Play it again, SAMA

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Almost overnight the fears that waves of volatile oil dollars would wreck the world's financial system have receded.

The capacity of the OPEC nations to absorb imports is astonishing, judging by the surprise that greeted the predictions of Dr Otmar Emminger and Morgan Guaranty Trust that the OPEC surpluses may be eliminated in a few years' time. 

If these predictions are correct, those countries that have relied more on their ability to attract oil dollars, than to transfer real wealth through higher exports to OPEC states, may be relatively less well off than they are now; conversely, countries with high export capacities will do better, including Japan and West Germany.

Most of the advice given to OPEC nations on how to recycle has been wasted. The OPEC members have gone on recycling in their own way, pursuing their own ambitions, and setting up their own financial institutions, or strengthening existing ones, to do so.

As Walter Wriston of First National City Bank remarks in this issue of Euromoney: “The private sector – banks, stock markets and 56 different varieties of financial institutions – has handled recycling far more efficiently than the merchants of doom predicted.”

The growth of Arab financial institutions and their emergence as managers of very sizeable Euromarket loans, many of them to developing countries, testify that the Arabs are determined to be more than mere depositors. Their Iranian neighbours are, if anything, more ambitious. The Shah is determined not only to industrialize Iran as quickly as possible, but also to turn Teheran into a major financial centre as quickly as possible.

Teheran is not the only centre of attention. Jeddah, too, is very much in the limelight, for it is in this somnolent Red Sea port that the truly unspendable surpluses are being accumulated and deployed from the unassuming and indeed unmarked building that houses SAMA – the Saudi Arabian Monetary Agency.

It is in this somnolent Red Sea port that the truly unspendable surpluses are being accumulated and deployeed from the unmarked building that houses SAMA

Bankers whose business has taken them to Jeddah over the years have been concerned that an organization with a shortage of expertise, and a concentrated decision­-making machinery, suddenly found itself with a monumental financial responsibility. To mitigate this, SAMA brought in outside experts, including governor Anwar Ali, who died last year, and who had been seconded from the International Monetary Fund. Ali, in turn, drew on advice from outside. 

When he died he had built up a series of close connections with bankers like Messrs Schaefer, Fleming, and Meyer of, respectively, the Union Bank of Switzerland, Robert Fleming of London, and Morgan Guaranty of New York. Inside SAMA itself, short-term money market operations are handled by a rota of secondees from Morgan Guaranty. One of SAMA’s more powerful investment managers is Hans Sieber, who moved there from Union Bank of Switzerland several years ago. 

Even in domestic financial matters SAMA has sought outside advice: control of the domestic banking system is supervised by a Dutch adviser seconded from the Algemene Bank Nederland; training local staff has been managed by secondees from the National Westminster. The management of the Saudi equity portfolios has been placed under the competitive management of two US banks; so far this has resulted in little, if any, new oil money being used to enlarge the original portfolios. Relatively, they are still very small.

Apart from Kuwait, Saudi Arabia is the only major oil producer likely to be running a permanent surplus throughout the eighties

The intensity of competition for SAMA’s deposits has been approached only by the competition for new advisory positions in the agency. Recently a new advisory board has been installed below the kingdom’s leading financial expert, Sheikh Ahmed Abdul Latif, who is executive director of SAMA’s international department. 

There are continuing rumours that the senior non-resident advisers may be joined by the chairman of a major US or European bank. Two members of the new advisory team come from the New York stockbroking firm, White Weld and Co, which is believed to have close connections with the palace in Riyadh. The other members of the team come from Baring Brothers of London.

The advice given by this team is going to be fairly crucial for, apart from Kuwait, Saudi Arabia is the only major oil producer likely to be running a permanent surplus throughout the ‘eighties; it also happens to be by far the richest. 

So far, the judgment of SAMA is that, despite some muted criticisms of its conservative approach to investment and lending abroad, it has handled its responsibilities well. With the aid of its new advisers, it should go on playing it that way.