Checkbook Diplomacy Is a Thing of the Past, Dismayed Saudis Vow

The no-questions-asked days of Saudi Arabia’s checkbook diplomacy are fast coming to an end.

Dismayed that some of the world’s top recipients of Saudi aid sided with Iraq during the Persian Gulf War, kingdom officials have reversed one of this nation’s longstanding policies: From now on, Saudi Arabia will be more selective about the millions of dollars it regularly dishes out to other countries and causes.

“Our money will be directed by our national interests,” said Abdulrahman Zamel, deputy minister of commerce. “Where we think our national interest is served, our money shall go.”

The war forced Saudi government strategists to rethink their foreign aid policy as leaders throughout the region examine newly emerging alliances. Postwar Saudi Arabia is expected to take a more assertive role in the region’s diplomacy, a stance that contrasts with its passive past, diplomats say.

In the last two decades, Saudi Arabia has given $80 billion to nations and to pro-Islamic or Arab organizations, according to government figures. At the height of its generosity in 1982-83, foreign loans and grants amounted to 7% of Saudi Arabia’s gross national product.

The leading beneficiaries of this aid, government officials say, included Iraq and three of Iraq’s allies during the war: Jordan, Yemen and the Palestine Liberation Organization.

While Saudi money was sometimes used for development projects in struggling Third World nations, it often went into foreign government coffers, no strings attached.

More important than what the money was actually spent on, it served a crucial political purpose: The Saudi benevolence purchased friendship and loyalty, placated potential enemies and deflected trouble.

The Saudis, for example, gave Iraqi President Saddam Hussein millions of dollars during the Iran-Iraq War, partly out of concern that a victory by Iran’s Shiite Muslims would pose a threat to the rival Sunni Muslims, who dominate in Saudi Arabia.

If Saudi Arabia was surprised to see Hussein’s troops closing in on Saudi borders after trampling Kuwait last August, the kingdom was even more startled when poorer Arab nations, such as Jordan and Yemen, voiced support for Iraq and condemned the arrival of tens of thousands of American soldiers.

It left many Saudis feeling bitter and betrayed.

“It was shocking to see the biggest recipients screaming about sharing the wealth,” Zamel said in an interview. “They had been sharing our wealth.”

The years of handouts “had not yielded the expected results of goodwill,” said Abdullah Dabbagh, secretary general of the Council of Saudi Chambers of Commerce, who added: “There will be quite a bit of soul-searching in the future--provided we have the money.”

Instead of sending money to balance other governments’ budgets, Saudi financial experts say, the money will more likely be earmarked for specific projects such as housing, schools or highways. And, at the urging of the thriving Saudi business community, government officials may use financial aid to stimulate the private sectors in other countries. Future aid packages could include in-kind components, which would in turn generate more Saudi business.

An unspoken motive for Saudi Arabia’s more discretionary spending policy may be the simple fact that, in the short-term future, there will be fewer dollars to spread around. With oil prices on the decline and the bills for waging war yet to be collected, Saudi Arabia is facing its most serious economic bind in years. The wealthy kingdom has been forced to borrow heavily from international banks and, for the first time, counts no capital of its own to draw on, according to diplomatic sources.

The war cost Saudi Arabia an estimated $60 billion, roughly two-thirds of the country’s annual national income.

On the other side of the balance sheet, Saudi Arabia earned only an extra $15 billion from wartime hikes in oil prices.

In addition to more careful spending abroad, the country is likely to face a period of domestic austerity for two or three years, diplomatic sources predict. However, no one expects long-term difficulties. Economic trouble is relative, and in oil-rich Saudi Arabia, severe hardships do not appear to be looming on the horizon.

The country still sits on at least one-quarter of the world’s oil reserves. Some diplomatic sources say that estimate is low and that Saudi oil reserves may account for a full third of the world’s supply. “It would take an idiot--and they’re not idiots--to screw up this economy,” a diplomat said.