Financial Fallout Hits Mideast
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Filed at 6:47 p.m. EST
By The Associated Press
CAIRO, Egypt (AP) -- Saudi Arabia has canceled a multimillion-dollar
refinery project and may put off building a big petrochemical plant.
Neighboring Kuwait has slashed its budget, frozen government hiring and
announced it would sell more state-owned companies to raise revenues.
In Qatar, the government scrapped plans for its first bond issue because it
would have had to pay unacceptably high interest rates.
All this is part of the deepening financial fallout from the one-two punch
of the steep drop in world oil prices and the crisis in Asia, the Persian
Gulf's biggest export market.
Even the Middle East's non-oil states are starting to feel the pinch as
hard-pressed Gulf countries send Egyptian, Jordanian and Palestinian workers
home. Foreign investors also are avoiding the region's tumbling stock
markets.
''The focus has been on the economic crisis in Asia and, more recently,
Russia,'' said Kuwaiti economist Jassem al-Saadoun. ''But the situation in
the Gulf is disastrous, and there are serious implications for the future.''
A global recession -- with depressed oil prices and weak export markets --
could seriously undercut the Gulf countries' ability to continue providing
services and, more importantly, jobs for populations in which nearly half
are under age 16.
''Dissatisfaction could translate into adverse political and social
consequences and create instability'' in a region with some 60 percent of
the world's oil reserves, al-Saadoun said.
Poorer Arab countries often feel the consequences of economic
belt-tightening fast: More than 50 people were killed and some 200 wounded
in riots that followed Yemen's decision in June to reduce government
subsidies for cooking gas, heating fuel and gasoline.
Experts disagree on how long and deep the downturn will be, but few see any
relief for oil producers over the next 15 months.
Julian Lee, a senior analyst at the London-based Center for Global Energy
Studies, said the 30 percent drop in crude oil prices this year has cost
OPEC exporters an estimated $48.3 billion in lost export revenue.
''We don't expect next year, on average, to be any better than this year,''
Lee added.
The reason, he said, is the financial crisis in Asia has reduced oil demand
there and had a ''knock-on'' effect on Western economies. And Russia, where
domestic demand has all but collapsed, is stepping up crude exports to get
desperately needed hard currency -- and adding to the glut on the market.
Saudi Arabia, the world's largest oil exporter, is taking the biggest
beating. Analysts estimate its oil income will fall to $34 billion this year
from nearly $50 billion last year.
Oil revenues in neighboring Iran, Kuwait and the United Arab Emirates -- all
members of the Organization of Petroleum Exporting Countries -- are expected
to be down at least $4 billion.
''In the past, their investment income was a shock absorber,'' said Mohamed
el-Erian, head of emerging markets research for Salomon Smith Barney in
London. ''But stocks and bonds aren't doing well, so they're being hit on
both sides.''
Economic weakness is manifesting itself in slumping stock markets even in
non-oil countries, runs on currencies and rising loan rates.
Since the start of the year, the stock market in Oman has fallen nearly 40
percent. Market indexes are down 22 percent in Egypt, 18 percent in Kuwait
and 17 percent in both Lebanon and Saudi Arabia.
''Investors in this part of the world read the same news others are
reading,'' said Henry Azzam, chief economist for the Middle East Capital
Group in Beirut. ''Internationally there's pessimism, and investors are
being very cautious, especially about emerging markets.''
Saudi Arabia faced a run on its currency in late August, and economists
believe its central bank may have spent as much as $1 billion to hold the
riyal steady at 3.34 to the dollar.
Lebanon, still recovering from a devastating 15-year civil war, continues to
borrow to restructure its $14 billion in foreign debt. But its recent
seven-year Eurobond issues carry stiff 8.75 percent rates of interest.
Most of the Gulf countries already have cut spending, frozen hiring,
postponed development projects and slowed payments to contractors -- all
moves that will have a depressing effect on their local economies.
At the same time, they're scrambling for new revenue sources, large and
small. Saudi Arabia has raised domestic airfares. Qatar is speeding up the
sale of the state-owned phone company. Kuwait hopes to open its stock market
to foreigners before the end of the year.
Paul Chabrier, Middle East director for the International Monetary Fund,
said the region's countries could benefit if the short-term pain results in
long-term reforms that diversify their economies and reduce dependence on
oil.
But Kuwait's al-Saadoun is skeptical. He notes that when oil prices weakened
in 1993 and 1994, Gulf countries ''said they would postpone this, freeze
that, reform this. ... Almost all of them adopted five-year plans to put
everything in order.''
Then prices firmed in 1996 and 1997, he said, ''and everything was
forgotten.'' |
