Sacrificing His Core Supporters in a Race Against Defeat
During the past two years the oil-producing countries of OPEC have become important donors of economic assistance to non-oil Third World countries. There has been widespread interest in these aid efforts, with one major British newspaper stating that "never before have nations been so generous with their wealth as the OPEC countries are now showing themselves to be." Others applaud what they regard as the "Robin Hood role" of the OPEC countries in taking from the rich and providing for the poor.
OPEC spokesmen themselves have stated that they are "the world's largest donors of financial assistance to developing countries and contribute the majority of funds for the World Bank and IMF borrowings." Repeatedly claims are heard that OPEC aid levels more than compensate developing countries for the increased price of oil. And it has been announced in councils of developing countries that OPEC aid will far exceed the aid flows of the traditional donor countries, whose aid programs it is alleged are rapidly declining in significance. Hence, many appear to believe that OPEC countries can and will provide the means for non-oil developing countries to realize their aspirations for economic development.
On the other hand, claims of large transfers of wealth and generous assistance from OPEC countries seem to some observers to be grossly exaggerated. It is claimed that aid from the oil exporters has been inadequate, well short of the billions of dollars that the oil price increases have cost the non-oil developing countries. Further, it is alleged that OPEC aid has been slow to materialize, and that the bulk of OPEC assistance is going to fraternally associated countries. In the years ahead it is thought that aid is likely to decline as the oil exporters rapidly adjust to spending their revenues at home.
On one point there is general agreement, namely that the dramatic oil price increases of late 1973 created severe balance-of-payments and economic growth problems for most less-developed countries. Not only must they pay higher prices for the energy they need to fuel their development programs, but they must do so at a time when the economic downturn in the industrial countries-itself at least partly the result of abruptly higher oil prices-is cutting sharply into developing countries' export earnings and leaving them less well equipped than ever to bear the burden of their essential development needs. However one assesses the responsibility for inflated prices and recession, the overriding conclusion is that it is the poorest countries, those least able to bear additional burdens, who are most seriously affected.
Information concerning OPEC aid programs, and their effectiveness in helping less-developed countries, has been shrouded in the claims and counterclaims of the propaganda battle to influence and win the political support of non-oil developing countries. Since most OPEC governments publish only fragmentary information on their aid activities, there has been scope for such competing interpretations.
Nonetheless, by pulling together published reports, statements of officials of oil-exporting countries and accounts of developing countries as to their receipts of OPEC aid, it is possible to form a reasonably accurate view. What then are the facts about OPEC aid? How important has it been in helping non-oil developing countries to meet their increased oil bills? What role does aid play in the policies of OPEC governments, and what contribution are they likely to make to the development of the non-oil Third World?
Before 1974 only Saudi Arabia, Kuwait and Libya were major OPEC providers of economic assistance, and over four-fifths of their aid was in the form of budgetary grants in support of other Arab countries involved in the conflict with Israel. Following the 1967 war, the Heads of the Arab States, meeting in Khartoum that August, agreed on annual transfer payments from the oil-exporting Arab states to help with the cost of the war and the defense burden of the "front line" states of Egypt, Syria and Jordan. These transfer payments have since become standing obligations in the budgets of the contributing states, and during the period 1970-73 averaged about $400 million annually-not including additional economic assistance to front line states for the purchase of arms.
The Arab states have not published information on these transfers, in part because they regard them as directly related to foreign policy and military objectives. In the burden-sharing among Arab countries, it is not considered fitting for the oil-rich states to speak of their contributions of money for a common cause, when more direct sacrifices, "blood" contributions, have been made by others. Hence, Arab leaders speak of economic aid to other Arab countries in their common cause as "silent aid," about which one does not boast or take public credit.
Since the massive increase in oil revenues as a result of the quadrupling of oil prices in late 1973, some observers and journalists have confused these supporting assistance grants among Arab states, dating back to 1967, with aid efforts to help the non-oil developing countries adversely affected by the inflation of prices for their essential imports. Thus, there has been a tendency to credit OPEC countries with greater responsiveness to the immediate needs of less-developed countries as a whole than they have been prepared to claim for themselves. The fact is that most Arab leaders do not regard supporting assistance grants to front line Arab states as compensating for recent balance-of-payments needs of non-oil countries or as providing assistance for development. In this they actually take a more logical view of what constitutes assistance for development than the United States has done in recent years, when it claimed as part of its development assistance programs the budgetary grant assistance to support war-mobilized economies in Southeast Asia.
Aside from such "silent aid," the development assistance efforts of the OPEC countries before 1974 were relatively small, averaging about $80 million annually during 1970-73. Saudi Arabia, Kuwait and Libya again were the largest donors, and Iraq, Qatar and the United Arab Emirates also contributed. This assistance was largely directed to Arab states-including those in the front line-in an expression of the fraternal commonwealth among Arab countries. For the small but wealthy Arab states, such programs not only contribute to pan-Arabic aspirations but serve to strengthen ties of friendship and security with larger and militarily stronger countries.
Kuwait, in particular, with its great wealth and population of only 500,000, deploys economic assistance skillfully as an important tool of foreign policy. In addition to supporting assistance grants to the front line Arab states, averaging about $200 million annually since 1970, Kuwait has built small but highly professional programs of technical and capital assistance. Beginning in 1961, the Kuwait Fund for Arab Economic Development has financed development projects which meet fairly rigid standards of economic return. In its first 12 years of operation, the Kuwait Fund committed over $450 million in 41 loans to 12 Arab countries, half of which was directed to Egypt, Sudan and Tunisia. Thus Kuwait's aid effort, along with its supporting assistance grants, has over many years averaged five to six percent of its gross national product. Kuwait has so far been unique among OPEC members in building a strong capability for the management of aid programs.
The aid transactions of other OPEC countries before 1974 were mainly transfers of funds among Arab states, carried out largely in the traditional diplomatic manner for diverse political and economic ends. In addition, there was small and sporadic aid to some of the African countries south of the Sahara, in recognition of African support to Arab diplomatic interests. OPEC members did not contribute appreciably to international organizations, again with the exception of Kuwait, which cooperated with the World Bank and contributed to the International Development Association. Arab oil-exporting countries made token contributions to United Nations programs and appear to have received more aid from the United Nations than they gave. The only multinational fund which received general Arab support before 1974 was the Arab Fund for Social and Economic Development, with authorized capital of $340 million. By April 1974, it had approved six loans totaling $94 million.
Today, the Arab members of OPEC largely continue the selective approach adopted before 1974. Early in that year, the Arab attitude was summed up by Abdel-rahman Salem al-Atiki, Kuwaiti Minister of Finance:
Nobody looked at the Arabs before. Why does everybody expect us to be the Godfather? This part of the world has been neglected for centuries and its wealth has been carried away by foreigners without giving it a hand for development. The major part of our international financial aid will be put at the service of Arab countries, and to assist other Moslem countries, particularly in Africa.
As we shall see in later summaries, the pattern of action since then, especially of actual disbursements, bears out this prediction.
That the fourfold increase in oil prices would severely damage the economic prospects of many developing countries was apparently not anticipated by OPEC. Since non-oil developing countries are relatively small users of oil, accounting for only about ten percent of annual world consumption, OPEC countries underestimated the importance of oil to them and tended to regard forecasts of the dire effect of oil price increases as part of the publicity campaign by industrial consumers against higher prices. Certainly industrial countries have put their concern for the less-developed countries in this respect well to the fore, in part to place responsibility on OPEC to help poorer countries with their higher oil prices.
Understandably, OPEC countries are sensitive to the view expressed in Secretary Kissinger's recent speech to the United Nations General Assembly, that increases in oil prices are responsible for having "shattered" the development plans of many countries. In response, OPEC officials argue that the quadrupling of oil prices in late 1973 added "only slightly" to an inflationary situation already under way, and that the oil price rises should not be seen in isolation, but in conjunction with other factors causing additional balance-of-payment burdens for developing countries including, in particular, price increases for manufactures, food and fertilizers.
There is no disputing that the nominal value of OPEC members' oil exports rose from $36 billion in 1973 to $113 billion in 1974, and that about $16-17 billion of the higher oil revenues of OPEC came from non-oil Third World countries. Their increased cost of oil was about $11-12 billion in each of the two years 1974 and 1975, over the level in 1973.
Since relatively little of the oil consumption of poorer countries is for nonessential uses, reduced supplies translate fairly directly into loss of production and incomes. Unable to pull in their belts, these countries must find some way to finance the increased costs. In view of their typically weak foreign exchange positions and already precarious means for financing their development programs, additional foreign borrowing and aid are their only recourse.
Yet OPEC members are justified in their claim that oil prices cannot be viewed in isolation. The deterioration in the current account balance of payments of developing countries has also been accelerated by the higher prices which they must pay for manufactures. For example, increases in the price of manufactured goods of about 40 percent during 1974-75, though small in relation to oil price increases, have created difficulties for those countries for whom manufactures account for a large proportion of imports. These countries, however, are almost all those that are virtually self-sufficient in oil or are net oil exporters, such as the OPEC members themselves.
As to food and fertilizer, shortages in 1973-74 and related price increases posed additional problems for non-oil developing countries, particularly for the poorer, food-deficit countries. Export prices for United States wheat doubled between 1972 and 1973 and rose by a further 35 percent in 1974; nitrogenous fertilizer cost more than twice as much in 1974 as two years earlier. Because of poor harvests in 1973 and again in 1974 in a number of developing countries, particularly in South Asia and Africa, requirements for food grain imports rose sharply over the level of $3 billion in 1972. Increased food import bills of $6-7 billion in the two-year period after 1972 reflected both extra volume and higher price claims on foreign exchange. While food aid grants helped meet some of the essential food needs of many countries-including Bangladesh, Tanzania, Ethiopia, and countries in the Sahelian zone of Africa-it has been a period of shortages and added suffering for many people among the low-income groups in less-developed countries. It was, of course, in relation to these special needs that the U.N. General Assembly, in April 1974, identified about 30 less-developed countries as "most seriously affected" and thus requiring emergency assistance to maintain essential imports.
The recent easing of prices for both food grains and fertilizer, with the improved outlook for crops in 1975 and larger annual food aid commitments, totaling about nine million tons, appears to have moderated this source of strain on the balance of payments of developing countries. However, most of the non-oil developing countries are not large importers of food grains. They are more concerned with the problems of financing their increased oil bills, which have not eased but, on the contrary, have increased an additional ten percent by the OPEC decision of September 1975. This further increase in the price of oil will add at least an additional $1.5 billion to the oil bills of non-oil Third World countries in 1976, for an estimated total increase of about $13 billion beyond the level of their payments for oil in 1973.
Today, the prospects for many non-oil developing countries are bleak. Development programs are not being sustained and momentum in growth is being lost as, for the first time in over a decade, the import volume of non-oil developing countries has declined and they have drawn heavily on both their borrowing capacity and foreign exchange reserves. Most of these countries do not have the flexibility and scope to adapt their economies to severe shortages of essential imports. They lack adaptable export sectors as well as the ability to continue borrowing, from international capital markets and institutions, the much greater amounts necessary to pay for oil and other imports. With prices for essential imports much higher and aid flows relatively constant, their options are to reduce their already low consumption standards or to curtail further the development programs which have been their main hope of future progress.
The World Bank has estimated that economic progress for many developing countries for the remainder of the decade will not be possible without substantially increased levels of aid. Whether measured by the overall $13 billion increase in oil costs, or the still larger figures if one includes the added cost of food, fertilizer and manufactured goods, the need for additional capital assistance is enormous. The deterioration in the current account deficit of non-oil developing countries was more than $20 billion in 1974. Recession in the OECD countries during 1975 has added a further $10 billion as the Third World's terms and volume of trade declined, and the current account deficit of the non-oil Third World appears likely to go from $11.3 billion in 1973 to about $42 billion in 1975. Recovery in the economies of the industrial countries will see a revival of trade markets in 1976, but structurally higher prices for oil, food and industrial imports will result in an increased average annual capital requirement of about $20 billion for the non-oil Third World for the remainder of the decade.
The success of the oil-producing countries in achieving a uniquely sudden and large transfer of purchasing power through their own collective action made a profound impression on non-oil developing countries, particularly on countries which are major producers of primary commodities. Less-developed countries with cumulative problems of poverty, high unemployment, weak agricultural sectors and sluggish development programs-those which were in trouble before the major price increases-were in much greater trouble afterward and knew it. These were, for the most part, African and Asian countries. But, a number of middle-income developing countries, including primary commodity producers, were not immediately hurt by the sharp increases in oil prices. They continued to benefit from buoyant commodity prices until the commodity boom tailed out in the latter half of 1974, their foreign exchange reserves were strong, and higher oil payments were delayed as existing oil inventories were used. Also, countries such as Argentina, Colombia, Bolivia, Mexico and Peru are not dependent on imported oil.
Hence, many Third World countries saw OPEC as a role model which they would like to emulate. While some non-oil developing countries were quick to identify higher oil costs as one of their serious problems and to press for immediate economic relief from OPEC, others came to the defense of OPEC price policies. For the most part it was the middle-income countries who took a strong lead in building and holding Third World support for OPEC.
Despite this broad supporting role of non-oil developing countries, OPEC members appear to have consistently rejected proposals for special discounts on the price of oil for developing countries or any measure which would establish discriminatory pricing of oil. Nor have they been able to agree on a policy of "oil aid grants" for those most in need, comparable to the "food aid grants" which continue to play an important part in helping less-developed countries with their food grain imports.
OPEC members have extended some credits to developing countries specifically for the purchase of oil, and they have supported the International Monetary Fund's Oil Facility to the extent of $3.2 billion. However, these subscriptions are not considered by the IMF to be a transfer of resources from OPEC since they remain, in effect, part of the foreign exchange reserves of OPEC subscribers-reserves on which they receive seven percent interest.1
The preferred approach of OPEC members to helping the non-oil Third World appears to be through the establishment of special funds or banks for the financing of development projects which are not necessarily identified with the increased cost of oil. While proposals for establishing an all-OPEC development fund have been spawned, one after another, OPEC members have not been able to agree among themselves on common funding. One of the early proposals was by the Shah of Iran for a $2-3 billion fund with the joint participation of oil-exporting and industrial countries, but this combined approach was too difficult to arrange. Subsequently, in April 1974, OPEC members are reported to have agreed that a special OPEC fund would come into being when seven of its thirteen members ratified the articles of agreement. Apparently this did not occur, for the plan appears to have been abandoned in late 1974.
Recently proposals for an OPEC development fund have been revived. Iran has proposed an assessment on each barrel of oil to establish a low-interest loan fund for specific projects in developing countries. Kuwait has urged general OPEC support for the Solidarity Fund endorsed in August 1975 by the Lima Conference of Nonaligned Countries, apparently for the purpose of defending commodity prices. President Carlos Andres Perez of Venezuela-in a letter to U.N. Secretary-General Waldheim of September 30, 1975-circulated a copy of a message to fellow Heads of State of OPEC proposing an OPEC fund of $1.5-2 billion to cover, without repayment, "the increased petroleum costs occasioned for the non-oil producing Third World countries by the price adjustment." President Perez further stated that "this decision will strengthen the morale of OPEC and demonstrate its true spirit of fellowship," and that "we will also be taking a determined stand against the dangerous pressures that have been brought to bear in an attempt to disrupt the unity of the Third World."
Following their meeting in Vienna in mid-November, the OPEC finance ministers have announced that $1 billion will be provided to Third World countries to help them with their development problems. Reportedly these funds are to be channeled through existing programs and institutions on favorable terms. However, as of late November it was not clear to what extent this $1 billion would be additional to ongoing OPEC programs and commitments, or whether any new coordination had been agreed.
Why has a common development aid policy, on behalf of its important relations with the non-oil Third World, been so difficult for OPEC to achieve? One problem is that OPEC has strong multiple leadership, with Saudi Arabia, Iran, Algeria, Venezuela, and others all playing important parts. Also, it is difficult to find a basis for sharing the burden of a common funding policy which satisfies their diverse political interests. Saudi Arabia, Kuwait, the United Arab Emirates and Qatar will run major surpluses on their current balance of payments well beyond 1980, and they have important political interests to pursue on behalf of the Arab world. Nigeria and Indonesia, with only seven percent of OPEC proven oil reserves and over 70 percent of its population, find that their oil will yield small returns relative to the large development needs of their countries. In between are Algeria, Iran, Iraq and Venezuela-with ambitious programs for development which appear likely to overtake their surplus oil earnings in the next few years-and Libya, a special case and inclined to be a loner.
What is clear is that the diverse interests of these countries find common expression-beyond the maintenance of high oil prices-mainly in general policies which assume that OPEC interests and the interests of the non-oil Third World coincide. For example, at the April 1974 Special Session of the U.N. General Assembly called by President Boumedienne of Algeria, OPEC countries joined in supporting the view that the current economic difficulties of non-oil developing countries arose not from the essentially retrogressive effect on poorer countries of recent major increases in the price of their essential oil imports, but rather from a faulty economic system which had persistently neglected their economic development needs, in general, and underpaid them for their commodity exports, including oil, in particular. Non-oil developing countries were asked to accept higher oil prices, as the vanguard of a new economic order which would seek to improve substantially the terms of trade for other raw material and commodity producers. It was a bold stroke in defense of higher oil prices, and in favor of producer associations on the model of OPEC. Thus, in the Charter of Economic Rights and Duties of States, adopted in December 1974 by the General Assembly, less-developed countries who are major producers of primary commodities continued to see OPEC as their role model.
Emphasis on control of commodity markets involves difficult issues to resolve from the standpoint of economic management and maximizing development resources. These issues are at the center of the forthcoming 27-member Paris and UNCTAD conferences, and negotiations on them appear likely to occupy the attention of governments over the next several years. One aspect of the problem is that 80 percent of the effective world supply of commodities-other than oil-comes from developed countries; moreover, many producers of commodities for which price increases might be sought have been realizing significant returns. While well-conceived commodity schemes will dampen the extreme price fluctuations which have characterized commodity markets, and are an important objective in themselves, non-oil developing countries are more likely to realize greater long-term benefits from compensatory financing schemes to offset deterioration in their terms of trade, whether from a fall in export earnings or from sharply increased import prices.
Meanwhile, as discussion of commodity markets goes forward in international conferences, the higher oil bills of non-oil Third World countries continue to fall due and a number of them seek more direct aid. Some, particularly in Black Africa, do not believe that they have been getting sufficiently "encouraging responses" from the oil-producing countries.
Let us now examine in more detail the actual programs of the OPEC countries since early 1974 in providing economic assistance to non-oil Third World countries. With the exception of Gabon, Ecuador and Indonesia, all OPEC members have provided some such assistance. The total flow of resources originating in OPEC and available for non-oil developing countries in 1974 was about $4.6 billion. (Not included is $1 billion which actually went to developing countries from the IMF Oil Facility in 1974 and a further $1.5 billion in 1975. Although derived from OPEC subscriptions, and of direct benefit to non-oil developing countries, the IMF does not regard this as a transfer of resources from OPEC as explained above.)
This $4.6 billion resource flow in 1974 was about equally divided between budgetary supporting assistance and concessionary credits on the one hand, and the purchase of bonds of multinational development banks at an average interest rate of eight percent, on the other.
Approximately $2.2 billion in grants and concessionary loans were disbursed as follows (in millions of dollars):
$1,200 Supporting assistance grants and loans to Egypt,
Syria and Jordan
60 Supporting assistance grants to the Yemen Arab Republic and Sudan
45 Relief grants to African countries
300 Oil credits to India and Sudan (from Iran and Iraq)
190 Disbursements on supporting loans to Pakistan, Bangladesh and Sudan
70 Disbursements on loans to other countries
350 Contributions to international and regional funds
Capital transfers on non-concessional terms included purchases of almost $2 billion in World Bank bonds, as well as other subscriptions to the Asian Development Bank, the Inter-American Bank and the African Development Bank. These banks, in turn, channel these funds to developing countries, mostly for projects on which funds will be disbursed over a period of several years.
Beyond the actual $4.6 billion transfer of resources in 1974, a further $6.2 billion was committed to regional funds, development projects, and commercial investments. The total of actual transfers and future commitments was thus $10.8 billion during 1974, with the promise of further substantial transfers in 1975 and ensuing years.
As of November, OPEC aid commitments have continued in 1975 at a total level of about $10 billion for both concessional aid and other capital transfers. But the actual transfer of resources from OPEC to the Third World accelerated in 1975 and appears likely to reach a level of approximately $6 billion. However, the tempo of disbursements is slowing down and will level off or decline in 1976.
A few of the major OPEC commitments of 1974-75 have indeed been substantially disbursed. By March 1975 the Special Arab Fund for Africa had disbursed $126 million of the allocated $200 million, designed for special relief of increased oil costs. In 1975 the Arab oil producers have also transferred $80 million for special assistance to non-oil Arab countries, and $150 million directly to the Special Account of the United Nations Emergency Operation designed to help countries most seriously affected by increasing import costs. Taking into account bilateral aid flows from OPEC countries for this purpose, the total OPEC contribution to the Emergency Operation is reported to have been $1.7 billion for the period 1974-75-a figure which includes some of the amounts previously listed.
Moreover, supporting assistance grants have continued to be rapidly disbursed, especially in Egypt, which continues to receive almost half of the total aid transfers of Arab donors. This is the result, of course, of Egypt's acute budgetary and balance-of-payments problems, as well as the political priority it continues to enjoy in Arab donor capitals.
However, a large part of the new commitments made in 1974 and 1975 have been slow to produce actual transfers. This is due to the growing preference of OPEC donors for project assistance and for plowing large commitments into the establishment of new development funds, all of which take time to implement.
For example, almost a billion dollars of undisbursed commitments during 1974 was allocated to the new regional development funds initiated by the Arab donors, which had not begun operations. These were the Islamic Development Bank, the Islamic Solidarity Fund, and the Arab Bank for Economic Development in Africa.
Understandably, little of the project commitments made in 1974 and early 1975 seems to have been disbursed. A striking example is the experienced Kuwait Fund which since March 1974 increased its paid-up capital from $385 million to $1.35 billion and extended its lending operations for the first time to non-Arab countries in Asia and Africa. Despite a rapid expansion of its commitments to new projects, the net transfer of resources from the Kuwait Fund have been almost nil, since repayments on old loans are almost as large as new disbursements, which amounted to $20 million in 1974.
Saudi Arabia, as it expands its aid operation through the newly established Saudi Arabian Development Fund with capital of $2.8 billion, appears to be turning away from general supporting assistance, which characterized its program in 1974. Aid commitments in 1975 are increasingly for projects in industry, roads, telecommunications, housing, irrigation, agriculture and education. A similar emphasis on project assistance is being pursued by the United Arab Emirates and Qatar.
The Arab aid donors appear to regard development, and assistance for development, primarily in terms of projects which facilitate the transfer of management skills and technology, and contribute to structural change in the economies of developing countries, their own and others as well. In rejecting general supporting assistance for most of their aid recipients, Arab donors may be guided by their experience in this respect with the front line countries of Egypt, Syria and Jordan. Although the absorptive capacity for budget assistance generally is very high, in order to achieve meaningful and accelerated development it is frequently desirable to bypass traditional bureaucracies and encourage the more difficult task of developing productive investments.
While there is much to be said for this policy on a long-term basis, the short-term result is that resource transfers are not as responsive as they might be in helping with the severe deterioration in the balance of payments of the non-oil Third World. We have estimated above an increased requirement for capital assistance of about $20 billion annually, of which $13 billion is accounted for by higher oil prices. Although OPEC has contributed the bulk of the increased flow of long-term financing resources to developing countries in 1974-75, this increased OPEC flow is equivalent to only about 25 percent of the additional financing requirements of the non-oil Third World due to structurally higher prices. The OPEC effort is even less if allowance is made for the fact that much of OPEC aid is directed to Egypt and Syria, which are net exporters of oil. In these circumstances, it is reasonable to ask whether OPEC could more adequately assist the non-oil Third World with their higher oil prices, and whether a larger proportion of OPEC's surpluses could be recycled to help the Third World overcome its severe balance-of-payments problems.
The following Table I gives the figures for 1974 in terms of commitments and disbursements of the various forms of concessional aid and direct financial transfers.
TRANSFER OF RESOURCES FROM OPEC MEMBERS TO THE THIRD WORLD IN 1974
(in millions of U.S. dollars)
Concessional Aid Financial Transfers Total
Country Commitments Disbursements Commitments Disbursements Disbursements
Algeria 117 35 22 5 40
Iran 1,270 400 990 309 709
Iraq 415 235 275 - 235
Kuwait 796 384 525 246 630
Libya 377 95 482 32 127
Nigeria 12 11 240 240 251
Qatar 148 50 156 27 77
Saudi Arabia 1,456 810 1,534 993 1,803
UAE 573 135 499 134 269
Venezuela 111 60 865 405 465
TOTAL 5,275 2,215 5,588 2,391 4,606
SOURCE: OECD, 1975 Review of Development Cooperation, Report by the Chairman of the Development Assistance Committee, November 1975.
An outstanding example of an OPEC country which reacted swiftly and to political advantage has been Iran, which made loan commitments of about $1.5 billion during 1974, and despite reduced oil earnings appears likely to approach the same level of commitment in 1975. The terms of Iranian assistance are relatively hard, disbursements are carefully phased, and its aid is directed toward development of natural resources and manufacturing projects, which complement Iran's own development program. At the same time, it has been politically flexible in providing major balance-of-payments assistance, when it is politically advantageous to do so, including, for example, large credits to Pakistan and Egypt.
Algeria, Venezuela and Iraq are countries whose aid programs in several years are likely to be limited by the vast competing capital claims from their own large domestic programs. Algeria has concentrated on regional programs in favor of African countries. While the terms of Venezuela's almost $1 billion of commitments to developing countries are hard, it has been flexibly responsive to the needs of some of its economically distressed Latin American neighbors for special arrangements in financing the purchase of oil. Iraq also has been responsive to the need for oil credits and general assistance in helping to ease the politically distressing reactions of some less-developed countries to higher oil bills.
As might be expected from the foregoing discussion, direct OPEC assistance is characterized by a marked geographic concentration. Almost two-thirds of the direct concessionary aid disbursements of the past two years has gone to Egypt and Syria, both of which, as mentioned above, are net exporters of oil. Another 25 percent went to Muslim states, leaving less than ten percent for non-Muslim countries. Hence, Black African countries, both Muslim and non-Muslim, have not found that OPEC aid addressed their structural problems of underdevelopment as they had hoped it would, although the level of OPEC commitments to Black Africa went from about $85 million in 1974 to $200 million in 1975.
Skewed geographic distribution of aid in part has been the result of increasing donor concentration. Saudi Arabia and Kuwait committed almost two-thirds of OPEC aid in 1975, compared with about half in 1974. The new assistance of other OPEC members has fallen off, with Iran, Libya, Qatar and Venezuela reducing their aid in 1975 by about half of what it was in 1974.
While there appears to be increasing interest in the direct investment of OPEC surplus capital in non-oil developing countries, so far surprisingly few direct investments have been made. OPEC investors tend to look favorably on projects for oil refining, marketing and related facilities, such as Saudi Arabia's participation in a large crude oil terminal and storage facility in Korea and Iran's joint investment in a petrochemical plant in India to produce nitrogenous fertilizer. Kuwait has been increasingly active in the investment field with an agreement for the investment of $1.3 billion in Egyptian enterprises, and active exploration of investment prospects in other areas. However, most of the surplus capital of OPEC members has been invested in the money markets and securities of the industrial countries.
It is well to keep in mind that the surplus capital position of the OPEC countries is only two years old, that many of the OPEC institutions being used for channeling their financial assistance are still "fragile and new," and that some of the major donor members of OPEC were still aid recipient countries as late as 1973. After allowing for all this, the fact remains that OPEC contributions to closing the balance-of-payments gap of the non-oil less-developed countries-a gap to which the oil price increase contributed significantly-have not been as large or significant as some claims cited at the beginning of this article would suggest. Resource transfers of about $5 billion in 1974, and $6 billion in 1975, are important, but, as pointed out above, they fall far short of the need. Additionally, the geographic concentration of OPEC capital assistance does little for many of the less-developed countries of the non-oil Third World, who are now on the "front line" of those who must receive additional help if they are to maintain their development programs. The need to broaden geographically and to accelerate the transfer of resources under OPEC programs is clear, and it is a need which, I believe, most OPEC governments recognize.
Interest is often expressed in a comparison of OPEC transfers of economic assistance to less-developed countries with those of the 17 members of the Development Assistance Committee (DAC) of the OECD. DAC member aid efforts, of course, are much larger-reflecting the greater overall wealth of the developed countries. In 1974 the total net flow of resources from DAC members was $26.7 billion. Of this, $11.3 billion was provided as "official development assistance," or concessionary aid. The comparable figure for OPEC members, as mentioned above, was a total net transfer of resources to the Third World in 1974 of $4.6 billion, of which $2.2 billion corresponds to the DAC definition of official development assistance.
However, in percentage terms, official development assistance in 1974 was equivalent to 0.33 percent of the Gross National Product (GNP) of DAC countries and 1.8 percent of the GNP of the aid-giving members of OPEC. The comparative figures for the total flow of resources are 0.78 percent for DAC countries and 3.4 percent for OPEC aid donors. Hence, relative to their current GNP, the aid efforts of OPEC members are substantial, and it is on this basis that their programs are sometimes said to exceed those of DAC countries. The fact remains that OPEC members have a larger capability for providing aid, at least for several years, than these relative shares of GNP indicate.
The surplus revenues of oil-exporting countries derive from the higher prices of their oil, which many non-oil less-developed countries find themselves unable to pay without a transitional period of adjustment, and without assistance to make the adjustment. Since OPEC revenues constitute highly liquid assets, large amounts of which are being invested in world capital and security markets, OPEC members clearly have a high capacity to provide aid and capital investment to help non-oil less-developed countries make the necessary structural adjustments in their economies. Saudi Arabia and Kuwait recognized their unique capacity to provide aid when they initiated large supporting assistance grants to other non-oil Arab countries in 1967 under the Khartoum Agreement. Their share of aid relative to their GNP is not higher in 1974-75 than it was in the period before the major oil price increases.
The Arab OPEC countries will continue to have major surpluses in the coming decade and their total reserves will be accumulating for many years to come. The mobilization of savings which this represents provides a unique opportunity to direct more capital to the non-oil Third World. OPEC countries might consider means to help non-oil developing countries to cover in full, or in substantial part, their higher oil bills, at least for a transitional period of four or five years. To be most effective, the adoption of a common aid policy by OPEC countries toward the non-oil Third World should be part of a renewed and expanded global effort.
As for the DAC members, all 17 increased their disbursements of official development assistance during 1974 and 13 countries raised it as a share of GNP. Overall, DAC aid had been falling as a share of members' total GNP over the past decade, but in recognition of the greatly increased need for assistance in this period, a major effort is being made to reverse this trend.2
The needs for increased capital assistance are clear. Unless these needs can be met, less-developed countries will not be able to support their development programs, carry out the necessary structural adjustments in their economies and return to higher levels of domestic savings which will make possible adequate rates of social and economic progress. The overall level of aid must be expanded and a larger share addressed to less-developed countries with the more difficult problems of underdevelopment.
As we have seen, one problem affecting OPEC aid is that it is heavily skewed toward a few recipients. Although the aid of DAC donors has been affected by similar influences, their efforts to exchange information on the specific needs of developing countries and the patterns of their respective programs, through the DAC, has led to compensating adjustments and coordination of aids efforts. In contrast, OPEC donors have not yet had an opportunity to adopt common guidelines for their respective aid efforts, nor means for exchanging information on the geographic concentration of aid, nor criteria for relating their efforts to overall needs.
Finally, in the case of the DAC countries one means for alleviating the uneven distribution of bilateral aid has been common support of the International Development Association (IDA), the concessionary loan fund administered by the World Bank. Both OPEC and DAC countries, concerned with offsetting distortions in the geographic allocations of their aid, would do well to support fully the enlarged replenishment of IDA. This institution has an outstanding potential for giving greater coherence and balance to global aid efforts, and helping to assure that the major economic events of the last two years do not halt or irreparably damage the development programs of the non-oil Third World.
* Neither the members of the Organization for Economic Cooperation and Development nor the members of its Development Assistance Committee bear any responsibility for the opinions expressed, which are entirely those of the author.
1 Because of the high liquidity of IMF holdings generally, subscriptions to the Oil Facility are fully backed at all times. In contrast, the purchase of bonds from the World Bank, for example, while it creates an obligation equally firm, is not backed by liquid resources in the same degree. Hence, as will be seen at a later point, the purchase of bond obligations of the World Bank and other multinational banks is counted a transfer of resources.
2 This is detailed in the 1975 Report of the DAC Chairman, Development Cooperation: Efforts and Policies of Members of the Development Assistance Committee, published by the OECD.
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