banking system to affect the status and the functions of the country's public banks. The freeing of funds tied up in government-required investments would eliminate the "privileged circuits" through which funds at low interest rates were normally channeled into such investments. In mid-1988 legislation was being prepared that would redefine the role of publicly owned banks by converting them into subsidiaries of the ICO and by forcing them to finance themselves at market rates. To assist them in adapting to these new circumstances, a period of gradual adjustment lasting as long as fifteen years was being considered, during which they could continue to depend on financing from the Ministry of Economy, Finance, and Commerce.

Spain

Spain - Tourism

Although historical sites and unique cultural features had always made Spain attractive to foreign visitors, the tourist boom that began in the mid-1950s was based primarily on the recreational assets of the Mediterranean seashore areas. The country had fewer than 1 million tourists in 1950, but the number rose steadily, reaching more than 34 million in 1973 and 50.5 million in 1987.

The tourist boom had a significant, and not wholly beneficial, impact on the Spanish economy. Though it was a welcome source of foreign exchange and created new employment opportunities, it also diverted capital investment and construction efforts away from more stable economic activities to a sector subject to seasonal fluctuations, the whims of fashion, and worldwide economic conditions.

Nonetheless, the importance of tourism to the Spanish economy was substantial. Net tourist receipts averaged about 5 percent of GDP in the early 1970s, but in 1987 that figure rose to almost 10 percent, as receipts rose to US$14.7 billion--more than enough to cover the country's merchandise trade deficit. On a net basis, Spain's tourist revenues were the highest in the world. The United States had higher gross revenues, but its tourist expenditures exceeded revenues by a considerable margin.

Spain's 50.5 million foreign visitors in 1987 constituted 12 percent more than had come in 1986. Most of them came from the EC, with France, Portugal, Britain, and West Germany leading the way. American tourists accounted for less than 2 percent of the total, but they spent more per person than their European counterparts making the United States the second source of tourist receipts after Britain. Tourism was projected to remain strong in 1988, with a 5 percent increase in visitors. Tourist sector spokespersons were more concerned about raising tourist spending, however, than with increasing the number of visitors. The average expenditure per foreign visitor increased only 2.4 percent in 1987.

The most popular resort areas were the Balearic Islands and the Mediterranean coastal areas. The Balearic Islands generally accounted for about 34 percent of the number of nights foreign tourists spent in Spain; the Costa Brava and the Costa Dorada, stretching from the French border through Barcelona to Tarragona, accounted for 22 percent; and the Costa del Sol and Costa de la Luz, extending from Almeria on the southern--or Mediterranean-- coast to Ayamonte on the Atlantic coast at the Portuguese border, accounted for 12 percent. The distant Canary Islands attracted 13 percent of Spain's foreign guests, and land-locked Madrid was host to 8 percent. Cultural festivals were instituted in Santander and Madrid in an effort to increase the attractiveness of these cities. The seaside resorts continued to dominate the tourist industry, however, despite considerable government effort to stimulate interest in visiting historical and cultural sites.

Although areas on the northern coast facing the Bay of Biscay were accessible to the rest of Europe and had good weather in the summer, when most Europeans and Americans took their vacations, their share of the tourist trade was only about 3 percent. San Sebastian was the center of the tourist industry on the Bay of Biscay, and nearby towns were also popular, but their allure was limited by tourist apprehensions over continuing political turbulence and violence in the Basque region.

Tourist centers farther to the west, on the Cantabrian coast and in Galicia, were not so commercially developed as the better known Basque or Mediterranean resorts. Accordingly, their appeal to tourists was their traditional Spanish flavor. They also provided visitors with less elaborate, but also less expensive, accommodations.

Like most nations dependent on tourist trade, Spain was concerned about the underutilization, and sometimes overutilization, of facilities that was caused by seasonal variation in weather. These variations caused marked differentials in monthly tourist revenues and international trade receipts. July and August were the most active months; February was the least active. Efforts were made to develop winter sports facilities in order to increase the number of tourists visiting Spain during the colder months; however, competition from France, Switzerland, and Austria, where snow conditions were more reliable, constituted a formidable obstacle to success in this area.

Tourism was recognized, even before World War II, as an important economic activity worthy of government support. A chain of official hotels, known as tourist inns (paradores), was initiated at historical sites in the 1920s during the Primo de Rivera regime, and it was extended during the postwar years. Tourist promotion was a function of the Ministry of Interior until 1951, when the Ministry of Information and Tourism was created. In the late 1980s, the Ministry of Transportation, Tourism, and Communications took on this responsibility. The National Tourist Company, a state-owned enterprise, was engaged in the construction of hotels and tourist complexes.

Tourist promotion encompassed such routine activities as advertising and distributing maps, information folders, and lists of accommodations and shops. In addition, tourist offices were maintained in major foreign cities in order to encourage, to advise, and to assist people planning visits to Spain. Within the country, tourist assistance was provided by a network of more than seventy local tourist information offices found in all major cities and sites of interest.

Although most tourist accommodations were privately owned and operated, there was considerable government supervision of the industry. All restaurants and hotels were inspected, classified, and controlled by the Ministry of Transportation, Tourism, and Communications. Prices for meals and accommodations were controlled, and establishments catering to tourists were required to maintain complaint books which were intended to help the ministry's inspectors identify any shortcomings. In addition, the government operated a number of accommodations. These establishments included the above-mentioned paradores, many of which were converted castles, palaces, or other buildings of historical or cultural interest. Government-operated inns (albergues) were maintained on highways away from larger cities and towns, and many areas had hostels (hosterias), which were government-operated restaurants featuring traditional regional dishes. The ministry also maintained a number of mountain lodges (refugios).

<"http://accommodations-travelnow.com/europe/spain/">Accommodations in Spain

Spain

Spain - 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.

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

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.

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 (VAT), 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 (ECUs). 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 (IMF) 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.

Spain