Magazine article Insight on the News

Crucial Ally's Economy Seems Lost in the Desert

Magazine article Insight on the News

Crucial Ally's Economy Seems Lost in the Desert

Article excerpt

Muslims returning from the annual pilgrimage to Mecca are bringing back stories of Saudi Arabia's declining wealth - and of a simmering but still imprecise challenge to the rule of King Fahd. Some are describing the monarch, known as the "custodian of the two holy mosques," as increasingly disinterested in the economic difficulties of his country. The king, according to recent visitors, prefers to play electronic games and leaves affairs of state to his ministers.

Although such stories are difficult to verify because of the limited access to Saudi Arabia by Western media, they conform to many Western and Arab assessments of the Saudi ruler. Some analysts describe the future of Saudi Arabia as bleak, mainly because Saudi leaders have given no indications that they have taken consistent measures to cope with the kingdom's economic troubles. Despite holding one-third of the world's oil reserves, Saudi Arabia faces a growing budget deficit. With the world price of crude oil stabilized between $15 and $16 a barrel, the Saudi government budget has dropped from a height of some $100 billion to $42 billion, equivalent to the annual revenue from oil exports. One-third of the budget goes toward defense, and payments for arms purchases are being stretched out. (See sidebar.)

Swiss banks, where Saudi princes and institutions still have huge sums on deposit, say they have difficulty in assessing Saudi Arabia's economic picture, but note that deposits have dwindled to a trickle in recent months. While Saudi Arabia still is an extremely wealthy country, its percapita income has been declining steadily. The Saudis tend to describe their difficulties as a cash-flow problem.

The government is loath to take large loans from foreign banks because such transactions might involve a closer look at the kingdom's finances and lavish handouts to some 4,000 princes. Foreign contracts have been canceled and other cost-cutting measures introduced. For example, government agencies have lagged in paying for subscriptions to Western publications and in many offices air conditioners are turned off, at least sporadically. In a country in which the lifestyle of citizens has been subsidized heavily for years, many families have been known to leave air conditioners running while they vacation in European spas.

The question of Saudi Arabia's stability is particularly important for the United States, which considers the kingdom its main ally in the Arab world and often shapes policy with Saudi interests in mind. Saudi Arabia also is a major client for U.S. arms and high technology. The subject has become sensitive - some leading Saudis are challenging the notion that the country needs to spend so much money on defense. Sheikh Ahmed Zaki Yamani, a former oil minister and now chairman of the Center for Global Energy Studies in London, argues that Western arms even may undermine the country's stability in the long run. …

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