Warn That Arab Investments in U.S. Could Alter Character of Country

Two noted economists warned that Arab investments in the United States, now estimated at $50 billion, could in time alter the economic and political character of our country. Robert R. Nathan, chairman of the board of Robert R. Nathan, chairman of the board of Robert R. Nathan Associates, internationally known firm of economic consultants, and Louis J. Walinsky, a former vice president of that company, charged that United States policy toward these investments had been characterized by “passive resignation,” and that in some ways our government had even cooperated to create the situation in which we find ourselves.

They stated further that, although the exercise of Arab power in the recent past has been closely linked with the Arab-Israel issue, the problem of Arab influence in the U.S. would not end even if a Middle East peace should be achieved. They offered a series of recommendations as to steps our government should take in order to exercise some controls over a situation that threatens to upset not only the U.S. economy but the international economic scene as well.

Among these recommendations were: strict enforcement of new reporting requirements as to foreign investments in U.S. enterprises; time limitations in regard to the liquidation of U.S. Treasury securities; establishment of term bases, rather than demand bases, for the withdrawal of Arab bank deposits that exceed a given amount in any one bank; closer supervision of the activities of foreign branches of U.S. banks; tougher supervision of bank portfolios, and public disclosure of information on bank loon portfolios; and insistence that Arab countries, which have helped create current deficits of non-oil producing countries by raising the price of oil, assume the risks of direct lending to those countries.

Nathan and Walinsky made their comments in conjunction with an in-depth 48-page report, “Arab Investments and Influence in the United States,” released at the annual meeting of the American Jewish Committee’s policy-making National Executive Council, which is continuing through Sunday at the Hyatt Regency Hotel here.

The report, written by Walinsky with the cooperation of Nathan, is part of a continuing effort of the AJCommittee to spotlight Arab penetration into the U.S. and its implications both for the country and the Jewish community. This effort is the work of a committee headed by Melvin L. Merians. Its work is staffed by a group headed by Ira S. Silverman, director of special programs for the AJCommittee.

PROBABLE EXTENT OF ARAB INVESTMENTS

The enormous profits that the Organization of Petroleum Exporting Countries (OPEC) have realized since the oil price hike of 1973, the economists said, have been invested worldwide in an amount of “at least $200 billion, “with” probably $50 billion” coming to the United States. Such huge investments, they added, which include commercial bank deposits, U.S. Treasury bills, bonds and notes, corporate bonds and stocks, to name only a few, raise questions as to what would happen to the American economy if the Arabs should ever decide to liquidate their assets here on short notice, and how much influence they exert on U.S. foreign policy because of our fear that they might do so.

In a highly detailed section of their report, the first of such magnitude on the subject, Nathan and Walinsky presented a statistical analysis of the probable extent of Arab investments in the U.S., stressing the fact that it was impossible to obtain a complete and accurate picture.

“Analyzing Arab investments in the U.S.,” they said, “is a kind of detective game played with extremely elusive and fuzzy statistical tools. First, Arab oil-producing countries do not fully reveal their surpluses on current account, because they do not wish others to know just how much wealth they are accumulating or just how they are disposing of it. Next, the U.S. government respects their insistence on confidentiality with respect to the U.S. investments it does know about, even as it encourages and assists them in placing many of these investments.

“Large U.S. banks similarly respect Arab demands for confidentiality about their bank deposits….Further, U.S. government-revealed figures do not identify the kinds and amounts of investments being made with individual countries or groups of countries, but only with OPEC country members in the aggregate.”

In addition, the economists said, many Arab assets are “hidden” through such devices as investments made in the name of third parties – banks, brokers, financial institutions, and other intermediaries; holdings in foreign branches of U.S. banks; and investments in publicly traded U.S. companies that fall just below the five percent level which would render them reportable.

Despite these caveats, Nathan and Walinsky had no hesitation in stating that “Arab investment in the U.S. is predominantly Saudi and Kuwaiti investment,” and that “of the two, the Saudi Arabian investment is it.”

“Guestimates” one encounters to the effect that the Saudis had invested $50 billion in the U.S. by the end of 1977 may not be far off the mark,” they said. “Indeed, by the end of 1978 another $10 billion to $12 billion will probably have been added to this total.” Among the reasons why the Arabs have invested so heavily in the U.S., they continued, are “low risk, high liquidity, satisfactory yield and anonymity.”

In the political sphere, they pointed out, “Saudi Arabia has acquired a degree of influence and power over the U.S. never before achieved by any other country in this nation’s history.” This influence has developed, they said, “partly because the politically powerful financial and banking communities have a strong vested interest in these investments, partly because public officials have viewed them as beneficial.” They cited the U.S. decision to sell F-15 fighter planes to Saudi Arabia as one evidence of the use of this power.

TWO MAJOR RISKS INVOLVED

Nathan and Walinsky delineated two major risks involved in Arab investments in the U.S.: “First, if the Arabs decided to use their money as a weapon, they could abruptly liquidate their assets here and transfer them abroad, completely disrupting our financial markets. The second risk is that U.S. banks, which have played a major role in lending to oil importing countries to help them finance their balance of payments deficits, may sooner or later encounter debt default or repudiation by their debtors which could plunge the banks themselves into bankruptcy and cause a collapse of the entire international financial structure.” No one can confidently predict the results of an abrupt liquidation and withdrawal of Arab assets from this country, the report notes. “The outcomes might, in the event, be manageable; but they could also be catastrophic.”