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

POST GULF WAR

(Page 2 of 2)



Oil producers will have to step up their capacity in order to support increasing demand from the growing world economy.

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``Much of the new supplies will come from the Middle East, in particular from Saudi Arabia,'' they write. ``This means that production capacity in the Middle East will rise from 18.3 million barrels a day to 28 million barrels a day.''

The world's continued reliance on Middle East oil underscores the region's strategic importance and an expanding military relationship between Saudi Arabia and the West. In October, the United Nations reported that the US was the largest exporter of combat aircraft and major land-based weapons in 1992, thanks in large part to major contracts with the Saudis.

Analysts examining the sustainability of this relationship question whether the arms and other defense equipment are being pushed from Washington or pulled by Riyadh.

``The Saudis have joined alliances with American defense contractors,'' says an informed US Defense Department source. ``American military suppliers have to make sure that there is no temptation to go to the French for Tornadoes or to the EC for Airbus.'' Easier payment terms have been the lure.

Al-Jubeir disposes with characterizations of the relationship as a crutch for a crippled US industrial defense establishment. ``The defense buildup is not a luxury we cannot afford, it is a necessity we cannot live without. We happen to live in a tough neighborhood,'' he says.

But Yahya Sadowski, a Brookings Institution economist and author of ``Scuds or Butter? The Political Economy of Arms Control in the Middle East'' asserts that Washington is pressing the sales on Riyadh, whose purchasing power is waning.

Cash-strapped, ``the Saudis are actually moving very slowly - they're stringing out [the purchases of US military equipment] over time,'' he says.

Payment schedules are designed to be flexible, and drawn out, counters Al-Jubeir. The multibillion-dollar F-15 sale, for example, was approved in 1992, and the deal was finalized this past summer. ``We won't pay for it until delivery - the last quarter of 1994, then in 1995, 1996, and 1997,'' he says.

Oftentimes, deals are delayed because the development of new technologies sends previously planned production back to the plant for modifications. Historically, Saudi Arabia only buys roughly 80 percent of what it has requested approval to purchase.

The $35 billion order now in the pipeline is ``a big number that makes some people who are unfamiliar with how arms transfers work nervous,'' says Al-Jubeir, who has been by all accounts the kingdom's most effective behind the scenes lobbyist in Washington. Huge military orders

He recalls that between 1984 and 1986, the Saudis secured approval from the US government to purchase $3 billion worth of US military products. But that was only a beginning - from 1987 to 1989, the approvals totaled $20 billion.

Others worry about the current big numbers because the kingdom continues to rack up debts and has not scaled back spending.

At the very least, says Patrick Clawson, a senior fellow at the National Defense University's Institute for National Strategic Studies in Washington and a former IMF economist, the government should have slashed its costly welfare programs - from financing farm production at many times the world price to the cradle to grave social services citizens have come to expect.

Al-Jubeir disputes the need. ``We have cash-flow problems. Big deal. It's like someone living in a million-dollar house who goes out and borrows $10,000. Is he bankrupt? Of course not.''

* Next: Is Saudi Arabia, once awash in petro-dollars, now a credit risk?