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French Version

Shopping for economic options

There is no denying the strain the 11 September attacks on New York and Washington had on relations between the US and the region, particularly the Gulf States.

There is also no denying relations between Saudi Arabia and the US were increasingly tense due to the Saudi desire for increased US pressure on Israel to ease up on Palestinians and restart a meaningful political dialogue.

The strain in relations between the two countries only continued after 11 September right through today, despite the fact spokespeople from both sides play down the conflict. Despite the spin, Saudis have significant problems with Washington's policies regarding the Palestinians, over potential plans for war on Iraq-a plan Riyadh will not support-and on the finger pointing done Saudi Arabia's way regarding Osama Bin Laden and Al Qa'eda.

Since 11 September, international relations have taken a turn for the worse. The Saudis became particularly upset this past week when families of 11 September victims in the US initiated a $1 trillion lawsuit against Saudi organizations, as well as several princes, for allegedly supporting terror and being responsible for their loved ones deaths. The Saudis did not take the action lying down. As the lawsuit was being filed, press reports began to indicate a slow drawing out of investment in American institutions and companies by the Saudis. The Financial Times reported some $200 billion of Saudi investments were withdrawn from the US economy post-11 September.

As might be expected, such news sent jitters through an already skittish international economy, increasing fears of a weakened dollar if the action continued. Saudi investors were quick to deny the reports. Saudi billionaire Prince Walid Ben Talal, reputedly the 11th richest man in the world, said there was no truth to stories about investment withdrawal, at least not with the kind of numbers being discussed.

He indicated he had in fact increased investment in some American companies, suggested at $15 billion. Different Saudi sources have also came to the rescue, suggesting they would never compromise financial investments in the US simply because popular opinion suggests it is prudent to do so. No one really knows the exact amount of Arab investments in the US. Some have suggested it is in the realm of $1.2 trillion, Saudi investments making up about half of that. The Financial Times puts the figures between $400 and $600 billion while others suggest between $600 and $800 billion.

These are overwhelming figures. On one level it shows Saudi investors have a lot of influence on the American economy. It also shows Arabs have a lot of political and economic muscle, which has not been examined or exercised until this point. Most Saudi investors-according to the same reports (not particularly The Financial Times)-don't appear to want to rock the boat, saying they have no intention of removing capital and relocating it to different parts of the world.

Other analysts have pointed out, though, that post 11 September the movement of capital has become quite noticeable. In Jordan, for example, financial analysts have talked about the trend, suggesting Arab capital could be returning to the region. They further suggest Jordan should take advantage of this trend, enticing Arab investments even more. Lebanon is another Arab state studying the movement of Arab capital. Its Central Bank Governor, Riad Salameh, has been saying quite openly "Arab bankers are showing a keen interest in our banking sector," meaning there is an "inward" movement in the region.

What could, and perhaps should, be worrying American financial analysts is not the recent financial pullouts, but long-term trends amongst investors who find the US environment hostile. Arab investors could well be studying growing political and economic conglomeration in places such as Europe. The financial markets of Europe with its stocks, bonds, industry, and growing economic environment could well serve Arab investors without the political complications of the US. Right now the political atmosphere towards Arabs, especially those from the Gulf-Saudi Arabia in particular-is tense. It is only sensible to remove investment that could well find itself frozen by American xenophobia.

What will it take for the US to recognize the threat of de-investment and what a welcome environment European markets offer. Perhaps it will remain spun out of the content of political discourse, but invariably this will occur while fear of asset freezes and perhaps more superfluous lawsuits remains.

Marwan Asmar
The Star

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