90. Memorandum of Conversation1

SUBJECT

  • Saudi Arabian Investment Policies

PARTICIPANTS

  • Governor Anwar Ali, Saudi Arabian Monetary Agency
  • William J. Casey, Under Secretary for Economic Affairs
  • Edson Kempe, Special Assistant to the Under Secretary
  • Brooks Wrampelmeier, NEA/ARP
  • William Courtney, EB/IFD/OIA

After initial pleasantries, Governor Ali explained he was in town for meetings at the IMF. In response to Mr. Casey’s question, the Governor said he had also had one meeting at the Treasury.

[Page 329]

Mr. Casey recalled his luncheon for Oil Minister Yamani and Deputy Oil Minister Prince Saud last April. He had discussed with them the question of how Saudi Arabia will use its growing financial reserves. Mr. Casey saw the growth of these reserves as an opportunity to do constructive things. However, it will require closer interchange between governments and broader movement of goods and capital. Governor Ali agreed, expressing the hope that a combination of these circumstances would be forthcoming. The Governor continued, saying that he had become acutely conscious of the energy problem only in the last year. The oil reserves of the producing countries are a depletable resource. However, there is lots of new technology available in the consuming countries of the world. Both producing and consuming countries will need to help each other. This can be done if people on both sides keep cool and cooperate.

Mr. Casey observed that in the long run producers and consumers must face together the fact that hydrocarbon energy is a wasting resource. One good thing which the President had done was to refer to the energy situation as a challenge rather than a crisis. The U.S. will continue to expand research and development in such areas as coal gassification, tar sands, and nuclear energy. It would be in Saudi Arabia’s interest to stake out now a role in development of these non-hydrocarbon energy resources.

Governor Ali thought the problem is how to convert oil wealth into an on-going economic base. If a country does things for itself with the help of foreign institutions, at least it can expect to move in the right direction in 20–25 years time.

Stressing that he had no inclination toward politics and that his remarks were made only as a modest, humble man, Governor Ali said that it is also necessary to look at the problem as it affects the need to find a reasonable, honorable solution for the Middle East question. Mr. Casey noted that the U.S. is doing what it can to facilitate a peace settlement among the parties to the conflict. However, the U.S. cannot impose a solution on the Middle East. He asked how Governor Ali thought the U.S. might stimulate the parties toward a settlement. Governor Ali said he did not know. However, he felt that if Western governments made clear their acute awareness of the need for an honorable settlement, it would go a long way toward improving the atmosphere for economic cooperation. He felt there is residual good will for the U.S. in the Arab world. The U.S. needs to move now to preserve friendly relations with the Arabs.

Mr. Casey said he understood that Governor Ali believes economic development of Saudi Arabia must also emphasize agricultural development. Governor Ali agreed that this is indeed a major challenge. He believed the Saudi Government needs to give high priority to agricul[Page 330]ture including livestock, farming, and fishing in order to halt the flight of population from rural areas into the cities. Saudi Arabia will need the help of institutions like U.S. universities located in regions with climates similar to Saudi Arabia’s. Saudi Arabia will also need to develop export-oriented industries. The Kingdom needs a more scientific survey of possibilities for industrial development. It needs to cultivate the cooperation of institutions in the U.S. which are prepared to invest technology and capital in Saudi Arabia. In turn, the Saudi Government would be willing to have a firm financial stake in such institutions. Governor Ali emphasized that the U.S. private sector can and should do much to stimulate Saudi interest in such projects. It cannot simply wait for the Saudi Arabian Government to take such initiatives.

Mr. Casey said that the above parallels very much our own thinking. We have been trying to identify industries like petrochemicals which Saudi Arabia could go into. The U.S. planned to talk further with Saudi Arabia about these possibilities sometime in the summer. Governor Ali indicated he thought this was a good idea. Continuing, Mr. Casey said the U.S. wants not only to help Saudi Arabia find alternative revenue producing industries but also a way in which the U.S. can pay for the oil it will import from Saudi Arabia. He wondered if Saudi Arabia had encountered any problem in contacting American firms about joint venture opportunities. The USG would very much like to help contact firms if that is the Saudi Government’s desire.

Mr. Casey said he understood that Governor Ali will be working with John Meyer, former Chairman of the Morgan Guaranty Bank. Mr. Casey knows Mr. Meyer well and considers him a first-class individual. Governor Ali said that nothing has been officially announced as yet but that SAMA is planning to set up a three-man financial advisory board composed of Mr. Meyer and bankers from the UK and Switzerland. He was also thinking of establishing a specialized investment institution so long as one could be devised that is consistent with Saudi tradition and mentality. This institution would stay away from petroleum and petrochemical projects but would invest in other industrial fields.

Mr. Casey said that as he sees it there is a need to create new institutions to handle the flow of money. We need to think very big in terms both of domestic and international institutions. Governor Ali said that he is also thinking of an industrial or development bank for Saudi Arabia. A Saudi agricultural bank has been in existence for several years, but its operations have been hampered by a dispute over the payment of interest. He hopes that Saudi psychological reactions to an industrial bank would be different. There is need for some institution to finance, for example, new cement plants or electric power facili[Page 331]ties. He referred to an association with Chase Manhattan Bank and the Industrial Bank of Japan in this connection. However, it may be necessary to rely on a number of institutions. Moreover, there is some thought being given to creation of a multinational banking institution among the Persian Gulf states. This, of course, would be a more modest project compared to a Saudi investment institution. He added that this proposal has not yet been officially discussed.

Mr. Casey said he had been thinking about possible Saudi investment in non-oil energy technology. There is need for the U.S. to find ways to recover the costs of its oil imports while giving to Saudi Arabia a stake in the long-term energy scene. To diversify its economic opportunities, Saudi Arabia needs to be more involved. The Saudis should do more to support development in Africa, for example, by investment in African resources. Governor Ali commented that there has been some thinking about more Saudi aid to LDC’s.

Mr. Casey requested the Governor’s thinking about the relationship between large currency reserves and international monetary stability. Governor Ali said that this was one of the subjects being discussed at the IMF. He felt that the concept of automatic adjustment makes no sense relative to Middle East oil producers. For such producers adjustment based on the rate of exchange becomes meaningless. He noted favorably a recent speech by Secretary Shultz that the concept of automatic adjustment should not apply to Middle East oil producers but that instead an investment fund should be set up to absorb their surplus reserves. Governor Ali said that in general he agreed with this concept. Saudi thinking, he said, is along reasonable lines. He felt the press has overplayed the potentially disruptive effects of the growth of Saudi Arabian currency reserves.

Mr. Casey said the U.S. attitude is to encourage Saudi Arabia to increase its oil output by helping the Saudis find outlets for their revenues through commercial, financial, and aid channels. Which industrial surveys, he asked, had Saudi Arabia undertaken? Governor Ali was not sure but he thought PETROMIN had done some studies on the use of flared gas for petrochemicals, steel, and aluminum. As for non-hydrocarbon minerals, he felt there is a need to look deeper. More needs to be done in the field of mineral development. Mr. Casey observed that all of those who can afford to do so should be conducting surveys in all the LDC’s. Drawing an analogy with the game of marbles, he pointed out that everyone will need to gain something if trade is to continue. The U.S. has always cooperated in the past with Saudi Arabia and can continue to do so in the future.

Governor Ali then asked how Mr. Casey saw things developing in the Persian Gulf. Mr. Casey said he did not see any of the major Gulf states surrendering their independence. He did feel, however, [Page 332] that there would be a trend towards greater cooperation among them. He asked Governor Ali how he saw relationships in the oil industry developing. Will there be further movement away from government-to-industry discussions on oil matters to direct government-to-government dealings as the producer governments assume more control over their oil resources? Governor Ali said it would be hard to answer that question since the historical background in each country will do much to determine how individual governments reach in each situation. He could not predict how far government control will spread. He felt there is a reasonable chance for stability in the world oil industry but did not believe that the Geneva oil pricing agreements can last. Mr. Casey agreed but said that he did not see how long there can continue to be constantly rising prices for oil.

As the conversation terminated, Mr. Casey remarked that we are now at the point where contacts between the two governments need to be made more often. Some of us, he said, need to go to Saudi Arabia this summer or fall in order to talk with Saudi officials about specific areas of development. Governor Ali indicated he would welcome such visits.

  1. Summary: Governor Anwar Ali of the Saudi Arabian Monetary Agency met with officials from the Department to discuss U.S.-Saudi investment policies and future projects.

    Source: National Archives, RG 59, Central Foreign Policy File, 1970–73, FN 9 Saudi Arabia. Confidential. Drafted by Wrampelmeier; cleared by Atherton; approved in E on July 6. Ali also met separately with Dickman on June 27. (Ibid., POL 7 Saudi Arabia)