Allocation of Petrodollars
Turning now to the prospects of allocating Petrodollars
to alternative uses, I wish to present them in order from the
least to the most desirable options in view of world economic
interests in general and those of oil-exporting countries in particular.
The first alternative is to hold accumulating Petrodollars in a liquid dollar deposits. In a conversation with high ranking official in the US Treasury Department, he stated, ALet us hope Arabs keep holding dollars for we keep printing themA This alternative should definitely be ruled out because of its disruptive effect on the international monetary mechanisms of transfer of vast international liquid assets from one market to another whenever circumstances arise and whenever it is possible. As stated above, such liquid assets may be blocked from certain European financial markets if it is deemed necessary to restrict an international money flow. This option should also be discontinued because the purchasing power of the dollar will keep declining as time goes by.
Another alternative is to recycle Petrodollars by financing
balance of payments deficits in industrialized countries. Arab
oil revenues may channeled to those countries through a modified
version of an International Monetary Fund or a newly founded international
Arab monetary organization. As it now stands, the International
Monetary Fund is mainly run by the United States and Western Europe.
If Petrodollars are to be channeled through this organization,
oil-exporting countries should assume an important role directing
its policy. Otherwise, members of OPEC may establish their own
organization which may be called International Petrevenue Fund.
Its nucleus could be the four Arab consortia discussed above.
A third alternative is a direct investment in industrialized countries.
However, there may be a fear in the host country that another
foreign country is buying out its economy. In this context it
should be noted, however, that the only country capable of absorbing
unnoticeably sudden massive amounts of Petrodollars is
the United States. Current total reserves of Petrodollars
constitute approximately 0.7 of one percent the current market
value of the United States stock market. In the meanwhile there
is also the investor=s
fear of losing part or all of the capital asset invested in case
of freezing, nationalizing or confiscating foreign owned enterprises
for economic, political or other reasons. In this regard such
direct investment may be regarded under certain circumstances
as hostage capital.
A fourth alternative is to share in financing economic development
and growth in the less developed countries through a reorganized
world bank in which oil-exporting countries assume more responsibility
in its decision-making process than they are now assuming, or
else through a newly established organization which may be called
The OPEC International Bank for Development. The details
of this proposal can be worked out so as to minimize the risk
of bad debts resulting from internal revolutions or the like in
the borrowing countries. In the meanwhile, to alleviate the impact
of the recent quadrupling of the price of oil on the balance of
payments of those countries, bilateral and multilateral arrangements
with oil-exporting countries are now at work. It is interesting
to note that while the problem is highly politicized in the United
States, oil-exporting countries are not abandoning their fellow
less developed countries as explained above. During the 1960's,
Kuwait spent close to five percent of its Gross National Product
on foreign aid. Saudi Arabia which had deficits in its balance
of payments as recently as 1968, is allocating substantial funds
for the same purpose. Iran had established its financial institution
for a wider use to finance temporary deficits in the balance of
payments of oil-importing countries in the short run and developmental
projects in the LDC=s
in the long run. While the Islamic group will be discussing the
report of its committee on aid and development in two months in
Malaysia, Venezuela is submitting its own proposal to the forthcoming
meeting this month.
A fifth alternative is to finance a massive developmental program
in self oil-exporting countries as well as in the countries with
which they have cultural and historical ties such as the rest
of the Arab world. It will be naive, of course, to assume that
Petrodollars can all be absorbed in developmental requirements
in the short run. In the long run, it is another story. For example,
it is estimated that an investment of $20 billion is required
raise the per-capita income in all Arab counties by only $100
per annum in real terms. While a comprehensive program for economic
development of the oil-exporting countries is an economic necessity
and a definite gain, it serves multiple purposes at the same time.
First, it creates a substantial demand for the goods and services
imported from industrialized advance countries, thus stimulating
growth and prosperity beyond the territories of the oil-exporting
countries. Second, the resulting increase in exports in the advanced
industrial countries will ameliorate the position of their balance
of payments. Third, financing massive economic developmental projects
such as construction of their superstructure, infrastructure and
new cities will reduce the rate at which oil revenue surpluses
are to be accumulating.