Poor nations bear brunt of new oil prices

By , Staff correspondent of The Christian Science Monitor

This is the story of the sheikh, the banker, and the poor farmer, and it illustrates how a $30 billion oil price increase travels round the world. The sheikh is a turbaned delegate of one of the 13 oil producing countries that have just concluded a conference in Algiers of the Organization of Petroleum Exporting Countries (OPEC). Prior to 1973, cartel members sold oil for $3 or $4 a barrel. The latest OPEC agreement is ambiguous, but experts expect the new oil price will be around $32 a barrel. The increase of $1 to $3 a barrel may cost consumers $30 billion a year.

The banker heads a huge New York commercial bank with customers abroad and at home. It is is business to make loans and protect his capital. Some loans to governments of developing countries are shaky. Higher oil prices have helped produce inflation around the world; now there is global recession. What will another boost in prices mean? In the United States, it will mean only an increase of a few cents in gasoline prices at the pump.

But in far-off India, the loinclothed farmer must pay more to the landlord for oil to run the irrigation pumps.He is hard pressed already. Says Robert S. McNamara, president of the World Bank, speaking of the 2 billion people in developing countries: "Some 800 million individuals continue to be trapped in what I have termed absolute poverty . . . beneath any reasonable definition of human decency."

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The sheikh, the farmer, and the New York banker are tied together in the increasingly interconnected world.

What will the sheikh do with his share of the extra billions in income from the higher price of oil? What the Shah of Iran, before he was overthrown, a lot of it went into armaments, schools, skycrapers, and sidewalks. There is so much money that some will probably come to the New York banker for reinvestment.

Who will the banker lend it to? The so-called less-developed countries (LDCs) are clamoring for money. But some of them are over-extended: The Philippines, Turkey, Peru often are cited. They must balance revenue from their exports against costs of imports plus borrowings. Take Brazil: by one estimate its oil import bill of $7 billion, plus $13 billion for debt service, is more than its total income from exports.

The US Treasury Department keeps score on some of these things; it reports that only 11 developing countries since 1972 have confronted "debt situations grave enough to justify" special interventions by multinational agencies.

Nevertheless, as global oil price inflation has grown and as anti-inflation actions in rich countries like the United States have slowed trade and produced recession, questions have risen about international loans.

The interconnection between rich-poor countries is something like this, with the US representing the Western industrialized orld: The US depends on the LDCs to buy about a third of its exports; it depends on the LDCs to supply about one-third of its imports.

At a sensitive moment in trade relations, the greatest danger, some believe, is the imposition of trade restrictions. Half a century ago President Hoover signed the Smoot-Hawley tariff, June 17, 1930. It was a political expedient rushed through after the 1929 crash, and was protested by 1,028 economists who signed an appeal to the White House.

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