Page 2 - Petrodollar recycling - Wikipedia_Neat

due to small populations or being at early stages of industrialization; but the surpluses could be
usefully invested in other nations, or spent on imports such as consumer products, construction

supplies, and military equipment. Alternatively, global economic growth would have suffered if
that money was withdrawn from the world economy, while the oil-exporting nations needed to be

able to invest profitably to raise their long-term standards of living. [11]

1974–1981 surge

While petrodollar recycling reduced the short-term recessionary impact of the 1973 oil crisis, it
caused problems especially for oil-importing countries that were paying much higher prices for

oil, and incurring long-term debts. The International Monetary Fund (IMF) estimated that the
foreign debts of 100 oil-importing developing countries increased by 150% between 1973 and

1977, complicated further by a worldwide shift to floating exchange rates. Johan Witteveen, the
Managing Director of the IMF, said in 1974: "The international monetary system is facing its most

difficult period since the 1930s." [12] The IMF administered a new lending program during 1974–
1976 called the Oil Facility. Funded by oil-exporting nations and other lenders, it was available to
nations suffering from acute problems with their balance of trade due to the rise in oil prices,

notably including Italy and the UK as well as dozens of developing countries. [13]

From 1974 through 1981, the total current account surplus for all members of OPEC amounted
to US$450 billion, without scaling-up for the subsequent decades of inflation. Ninety percent of

this surplus was accumulated by the Arab countries of the Persian Gulf and Libya, with Iran also
accumulating significant oil surpluses through 1978 before suffering the hardships of revolution,
war and sanctions. [10]

Large volumes of Arab petrodollars were invested directly in US Treasury securities and in other

financial markets of the major industrial economies, often directed discreetly by government
entities now known as sovereign wealth funds. [14][15] Many billions of petrodollars were also

invested through the major commercial banks of the US and Europe. In fact, the process
contributed to the growth of the Eurodollar market as a less-regulated rival to US monetary
markets. As the recessionary condition of the world economy made investment in corporations

less attractive, bankers and well-financed governments lent much of the money directly to the
governments of developing countries, especially in Latin America such as Brazil and Argentina [10]

as well as other major developing nations like Turkey. The 1973 oil crisis had created a vast
dollar shortage in these countries; however, they still needed to finance their imports of oil and

machinery. In early 1977, when Turkey stopped heating its prime minister's office, opposition
leader Suleyman Demirel famously described the shortage as: "Turkey is in need of 70 cents." [16]

As political journalist William Greider summarized the situation: "Banks collected the deposits of
revenue-rich OPEC governments and lent the money to developing nations so they could avoid
bankruptcy." [17] In subsequent decades, many of these developing nations found their