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Saudi Cash-Flow Crunch Prompts Doubts Over Pending US Weapons Sales

POST GULF WAR

By Amy KaslowStaff writer of the Christian Science Monitor / December 20, 1993



WASHINGTON

AS American manufacturers scour foreign countries to boost export sales, one of the United States' prime overseas markets is in distress.

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Saudi Arabia - oil producer, investor, creditor extraordinaire, and the largest offshore outlet for high-priced US military equipment - is showing the weakest balance sheet in decades.

Entering its 11th year of budget deficits, the Saudi government owes tens of billions of dollars to domestic and foreign creditors.

Official coffers are low: International Monetary Fund (IMF) estimates put the country's financial reserves at $5.9 billion last year, a sharp drop from $11.7 billion in 1991.

With oil prices sinking to their lowest level in five years, analysts both inside and outside the kingdom say the world's top oil producer has poor prospects for reaping the profits necessary to comfortably fund domestic needs, pay for costly imports, and service its debts.

Some Saudi watchers - concerned that the kingdom will curb its imports of expensive American-made weaponry and imperil US jobs in the process - worry that the special US-Saudi Arabia commercial relationship, cemented during the 1991 Gulf war, may be cracking.

Since 1991, the kingdom has placed some $35 billion of US military goods on order - a so-called ``wish list'' drawn up by defense planners in Riyadh when they recognized an unprecedented American public support for arming US allies in the Gulf.

According to Saudi and American industry leaders, the timing could not have been better. The Pentagon's pared-down requirements have dampened domestic demand and US sales to third-world markets have been contracting. Backlog in US arms requests

Struggling to keep production lines rolling, many in the US defense industry have regarded the Saudis as a lifeline.

Joel Johnson, international vice president, of the Washington-based Aerospace Industries Association, calculates that $1 billion in exports generates 20,000 US jobs related to aerospace and creates another 15,000 indirectly, ``such as the butcher, the baker, and the banker.'' The Saudis' $30 billion to $35 billion backlog in US arms requests translates into at least 600,000 US jobs, he says.

``That's not to be taken lightly in an industry that has laid off 100,000 people a year for the past four years,'' Mr. Johnson says. With its plans to spend $3 billion annually on US imports, he adds, the kingdom ``is keeping us from firing another 60,000 people each year.'' Johnson says that while ``it's quite obvious that they're suffering from cash-flow problems, it's also quite clear that they have considerable collateral.''

The kingdom's spokesmen keep up a constant refrain that the country's prospects are bright. Investments during the past decade have helped the Saudis make important strides in industrialization.

The infrastructure is in place for a private sector boom. Oil in the ground, they say, is liquid gold that will finance their future. Oil seen as collateral

Saudis stress that there is plenty of collateral. ``We are sitting on 300 billion barrels of oil - that's between 25 percent and 30 percent of the world's proven oil reserves'' that can generate ``anywhere between $3 trillion and $5 trillion,'' says Adel Al-Jubeir, special assistant to the Saudi Ambassador to the United States, Prince Bandar Bin Sultan. ``If we did a leveraged buyout, we'd have enough to finance our budget for the next 80 to 90 years.''

Mr. Al-Jubeir adds that ``low oil prices set the stage for increased demand down the road. Saudi Arabia is going to cash in. The question isn't `Is the money [from oil revenues] coming in or not'; rather the question is `At what rate?' ''

Oil specialists Daniel Yergin and Joseph Stanislaw estimate in a recent issue of Foreign Affairs that ``despite continued conservation, global oil demand could be 15 to 20 percent higher a decade from now.''