European Stars And Stripes (Newspaper) - February 15, 1986, Darmstadt, Hesse                                Saturday february 15, 1986 the stars and stripes Sood Arabia be Etalon a a used traint in All facet at the country Economy. New York Tomti photo saudi Arabia looks for solution to recession by Paul Lewis new York times a after a decade of fairy tale riches Saud Arabia saw its Oil revenues dwindle in thelast three years by More than  decline came in the Wake of production decreases in a vain attempt to mop up a world Oil surplus and bolster prices set by the organization of Petroleum exporting countries. The failure of that strategy prompted the saudis to try a new tack recently a Sharp increase in production which sent Oil prices tumbling in an Effort to escape a deepening recession that is worrying their country s powerful business Community. Once a byword for opulence and extravagant spending saudi Arabia saw its Oil revenues fall from a Peak of about $110 billion in 1980 to $26 billion last year As the desert kingdom reduced its exports to about 1.3 million barrels a Day. That s less than half its official open quota. The result has been a steady deterioration in the saudi business climate since the Oil Revenue cuts started to be Felt in 1983, according to Western Bankers businessmen and analysts. A decade of explosive economic expansion has Given Way to contraction with the saudi Economy shrinking every year since 1983 As the government Cut Back or postponed ambitious development projects. Imports fell nearly 30 percent last year. Saudi Arabia has gone into reverse said Clem Miller a Middle East analyst for Wharton forecasting associates. Saudi Arabia suffered another economic setback in january when the european economic Community began charging duties on imports of polyethylene from the huge new petrochemical complexes just built by saudi and american interests. As the tide of retrenchment swept through the saudi Economy the monarchy tried to give the business Community some help by drawing Down its liquid reserves at a rate of nearly $2 billion a month to keep the Economy moving. Of the roughly $130 billion saudi Arabia saved during the fat years no More than $100 billion is n easily realized form. And Bankers estimate that at least $35 billion of the total has been spent since 1983, financing a string of deficits As the saudis kept importing More than their Oil income would pay for. Maintaining the open Cartel has been costing saudi Arabia alone about $20 billion a year according to a study by Palbas the French investment Bank. At that rate it warned its Stock of Public financial assets will be exhausted in four  even so a number of major saudi enterprises collapsed including National chemical industries and Carlson Al Raudla. Many big saudi trading companies have been forced to restructure their debts including Hobo Kohl Jameel and Helwani. Countless smaller companies simply ceased trading said a european banker. Construction companies now offer workers about 20 riyals or $5 an hour compared with More than twice that in 1982. Rents in the big cities have fallen about 40 percent since the recession began. And the Market in land has virtually vanished for want of buyers. Foreign workers who poured into the country during the prosperous years Are leaving in vast numbers. At least a million expatriate workers mainly pakistanis yemenite. Filipinos and egyptians have left the country since 1983, cutting its foreign population almost in half. Saudi Arabia s native population is estimated at 7 million. The Butl nem slowdown also is creating serious strains in saudi Arabia s underdeveloped banking system which has become increasingly burdened by unpaid debts and non performing Loans according to Western Bankers. Bankers say All saudi Banks especially the nine joint saudi foreign Banks Are reluctant to take Legal action to recover these debts. Even if a Bank wins the nation s islamic courts automatically deduct All interest from the sum owed in accordance with Sharla Law which considers interest payments usury. The courts Are basically on the Side of the saudi Borrower a banker commented. During the first half of 1985 most saudi Banks reported profit declines ranging Between 20 percent and 50 percent. But one european banker says the True picture is worse with Many Banks keeping non performing Loans on their books and optimistically writing in unpaid interest. Even saudi agriculture has not escaped the recession. Free water and huge subsidies have turned the desert kingdom into a net exporter of wheat to nearby persian Gulf countries at heavy Cost to the government. But last year the authorities started reducing their open ended commitment to buy All crops at a Price of $1,000 a ton. Dissatisfaction caused by the continuing slump has led to growing pressure on King fahd and the Royal family Tor a change in Oil policy. An increasing number of saudis have come to believe that higher output and lower prices make better sense than trying to defend open Price Levels said Miller of Wharton. According to Michael Field a British expert on saudi Arabia business leaders started complaining bitterly to the King Early last year about the nation s Oil policy while younger businessmen made their similar feelings known to Junior princes who then approached their uncles at court. The switch in policy followed. First threatened at last fall s open meetings it finally went into effect this Winter. After allowing Oil exports to drop As Low As 1.3 million barrels a Day saudi Arabia has now listed them to about 3.5 million barrels a Day still less than half its maximum potential production. To find customers for its output the kingdom is Selling Oil on a net Back basis linking the Price to the resale value of refined products with a guaranteed profit margin built in. Although the Sharp decline in world Oil prices resulted there almost certainly has been a dramatic increase in saudi revenues. When saudi Arabia was Selling Only about 1.3 million barrels a Day at the old official open Price of $28 a barrel its Dally income was some $36.5 million. But Selling 3.5 million barrels a Day at today s spot Market Price of about $20 a barrel would bring in $70 billion. Revenues should be even higher than that because net Back prices Ere still above the spot Market level and currently average $23 to $24 a barrel. If the Price slips further to $13 a barrel As persian Gulf Oil ministers suggested that it might. Saudi Arabia would need to raise its output to 5.5 million barrels a Day to maintain the same income. Saudi Arabia s stated aim is to Force Britain Norway the soviet Union Mexico and other non open countries to reduce production to support world prices. So far Britain has refused.  French Oil company analysts think saudi Arabia could emerge the Victor from a Price War if it keeps its nerve