We have become numb to large numbers in the U.S. with trillions thrown around by the Federal Reserve, and government - $300B bailouts to Citigroup and Bank of America don't even bother our psyche anymore. Hence, the $36B social program announced yesterday by Saudi's King Abdullah doesn't sound like much to the typical American, but in relation to the GDP of the country that is roughly 10% of GDP! In U.S. terms that would be a $1.4 trillion stimulus plan.
Hence we have a dichotomy in the Middle East/Northern Africa as those without oil can't afford to pay off the people to continue government as it is now, whereas those with oil (except for that crazy in Libya) have quickly been handing out goodies to the people. For example last week, Kuwait passed out $3600 to each citizen, and will now pay for free food for 14 months. Now comes the Saudi package.... funny on the timing of all this 'benevolence' in the Middle East.
- As Saudi Arabia's 86-year-old monarch returned home from back surgery, his government tried to get ahead of potential unrest in the oil-rich country Wednesday by announcing an unprecedented economic package that will provide Saudis interest-free home loans, unemployment assistance and sweeping debt forgiveness.
- The total cost was estimated at 135 billion Saudi riyals ($36 billion), but this was not largesse. Saudi Arabia clearly wants no part of the revolts and bloodshed sweeping the already unsettled Arab world.
- Saudi officials are pumping in huge amounts of money into areas where it will have an obvious trickle-down by addressing issues like housing shortages, said John Sfakianakis, chief economist for the Riyadh, Saudi Arabia-based Banque Saudi Fransi. It has, really, a social welfare purpose to it.
- The most prominent step was the injection of 40 billion riyals ($10.7 billion) into a fund that provides interest-free loans for Saudis to buy or build homes. The move could help reduce an 18-year waiting list for Saudis to qualify for a loan, Sfakianakis said.
- Other measures included a 15 percent cost of living adjustment for government workers, a year of unemployment assistance for youth and nearly doubling to 15 individuals the size of families that are eligible for state aid. The government also will write off the debts of people who had borrowed from the development fund and later died.
- While Saudi Arabia has been mostly spared the unrest rippling through the Middle East, a robust protest movement has risen up in its tiny neighbor, Bahrain, which like others around the region is centered on calls for representative government and relief from poverty and unemployment.
- There are no government figures in Saudi Arabia that provide a national income breakdown, but analysts estimate that there are over 450,000 jobless in the country. Despite the stereotype of rich Saudis driving SUVs, large swaths of the population rely on government help and live in government-provided housing.
- King Abdullah returned to the situation Wednesday after spending three months in the United States and Morocco getting treatment for a bad back. The economic sweeteners were announced before his plane landed.
Much like the U.S. - it is the circus and bread routine I often mention, keep those struggling with just enough to keep them fed and entertained and they are content to sit home and not get into one of those inconvenient revolts. With 45M Americans on food stamps you can imagine what would happen within hours if that program would be repealed. Via the Globe & Mail
- For economists, it’s all about incentives. Forget any deep seated human desire for things like freedom and dignity. The social unrest across the Arab world comes down to comfort: those who have nothing riot; those who can afford a decent meal will stay home rather than put themselves in front of batons and bullets.
- “The time tested way to dampen popular unrest is to provide food and entertainment to the masses,” Marc Chandler, head of global head of currency strategy at New York-based Brown Brothers Harriman, wrote in note Wednesday called “Bread and Circuses: Reform Saudi Style.” “In effect, the 86-year-old king is increasing the basket of goods citizens get in hope that it will help soften demands for political change.”