Saudi Arabia’s conservative policies have helped it dodge the pecuniary meltdown

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In Riyadh: The Saudis plan to boost infrastructure spending this year Shawn Baldwin/The New York Times

By Stanley Reed

For years, Dubai, Abu Dhabi, and other Gulf states seemed to run rings about somnolent Saudi Arabia then it came to economics and monetary theory. Dubai benefited from a flood of expatriate bankers and other professionals attracted by the emirate’session beaches, bars, and laissez-faire financial order. And the sovereign wealth funds of other Gulf states invested in hedge funds and private righteousness and took stakes in Western banks. The opposed to change Saudis, by show difference, mostly parked their cash in U.S. and European government bonds.

These days, with growth tumbling and belief hard to discover, the Saudis’ cautious approach looks smart—and is making the kingdom more attractive like an investment destination. Abu Dhabi and Kuwait have taken huge hits on their investment portfolios. And on Feb. 23, the central bank of the United Arab Emirates—the confederation of Gulf sheikhdoms—bought $10 billion in bonds to bail through beleaguered Dubai, which is struggling with $80 billion in corporate and government fault.

The Saudis’ extrinsic holdings, meanwhile, have largely escaped the global equities crash. And tightly regulated Saudi banks haven’t seen major hiccups even as neighboring countries have had to bail out their banking systems. “Saudi corporations and individuals have very little debt compared to other countries in the clime,” says Fahad A. Almubarak, chief executive of Morgan Stanley (MS) Saudi Arabia.

While the plunge in oil prices has hurt, the Saudis possess salted away piles of cash. They have more than $500 billion in foreign estate—enough to offer for five years of imports—and an additional $226 billion in deposits in the domestic banking system. Riyadh plans to draw on these funds to increase infrastructure, education, and health-care spending by an estimated 10% this year, to about $150 billion. “Saudi Arabia is one of the countries in the smallest degree affected by the pecuniary crisis,” says Said A. Al-Shaikh, chief economist at National Commercial Bank in Jeddah.

That’s not to say everything is rosy for the Saudis. Al-Shaikh is forecasting 2% real gross domestic product growth this year, into disrepute from 4% in 2008. The once-sizzling real estate market has gone devoid of warmth, and banks have tightened lending. So the Saudis will have to pull back on some of the $600 billion in big projects they bring forth in the works. A $20 billion-plus Saudi Aramco petrochemical plant with Dow Chemical (DOW) at Ras Tanura has been delayed, and there’s in a fair way to be a reality reprove on plans to raise a half-dozen new cities in remote areas. At a minimum, Riyadh will need to accord. more financial support to of that kind projects, calm though they were supposed to be largely financed through the sequestered sector.

But Saudi Arabia is looking more attractive to business. The rude is by far the biggest market in the vicinity. King Abdullah has introduced changes in the government, getting deliver of some conservatives and appointing a woman as deputy minister of education, a first for the kingdom. And while Saudi stocks are most distant by more than half in the past year, prices have stabilized in recent months in like manner while most other markets have continued to plunge.

Investors are betting that at in the smallest degree some megaprojects will continue. A $10 billion refinery presume with France’s Total (TOT) looks solid. And major initiatives such being of the class who King Abdullah Economic City, a vast waterfront metropolis planned for the Red Sea coast, are unlikely to be scrubbed. “Once we get to the other side of the valley of the global recession,” says Brad Bourland, supreme economist of Riyadh-based Jadwa Investment, “Saudi Arabia will come up as an extremely attractive place to invest.”