The big bankers vs. the latest tide of petrodollars
With the 150 percent increase in current-dollar oil prices in the last year, all the experts agree that some members of the Organization of Petroleum Exporting Countries (OPEC) will add enormously to their surplus funds this year. But they disagree on the amount.
Jacques de Larosiere, managing director of the International Monetary Fund, speaking here last week at a conference of the world's top commercial bankers, estimated that the current-account surpluses of the OPEC nations will increase from $5 billion in 1978 to $115 billion this year.
(A current-account surplus is the money a nation has left over for saving and investment after paying all its bills for imports of goods and services, shipping charges, tourism costs, etc.)
Morgan Guaranty Trust Company has calculated this surplus at $100 billion.
But Abdul Aziz al-Quraishi, governor of the Saudi Arabian Monetary Agency, figures it is more likely that the surplus will be "a little bit less than $100 billion."
His estimate is lower partly because it is more recent. He takes account of the sharp drop in oil production in Iran. That troubled nation had been expected to have a surplus this year of $12 billion. Instead, it could have a deficit. Moreover, Kuwait has cut its production 25 percent.
Over the longer run, Mr. Quraishi suspects that OPEC nations' imports from the rest of the world will once more grow rapidly.
"We have spent the last four or five years building our infrastructure [ports , railways, airports, roads, warehouses, etc.]," he said. "Thus we have the capacity to absorb more imports."
Moreover, those worrying about the ability of the so-called "low-absorptive" nations, such as Saudi Arabia, Kuwait, and the United Arab Emirates, to use their surpluses to buy consumer goods and industrial equipment tend to forget services, Mr. Quraishi said. These include maintenance, management contracts, insurance, and so on. For instance, the original cost of a hospital in Riyadh is "nothing," he said, compared with the annual costs of staffing it with 95 percent expatriates. And such foreigners require schools, teachers, housing, water, and sewer facilities -- all items that tend to have imported components or personnel.
On the other hand, the OPEC nations have just raised prices another $2 a barrel. That will, of course, raise the surpluses. This week the OPEC nations are considering a further price increase.
Whatever the size of the surplus, it will be, as farmers used to say, "a lot of hay."
Of course, some OPEC nations had similar huge surpluses after the 1973-74 petroleum price hike. There was much wringing of hands then about the difficulty of "recycling" these petrodollars. Many feared some sort of financial collapse.
But it didn't happen. The international banking community, to its own surprise, came to the rescue. It took the deposits of the OPEC countries and relent that money to those nations in deficit in their international accounts. This meant that the OPEC countries had relatively secure investments for much of their surplus money -- certificates of deposit with the major commercial bank of the noncommunist industrial nations. The banks then took the risk of making loans to industrial countries (low risk) and to nonoil-producing developing countries (higher risk).
Today, the bankers argue, the situation is different:
1. "We are now operating under a world monetary system which is more than ever before subject to tensions and disruptive developments which imply a higher degree of risk." That point was made by Wilfried Guth, managing director of West Germany's Deutsche Bank.
2. The deficits of the oil importing countries are now larger and more concentrated in the poorer, more risky countries.
The International Monetary Fund's Mr. Larosiere estimated the industrial countries' deficit at $13 billion in 1974 and $48 billion this year; he estimated the deficits of the nonoil-producing developing countries at $37 billion in 1974 and $68 billion this year.
Actually, in real terms those deficits aren't much changed. But Mr. Larosiere figures the developing countries have fewer prospects for increasing their exports to reduce those deficits. Further, they have higher levels of debt to start with. And their deficit could increase to nearly $80 billion next year.
Ratios of total foreign det to gross national product for the nonoil developing countries now average roughly 50 percent higher than in 1973. The ratio of debt-service payments to exports has climbed from about 9 percent to around 18 percent last year. It will increase further this year. "It is essential, therefore, to avoid unnecessary hindrances to the growth of exports from the oil-importing developing countries," Mr. Larosiere said.
3. The commercial banks have become more concerned about the risks of default on their loans to some developing countries. As Mr. Guth put it, they have "a definitely higher level of country exposure."* What's more, there has been a deterioration in the ratio of owned capital of the banks to their assets. That also restrains their lending.
In any case, the commercial bankers and central bankers here agreed that more "recycling" will have to be done this time by the International Monetary Fund and other international institutions.
Mr. Guth further proposed that private bankers around the world consider setting up an informal "safety net" to save individual banks that might run into trouble. The suggestion was well received, but remains to be adopted.
Overall, the commercial bankers appeared fairly confident that the world can once more solve its petrodollar recyling problem. It was done earlier. Nonetheless, they are uneasy about the more than $1 trillion in international loans they have made.