Arab Investment: Ups and Downs

Arab investors in the U.S. will face continuing challenges for public disclosure of their holdings, despite the Supreme Court's October 11 denial of a hearing on a lawsuit aimed at forcing disclosure.

The suit was brought by the American Jewish Congress (AJC) against the Treasury Department, which agreed in 1974 to keep secret the source and extent of individual U.S. investments by the governments of Saudi Arabia, Kuwait, Qatar and the UAE, the principal Arab OPEC surplus investors.

The AJC says it may now pursue the matter on a state-by-state basis. An AJC spokesman said the organization was not opposed to Arab investment in principle, but felt the U.S. public had a right to know where the funds were coming from.

In the past, other Jewish activists, notably the late New York Congressman Benjamin Rosenthal, have contended that the volume of Arab official investments and the secrecy with which they were handled created a threat that the investor countries could use their wealth to exert "undue influence" on U.S. policymakers.

Rosenthal's monetary affairs subcommittee of the House government operations committee once sought to declassify secret government documents relating to Arab investments in the U.S. Since Rosenthal's death earlier this year, no one in Congress has taken up the matter, while the AJC suit has been working its way through the courts.

As the issue has come to a head, the pace of Arab government investment has slowed down because of the financial pinch felt by some of the Arab OPEC states as a result of the worldwide oil surplus and the leveling-off of OPEC oil prices. Indeed, it is believed that Saudi Arabia, the UAE and other countries may already have begun tapping their vast overseas dollar reserves—once estimated at $200 billion or more—to meet budget shortfalls at home. Contractors and suppliers in those countries have reported delays getting paid, but the governments of the Gulf states have pledged for the most part that they will meet their current spending and developmental plan commitments.

According to one analyst, Dr. Odeh Aburdene of Occidental Petroleum, the influx of dollar assets into the U.S. from Saudi Arabia and Kuwait was $11 billion in 1982, compared with more than $14 billion the previous year. This trend is expected to be evident again when this year's results are in.

Most of these funds flow into the U.S. Treasury in the form of purchases of U.S. bills and certificates, bonds and notes and federal agency debt issues. (It is said that Saudi Arabia, for example, is by far the biggest single shareholder in the federal government's "Fannie Mae" mortgage pool.)

Under the 1974 agreement, government records classify these investments under the aggregate heading of "Middle East oil exporters," which includes Iraq, Iran, Bahrain and Oman, as well as the four main Arab surplus investors. At the end of 1982, according to Treasury Department statistics, these investors held $60.7 billion worth of government securities, corporate stocks and bonds and commercial bank liabilities in the U.S. They had made another $3.35 billion in direct investments in the U.S., of which a major part, $2.5 billion, was from a single investment—the 1981 purchase by the Kuwait Petroleum Corporation of Santa Fe International, a California-based energy concern.

Official U.S. government policy is very positive about foreign investment, which is seen as a source of economic strength for America and a means of holding down inflation at a time of huge government deficits. This policy definitely extends to Arab investment as much as to any other kind, particularly in the case of Saudi Arabia, with which the Treasury has close and constant liaison through the permanent U.S.-Saudi Arabian Joint Commission on Economic Cooperation, co-chaired by the finance ministers of the two countries.

In fact, as the Supreme Court move was disclosed, it was announced that Treasury Secretary Donald Regan was leaving on October 24 for visits to Saudi Arabia, Kuwait and Bahrain. Among the topics it was said he would raise with government and business leaders in those countries was the issue of Arab investment in the U.S.—and presumably the fact that the U.S. would like more of it.