SMALLER GULF STATES: CUTTING BACK FOREIGN AID

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• Sequence Number: 2
• Publication Date: August 1, 1984
• Content Type: REPORT

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Directorate of
Intelligence
Smaller Gulf States:
Cutting Back Foreign Aid
An Intelligence Assessment
NESA 84-10252
August 1984
Copy 4 18
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Intelligence 25X1
Smaller Gulf States:
Cutting Back Foreign Aid
This paper was prepared byl Of the
Office of Near Eastern and South Asian Analysis. It
was coordinated with the Directorate of
Operations.
Comments and queries are welcome and may be
directed to the Chief, Persian Gulf Division, NESA,
Secret
NESA 84-10252
August 1984
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Key Judgments
Information available
as of 31 August 1984
was used in this report.
Smaller Gulf States:
Cutting Back Foreign Aid 25X1
Acutely sensitive to external pressures and threats from revolutionary
forces in the Gulf region, Kuwait, Qatar, and the United Arab Emirates
have used foreign assistance to try to bolster their security. With the surge
in their oil revenues in the late 1970s and early 1980s, these countries
boosted foreign assistance to unprecedented levels. Bilateral and other aid
disbursements reached $6.1 billion in 1981 or 10 percent of GDP compared
with the aid equivalent to one-half percent of GDP provided by the United
States.
We believe the smaller Gulf states provide aid to:
? Ingratiate themselves with countries, especially Iraq and Syria, that pose
threats to their security.
? Prevent the spread of Iran's Islamic revolution to their shores by
providing financial support for Iraq's war effort.
? Strengthen conservative, pro-Western Arab states, particularly Jordan,
Morocco, and the poorer Gulf states, Oman and Bahrain.
? Bolster their legitimacy at home by supporting the Palestinian cause.
? Enhance their international prestige and make less developed countries
more responsive to Gulf Arab desires in international forums.
Although financial assistance has become a principal foreign policy tool
and a vital element in the security policy of the smaller Gulf states, they
have had only limited success in buying allies and conciliating enemies. Aid
to Syria and the Palestinians has afforded some protection from extremists
in those camps, but it has gained the Gulf states only limited influence in
Arab and Islamic capitals. For example, substantial Kuwaiti financial
assistance to Iraq has not softened Baghdad's claim to Kuwait's Bubiyan
Island, and the Gulf states were unsuccessful in using their aid to influence
Syrian policies toward Lebanon or Iran. In addition, the Gulf states fear
Iranian retaliation for their aid to Iraq.
The effectiveness of the financial aid program has been reduced even more
by the current oil glut that lowered oil revenues from $34 billion in 1981 to
$22 billion last year. Cuts in foreign assistance have far outpaced overall
budget reductions as the Gulf states have attempted to minimize cuts in
politically important domestic welfare and subsidy systems and to expand
military capabilities in response to the Iran-Iraq war. Bilateral and other
aid disbursements probably will total only $1.6 billion or about 3 percent of
GDP this year.
iii Secret
NESA 84-10252
August [984
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Because of these reductions, troublesome aid recipients like Iraq, Syria,
and the Palestinians, who have come to rely on regular assistance, may
become more antagonistic toward the smaller Gulf states. In part because
of concern over this possibility, we believe the Gulf states will not cut aid
further in 1985. These states, however, are unlikely to increase aid
disbursements until the oil market improves-probably after 1986.
We believe that aid recipients will turn first to Saudi Arabia to fill the gaps
created by reduced Gulf assistance. We doubt that the Saudis, given their
own lower oil revenues and aid priorities, will make up the reduced
assistance from Kuwait, Qatar, and the UAE.
Some Gulf aid recipients-particularly Jordan, Pakistan, Morocco, and
Sudan-are likely to turn to the United States and international aid
organizations for additional assistance. Syria, which has been hardest hit
by Gulf aid reductions, probably will try to offset the cutbacks by
maintaining ties to Iran, which provides significant economic aid to
Damascus. We also believe that the Syrians could try to intimidate the
smaller Gulf states into loosening their purse strings by threats of
terrorism.
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Smaller Gulf States:
Cutting Back Foreign Aid
The escalation in world oil prices in the 1970s provid-
ed Kuwait, Qatar, and the United Arab Emirates
with the wherewithal to boost foreign assistance to
unprecedented levels. The foreign assistance of these
countries averaged 10 percent of GDP in 1981 com-
pared with the aid equivalent to one-half percent of
GDP provided by the United States. Aid became a
principal foreign policy tool of these countries and was
given primarily to Muslim countries for development
projects or balance-of-payments support
The onset of the current oil glut, however, caused the
Gulf states to slash aid disbursements to their lowest
levels since the early 1970s, when such programs were
in their infancy. With their oil revenues declining
from $38 billion in 1981 to $25 billion last year, the
smaller Gulf states have taken the ax to foreign aid
rather than impose domestic-spending cuts that might
lead to civil unrest.
Since 1973, Gulf residents have come to expect
booming economies and rising social welfare spend-
ing. Although some domestic-spending cuts have been
implemented since 1981, Gulf leaders are reluctant to
reduce significantly benefits that were designed to
promote greater allegiance to their regimes. We judge
that the Iranian revolution has underscored to the
Arab governments the importance of maintaining
prosperity.
As a result of these factors, as well as the Gulf states'
concern about further lending to such financially
troubled countries as Iraq, Sudan, and Bangladesh,
aid disbursements probably will total only about 3
percent of GDP this year. Contributions to multilater-
al lending institutions will amount to only an estimat-
ed $100 million. Bilateral assistance-which includes
economic and military grants and loans-probably
will reach only $1.5 billion compared with a peak of
$5.9 billion in 1981 2 (see the figure and table 1).F_
The Donors
Kuwait, which ranks third worldwide in proven oil
reserves and fifth in official foreign asset holdings, is
by far the leading aid donor of the smaller Gulf states,
providing more than Qatar and the UAE combined.
The assistance given by Kuwait amounted to over 12
percent of GDP in 1981. Although the weak world
demand for oil has reduced Kuwait's earnings by
about 25 percent since 1981, declining oil revenues
are not as significant a problem in Kuwait as in most
other oil-exporting countries, because Kuwait earns
almost as much income from investments as it does
from oil production.
Nonetheless, current economic constraints and linger-
ing debts resulting from the crash of Kuwait's stock
market in 1982 have forced the country to pursue
limited domestic austerity measures. In addition to
substantial cutbacks in foreign aid, Kuwait has raised
fuel prices and utility rates and delayed some develop-
ment projects.' Although Kuwait's proposed budget
for fiscal year 1984 includes an 8-percent increase in
expenditures to stimulate the depressed) economy, no
increases in aid are planned.
According to Embassy reporting, some Kuwaiti finan-
ciers believe that Kuwait's leaders are exaggerating
domestic economic problems and the adverse impact
2 This paper concentrates on bilateral aid, because such aid normal-
ly accounts for 90 to 95 percent of total aid extended by the smaller
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Recipients of Gulf States' Aid, 1974-84
eo.nda,v representafmn .s
_oecessamy -th-
Disbursement Recipients
(Gulf Aid in Million US $)
More than 5,000
2,000-4,999
500-1,999
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Smaller Gulf States: Economic Indicators,
1981-85
Note scale change
Kuwait IIAI.
GDI' current -
-- Government capcnditures a
Bilateral liireign aid
( )Ilicial sets
90 ~>
8ll / -1(1
1981 82 83 84` 85e 11981 82 83 84`
I Is eil }cur, I luIN Ihrnueh 31i June
%Iultilatcral aid is not included hecause of dilticolty in distinguishing
each country s con trihLit inn This represents a small Portion of aid
` In 1982 the budget year lasted 18 months us gocernmcnl ch;mged lu
Ililni Usual year roughlc mid-April to mid-April Phis espenditare is
prorated to represent 12 months
Data not :mutable liir 1983
I slinwted
~f1981 82
I oreign -
(,DI' current -
I nreign
- (,DP current
----
I I-reign
Id/GIP
Government ctpenditores
aid/(;DI'
-- Gosernnlcni ccpenJiluios
.nd/(,I)P`
Bilateuil foreign uicl
Bilateral l rcien oJ,"
()lllcial o ct
ttIlieril else 1.
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Table I
Smaller Gulf States: Bilateral Economic and
Military Commitments and Disbursements to
Less Developed Countries, 1981-85
Total
Commit- Disburse- Commit- Disburse- Commit- Disburse- Commit- Disburse- Commit- Disburse-
ments ments ments ments ments ments ments ments ments ments
6,500 5,855 7,500 5,530
5,950 5,660 6,565 5,250
3,695 1,775 3,395 1,540 2,895 1,520
3,335 1,730 3,075 1,500
1,500 1,250 1,300 1,000
425 255 425 240
135 0 135 0
65 5 15 0
0 NEGL 0 0
135 90 135 30
100 5 135 140
55 40 55 50
Syria 710 775 1,005 935
Others 360 215 580 165
Bahrain 90 0
250 140 605 200
60 25 25 0
Pakistan 120 85 270 185
Others 70 30 310 15
Non-Islamic 300 55 330 80
a Estimated.
e Projected.
Includes PLO and Israeli-occupied territories.
150 10 110 10
5 NEGL 0 NEGL
35 NEGL 0 NEGL
of weak oil demand to avoid fulfilling aid requests.
Kuwait's Foreign Minister, for example, has stated
that his country could not pay all of its aid commit-
ments in 1984 because of a projected budget deficit of
$2.65 billion. Press reporting indicates, however, that
Kuwait's income from foreign investments-estimat-
ed at about $7 billion in 1983-was not included in
the projected budget, thus giving the country a sur-
plus of over $4 billion.
Kuwait has given nearly $6 billion to Iraq since
1981-almost 65 percent of Kuwait's foreign aid
disbursements over this period-to support Baghdad's
war effort against Iran. In 1983, however, we estimate
that Iraq received only $800 million, a decrease of 60
percent from the 1982 level (see table 2). Almost half
of this sum was in the form of oil sales on Baghdad's
behalf, a cheaper alternative to monetary assistance.
In 1983, Kuwait began selling crude oil from its share
of the Saudi-Kuwaiti Neutral Zone to some of Iraq's
customers, turning the receipts over to Iraq. These oil
sales have averaged about 70,000 barrels per day
since the contract began. Kuwait incurs only the cost
of pumping the oil-between $2.00 and $2.50 per
barrel-and a small reduction in its oil reserves. F_
Under the Baghdad Agreement of 1978,? Kuwait
pledged $291 million annually to Syria, $196 million
to Jordan, and $63 million to the PLO. The Kuwaitis
Algeria, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, and the
United Arab Emirates met in Baghdad following the signing of the
Camp David accords and agreed to provide aid to the so-called
confrontation states at war with Israel-Jordan, Syria, and the
PLO. Payments to these countries were to be made in three equal
annual installments. Algeria and Libya reneged on their commit-
ments soon after the agreement was signed, and Iraq fell into
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Table 2
Kuwait: Bilateral Economic and Military
Commitments and Disbursement to
Less Developed Countries, 1981-5
Commit- Disburse- Commit- Disburse- Commit- Disburse- Commit- Disburse- Commit- Disburse-
ments ments ments ments ments ments ments ments ments ments
Total 3,380 2,810 3,985 3,280
Arab states 2,870 2,730 3,480 3,100
Iraq 2,000 2,000 2,000 2,000
Jordan 280 250 340 205
2,210 1,195 2,485 1,280 _ "2,100 1,260
1,895 1,150 2,185 1,240___
1,000 800 1,300 800
195 205 195 180
65 0 65 0
15 5 15 0
0 0
180_..--
80
0
40
10
NEGL
Others 50 10 170
Non-Islamic 280 35 320
a Estimated.
b Projected.
Includes PLO and Israeli-occupied territories.
0 100 10 100
70 200 35 200
were current on these payments until 1983, when
payments to Syria and the PLO were reduced by some
$150 million. According to the US Embassy in Am-
man, Kuwait's National Assembly recently approved
a plan to cut the country's Baghdad payments by 40
percent to $340 million annually.
OThe Assembly turned down a proposal by its
financial committee to stop all aid to Syria, according
to some Arab weeklies. The US Embassy in Kuwait,
however, reports that the government intends to apply
future payment reductions primarily to Syria.
Kuwaiti aid to other Arab countries also has been
reduced. It gave $5 million to Morocco and nothing to 25X1
Lebanon in 1983, compared with $115 million and
$30 million, respectively, the previous year.
Aid to African and Asian countries also has been
slashed. In 1983, Kuwait gave only $10 million to
non-Arab Islamic countries, compared with $110
million in 1982. In addition, the Kuwait Fund for
Arab Economic Development (KFAED) lent $606
million during fiscal year 1983, a drop of 18 percent
from the previous year, according to the Fund's
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Table 3
United Arab Emirates: Bilateral Economic and Military
Commitments and Disbursements to Less Developed
Countries, 1981-85
Commit- Disburse- Commit-
Disburse- Commit-
Disburse- Commit-
Disburse- Commit-
Disburse-
ments ments ments
ments
ments
ments
ments
ments
ments
ments
Total
2,230
2,170
2,610
1,690
1,185
580
610
230
520
230
Arab states
2,190
2,080
2,180
1,525
1,140
580
590
230
Iraq
1,400
1,400
1,400
1,250
500
450
0
200
Jordan
225
200
230
100
145
50
145
30
Lebanon
45
45
45
0
45
0
45
0
Morocco
80
0
55
25
50
0
0
0
50
40
50
40
0
0
0
0
Non-Arab Islamic
20
70
420
65
35
0
10
0
Bangladesh
0
NEGL
25
NEGL
40
0
0
0
Pakistan
0
50
255
50
20
0
0
0
Others
20
20
140
15
10
0
10
0
20
20
10
10
10
0
10
0
a Estimated.
b Projected.
C Includes PLO and Israeli-occupied territories.
annual report. Arab countries typically receive about
15 percent of the allocated KFAED funds, African
countries 25 percent, and Asian countries about 60
percent.
The United Arab Emirates has been one of the most
generous aid donors in the world, giving as much as
20 percent of GDP in 1979. A 45-percent decline in
oil revenues since 1981, however, has resulted in the
UAE's sharp reduction of aid payments. We estimate
that bilateral grants and loans totaled almost $2.2
billion in 1981 but dropped to $580 million in 1983
(see table 3). Abu Dhabi, the richest and most gener-
ous donor of the seven Emirates, is all but halting
foreign aid, according to the US Embassy in Abu
Dhabi. To our knowledge, the UAE gave no assist-
ance to non-Arab countries in 1983. The UAE recent-
ly formulated its federal budget for 1984, but it does
The effect of austerity on operations of the Abu
-Dhabi Fund for Arab Economic Development
(ADFAED)-the UAE's main lending organization
and disburser of bilateral aid-is evidenced by a
recent fund decision to forgo printing the annual
report for 1983 due to lack of content. During 1983
the Fund engaged in only two new development
projects, according to the US Embassy in Abu Dhabi.
The head of the Arab countries division at ADFAED
confirmed that new funds for lending operations are
unlikely during 1984.
Since the start of the Iran-Iraq war, we estimate that
the UAE has given about $3.5 billion in monetary
assistance to Iraq. We believe that nearly 80 percent
of UAE aid in 1983 went to Iraq. The government
not include any increases in aid.
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Table 4
Qatar: Bilateral Economic and Military Commitments
and Disbursements to Less Developed Countries, 1981-85
Commit- Disburse- Commit- Disburse-
ments ments ments merits
1985 b
Commit- Disburse- Commit- Disburse- Commit- Disburse-
ments ments ments ments ments ments
300 0 300 30 275 30
Morocco 10 0 0 0 0 0 0 0
Sudan NEGL 0 0 0 0 0 0 0
Syria 145 125 125 125 1200 120 0
Others 25 25 70 35 70 0 70 0
Oman 25 0 25 0 25 0
Non-Arab Islamic 0 25 0 25 0 0_0 0
0 0
a Estimated.
b Projected.
Includes PLO and Israeli-occupied territories.
paid $200 million to Iraq early this year, but we judge
that the Emirates are unlikely to give more. The
UAE, because of its traditional commercial and cul-
tural ties to Iran, is more suceptible than the other
Gulf states to Iranian pressure to reduce aid to Iraq.
The UAE pledged to give $211 million annually to
Syria, $143 million to Jordan, and $46 million to the
PLO under the Baghdad Agreement. The UAE was
late in providing its Baghdad payments in 1982 and
met only one-third of its commitment in 1983, accord-
ing to UAE officials. So far, the UAE has paid $15
million to Jordan toward its 1984 commitment, ac-
cording to the US Embassy in Amman. The Embassy
believes-and we concur-that the UAE is unlikely
to make significant additional Baghdad payments this
year. According to the UAE Minister of Petroleum
and Mineral Resources, the UAE stopped all pay-
ments to Syria in the summer of 1983 and does not
plan to resume them soon.
Qatar once pursued a generous aid policy, giving as
much as 16 percent of GNP in concessional assistance
during the mid-1970s. Aid payments dropped by one-
third in 1982 as a result of a corresponding falloff in
oil revenues, and Qatar terminated all foreign assist-
ance in 1983. In sharp contrast to last year's austerity
measures, Qatar's budget for fiscal year 1984 proba-
bly will include expenditure increases of 19 percent,
due primarily to higher oil production. Although aid
payments in 1984 have resumed, we do not expect
them to match earlier levels (see table 4).
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We estimate that Qatar had disbursed about $1
billion to Iraq between 1981 and late 1982, when
payments were stopped. Qatar's Amir Khalifa insists
that his country ended aid to Iraq so as not to
Table 5
Gulf Financial Aid:
Selected Disbursements, 1974-84
antagonize Iran.
Under terms of the Baghdad Agreement, Doha is
supposed to give $122 million annually to Syria, $83
million to Jordan, and $26 million to the PLO. The
US Embassy in Amman reports that Qatar ceased all
Baghdad payments following the Gulf Cooperation
Council summit meeting in Manama in November
1982, primarily to punish Syria for its ties with Iran.
We have no evidence that the government made any
of its scheduled Baghdad payments in 1983, although
it has made a partial payment of $27 million to
Jordan so far in 1984, according to the US Embassy
in Amman. The Embassy reports that Jordan's Cen-
tral Bank expects more aid from Qatar. We believe,
however, that Doha will delay further subsidy pay-
ments as long as possible.
Qatar never has been a large contributor to non-Arab
Islamic states or other less developed countries, giving
only $25 million in both 1981 and 1982 and nothing in
1983. We do not expect payments to resume in 1984.
Foreign Relations
We believe that financial assistance is a principal
foreign policy tool and a vital element in the security
policy of the smaller Gulf states. Despite significant
military expenditures and extensive modernization
programs, the sparsely populated Gulf states have
limited military capabilities and little prospect of
successfully defending their territories-particularly
their oilfields and installations-without outside
assistance. In addition, their large Shia and Palestin-
ian communities, as well as their undermanned and
ineffective internal security forces, make them vulner-
able to subversion, terrorism, and sabotage. There-
fore, the states have tried to use their abundant oil
wealth to buy allies and conciliate enemies (see table
5)~
Leading
Recipients
Economic
Military
Total
Iraq a
NA
NA
11,000
Syria
2,650
3,255
5,905
Egypt b
3,270
1,000
4,270
Jordan
1,705
1,655
3,360
Oman
555
265
820
Pakistan
350
150
500
Sudan
370
130
500
Somalia
235
180
415
Lebanon
265
115
380
Morocco
255
70
325
PLO
75
170
245
Bangladesh
170
170
a Aid begun in 1981 at the start of the Iran-Iraq war. The
breakdown into economic and military aid is unavailable. We
estimate, however, that the Iraqis spend more on military
purchases.
b Aid halted in 1980 after signing of Camp David accords.
When the subject is raised, Gulf officials do not give
the whole story, according to US Embassy reports.
Information on politically sensitive aid to Iraq, for
example, is particularly closely held.
We believe the Gulf states have attempted to use aid
to:
? Buy off countries, especially Iraq and Syria, that
pose threats to their security.
? Gain support among the many Palestinians who live
and work in these countries and thus protect them-
selves from extremists.
? Mold a moderate Arab consensus by support to
other conservative Arab states-particularly Jor-
dan, Morocco, and the poorer Gulf states, Oman
and Bahrain.
? Enhance their international prestige and make less
developed countries more responsive to Gulf Arab
Consonant with these political purposes, the financial
assistance policies of the Gulf states are shrouded in
secrecy. Gulf leaders seldom boast of their generosity,
and most assistance is given with little publicity.
desires in international forums.
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Gulf aid to Iraq is motivated largely by fear that an
Iranian victory will result in the spread of the Islamic
revolution to their shores. According to Kuwait's
Ambassador to the United States, Kuwait also is
concerned about the possibility of Iraqi reprisals and
terrorist attacks if it halts such aid.
Kuwait, Qatar, and the UAE realize that they will
have to live with both Iran and Iraq when the war
ends. Kuwait's Crown Prince has indicated that the
Gulf states have discussed the creation of a joint fund
for Iraqi and Iranian postwar reconstruction. Even if
such a fund were established, it could not satisfy all
Iranian and Iraqi demands-Iran already has asked
Iraq for $150 billion in reparations and reconstruction
costs.
The Gulf states often have attempted to attach a high
level of conditionality to their assistance to states
weaker and farther removed than Iraq.
usually those that are politically moderate and mili-
tarily weak-have displeased the Gulf states, assist-
ance has been cut off or delayed. The Gulf states,
however, are more comfortable using the carrot than
the stick.
Although the Gulf states have tried to accomplish
many of their foreign policy goals by giving aid, this
tactic has given them only limited leverage with the
recipients. For example, Kuwait's aid to Iraq has not
softened Baghdad's claim to Kuwait's Bubiyan Island.
Gulf aid to Syria and the Palestinians, however, has
afforded some protection from extremists in those
camps.
We judge that the Gulf states will face a new set of
foreign policy problems because of their collective
decision to reduce foreign aid. They risk antagonizing
recipients who have come to rely on regular assist-
ance. According to press reporting, Syria has indirect-
ly threatened Kuwait, Qatar, and the UAE for not
meeting their Baghdad commitments. On the other
hand, we believe Iranian-supported terrorism in Ku-
wait and Iranian air attacks on Kuwaiti oil tankers
beginning in late spring were due partly to Kuwait's
continued financial support for Iraq.
Outlook and Implications for the United States
We estimate that the Gulf states will reduce bilateral
foreign aid by approximately 15 percent in 1984 to
$1.5 billion and will not increase aid disbursements
until the oil market improves, probably after 1986. As
oil revenues pick up, Gulf leaders will ease their
austerity programs and consider only selective aid
increases.
The smaller Gulf states probably will continue mone-
tary assistance to Baghdad for the foreseeable future.
As a result of Iraqi Foreign Minister T'ariq Aziz's visit
to Kuwait in the spring of 1984, Kuwait has commit-
ted unspecified amounts of new financial assistance to
Baghdad, according to the US Embassy in Kuwait.
The future level of Gulf aid to Iraq, however, is likely
to be considerably less than two years ago-when it
accounted for over 10 percent of Iraqi budget reve-
nues-because of financial stringencies and the hope
of avoiding Iranian ire. Gulf aid to Iraq probably will
decline further, in our view, if the Iran-Iraq war
causes a substantial reduction in oil exports from the
Arabian Peninsula. So far, the spread of the war to
the Gulf and the attacks on tankers have not signifi-
cantly disrupted oil exports, according to US Embassy
reports.
We judge that Damascus will be hardest hit by
reductions in aid from the Gulf states., which account-
ed for about 50 percent of the economic and military
aid provided to Syria in 1982 but less than 25 percent
in 1983. As a result, Damascus may tilt even more
toward Tehran to win additional financial support.
We believe that Syria also hopes that its support for
Palestinian, Iranian, and other radical groups will
pose a sufficient threat to the smaller Gulf states to
forestall further cuts and may even cause them to
restore aid to previous levels. The Gulf states, howev-
er, probably will continue to delay their scheduled
Baghdad Pact payments to Syria, trying to penalize
Damascus for its relations with Iran and Libya as well
as its links to terrorist operations against the Gulf
states.
We believe the Gulf states probably will maintain aid
to Jordan at current levels because they are concerned
that further reductions would weaken the like-
minded, conservative rule of King Hussein. Baghdad
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Pact assistance from the Gulf states made up about
45 percent of aid flows to Amman in 1982. Reduced
Gulf aid this year sparked some cutbacks in Jordan's
development budget, which could lead to unrest
among Jordanians accustomed to rising living stand-
ards and low unemployment. Further aid reductions
might force Jordan to take more politically sensitive
steps, such as reducing military spending and food
subsidies.
Although Kuwait has decided to reduce all of its
Baghdad Pact payments, we believe that this maneu-
ver was designed primarily to convince Damascus that
it was not being singled out for aid reductions. Kuwait
probably will find other ways to support Jordan's
King Hussein and his moderate foreign policies, per-
haps through increased development aid or funding of
military equipment.
In addition, Kuwait is unlikely to cut aid to the PLO
substantially, because of its own large Palestinian
community-over 20 percent of the country's popula-
tion.
We believe that the Gulf states will not resume aid to
Lebanon-halted in the aftermath of the Israeli inva-
sion in the summer of 1982-until they believe a
stable government is in place and until the Israelis
withdraw from the country. Gulf aid to Lebanon had
reached $90 million in 1981. Lebanon has sought
more aid from the Gulf states, but they have declined
to respond.
The smaller Gulf states are reluctant to extend new
aid to Sudan because of what they perceive as gross
mismanagement of the economy and aid funds. Ku-
wait recently refused to help fund Sudan's balance-of-
payments gap and has even tried to restrict IMF
assistance to Khartoum because of its mounting ar-
rears. Sudan owes about $500 million to Kuwait,
according to Embassy reporting. UAE Government
officials have commented that they view aid to Sudan
as "throwing good money after bad." The UAE made
no commitments to Khartoum in 1983 and is unlikely
to lend any money this year. The lack of Gulf aid will
take on more importance as the insurgency in Sudan's
southern region worsens.
The greatly reduced amount of Gulf aid for non-Arab
Islamic states in 1984 and 1985 threatens to place
further pressures on these states' economies. Bangla-
desh and Pakistan-which have been the major recip-
ients of Gulf aid to non-Arab Islamic countries over
the last decade-are the most affected. Pakistan had
been trying to line up about $800 million in military
assistance from the Gulf states since 1980 and proba-
bly delayed or canceled weapons purchases from
Western Europe in 1983, when it did not receive the
requested aid. Pakistan has since had to rely more
heavily on Saudi Arabia and the United States to
finance military purchases.
Aid recipients probably will turn increasingly to other
countries-especially Saudi Arabia-to make up the
shortfalls in Gulf assistance. The Saudis have made
some cuts in bilateral foreign aid but not nearly as
many as the smaller Gulf states. In contrast to
Kuwait, Qatar, and the UAE, the Saudis continue to
provide the $1 billion in Baghdad subsidies they
promised to Jordan, Syria, and the PLO. The Saudis
will maintain these payments through 1985, in our
estimate.
the smaller Gulf
states are relying on continued aid from Saudi Arabia
to soften the impact of their cutbacks and hope that
Saudi Arabia might even cover their shortfalls. In
view of their own reduced oil revenues and aid
priorities, however, we doubt that the Saudis will
increase their aid payments.
Some aid recipients-such as Jordan, Pakistan, Mo-
rocco, and Sudan-probably will turn to the United
States and international aid organizations for addi-
tional assistance. They could request almost $1 billion
in our estimate. Without such assistance, these states
will have to curtail development or military modern-
ization programs that contribute to their stability and
security.
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