Sources Expect Saudis to Borrow More to Repay War Expenses
RIYADH, Saudi Arabia (AP) _ Saudi Arabia will again have to borrow billions of dollars on international markets if it is to repay its Desert Storm contribution to the United States soon, Western diplomatic sources say.
But senior Saudi officials said the kingdom currently has no plans to raise additional international loans. It resorted to borrowing - a total of $3.6 billion - earlier this year for the first time since the 1960s.
The Western diplomats, who spoke on condition of not being identified further, said the United States has been seeking a timetable for Saudi Arabia to repay $8 billion it still owes in war costs. The Saudis pledged $13.5 billion in cash and ground support services.
There have been moves in the U.S. Congress to bar weapons sales to any country that does not provide a timetable for paying its Gulf War contributions. But the United States has no doubt the Saudis will pay, one of the diplomats said.
The diplomat said the Saudis, facing their tightest budget crunch in years, had few options in raising money quickly.
″Their only alternative is more borrowing on international markets,″ the diplomat said. ″The downside is that they’ll be criticized domestically for paying interest.″
The payment of interest is forbidden by Islamic law and has been criticized by Muslim conservatives, however. Officials are cautious not to provoke a fundamentalist backlash.
″There are no specific plans at the moment for any new borrowing on international markets,″ said Hamad al-Sayari, governor of the Saudi Monetary Agency, the kingdom’s central bank.
A knowledgeable source, who asked not to be identified, said Finance Minister Mohammed Abalkhail ″has orders from the king not to borrow″ any more money on international markets. Abalkhail could not be reached for comment.
Saudi Arabia’s war costs, estimated to total at least $50 billion, contributed to a budget deficit of $15 billion last year. The deficit is expected to at least double this year, analysts said.
″The burden is huge, and it would be a challenge for any country,″ al- Sayari said in an interview. ″It’s not easy to commit and spend such a large amount of money.″
In the long run, however, the outlook for the Saudi economy is rosy.
″Any country sometimes experiences a cash-flow problem. But this country is still strong and sits on a quarter of the world’s oil reserves,″ said Abdullah Dabbagh, secretary-general of the Council of Saudi Chambers of Commerce and Industry.
In the shoter term, however, some sources said the Saudis could be forced to make unpopular decisions like cutting spending in agricultural services and by paring down social welfare and introducing an income tax.
A recent attempt by the king to cut back wheat subsidies failed because of domestic pressure, however, and even decisions such as a recent increase in bottled gas prices had to be made ″very high in the political process,″ said one source.
Dabbagh, the business leader, said he advocates borrowing on international markets, ″just so that we get used to the idea. Look at the United States, it’s the biggest economy in the world and it has a big debt.″
For all its costs, the Gulf War did little damage to the kingdom’s oil- production facilities, and left it even more dominant in world petroleum markets than it was before the crisis.
Saudi Arabia raised its oil output from around 5.5 million barrels a day to more than 8 million to make up for the shortfall in Iraqi and Kuwaiti production after Saddam Hussein invaded the emirate last August.
Al-Sayari said business confidence was on the upswing, citing increased activity in trade, construction and banking.
″There are clear, strong indications of confidence building up,″ he said.