Saddy 1982

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Third World Quarterly

OPEC Capital Surplus Funds and Third World Indebtedness: The Recycling StrategyReconsideredAuthor(s): Fehmy SaddyReviewed work(s):Source: Third World Quarterly, Vol. 4, No. 4 (Oct., 1982), pp. 736-757

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FEHMY

SADDY

O P E a p i t a

S u r p u

u n

a n d

h i r d

W o r l d Indebtedness

t h

re y l ing

s t r a t e g y

reconsidered

Introduction

The first

rhetorical

round

of the New

International

Economic Order

NIEO)

came

to an end

at the Cancutn

Summit

Conference

last October. An

agreement

was

reached

to pursue 'global

negotiations'

at the United Nations.

Whether the new

forum will

open

up

better

prospects

or

merely

offer itself as a

launching pad

for

the

second

round

of

rhetoric and

recriminations

remains

to be

seen.

The

Eleventh

Special Session

of

the UN

General

Assembly,

held in August

1980, considered

a

New International

Strategy

(NIS)

for the

Third

Development

Decade in which

the

objectives

of the first two

decades were

affirmed

more

vigorously.

But

optimism

does not seem warranted and only little hope exists that better results will be

attained.

The

United

States'

misapprehension

about what

it

considers

to be the

demand

of

developing

countries

for a

global

economic welfare

system

financed

by

the industrialised

ountries

casts

doubt

on

its

willingness

o be

more

forthcoming

n

future

negotiations.

Moreover,

the

developing

countries are

in

a much weaker

position

now

than

they

were

in

the

1970s,

and conflicts

of interest

among

them

have

been drawn

more

sharply.

Therefore,

while

negotiations

on

trade,

energy,

raw materials,

development

finance and monetary

issues will be pursued at the

United

Nations,

innovative

thinking

and

a search for

solutions must

continue

outside the

North-South

framework.

Ironically, one of the major problems that developing countries have come to

face

during

the

past

decade

finds its

origin

-

and

to a

large

extent its solution

-

within

the South

itself. It

concerns the

tremendous

transfers

of

financial

assets

from the

oil-importing to

the oil-exporting

countries over

a

short

period

of time.

The

quadrupling

of the

prices

of

oil

in

1973-4

and

the

doublingof these prices

again

in 1978-9

resulted in current

account deficits

for all

oil-importing

countries,

but

their effect

was hardest

on

the

less

developed

countries

(LDCs).

In

response

to

these

increases,

the industrialised

countries

(ICs)

have,

adopted

deflationary

policies

that

resulted

in

reversing

their

negative

current

accounts.

However,

these

policies

failed

to curb

inflation

and instead

produced

stagflation, unemployment

Author'sNote:

This research

was

conducted

in

the Fall semester of 1981

at The School of International

Service,

The American University,

where

he was

Visiting

International

ResearchAffiliate. He would

like to

thank Calvin

De

Pass,

John

W Tuthill and Howard

M

Wachtel for

theircomments on an earlier

draft of

this

paper.

October

1982 Volume

4 No.

4

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OPEC CAPITAL SURPLUS

FUNDS AND THIRD WORLD INDEBTEDNESS

and reducedgrowth.These effects were n turnpassedonto theoil-importingLDCs

which had benefited from

economic liberalisation in the 1960s and increased

exports

to the ICs. The combined

effects of increased oil

prices,

substantial

reduction of their

exports,

depressed market prices for their raw materials and

manufactured products and

increased costs of their imports, due to inflation,

reducedtheir terms of trade. The

only alternative left for themin order to maintain

their

economies was to rely on borrowing from the

international capital markets.

Thus, the

problem of Third World indebtedness was born.

In

addition, the OPEC countries pursued investment and

trade policies that

have benefited the ICs and adversely

affected the oil-importingLDCs. The bulk of

the oil revenues were spent on purchases from the ICs to finance the development

programmes

of

the

oil-exporters.

The few

oil-exporting

countries that were left

with some

capital surpluses preferred to invest them in the

ICs as well. Although

substantial aid and 'soft' loans were

extended to the oil-importing LDCs through

multilateral institutions and by

bilateral

arrangements,

the gap left by the

reduction of their

terms of trade and soaring oil bills

could only be filled by

increased indebtedness.

This

paper

will focus

first

on

the indebtednessproblem of

oil-importing LDCs,

which is

bound to worsen further in the future if the

policies

of both the oil-

exporters and the ICs continue their

present

course.

Second, it will review the

argumentsin regardto theirresponsibilityfor ThirdWorld indebtedness. Third, it

will discuss the

investmentpolicies

of

the

capital surplus

oil-exporters and

assess

their effects.

Fourth, it will present

some

arguments

in

favour of increased

investments

in the

oil-importing LDCs.

Finally,

it

will conclude with a brief note

on

proposals

that have

been advanced

on

the

problem

of

recycling

and

investment.

The

IndebtednessProblem

Indebtedness is not new to

developing

countries. Debt-financed

development has

been pursued

by many countries,

both

developing

and

industrialised.

The United

States reliedon imported capital to financeits infrastructureand build its industry

in

the

18th

Century. Alexander

Hamilton

spoke

in

defence

of

foreign

investments

which increased

the wealth

of

nations.2

Of

the

developing

countries,

Brazil

floated

its

first

'Eurobond'

on

the

London market

n

1824and was followed

by

other

Latin

American

countries.3

However,

nothing resembling

the scale of

borrowing

that

took

place

in

recent

years

has

ever

occurred

before.

The

magnitude

of

borrowing

and the

constraints

it

has

placed

on the economies

of

oil-importing

LDCs threaten

a

serious

crisis

n

international

inancial

obligations

with adverse effects

on

the

world

economy.

1

John

A Matheison,

'North-SouthImbalances',Bulletin

ofAtomic

Scientists,

38

(1)

January 1982,

p 1.

2

As recounted

by

Edwin

in his introduction

to James

A

Gathings,

International

La,"and American

Treatment

of Alien Enemy

Property, Washington,

DC: American

Council

on Public

Affairs,

1940,

p

vii.

I

Jeff Frieden,

'Third

World Indebted

Industrialisation:

International

Finance

and State

Capitalism

in Mexico,

Brazil,

Algeria

and South

Korea',

International

Organisation

35

(3)

Summer

198

1,

p

410.

737


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THIRD

WORLD

QUARTERLY

The seriousness of the indebtedness problem has been recognised by

multilateral development

agencies, many

governments

and concerned analysts,

with

varying

degrees

of

alarm. While

the

countries

of

the

Organisation

of

Economic

Cooperation and

Development (OECD)

view it with 'neither

complacency nor

undue

alarm',4 he World Bank is

carefulnot to pass

a uniform

judgment

on

all

borrowing countries.5Others,

however,

are more

alarmist. Some

believe

that

developing countries

cannot escape

the

prospect of default and that

the

recycling mechanism

that was used

in

the

1

970s

is

no

longer

adequate.6Others

have likened

the

indebtedness

problem to aticking

internationaltime-bomb which

will

require 'concerted

attention and action' in

order to

be defused.7 Former

Presidentof the World Bank RobertMcNamara has declared that 'over the next

five

to six years, the deficits more

and

more

are

going to

be concentrated in the

developing countries ... these current account

deficits cannot be

sustained

indefinitely by external

financing.8

Structureof

Indebtedness

The indebtedness

problem

accelerated after the

first increase

of OPEC oil

prices

in

1973-4, and continues its

upwardmovement.9

The

question

whether the oil price

increases were the

primary reason for the

increased

indebtedness of the oil-

importing LDCs will

be discussed below.

Nevertheless,

these

countries

were

forced to supplement their deficits by external borrowings which have come to

take new forms. The

main

features

of the

new

borrowings departed from familiar

'External Debt

Statistics for

Developing

Countries: Latest

Trends', Organisation

for

Economic

Cooperation and

Development,

Development

Cooperation

Directorate,

September 1981, p 3.

Wor/dDevelopmentReport 1981,

Chapter

5.

The World

Bank:

Washington,

DC, 1981.

6

Chandra S

Hardy, 'Adjustment

to Global

Payments

Imbalances:

a

tripartite

solution',

Working

Paper

No.

5,

Overseas

Development

Council, Washington,

DC,

September 1981, p

2.

Mathieson,

op cit, p

1.

8

Hobart

Rowen,

'The

Third World Still Has A Friend in

Robert

McNamara',

International

nvestor,

September

1981, p 156.

The indebtedness problem and the role of multinational banks in 'recycling'the surplusfunds to the

Third World are the

subject

of an

ever-widening

literature.

See,

for

example, Harold

Van

B

Clevelandand

W

H

Bruce

Brittain,

Are

the LDCs in Over

TheirHeads?',

ForeignAffairs 55

(3) July

1977 pp 732-50;

Cheryl Payer, 'Third World

Debt

Problems:

The

New

Wave

of Defaults',

Monthly

Review 28

(4) September

1976

pp 1-19;

Karin

Lissakers,

'International

Debt,

The

Banks and US

Foreign Policy', a staff

paper prepared

for

the Subcommittee on

Foreign

Economic

Relations, US

Senate,

Washington, DC,

US/GPO, 1977;

Jonathan

David

Aronson

(ed),

Debt

and the

Less

Developed

Countries, Boulder, Colo.:

Westview

Press,

1979;

Laurence G

Franco

and

Marilyn

J

Seiber

(eds),

Developing

Countries

Debt,

New York:

Pergamon

Press,

1979;

David

Beck,

'Commercial

Bank

Lending

to the

Developing

Countries', Federal Reserve

Bank

of New

York

Quarterly

Review1

2)

Summer

1967, pp 1-8;

Howard

M

Wachtel, The Nelw

Gnomes:

multinational

banks in the Third

World,Pamphlet

No. 4,

Washington, DC:

Transnational

Institute, 1977,

and 'A

Decade of

International

Debt',

Theoryand

Society

9

(3) May

1980pp504-18;

Paul

Watson,Debtand

the

Developing Countries:

newproblems

and

newtsactors,

Washington, DC:

Overseas

Development

Council, Paper 26, NIEO Series, 1978;Miguel Wionczek (ed), LDC External Debt and the World

Economy, Mexico

City: El

Colegio

de

Mexico, 1978; Special

Issue

on 'International

Indebtedness

and

World Economic

Stagnation', World

Development

7 (2)

February 1979 pp

91-224; and

International

Monetary Fund, 'External

Indebtedness of

Developing

Countries', Occasional

Paper

No. 3,

May 1981.

738


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OPEC CAPITAL SURPLUS FUNDS AND THIRD WORLD INDEBTEDNESS

patterns that they had taken in earlier years thus substantially affecting the

capacity of

oil-importing LDCs to service their debts.

The World

Development Report 1981 shows that the total debt of oil-importing

LDCs increased

from $86.6 billion in 1971 to an estimated $524 billion in 1981

(Table 1). The rate of borrowing increased from 16 per cent per year in 1971to 24

per cent

in

1975, the year following the first oil price increases. It registered a

further increase

of

27

per cent per year

in

1978, but since 1980 has stabilised at 15

per cent.'0

A marked shift in

the source of borrowing has taken place over the past decade.

While the Official Development Assistance of the OECD countries more than

doubledbetween 1971 and 1978 (by increasing from $24.7 billion to $61.0 billion),

borrowing from

OECD's capital markets increased by more than twelve-fold

(from $16.1 billion to $209 billion

-

excluding export credits). Borrowing from

international

organisations, such as the WorldBank, InternationalMonetaryFund

(IMF),

and

regional

development

banks increased sixfold

(from $10.0 billion to $65

billion).

OPEC

countriesemergedas

an

importantsource of lending by extending

credits

from

less

than half a

billion in 1971

to

$23

billion in

1981.

Another

feature of the indebtedness

of the

oil-importing LDCs is the declining

percentage

of

borrowing at

concessional

rates

and the

increasing percentage

of

borrowing

at

rates

prevailing

on the

international

capital markets.

While

fixed

interest rates charged on concessional loans increased from 4.2 per cent in 1972 to

6.2

per

cent in

1981, the floating

interest

rate"I

harged

on

the expanding loans

in

the

capital

market increased

from

7.9

per

cent to

18.0

per

cent

during

the

same

period (Table 2).

The burden that


face in

servicing their debts is shown in

Table

3.

The

total debt service in 1971 amounted

to

one-eighth ($10.9 billion out

of

?86.6

billion);

in

1981

the

percentage

increased to

just

under one-fifth

($111.7

billion

out of

$524.0 billion).

The debt service

on

bilateral

and

multilateral

Official

Development

Assistance has remained

low

($5.9

billion

out of $118.0 billion).

However,

the debt service

on

commercial loans and

export credits increased

from

their lowest levels in 1971($8.5 billion out of $47.4 billion - or less than one-fifth),

to their

highest

levels

in

1981

($100.8

billion

out

of

$368.0

billion

-

or

almost

one-

third).

These

statistics, however, may

be

misleading

because

they

do not

distinguish

between

developing

countries

at

different

stages

of

development.

Table

4

shows

that the bulk

of

the

debts were accumulated

by

79 Middle

Income

Countries

(MICs)

and a

group

of 11

Newly

Industrialised

Countries

(NICs).

Both

groups

accounted

for

$341

billion

of the total

debt in 1981. Thirteen OPEC

countries

accounted

for

$94

billion,

while the

remaining

55

Low Income Countries

(LICs)

10

The

increased

rate

of

borrowing

in

1978 was

due to

temporary

decline in

the

rate of interest, and

the

purpose

of borrowing

was to

pay prematurely

earlierdebts which had been accumulated at higher

rates.

World

DevelopmentReport

1981, p

59.

11;Floating

interest rate

is

expressed

as a

margin

above the

London

Interbank

Offered

Rate (LIBOR),

called the spread,

which includesallowances

for

risk, commission,

etc. The

spread

is

normally

0.5

per

cent, but it

has gone up

occasionally

to 2.0

per cent,

as in

the case of recent

borrowings

by Brazil.

739


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THIRD WORLD QUARTERLY

accounted for $89 billion. But it is also significantthat the higher the income level

and the largerthe debt of a country the harder its debt service.

Therefore, there

seems to be little comfort in the fact that because the ability of the

MICs and

NICs to expand their exports is better than the LICs, they can afford

to service

their debts."2Considering the present policies of the industrialised

and OPEC

countries,

further deterioration

of

the

terms

of trade of oil-importing LDCs is

expected to reduce their ability to service their debts.

Allocation of Responsibility

Since 1973 it has become customary to distinguish between the

oil-exporting

countries as a sub-categoryof the Third World and single out the capital-surplus

oil-exporters

as a

separate category

not

included

among developing countries.

I3

In

delineating these categories

the

implication

is

that oil pricing and investment

allocation policies

affect

the

health

of the

world

economy. This implication

is

sometimes

misplaced because

none

of

these

policies operates outside the domain

of

the economies

of the ICs. The increased

indebtedness of oil-importing LDCs

and the measures

required

to correct

the

financial

imbalances

are,

to a

large

extent,

the

result

of decisions made in the

ICs.

Arguments

of

Industrialised

Countries

The ICs have argued that the quadrupling of oil prices by OPEC countries in

1973-4 produced

the first 'shock'

to the world

economy and

must

account

for the

spiral

of

inflation that

ensued. The economic

consequences

of the

sudden

oil

price increases

left

a deep impact

on the

oil-importing

LDCs in

particular.

In

1974

the ICs suffered a current account deficit

of

$11.6 billion,

while one

year

earlier they had realised a $19.3

billion

surplus.

The

oil-importing

LDCs

increased their

current account deficits

from

$11.5

billion in

1973 to

$36.9

billion

in 1974

(Table 5).

On the

opposite

end

of

the

scale the

OPEC

countries increased

their

current

account

surpluses

from

$6.6

billion in

1973

to

$67.8

billion

in

1974.

The

immediate

effect

of

the

quadrupling

of the oil

prices was an increase in the

inflation rate in the ICs which soared to double-digit heights in 1974 and 1975.

The ICs

have also pointed

out

that every time

the

price of oil rises by $1 a barrel

the

oil-importing

LDCs

have

to

find

nearly $2

billion

more to

pay

for their oil

imports.

The indirect

effects are even worse since

'higher

oil

prices

mean slower

growth

in

the

industrialised

world which

buys

two-thirds of

all

LDCs'

exports.

So

the non-oil

LDCs

have been

unable to fill

the

hole

which

dearer oil has

punched

in

their

current

accounts.'4

The

ICs

have

further

argued

that

the

high

rate of inflation

they experienced prior

to

the oil

price increases, together

with

the

slump

in

the

prices

of raw materials

of

the

oil-importing

LDCs,

could

not

have

resulted

in

such

large

current

account

deficits had

the

oil

prices remained

12

'External

Debt Statistics. ..

', op

cit.

p

4.

'3 The oil-exporting

developing countries comprise

20 countries.

The

capital-surplus oil exporters

number

six and

are not counted

as

developing countries.

World

DevelopmentReport 1981, viii.

14

'Rich

Banks

and

Poor Countries',

The

Economist,

(London)

3

November

1979, p 92.

740


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OPEC CAPITAL SURPLUS

FUNDS AND THIRD WORLD

INDEBTEDNESS

relatively stable. These arguments are compelling and are widely accepted

except, of course, by the OPEC countries.

Arguments of OPEC Countries

While recognising the adverse effects that higher oil prices have had on both the

ICs

and

the

LDCs, OPEC countries

like to

cite their own statistics. They have

argued

that the oil

prices

were

kept unrealistically

low

by the major oil companies

for many years and, at times, they were even reduced.'5 For example, a recent

OECD study revealed that, in 1970, Saudi Arabia was selling its oil for $1.30 a

barrel, which represented a decline

of

50 per cent in real terms of its value in

1950.16

In spite of the slight increase in the prices of oil in 1970 the (real) value of

the

oil

revenues decreased between

1970

and

1973 due to inflation

in

the

ICs

and

the

devaluation

of

the

US dollar in

1972.

In

addition the sharp increase in the

prices of food and manufactured products more than offset the increase in oil

prices.'7 The oil-importing

LDCs

suffered from the deterioration of their terms

of

trade

with

the

ICs in

equal

measure with the

increase

in

the prices of oil. Table

5 shows that their termsof tradedeclined by 8.0 per cent in 1974 and again by 9.5

per cent

in 1975.

This

decrease affected

their current

accounts,

which went from a

deficit of

$36.9

billion

in

1974

to a

deficit

of

$45.9

billion in

1975.

The blame

must

be shared by

both the ICs

and

OPEC countries

together.

The oil-exporting countries have also arguedthat no serious harm was actually

done

to

the

majority

of the

oil-importing

LDCs since

they

were more

than

compensated

for their increased

oil bills. The

Organisation

of

Arab Petroleum

Exporting Countries (OAPEC) published

a

report

in which

it provided

the

following

calculation:'8

out of

1,050

million tons

of oil

imported by developing

countries between 1974 and

1976,

563 million

tons,

or

53

per cent,

were

re-

exported

in the form of either crude

oil or

refined

products. The remaining 487

million tons were

the LDCs' net

imports.

Of

this,

five

countries (Argentina,

Brazil, India,

South Korea and

Taiwan) imported

more than

50 per

cent. The

report contends that

these countries have

strong

and

diversified economies,

and

that they were among the countries which succeeded in maintaining high growth

rates

in

spite

of the

oil

price

increases.

In

addition, during

this

period (1974-6)

OPEC countries committed

$18.5

billion

in

aid to the LDCs. This

amounted

to

66.1

per

cent of

the total

$28

billion

these

countries accumulated as current

account deficits.

If the five countries mentioned above were

excluded

from

the

15

Loring Allen,

'OPEC Speaks

Out:

an interview

with

Ali

M

Jaida',

WorldReview,,March

1979, p 42.

16

Cited

by Hardy, op. cit.

p 14.

17

The prices of

food and

services

from

the OECD countries

have

increased to

such a level that OPEC

countries'

imports

reached $79.3

billion

in

1978,

something they

could afford

to pay and

even realise

some

current

account surpluses. Oil-importing

LDCs were in no position to do so. Petroleum

Intelligence

Service, 10 July 1979,

p

1.

'Report on the

Relationship

Between

the

Financial

Aid of OPEC

Countries and the

Financial

Burdens

of the

Developing

Countries Resulting

from the Correction of Oil Prices Since 1973',

OAPEC

Bulletin,

October 1979, pp

15-25 (in Arabic).

741


7/21/2019 Saddy 1982

8/23


calculation of the oil import-aid ratio, thepercentageof OPEC aid commitments

to

the rest

of the

LDCs would

be

134.4

per

cent.

The Muted Controversy

Statistics

can be

creative;

but

they

can

also

be

deceptive. However,

the

glaring

reality remains that Third World indebtedness was

the

making

of

both the

ICs

and

OPEC countries.

The

deflationary policies

that

the OECD countries

have

pursued

since

1974 resulted

in some

improvements

in their current accounts

but

have also retarded their economic recovery.

These

improvements were

accom-

plished by increasing

their

exports

to

OPEC

countries

and

decreasing

their

imports from the oil-importing LDCs. A large part of the burden of adjustment,

therefore,

was

shouldered

by

the

latter,

which

benefited neither from

the

expanded

markets of

OPEC

countries

nor from their

accumulated

capital-

surpluses. These surpluses

were

concentrated

in

the

Western banking system

which lent them

to

the

LDCs

at

high

interest

rates,

thus further

affecting

their

economic imbalances.

The symbiotic relationship that developed between the oil exporters and the

ICs in the second part of the 1970s may explain the muted controversy over who

caused the indebtedness of the oil-importing LDCs. In fact, the second 'shock'

that OPEC delivered to the

world

economy

in

1979 was anticipated and did not

raise the cries that werevoiced after the first oil priceincreases in 1973.A number

of

factors may explain

this

restrained

reaction.

First,

the

steady

decline

in the

value

of

oil in

real terms was

bound to

make

price adjustments a necessity.

The

realvalue

of

oil declined by one-third between

1974 and

1978,

and

OPEC countries' current account

surpluses decreased

from

$67.8

billion to

$5.0

billion

during

the same

period. Meanwhile,

the

prices

of

goods imported by

OPEC countries

soared,

thus

increasing

the cost of their

development programmes.

The ICs failed to heed

OPEC countries' calls

for

taking

effective measures

to control

inflation,

which

was eroding the value

of

their oil

capital surpluses (Table 5).

Second, the price of oil in the parallel ('spot') market was increasing rapidly in

relation to the

price

of contracted

oil. The

increase was

necessary to bring OPEC

oil

prices

to that

level,

which was also

the

level

at which oil

produced by

industrialised countries (UK, Norway and Canada) and other developing

countries

(Mexico)

was

sold.

In

addition,

the

increase in the

prices of oil could

stimulate

interests in

developing alternative sources of energy.

Third,

the

balance of trade of

the ICs with OPEC

countries registered signifi-

cant

improvements

in the

preceding years.

This

experience demonstrated that

there

was

no

reason to

be

alarmed at OPEC's

increased revenues. Most of the

revenues have been spent

on

purchases of goods and services from the ICs and

the remaining surpluses have been invested there. Besides, any increases in oil

prices could,

as

in

the past,

be

offset by increasing the prices of exports.

Fourth,

OPEC

countries, particularly the capital surplus oil exporters have

displayed

a sense of

responsibility in cooperating with international lending

742


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9/23

OPEC CAPITAL SURPLUS FUNDS

AND THIRD WORLD

INDEBTEDNESS

instititutions.'9 They have also responded positively to the ICs' needs and

recommendations

ncludingmaking

larger

contributions o

developing

countries.20

The

muted

reaction

to the

secondoil price

'shock',

however, has

resolved

noneof

the

problemsthat

have

afflicted heworld

economy since

1973.In

fact, it

has

allowed

the

policies

pursued by

the ICs to

continue. More

than

two years

have

already

passed since the

second 'shock'

was

administered, and no

substantive

changes of

policy

have been

taken

by the

ICs

to alleviate the

problemsof

inflation,

slackening

growth

and

unemployment.

However,

this

muted

reaction

may

no longer

be

possible,

considering

the

prospects for

growth

and

development

in a world

characterised

more and

more by

interdependence. As it

was put

recently by

Jacques de Larosiere, IMF Executive Director, 'the increase in international

economic

interdependence

has

brought with

it a new

element

of

vulnerability.

Countries

expanding trading

and

other

economic

links

have

become

increasingly

exposed

to

external

economic

and financial

developments

that are

beyond their

control'.21

Although


are more

dependent on

international

trade

for their

growth

than

the

ICs,

their

reduced level

of

trade

and

slackening

economies will

have an

increasingly

important

impact

on the

prospects for

economic

recovery in

the

industrialised countries.

Therefore,

the

relationship

between the ICs

and OPEC

countries,

to the

exclusion of

the

developingworld,

will

not

serve the

interests of

both

in

the

long

run.

OPEC's

diversification of

trade and

investment to the developing countries is a matter of necessity, not choice.

Investment

of

Capital

Surpluses

It

is

difficult

to

estimate the amount of the

capital-surplus oil funds

with

any

measures

of

accuracy.

Measured

by

the

currentaccount

surpluses

of

Saudi Arabia.

Kuwait,

Libya,

Iraq, Qatar

and

the

United

Arab

Emirates

(UAE) between 1973

and

1980,

the

capital-surplus

oil

funds are

estimated

at

some

$350

billion. But

they

could

be twice that

level.22Others

estimate

they

will

reach

$500

billion

by

1982.23

9 In spite of the increased ndebtedness

of

oil-importing

LDCs,

aid

from

the ICsas

a percentage of their

Gross National Products (GNPs) declined from 0.30 per cent in 1974 to 0.22 per cent in 1977. This

was well

below

the

recommended

target

of 0.7

per

cent for

the

UN

Second Development

Decade. By

comparison, OPEC

members

committed

8.2

per

cent of

their GNPs

in

aid

in

1974, the first

yearafter

the oil price

ncreases;

see

Organisation

forEconomic

Cooperation

and

Development,

Development

Assistance

Directorate,

Flow

ofResourcesfrom OPECMembers

toDevelopingCountries,

Document

No. DD. 403, 6 December

1975,

Table

2, p

8.

The

estimated

figures of

Official

Development

Assistance of

OECD

countries

in

1980 is

$26.6 billion,

or

0.37

per cent of their

GNPs; for

OAPEC

countries they

are

$6.798

billion,

or 2.34

per

cent.

WorldDevelopmentReport

981,

Table

16, Official

Development

Assistance

from

OECD

andOPEC

Members, pp

164-5.See

also 'Arab

Institutions for

Development

Aid Have

Rapidly Expanded

Their

Activities',IMFSurvey,

5

Februaryl979,p 37;and

'Arab Monetary Fund

Loan

Operations

Begin

With

Payments

Assistance for

Five

Members', IMF

Survey,

20

August

1979, pp

249-50.

20

OPEC countries received

praise

by

the new

president

ofthe

World

Bank,

A

W

Clausen.Address

o the

Board of

Governors,

World

Bank,

Washington, DC,

29

September

1981.

21

EconomicCooper-ationndWorldStability, InternationalMonetaryFund,

Washington, DC, August

198 1, p 9.

22

Hardy,

op.

cit.

p

18.

23

'Morgan

Guarantee

Warnson

Massive

OPEC

Revenues',InternationalHerald

Tribune

10

December

1979, p

1.

743


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THIRD

WORLD

QUARTERLY

'Secrecytheorists,'however, contend that thesurpluses are much larger, but their

accurate

figures are known only to

thecapital-surplus

countries andsome

Western

governments,particularly the

United States.24

The

capital surpluses

are

the

result

of

over-production of oil. Under normal

conditions it

is in

the interests

of the oil

exporters

to

produce

only enough

to

meet

the

requirements of their

development. For

example,

SaudiArabia's

development

requirements

can

be

met by

producing only

4.5 million

barrels

of oil

per day. Yet, it

producesmore than

twice as much. The reason

it

produces morethan it

needs is to

help

-

together

with other oil

exporters

-

meet

the

world demand for oil.

Any

cutback

in

production will result in

driving

the

price

of oil even

higher

which will

further worsen prospects for the world economy. The oil producers themselves

would

suffer

the

consequences

as

well,

because

inflation

spurred by

oil

price

increases would drive

up

the

prices

of

imported

goods and reducethe value of their

capital surpluses.25

If

the obligation to

maintain

current evels of oil

production

-andconsequently

the accumulation of

large capital surpluses

-

is

inescapable,

then

they

must find

ways

to

protect

their

surplusesagainst

inflation and

currencydevaluation.

In

over-

producing

the oil exporters 'are

depleting a

non-renewableasset and

exchanging

an

asset

(oil)

which

is

appreciating

in value

for

financial assets which are

depreciating

in

value.'26

Any

investment

strategy,

therefore,

must

be

at least as

profitable as if the oil had been kept underground.This goal, however, has been

elusive in

spite

of

the

tremendous

increases

in

the

prices of

oil

since

1973.

The Harvest of the

1970s

The

recycling

strategies that the

capital-surplus oil exporters

pursued in the 1970s

focused

on

the

industrialised countries. There

was,

and

still is, a

general belief that

only

the Western

economies have the

width and

depth

to

absorb

their surpluses.

There are other

considerations, but they are less

important than

the basicpremise

of

the Western

markets' viability.27Evenafter

the

developmentof a

sophisticated

banking

system

in

the

capital-surplus

countries

they

have not

ventured on any

significant scale outside the industrialised economies. It will be worthwhile,

therefore,

to

look

briefly at the results of these

investments

since the recycling

mechanism was initiated. What

gains

and losses

have

accruedby this

mechanism

24

'Saudi-American Finances

-

That

Secret

Agreement:

final

confirmation

and

assessment of its

long

term

importance',

International

Currency

Reviewt12

(1) 1980,pp

7-24.

25

There are

other

reasons for the

over-production

of

oil,

which are

political

and

economic. For

example, theability of Saudi

Arabia to

increase

tsproduction

from

8.5 to

11.5million

barrelsof oil a

day

alleviated the

shortages

in the world oil market that

developed

after

the

Iranian

Revolution and

impeded other OPEC members from

raising

the

price

of

their oil.

This

capability is translated nto

political

power. In

addition,

Saudi Arabia fears

that

substantial increases

of

oil prices

would

accelerate the process

of

developing

alternative sources of

energy by

the ICs and

ultimately

result in

depressing the prices of oil.

26

Hardy, op.

cit.

p

3.

27

These considerations

are discussed at

length

in

Fehmy Saddy and

Antun Harik,

'Investment of

Surplus

Oil Funds in the Third

World:

Latin

America',

Arab-Latin

American

Relations:

Energy,

Trade and Investment,

Fehmy Saddy,

(ed).,

New

Brunswick,

N.J.:

Transaction Books,

1982.

744


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OPEC

CAPITAL SURPLUS

FUNDS

AND THIRD WORLD

INDEBTEDNESS

to the capital-surplus oil exporters,the industrialisedcountries and thedeveloping

world?

1.

Capital-Surplus Oil

Exporters

Table 6 shows

that the

investablesurpluses

varied from$59

billion in 1974

to $20

billion

in

1977.

Therewas a net

deficit

of$7 billion in 1978

whensome oil

producers

had to

draw on

their deposits or

borrowto pay for

theirexpanded

purchases. The

investable

surpluses rose

to, $68

billion in

1979

and again to

$73

billion in 1980.

Most

of the capital

surpluses were

invested in

short-term bank

deposits and

securities in the

Euromarket or in long-term

US

Treasury bills and

UK securities.

In addition, other investmentswereplaced in the stock marketsand in realestate.

The rate of

returnon

these investments

rangedbetween

zeroand-3.4

percent per

year during the

1972-9period.28The

reasons for

this

negative return appear

to be

inflation and

the

depreciation

of

the US

dollar in

which oil

payments are

made.

These reasons

are

explained by one economic

analyst as

follows:

The

annual increase in

Eurodollar deposit rates

between 1972 and

1979 was 10.8 per

cent, compared with the annual

average

ncrease n

import

prices

of 14.2

per cent, and

in OECD

domestic prices of 10.5

per cent...

In

addition to a low or

negative

yield,

it

appears

that

the

purchasing

power

of

OPEC's

dollar assets

has also

eroded because

of

the

decline

in

the real

effective

exchange

rate

of

the US

dollar against

the

current-

effective

exchange

rate of the US dollar

against

the

currencies of 15 other

major

countries.29

2. The Industrialised

Countries

The

Eurodollar markets attracted most of the

investable

surpluses because of

higher interest

rates,

minimum

restrictions,

and

easy

access to the

surpluses

when

needed.

The

Euromarkets

expanded

in

the 1970s with

increased

involvement

of

US

banks.

The

purpose

of this involvement was to

help

absorb or

'recycle'

the

capital

surpluses.

The

expansion

of US

banking

overseas,

particularly

in

developing

countries,

helped

to

connect the Euromarket with these

countries,

as

lending

to

them became

the cornerstone of the petro-dollar 'recycling' strategy.30In 1965, only 11

American banks had branches

in

other countries.

The number

reached 125 banks

in

1975,

with 732 branches

operating

in

59

countries.

Wachtel

reports that

'taking

just the

20 largest

US banks

(which

account for

82

per

cent of the

total number of

foreign

branches and 92

per

cent of total

foreign

assets), foreign

assets account

for

about 35

per

cent

of

their total

assets.'3'

Some of

the

largest

US

banks even have

more than

50

per

cent

of

their assets

in

overseas

branches.

One

indication

of the

profitability

of'recycling'

for US

multinational banks

is

to

compare

the

earnings

from

their

overseas

operations

with their

earnings

at home.

28

Much

of this discussion

relies

on

Hardy op.

cit.

pp

18-19.

29

ibid.

3

Much of the statistical data and

evaluation

thatfollow are drawn

from HowardMWachtel,TheNew

Gnomes:multinationalbanks

in the

Third

World, Pamphlet

No.

4), Washington,

DC: Transnational

Institute, 1977.

31

ibid,

p 8.

745


7/21/2019 Saddy 1982

12/23


By 1976, the external assets of the eight largest US banks32 accounted for 45 per

cent of

their

total

assets, compared with

16

per

cent

for

all US banks. International

earnings accounted

for 95

per

cent

of

the increase in their

total

earnings during

the

1970-75 period.33 Wachtel

composes

the

following profile

of

US

banking

operations,

drawn from such authoritative sources

as TheNew York

Times

and the

investment

house Salomon Brothers:

A

substantial portion of the total

earnings

of the

12

largest

US

banks come

from

earnings

on loans

made outside

of the

United States.

In

1975,

63

per

cent of

total

income for these

12

largest banks originated

in

their

foreign

branches,up

from 23

per

cent

in

1971 and 43

per

cent in 1974. For several

of

these

large banks, nearly

all

of

their

earnings

in

1975 was derived

from

foreign

branch

activity. For

example,

Chase

Manhattan

received an astounding 82 per cent

of its 1975

earnings from foreign

activities; First National Bank of

Chicago,

63

per cent; and First

National

Bank of

Boston, 80 per cent. Salomon

Brothers, an investment house

which employed

William

Simon before he became Secretary of the

Treasury under Nixon and Ford,

recently reported that

the 'growth

in

international

earnings has accounted for 95 per

cent of

the total earnings increase'

in

the

largest banks since

1970. The dynamic

growing sector

of

banking activities had

definitely shifted from the

United States

during

this

period.

From 1970-1975credit

expanded by only 9 per

cent

in the United

States; in

contrast, international credit grew

two-and-a-half times as rapidly, about

30

per

cent.

Earnings

in

the

international

capital

market

expanded

about

36 per

cent

during

this same

period

while domestic

earnings

declined

by

9

per

cent from

1970-

1975, according to the Salomon Brothersreport.34

3.

The

Oil-Importing

LDCs

The negative return on

investments

of

surplus

oil revenues

and the

profitability

of

international

banking

were the result of

the

'recycling'

mechanism. Both

would have

been

justified had

developing

countries

shared in the losses and

gains.

Their

increased indebtedness

meant,

in

fact,

that

they

shared in

the

former

but

not

in

the

latter,

unless

borrowing

at

high

interest rates and

the creation

of

debt-servicing problems

could be

considered- successful

management. But this

is

exactly

how

it

has

been

perceived.

The

intermediation of

the

international

banking system

has

received

praise

on

the

premise

that it

prevented

a

deeper

world recession.35 However, such intermediation was carried at a high cost for

both the

capital-surplus

oil

producers

and

the

oil-importing LDCs.

The acute

indebtedness and debt

servicing

problems of the latter have come

to threaten an

even

deeper world recession and

the prospect of wholesale

defaults for the first

time

since the 1930s. Measured

by these results,

the forms which the recycling

strategy has taken could no

longer be sustained without further

sacrifices by all

developing

countries. In the

final

analysis, this

will defeat the very purpose of

recycling by

negatively affecting the

industrialised as well as the capital-surplus

countries.

32

Citicorp, Bank of

America,

Chase

Manhattan,Manufacturers

Hanover, Bankers

Trust,

Chemical,

Morgan Guarantee, First Chicago, and Continental

Illinois.

33

Chandra

S

Hardy, 'Commercial Bank

Lending

to

Developing Countries:

supply

constraints',

World

Development

7

(2)

February 1979,

p

190.

3 Wachtel op.

cit. p

9.

3

WorldDevelopment

Report 1981, p 50.

746


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OPEC CAPITAL SURPLUS FUNDS AND THIRD WORLD

INDEBTEDNESS

Investment in the Third World

In concluding the discussion

on

external

financing

for

adjustment and growth,

the World Development Report of 1981 recommends

improvement in the access

of


to stable

flows of

non-concessional credits.

It

states,

in

specific terms, that 'direct placement by the

oil

exporters

in


must

be

encouraged,

and the

international financial institutions should play

a larger role

in

intermediation

-

directly

or

in

cooperation with the private

banks.'36

Direct investments by the capital-surplus oil exporters in the Third World

must be encouraged because of sound

economic considerations and not only as a

matter of concern for the plight of developing countries. The arguments

presented here emphasise the stability and viability of developing countries.

Furthermore, a strategy of investment diversification is in the interest of all

countries because

of their

interdependent

economic

relations.

Stability of Developing Countries

The first concern of investors is political

stability.

To

a large extent, defining

stability is a matter of perception, even when objective criteria are developed as

measurements. Paul

Watson,

a

US

banker,quotes Harry

C

Wallich

of

the Board

of

Governors

of

the Federal

Reserve Board as

saying:

Practitionersof the analysisof the economic, inancialand political ituationsof

the individual ebtor

country)

are he firstto

point

out

that

analysis

of

country

isk

is

not

a

science. hesitate

o

call

it an

art;perhaps

t

may

be

dignified

withthe term

'craft'."

Currently, assessments of the stability of

developing

countries are

produced by

Western specialists and thus reflect Western

views

and perceptions. The missing

question

in these assessments

is:

stability

or

instability

in

relation

to

which

countries?

International

relations are marked

by

various shades of

friendship

and

hostility

for

a host

of reasons. Western investors have

good

reason

to fear the

expropriation

of their

assets

by developing

countries. Western involvement in the

Third World may justify the negative reaction against foreign investments that

were

generated

after

independence.

However,

the

same does not

hold

true for

investments placed by the capital-surplus

oil

exporters

who

are themselves

developing

countries and

who share with

the

investment-recipient

countries

in

the Third World

their

caution

and

misapprehensions.

It is worthwhile to note

that there

is no

precedent

of

expropriation

by

a

developing country

of

the assets

of

another

developing country. Changes

of

government, therefore,

are

much less

of

a

political

risk

for

the

capital-surplus

countries than for

Western interests

with

a

questionable

record

in the

Third World.

In

any case,

the

instability

of

developing

countries is

often

exaggerated by

Western financial circles which have frequentlyused it as a lever in negotiations

with borrowers.

In

spite

of the claim

of the

instability

of

developing countries,

the

36 ibid.

3 Debt and The Developing

Countries: newu roblems and new actors, Washington,

DC: Overseas

Development Council, Development Paper 26,

NIEO Series, April 1978, p 45.

747


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Western banking system was able to place some $350 billion in developing

countries during

the

span

of a few

years.

For

example,

Brazil

has been cited

by

investors

as a risk-laden country

because of its large

external debt

which

amounted

in 1981 to some $60

billion. Yet Citicorp's portfolio

outstanding

in

Brazil

in

1977

was

over $2 billion,

which amounted to 35 per

cent of its

net

income

for

that year.38

Inspite

of its

Jarge

debt,

Brazil's

ability

to borrow on

the

international

market

does not seem to have been diminished.

A further

evidence

of the politics

of risk

analysis

is

provided

by

the

following

account:

A year

ago (1978) some

bankers stated

publicly

that 50 per cent

of their LDCs

exposure

had some form

of external guarantees.

Subsequent

US Federal Reserve

Board survey (FED) data show that only 6 per cent of the claims on foreigners by

US

banks

carry

external guarantees

...

Market

analysts

feel that

much of

what

banks

say about

the risks

in

their

LDC

portfolios

is self-serving.39

Problems

of Industrialised

Countries

The investment

experiences

of the capital-surplus

countries during

the 1970s

have

demonstrated

that the political

and economic stability

of the industrialised

countries

is no

less

shaky

than

that

of

developing

countries.

On

the political

plane, the

recent US-Iranian

crisis reveals

that

dealing with the

powerful is a

mixed blessing,

to

say

the least.

The extraterritorial

reach of

US

jurisdiction

by

which Iranian

deposits

in

branches

of

US

banks overseas were 'frozen'

make the

investments

of capital-surplus

countries subject

to political

considerations.

Given

the tenuous

state of affairs

between

the

United

States

and some

Arab

oil

producing

countries,

the

possibility

of the US

freezing

their

assets,

whether

in

the

United States

or

in

branches

of US banks

overseas,

cannot

be discounted

as a

political

risk.

In

addition,

the

US

government

and

Congress

have

been producing

a

multiplicity

of

legislation

and

regulations

that

negatively

affect Arab

investment and

trade.40

These

political

risks

have,

in

fact,

been at work in

OPEC

countries' decisions

to reduce

their

deposits

in

US

banks.4'

On

the

economic plane,

the industrialised

countries

continue

to be unable

to

put their house

in

order:

inflation

still seems

uncontrollable;

a

sluggish

economy

is

characteristic

of most of

them;

and

social

upheavals

resulting from

unemployment

and

stagnation

are

on the

rise.

Consider the

US

economy,

the

strongest

in the Western world,

in

1982. The national debt has

risen to

$1,079

trillion,

an

increase

of

$94

billion

over a

year

ago.

This

debt 'amounts to $4,694

for

every man,

woman and

child

in

the

country.'42

The

budget

deficit amounts

to

$109

billion

which

imperils

economic recovery.43

The unemployment rate

of 9

38 Hardy, op.

cit.

p 191.

3

Ibid., p 193.

40

See, in

particular,

Public

Law

No.

95-52,

Title

11,

91

Stat.

235,

Export

Administration

Amendments

(1977),

amending

50

USC

?

2401 et

seq.

(1970); Henry

J

Steiner,

'International

Boycotts and

Domestic Order:AmericaninvolvementintheArab-Israeliconflict', TexasLaiiReview(54)1976, pp

1355-1410;

and

note,

'US

Regulation

of Direct

Foreign

Investment:

current

developments and the

Congressional

response', Virginia

Journal

of

InternationalLaw

(15) 1975, pp

611-47.

41

'OPEC Nations

Reduce

Deposits

in US

Banks',

Net

York

Times,

19

January

1982, p

Dl.

42

'Senate Passes

Bill for

Debt

of

$1 Trillion',

WashingtonPost,

30

September

1981, p

1.

43 'Volker Cautions That Big

Deficits Imperil Recovery',NewrYork

Times, 27

January 1982, p 1.

748


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OPEC

CAPITAL

SURPLUS FUNDS AND THIRD WORLD

INDEBTEDNESS

per cent is rising without any indication of government intervention to check it.

Meanwhile, an ambitious armaments

programme

of over ?200 billion is under

way to be financed

by diminishing tax collections.

The economic problems of

the industrialised countries, however,

are

structural and

not only related to ineffective economic

policies. As W Arthur

Lewis has indicated,

growth in the

ICs will continue to be low in the

coming years

as their economies

pass througha cyclical decline.

Recovery will ultimately come

after structural

adjustments are made, either by

more efficient production

or

technological

breakthroughs.44

Viability of Developing Countries

In

spite

of two oil price 'shocks',

increased

ndebtedness, anddeterioration

intheir

terms of trade, the developing

countries were able to

maintain an averagegrowth

rate of 2.7 percent throughout

the 1970s.

This was

higher than the average

growth

rate of 2.5 per

cent achieved

by

the

industrialised countries.45

The growth rate of

some MICs

has reached

higher

levels than the

average growth

rate for

all

developing countries.

The NICs

in

East

Asia

and

Latin America

particularly

demonstrated

a strong ability

to

withstand the world

economic

recession and

maintained high

levels

of

exports.

On

the

whole,

outward-looking

countries in the

Third World

werewilling

to take

the

risk of

heavy

external

borrowing to maintain

theirpace of development, and as a resultthey havefared better than the inward-

looking countries.46

These countries

are

particularly

viable

for

investment by

the

capital-surplus

oil exporters.

Direct investment

would

help

them reduce their

borrowing

on the international

capital

markets

and allow them to

manage

their

debts moreeffectively.

The

injection

of

capital

investment

in

these countries would

stimulate

further

growth

with

benefits

for both investors and

capital

recipients.

Conclusion

The discussion

of

indebtedness

has

indicated the tremendous

risks to the world

economy

that

have been

created

by

the financial imbalances

of

developing

countries.

In

spite

of cautious

optimism

about

the

ability

of

developing

countries

to

ward

off the

prospects

of

default,

these

prospects

cannot be

ignored.

The

indebtedness problem

is not

receiving

the concern it

requires

from

multilateral

development institutions,

industrialised

governments

and

capital-surplus

coun-

tries,

and

no

concerted

efforts

have

been made to

bring

it

under control.

The

investment

policies

that the

capital-surplus

oil

exporters

have

pursued

have

fallen within

the

general strategy

of

'recycling.'

Essentially,

what this

strategy

accomplished

was

the transformation

of OPEC's

surpluses

into debts to

developing

countries

through

the

Western

banking system,

which

reaped

the

4

'The Slowing Down of the Engineof Growth', AmericanEconomicReviewv70), September 1980pp

555-64.

4

Wor dDevelopment

Report

1981,

Table 1-1, Growth

of GNP

per person, by region, 1960-90,

p

3.

46

RalphC Bryant,

'Notes on

the Analysisof Capital

Flows

to

DevelopingNations

and

the "Recycling"

Problem',

World Bank Staff Working

Paper No. 476, Washington,

DC, August

1981.

749


7/21/2019 Saddy 1982

16/23

THIRD WORLD

QUARTERLY

benefits. The economic resultsof this strategyweredisadvantageous to both the

capital-surplus

and

oil-importing

developing

LDCs.

Moreover,

the

'recycling'

strategyhelped to

deepen

further the

dependence

of

both on

the

ICs.

It was

the

liberal

'fix'

of

the

early

1970s that

provided

the

necessary

logic

and

rationale

for

the

recycling

strategy.

In its

simplest

form it

meant that

attention

must

be

given

to the ICs

because

of

the

adverse

effects

any curtailment

of

their

growth would have on the LDCs. In a

sense,

this

argument

implies

that what is

good for the

ICs is

good

for

the

rest of

the

world.

Therefore,

the

recycling

mechanism

was structured

for the

purpose

of

helping

the

Western

economies

recover their

strength.

The

experience

of the last

decade

has

proven

the

recycling

strategy inadequate. Neither the capital-surplus oil exporters nor the oil-

importingLDCs

benefited

from

recycling:

heformer

byderiving

negative

returns

on

their

investments,

the

latter

by

increasing

their

indebtedness to an

alarming

level. The benefits that accrued

to

the ICs

were

substantial.

However,

the

recycling

strategy

failed to

bring

about

recovery

for their

economies. In

fact,

the

Western

economies continue

to face

serious

difficulties

manifested

in

persistent

stagflation,

unemployment

and

declining

productivity.

One

analyst

has

commented on

this

state of affairs

by saying

that

'controversy

rages

both about

the

causes of this

"stagflation"

and the

appropriate

policy

reaction to

it.

Economists'

views

about

macroeconomic

theory

and

policy

are

in

a

greater

state of

disarray han

at

any

time

in living memory.'47

In

spite

of the structured favouritism in the

recycling strategy toward

the

ICs,

achievements have been

meagre.

The

developing

countries, which

seem to have

taken

the

brunt of

recycling

in terms of

increased

indebtedness,

deterioration

in

terms

of

trade,

and curtailed

exports,

fared better.

If

this is

any indication it is

that

they

are

more viable

economically

and

are

better

candidates for

future

growth.

Investment

of

capital surpluses

in

these countries is

at least

as

viable as in

the ICs.

There

has been a

recognition

of

the

limitation

of

recycling

as

it

was

administered

in the

1970s. It

is

again

the liberal

'fixers' who are

leading

the

way. They

contend

that

the

prospects

of default in the Third

World

would

pose

intolerable risks

to the

worldeconomy. To ward off such aprospect,some of thecapitalsurplusesmust be

invested

directly in

developing

countries. The

Western

banking system

has

reached

its

limits in

terms of its

ability

to

continue

its

lending to the

ThirdWorld.

Direct investments

by

the

capital-surplusexporters

in

developing

countries

would

help the

latter service their debts

while

relegating to

the former

a

larger

responsibility

in

assuming the

risks.

However,

they

contend that

the

largestpart of

the

capitalsurpluses

must be

invested

in the

ICs to

help them

'reindustrialise'

more

efficiently.48 It

may

seem odd to

argue

that

the

capital

surpluses of

some

developing

countries

must

be

used

to

reindustrialise

the

industrialised

countries

when

these

surpluses

could be

used more

efficiently

in

the

developing

world. Ifthe

liberalargumentis adopted, double industrialisationwould havebeencarriedout

in

the

Western countries

at the

expense

ofthe

developing

countries,once

by the use

47

ibid.,

p

58.

48

Hardy,op.

cit.,

pSI.

750


7/21/2019 Saddy 1982

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OPEC CAPITAL

SURPLUS FUNDS AND

THIRD

WORLD

INDEBTEDNESS

of their raw materials and again by their capital surpluses.

Therefore,

enlightened

self-interest,

not

immediate

short-term

benefit, is

indispensable

to correct

the

present world

economic

imbalances

within a

framework of

balanced

interdependence.49The

recycling

strategy

in the

1980s

must make

the

developing countries the focus

of

its

attention.

This

amounts to

the

recognition

that

genuine

interdependence

is a

system of

shared

risks

and

responsibilities.

It also

indicates that the

economic

viability

of

the

whole

depends

on the

viability

of

its

parts.

See

Fehmy

Saddy,

'A

New World

Economic Order: the limits

of

accommodation', Inteinational

Journal

34

(1)

Winter

1979,

pp

16-38.

751


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