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WEEKLY NEWSLETTER
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Saudi Arabia
Index
Publicly available information on Saudi Arabia's foreign
assets was scant. Newspaper accounts placed foreign assets held
by SAMA overseas at around US$100 billion during the early 1980s.
These assets have been substantially depleted to finance current
account deficits. A sizable portion has become nonperforming as
Saudi Arabia has been unable to recover loans to several
countries, notably Iraq. By the end of 1991, foreign assets of
the government were estimated at US$30 billion if nonperforming
assets were excluded. This amount was only sufficient for
purposes of currency cover, a statutory requirement of SAMA.
Saudi commercial banks held an additional US$30 billion to US$35
billion in foreign assets, some of which was depleted in the late
1980s to finance government bond purchases and to cover domestic
liquidity. Estimates of private sector assets were even more
difficult to aggregate; however, based on Bank of International
Settlements data and newspaper accounts, the figure could be as
large as US$100 billion.
Until 1991 Saudi Arabia's foreign liabilities were restricted
to foreign lines of credit necessary to conduct international
trade and financing operations held by domestic commercial banks.
The negative alliance of payments caused the government to engage
in a sizable borrowing program on international capital markets
in 1991, however, including a loan from Morgan Bank of
approximately US$4.5 billion. Saudi Aramco was reported to have
borrowed US$2 billion to finance parts of its oil sector
development program, and several Sabic corporations borrowed for
new industrial investments. Further borrowings were likely. At
the end of 1991, total medium-long term debt, consisting largely
of government debt, was estimated at US$9 billion and was
expected to grow to US$12 billion by the end of 1992. Short-term,
trade-related debt was estimated at US$11 billion at the end of
1991.
In summary, during the period of high oil prices beginning in
the 1970s, the government transformed the kingdom into a modern
economy with few vestiges of the pre-oil period remaining.
Concurrently, the standard of living for the average Saudi grew
markedly, thanks to such factors as government-provided social
services and a plethora of subsidies. Despite these achievements,
what struck most observers was the fragile base that supported
this standard of living. Government oil revenues, supplemented by
private reserves accumulated during the oil boom years, accounted
for much of the gross domestic product. Whereas diversification
of the economy has been an objective for most of the five-year
development plans since the 1970s, oil still dominated and was
likely to continue to do so. Oils predominance was apparent in
1992 as the government was allocating large sums to expand crude
oil production capacity to still higher levels in anticipation of
growing international demand.
The large oil sector did not mean that the kingdom had not
invested heavily in industrialization: in 1992 it ranked among
the major industrial economies in the Middle East. But most Saudi
industries were petroleum-based, in the public sector, and
heavily dependent on subventions from the government budget. The
private sector has been reluctant to establish domestic
processing plants, and those created have been heavily
subsidized. Similarly, modern, water-intensive, and importdependent agriculture has come at a huge cost to the government.
Despite higher oil capacity and demand for Saudi Arabian
crude oil and petroleum products, the kingdom will continue to
face tight budgetary restrictions during the 1990s. The challenge
facing the government in the aftermath of the Persian Gulf War,
with all its costs, was maintaining the high Saudi standard of
living while continuing to diversify the economy. With financial
reserves at the bare minimum levels necessary to keep
international confidence, this challenge was even more difficult.
* * *
With the decline in oil prices in 1986, the number of books
on Saudi Arabia and the Persian Gulf region markedly declined.
There are, however, several excellent early monographs on the
five-year plans and early development programs but few recent
books that deal with the problems of deficits and stabilizing the
economy. Two of the most up-to-date books on the Saudi economy
are Robert E. Looney's Economic Development in Saudi
Arabia and H. Askari's and B. Dastmaltschi's Saudi
Arabia's Economy: Oil and the Search For Economic
Development. The latter is highly recommended because of its
detailed analysis of the development plans and real costs
associated with them. Tim Niblock's State, Society, and
Economy in Saudi Arabia provides an excellent background to
the economic development effort and contains several insightful
studies on the economic and social constraints facing the
country. A particularly good book on the private sector is
Michael Field's The Merchants. For regular coverage of the
kingdom's economy three sources are recommended: Middle East
Economic Digest, Middle East Economic Survey, and
Financial Times. A plethora of oil journals, especially
Petroleum Intelligence Weekly, are available to keep up
with developments in the Saudi oil sector. The United States
Embassy in Riyadh also produces a comprehensive annual summary of
developments in the kingdom's oil sector. (For further
information and complete citations,
see
Bibliography.)
Data as of December 1992
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