The new recycling of petrodollars
By Eric Le Boucher, Le Monde
Monday 16 June 2008
What do the
kings of petrol do with their petrodollars? The rise of the price of the
barrel, from $25 in 2002 to $135 this month, represents a huge money transfer
from consuming countries to producing countries. These days more than $4000
billion, on a yearly basis, go from one pocket to the other.
preceding examples, in the 1970’s, do not make one optimistic. The petrodollars
from the first two oil shocks were relatively little invested in producing
countries (with the exception of
financial resources generated by oil were “recycled” in developed countries.
Fuelling inflation there, they went up into smoke. Another chunk was invested
by western banks in
This time, during the third oil shock, were past lessons learned, is the “recycling” more efficient? The likely answer is: yes, a little better, but only a little.
If oil is a
geological windfall, it is often an economic and political plague. [Giving a hell of a lot of unexpected money to a “structurally
poor” entity, be it an individual or a country, like
oil countries are more prudent than in the 1970’s. They try to pay heed to the
coming generations, either opening the sluices only as needed (whence the prices),
or accumulating monetary reserves. As soon as the oil price rose again, these
Two questions face governments. Which part of the surpluses should be invested in the “post-oil” period, economic diversification, and social programs? A sum which is a minor proportion of the revenues, since the economies of these countries (in general) are small, compared to the scale of the money flow from oil. And what to do with the rest, the largest part, where to invest it?
Let’s begin with financial investments. It is not easy, these days, to trace down where goes capital in the financial planet. We can estimate, however, that until August 2007 and the beginning of the financial crisis, money was to a large extent invested in Great-Britain and the Caribbean, though, doubtless, with a final destination in the United-States, the main absorber of excess capital (Monthly bulletin of the ECB, July 2007). The result of this choice has been quite mitigated, the dollars vanished into subprimes loans and bank losses. Whence, for the past year, these countries preference to establish their own investment funds (the so-called “sovereign funds”) and in the long term to invest directly into European and American firms. One cannot tell what the profitability of these funds will be, but they behave, like American pension funds, rather prudently.
the sums spent locally to spur the economies, the obstacles are numerous and
ancient. Here no generalization is possible. Yet for Arab countries, the
challenge is simple to formulate: they must create 80 to 100 million jobs
between now and 2020. Oil will not suffice. From 2002 until 2007, despite the
oil price rise, unemployment climbed from 9% to 12% in
It is imperative to get out of rudimentary social policy, the creation of civil servant jobs. To create infrastructures is just a beginning. But, more importantly, schooling will have to be less religious and more professional; the countries must adopt a more open culture, a State guaranteeing individual rights, political changes. The Chinese despotic model, unfortunately, is attractive to many; the key to a good recycling, nonetheless, is to leave the citizens free to benefit from the windfall of oil profits.