Arab Economic Goals Run Into Roadblocks

As decade of the 1990s began hopes were high, but Gulf war and other conflicts intervened

THE Arab poor entered the 1990s with strong hopes of redressing deep economic divisions in the Middle East.

The consuming Iran-Iraq war had ended and newly-emerging alliances were promising. Egypt, Iraq, Jordan, and Yemen formed the Arab Cooperation Council for economic and social cooperation, and the new Maghreb Union for finance and trade began to diffuse rivalries among the North African states.

Governments in financial distress were encouraged to take on bold reforms, and they banked on support from their well-heeled neighbors.

But well into the decade, the region's economies have been ravaged by the Gulf war and continuing civil conflicts.

Differences between deluxe living and deprivation are now all the more stark. Analysts assert that unless rich Arabs awash in oil and petrodollars do more to improve the miserable living standards of their poor Arab brethren, the region will be fertile ground for conflict.

Middle Eastern economist Mohamed Rabie underscores pressures facing the have-nots: Arab countries had a combined $220 billion debt in 1990, while their combined economic activity totaled only $200 billion. By contrast, Arab foreign investment is roughly $650 billion, all of which is held by the Gulf's governments and ruling families, Arab banks, and investment corporations, estimates Mr. Rabie, whose "Politics and Economics of Oil" appears in the recent Middle East Policy Journal. "What makes this situa tion ... grave and morally objectionable is that only 5 percent of all surplus funds accumulated by the rich Arab states has been invested in the region." Arab rich protecting their wealth

Iraqi President Saddam Hussein invoked these economic inequalities when he invaded Kuwait in August 1990. He won the support of disenfranchised Arabs, whose street demonstrations reached from Jordan to Mauritania. Jolted, the Arab rich have since chosen to invest heavily in protecting their wealth, rather than to diffuse tensions by improving the economic lot of less fortunate.

Refusing to repudiate Saddam Hussein during the Gulf conflict, the Palestinians, Jordan, and then newly-unified Yemen - all reliant on Gulf financial transfers - have suffered severe setbacks. Their coffers dried up as infuriated Gulf benefactors shut off the spigot of aid and loans. Jordan, the Sudan, Yemen, and the Palestinians were further crippled when their goods and labor were barred from lucrative Gulf markets.

One Middle Eastern analyst who just returned from Jordan, Lebanon, and Syria, where he assessed economic prospects, says that, at best, these countries "will limp along" in the 1990s. Potentially explosive, he says, are the hordes of unemployed workers, a problem that stretches from Egypt to Yemen. In Jordan, where joblessness is approaching 30 percent, further belt-tightening may soon include downsizing the army and the security forces. "That will dump a lot of people trained in warfare into a volatile situation," he warns.

Kuwait's ambassador to Washington, Saud Nasir Al-Sabah, does not hide his resentment of Yasser Arafat, the Palestine Liberation Organization (PLO) leader, who once relied almost solely on the Gulf states for largesse. Kuwait funded schools, vocational centers and health care on the West Bank and Gaza. Now, no Kuwaiti aid is forthcoming for the PLO, asserts the ambassador. Competition for shrinking resources

Even Egypt, Syria, Morocco and Lebanon - countries that opposed Saddam Hussein and remain in good standing with the oil-rich Gulf states - will compete for a shrinking pool of resources. Egypt's gains far outweighed what it suffered in losses from workers' remittances, trade, tourism and Suez Canal receipts. The United States wrote off roughly $7 billion in Egyptian military loans.

The Gulf states thanked Egypt by canceling $7 billion in old Egyptian debts. But the cash-strapped government has since angered an already-restive population with sharp price hikes and tax increases.

Hafez al-Assad's ready participation in the alliance against his longtime foe Saddam Hussein greatly improved Syria's access to $2 billion in Gulf financing. But the post-war appreciation won't extend much further, says the Middle East analyst. The best the Arab poor can hope for is emergency aid, he says, and only if it is politically beneficial to the donor. Saudi Arabia, for example, is making a major effort to help the Maghreb counter growing Islamic fundamentalism in Algeria, Tunisia and Morocco. Th e Saudi Kingdom, custodian of Muslim holy sites, will provide $2 billion to Algeria's military to confront what it sees as a radical Muslim threat.

Keener security interests have sent Saudi Arabia, Kuwait, the United Arab Emirates, Oman, Qatar, and Bahrain to Western military markets, as evidenced by large-scale requests for arms from US and European defense firms.

In the 18 months since Iraq invaded Kuwait, the US alone accounted for $19 billion in announced arms sales to the Middle East, according to Lee Feinstein, assistant director of the Washington-based Arms Control Association. The Kuwaiti and Saudi budgets, both in deficit this year, show that armaments are higher priority than deteriorating economic conditions in neighboring states.

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