Gulf War Bares Gaps Among Arab Economies

Oil-rich states feel pressure of being asked to bear much of war cost plus economic aid

OIL-rich sheikdoms have successfully helped to fend off Iraq's pointed aggression, but they face a future threat that also goes beyond borders. It is the festering discontent among the Arab poor, many of whom rallied to Saddam Hussein's call for an equitable distribution of Middle Eastern wealth. Even Iraq's opponents, the Egyptians and Syrians, are agitating for an improved economic lot. As the coalition vs. Iraq conflict recedes, the great disparity between the haves and have-nots is only more glaring.

The Gulf states, for example, reaped huge windfall profits when oil prices spiked after Aug. 2. But lost export earnings and high fuel costs have left economies from Jordan to Morocco severely impaired, and streets full of demonstrators.

The oil-rich now calculate their own security costs. They are more concerned with building a fortress against the wrath of poverty rather than eliminating its cause.

The total cost of waging war and cleaning up after combat is several hundred billion dollars. ``There's a tremendous need to finance reconstruction in the area as well as for military preparedness,'' says Egyptian-born Sharif Ghalib, director of the Africa and Middle East department at the Washington-based Institute for International Finance.

``There are so many needs competing for limited resources,'' he says, referring to the $100 billion-plus damage Iraq wrought on Kuwait, the untold sum required to rebuild Iraq, contributions to help defray the costs of Operation Desert Storm, and the regional scramble to acquire expensive military technology before regional disarmament takes shape.

Saudi Arabia, Kuwait, and the United Arab Emirates (UAE), three top donors among the oil producers, have disbursed grants and loans to the Islamic world for decades. Since 1974, roughly $45 billion has been doled out, largely for roads, dams, water, health, and education.

Critics say the practice of parceling out aid on a discretionary basis fails to contribute to closing the development gap. Instead, weak economies are manipulated by the more robust.

``Governments reward their friends for correct political behavior in the region,'' says Riad Ajami, a Middle East expert with Ohio State University.

``It would be better to streamline these funds than to continue with bilateral arrangements,'' he says.

Jordan, the Palestinians, Yemen, and North African states - great beneficiaries of past funds - have slipped from favor because of their unabashed support for Saddam Hussein. Mr. Ghalib says Gulf governments have demonstrated their appreciation for Egyptian support of the allied war effort by forgiving some $7 billion in past loans and extending another $4 billion in aid. Syria has received between $1.5 billion and $2 billion from Gulf sources. Israeli sources say Damascus has already approached Moscow to buy modified Scud missiles.

There are some unlikely sources of development aid because the conflict has produced strange alliances. When it heard that Washington threatened to cut Jordan off from United States aid, Iran quickly offered its former foe $100 million worth of oil. Even if Tehran is politically ready to respond to regional needs, it lacks the purse. Part of the government's current five-year plan is $27 billion in outside investment and loans.

Saudi Arabia stands to make some $15 billion to $20 billion in windfall oil profits, after paying its $13.5 billion portion of the war bill. It holds some $90 billion outside the kingdom.

Kuwait, with at least $120 billion in foreign investments, ranging from petroleum retail to government securities, will first focus on rebuilding its country and buttressing its defenses.

The UAE, which boasts the region's highest per capita income of $21,000, earned a $7 billion windfall from the oil price jump. The emirates' accumulated surpluses hover around $38 billion.

Lebanon, Jordan, Yemen, and the Palestinians will all call on oil producers, and appeal to their humanity, says Ajami, but the calls will fall largely on deaf ears. ``The Saudis and Kuwaiti are too traumatized to listen. They think they've given enough,'' he says. A senior Jordanian official is skeptical that rich oil states will assume a larger role in developing the region's poor countries. Jordan's own gross domestic product has dropped by 70 percent because of lost trade, aid, and revenues fro m Gulf countries.

The official asks, ``Who's going to foot the bill for repair? Who's going to pay for Iraq's massive reconstruction effort? It will be very slow. Europe is preoccupied with Eastern Europe, the US doesn't have the money. Gulf states are unwilling ... Islamic unity just doesn't exist.''

The Gulf Crisis Financial Coordination Group, jointly managed by the US Treasury and State Departments, has $11.4 billion in commitments from international donors, including Gulf governments.

Designed to buffer Egypt, Jordan, and Turkey from devastating loss of earnings and soaring unemployment, is could be the precursor to a Middle East regional development bank.

Second of five articles. Next: Regional arms control.