Arab Caution

To jittery Western financiers, the huge cash surpluses built up by the Arab oil-producing nations look like a Khan-jar (Arab dagger) poised at the heart of international monetary stability. By shifting their funds from one currency to another, some moneymen fear, the sheiks could precipitate an unending round of monetary crises. Two weeks ago, it appeared for a moment that the Arabs had decided to unleash just such a monetary offensive. When highly exaggerated word that the Economic Council of the Arab League had voted to withdraw the estimated $10 billion that Arab nations have on deposit in U.S. and European banks hit the London Stock Exchange, a torrent of panic selling-described by some brokers as the worst in history-began.

It all turned out to be much ado about very little. Rather than declare financial war against the West, the Arabs are trying to solve a vexing problem: how to use those petrodollars, pet-rofrancs, petromarks, petropounds and petroyen to expand their own undernourished economies. Because most Arab nations are not sufficiently industrialized to present lucrative investment prospects, the wealthy nations have parked their money in Western banks. That is a situation they will not move quickly to alter, since a rapid withdrawal of the funds could provoke monetary aberrations that would lower the value of their holdings. As one Beirut economist pointed out last week: "The Arabs are among those most interested in a stable monetary system. They stand to lose the most from monetary instability."

New Laws. What the Arabs have in mind is a very gradual transfer of the funds from Western banks to Arab financial institutions. They already have major interests in several European-based banks (TIME, June 25) that could serve as conduits for stepped-up investments in U.S. and European corporations. But in the long run, the steps that will have the greatest impact are those designed to put Arab money to work in the Arab world itself. One proposal by the Economic Council would create new investment laws to make it easier for oil money to flow into the war-torn economies of Egypt and Syria, as well as those poor countries, such as Yemen, that a State Department official describes as the "economic basket cases" of the Arab world. Among the beneficiaries would be Western companies, which would get a crack at contracts for steel mills, new refineries and pipelines that the Arabs need to modernize.

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