Oil States and Their Responsibility to Poor Countries: The OPEC Fund for International Development over Three Decades
Dr. Walid Khadduri Al-Hayat - 16/06/06//
The OPEC Fund for International Development (OFID) has suffered from two basic problems. The first involves the attempt to differentiate between the Fund and its famous neighbor in Vienna, the Organization of Petroleum Exporting Countries, which dominates the news when there is a rise or fall in oil prices. The second is the public notion that whenever a natural disaster takes place, such as the Asian tsunami, oil states have a limited role in providing assistance, which is the case with industrial countries.
The Director General of the OPEC Fund for International Development is Suleiman Harbash, an energy expert, who worked at Saudi Arabia's Petroleum Ministry for more than 30 years - during this time he spent a considerable period as his country's representative to OPEC's Board of Governors. Harbash says that "the relationship is one between two sister organizations in specialized and different areas."
In fact, Harbash told al-Hayat that the idea to form the Fund "arose at the OPEC summit in Algiers in 1975, and the following year, the OPEC finance ministers announced the founding of the Fund during the convening of the North-South Summit in Paris."
Both parties exhibit specialization: OPEC works on providing stable oil prices and maintaining a reasonable return for oil-exporting member states, while the Fund supports development in low- and medium-income countries. OPEC's oil ministers are responsible for the organization, while finance ministers are responsible for the Fund.
Unconditional Assistance
As for oil states' assistance to developing countries, and specifically the public's notion concerning this issue and the Fund's stance, Harbash says that assisting poor countries by all states and international and regional organizations "doesn't take place via individual, or ad hoc donations, but via soft loans and bilateral and multilateral loans that are targeted and long-term, and via cooperation with various development institutions." He adds, "This collective action is exactly what is carried out by Arab and Islamic institutions and funds. They follow the same assistance methods as those adopted by other development organizations, with the difference being that our organizations do not attach political or commercial conditions to loans, as some do." The OPEC Fund (OFID) has the advantage over the remainder of development institutions in that it serves all of the world's 119 developing countries, except for member states.
Eighty-Two Billion Dollars Over 30 Years
The level of assistance offered by Arab and Islamic development institutions (the Arab Fund, the Arab Monetary Fund, the Kuwaiti Fund, the Saudi Arabian Fund, the Abu Dhabi Fund, the Islamic Development Bank, the African Fund and the OPEC Fund) has reached around $82 billion over the last three decades, according to Harbash. He says that "the amount is a considerable one, especially if we take into consideration that most, if not all oil states, are developing countries."
The point is not only the amount of assistance, but also the sectors that receive it, and the development of methods and means so that they are in line with needs that change over time.
Moving Toward Public Sector Projects and the Participation of the Private Sector
The OPEC Fund's experience reflects some of the phases that Arab and Islamic development funds have gone through in the past.
Harbash says that the first assistance by the Fund "began with offering soft loans to treat the balance of payments disequilibrium in some poor states (with per capita income of less than $900 a year) and middle-income ones. These loans were by nature short term. However, over time, and with the continuing of this type of loans, the Fund began to participate in infrastructure loans to build schools, roads, hospitals and dams; these were soft long-term loans."
However, the Fund has not limited itself to these two types of loans to developing countries, Harbash adds. He indicates that "about seven years ago, and with the rise in the role of the private sector in developing countries, the ministerial council decided that the Fund would take part in private sector projects, in the belief that the role of this sector would move development forward in developing countries. In fact, the Fund contributed, with other corporations from third world countries, in building hotels, setting up banks and agricultural projects; it is now studying involvement in the glass industry in Egypt. It is also contributes, with international institutions, in shares of projects to build and manage electricity stations."
The Fund is also actively participating, in cooperation with other development institutions, in funding programs to fight Aids, via a scholarship program that constitutes one type of the Fund's activities. It is also contributing to the International Fund for Agricultural Development (IFEAD), supporting vocational education and small institutions, such as supporting studies and research. It is also supporting NGOs in their humanitarian programs, and has opened a special account to help Palestinian society, which has been hurt by occupation. It also provides technical assistance and donates money for the victims of natural disasters. The amounts of money set aside for these projects are relatively small, but are provided along with assistance that comes from other funds. Moreover, the total amount allocated in this area meets many of the required needs.
Regarding natural disasters, and specifically the Asian tsunami, Harbash says that the Fund's members states "donated, on an individual basis, amounts that exceeded those of advanced states; some Gulf states donated $43,000 per person, compared to $1.20 by the US."
Oil Prices and Funding Levels
Contrary to what is rumored about the OPEC states' assistance, the director general of the Fund says that loans and assistance are "stable at certain levels, whatever the price of oil, whether it's $10 a barrel, as in 1998, or $70 a barrel, as is now the case." He indicates that "the average annual level of loans and assistance of the Fund reaches approximately $1.5 billion, with the level of repayment by indebted states standing at about 96%."
OPEC member states, it should be noted, have paid $2.445 billion of the Fund's capital, out of a total nominal capital $3.435 billion. Reserves, meanwhile, stand at $2.47 billion. Member states have not raised the capital in the last three decades; however, they have naturally not asked for distribution of profits that appear from repayment on these loans. The Fund also receives a return on its investments in financial markets, which it uses to fund its programs. One hundred and nineteen countries in Africa, Asia, Latin America, the Caribbean, the Middle East and Europe have benefited from the Fund's assistance. The Fund's by-laws stipulate that loans or assistance not be given to member states. However, there have been two exceptions: the first involves humanitarian assistance to victims of natural disasters in member states, as with the remainder of assistance that is provided in such cases. The second involves contribution with private sector companies from member states in their projects in the third world on a competitive basis.
Future Programs
The Fund is now carrying out its 16th Program, which will be completed by the end of 2007. New and future projects that will be adopted by the 17th Program, which begins in 2008 will very much depend on the results achieved in the current program, which declined last year. Harbash says he expects "current programs for poor states to continue, while there will be expansion in providing loans to medium-income countries, taking into consideration the wider cooperation with the private sector in developing states."
*Dr. Walid Khadduri is an energy expert and the head of the economic business desk in al-Hayat
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