Problems of affluence worry oil states
(By
RALPH JOSEPH)
TEHERAN. One of the strange ironies arising from the staggering net prices the oil-producing countries find they can demand, and get, from the consumers is a new kind of affluence problem for the producers. They are already begining to ask themselves what they are going to do with all the money pouring into their coffers.
An initial impulse, par-| ticularly among the Arab sheikhs, is to turn the money right around and reinvest it in banks in the industrialised West. But so much liquid money floating about has already sent shock waves into the world monetary system over the last two years, and was at least partially responsible for the devaluations of the United States dollar and the pound sterling. These in turn caused the oil sheikhs to lose millions of dollars invested abroad, and to say that they now have little faith in these currencies is to put it very mildly indeed. Spiralling inflation the world over is now making the world monetary system shakier than ever, and as the Shah of Iran told reporters at his recent press conference in Teheran, if the oil producers were to continue putting their money away in banks in the industrialised West, they run the risk of losing it all, should the monetary system collapse. The money they have stashed away, he warned, “would not be worth the paper it is printed on.” To get around this, the Shah has been suggesting to the oil producers that they should set up some sort of fund or development bank to plough the new wealth into development projects in the poorer (non-oil-producing) nations of the Third World. Priority projects, he said,
could be directed at tapping] new energy resources and' also helping these countries! to dig up the enormous min-1 eral wealth many of them are known to have. This would at least help them face up to the huge inflationary trends expected in the world from the. spiralling oil prices. Most non-oil developing countries would otherwise simply collapse economically. Many of these developing nations, the Shah said, have huge deposits of such things as coal and iron that have not really begun to be exploited so far. He gave the example of India, where the coal deposits, if tapped, could provide an alternative source <Jf energy for India’s needs. Indian mineral wealth such as iron ore deposits could bring in huge new revenues from sales to countries needing them. “We could buy some of their iron ore,” lie said.
Of no less importance, to the health of the monetary system as a whole, are the problems of liquidity that rising oil revenues are beginning to create. Just where are the buyers going to find such huge amounts of liquid cash to pay for the oil they must import? This, apparently, was one of the most serious (if hushed up) problems discussed at the meeting in Teheran of the Organisation of Petroleum Exporting Countries (OPEC). The subject could not be kept completely secret, how-
ever, and the Shah told reporters that a new arrangement for payments would have to be worked out between O.P.E.C. and the Organisation for Economic Cooperation and Development (0.E.C.D.). One suggestion may be that payments could be made in bonds rather than liquid cash. The question would also have to be discussed with the International Monetary Fund, the nerve centre of the world financial system, currently so much in danger of breaking down under the strain. Moreover, many of the oil sheikhs who thought they were leading home an extra camel, in the shape of the oil bonanza, are turning around to discover it was really a nasty-looking dragon all the time — in the shape of inflation. The import of such huge amounts of money into their otherwise small economies would send prices skyrocketing so high there would be no hope of ever bringing them under control. HUGE SURPLUS
Iran, for its own part, has; already decided it does not; want any more of these; windfall riches pumped too rapidly into her economy? Though a first impulse was to revise the country’s already enormous fifth fiveyear plan, the Shah was quick to call a halt to any wild ideas about spending. To stem inflation, he asked that the plan should be expanded not more than one third its current size, meaning that it would be boosted from about SUS3O,OOOm to SUS4O,OOOm over the fiveyear period from 1973 to 1978. But Iran’s oil revenues in 1974 alone are expected to top SUSI4,OOOm. Further oil price boosts over the next four years, plus the money the country is beginning to earn from her other newly developed resources, means that by 1978 Iran will have earned" more than double the amount she will be needing even for her “ambitious” and expanded development plan. This leaves her with an enormous surplus which she will have to find an outlet for somewhere.
Most of the Arab oil producing countries simply do not have matching development plans to spend the money within their borders. Moreover, if population size were to be taken as a measure, most of them have mini-economies compared to that of Iran. Kuwait, for example, has a population of only half a million, compared to Iran’s 32 million. Saudi Arabia’s population is officially put at eight million, though whispers by Western demographic experts, was put at only three million but was suppressed for fear that publication would reduce Saudi Arabia’s influence in Arab politics. With such small economies, and with oil revenues larger even than Iran’s in some cases, the affluence problems of the Arab sheikhs can only be several times more tantalising.
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Press, Volume CXIV, Issue 33434, 16 January 1974, Page 17
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949Problems of affluence worry oil states Press, Volume CXIV, Issue 33434, 16 January 1974, Page 17
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