OPEC's Shrinking Coffers

The Organization of Petroleum Exporting Countries pumped more than oil into the world economy during the 1970s. OPEC also poured billions of dollars that it collected from oil buyers into Western banks operating in the Euromarket, the hub of international finance. Those institutions then lent the funds to borrowers that ranged from Third World governments to multinational corporations. This so-called petrodollar recycling was a major source of cash for world money markets during the past decade.

Now, however, falling oil revenues are turning OPEC from a lender into a borrower and are drying up an important pool of money. This could raise interest rates around the world and put a further squeeze on cash-starved developing countries and the Eastern European nations that are already having trouble getting loans.

During the past decade, OPEC built up financial holdings worth some $360 billion, but that amount is now likely to decrease. Although oil prices have been dropping in recent months, OPEC members have not sharply cut back on their expensive development programs. As a result, analysts estimate, OPEC will have a deficit this year of between $25 billion and $30 billion.

Not every member of the group will be borrowing money. Small states like Kuwait and the United Arab Emirates should remain comfortably in surplus, but hard-pressed countries with large populations, such as Nigeria and Indonesia, will have significant deficits. Richard O'Brien, an economist with American Express Bank in London, estimates that this year Nigeria and the other populous OPEC nations will probably have to sell off assets worth some $25 billion and then still have to borrow about $5 billion from banks.

Western moneymen are confident that they will be able to handle the problems of fewer petrodollars and new OPEC borrowing. They point out that the principal and interest due this year on all bonds issued in the European market will come to $24 billion, which dwarfs the amount of OPEC borrowing. Moreover, the $1.5 trillion Euromarket is no longer as dependent upon OPEC money as it once was. While most of its new funds were previously supplied by the oil producers, the market is now so large that it can satisfy most of its new capital needs. Finally, the deep worldwide recession has reduced the demand for funds. Says a London-based banker: "Even if there is no new money at all, there's a sizable pool available for reinvestment when the economy picks up again."

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