The marble-clad Defense Ministry on Airport Road in Riyadh is buzzing with optimism these days, as allied forces pound Iraq and Kuwait. But across the half-deserted Saudi capital, the people who are bankrolling a sizable chunk of Operation Desert Storm are in a blue funk. With the Saudis so far pledging $48 billion toward the war against Iraq, "we've got to come up with money," says a senior Finance Ministry official. But, he adds, "the money isn't there."

Just when the call on their resources is the most urgent in their history, the Saudis are finding themselves critically low on cash (chart). The surge in oil prices and production following Iraq's invasion of Kuwait yielded the Saudis a $17.5 billion windfall last year, the Congressional Budget Office estimates.

But oil prices have since retreated. And even the $40 billion that Saudi Arabia's daily oil exports of 6.5 million barrels are expected to bring in this year may not be enough to cover Saudi costs for the war. Riyadh is spending so fast that it's planning major foreign borrowing for the first time ever.

'HIGHLY EMBARRASSING.' Rather than run down its depleted cash hoard even further, say financial officials in Riyadh, the Saudi Arabian Monetary Agency (SAMA) is negotiating an emergency $3.65 billion loan from Morgan Guaranty Trust Co. and several other Western banks to cover Saudi commitments to the U. S. through the first quarter. Morgan refuses to comment, but New York bankers believe the Saudis already may have borrowed as much as $2.5 billion against their massive holdings of U. S. Treasury securities.

Saudi officials suggest that even more borrowing lies ahead. Riyadh bankers, for instance, say the state oil company, Saudi Aramco, is discussing possible financings with local commercial banks. But Saudi Arabia's powerful fundamentalist groups regard any interest payments as un-Islamic. Thus, large foreign borrowing is "highly embarrassing," says a Western diplomat. "But they have no choice. The barrel is empty."

The implications of Riyadh's cash squeeze are far-reaching. Desert Storm depends on the Saudis to feed and fuel 700,000 coalition troops. But once the war is over, Saudi Arabia will face huge outlays for regional reconstruction and for maintaining a greatly expanded military force, as well as calls to help finance an emerging pro-Western alliance including Egypt and Syria.

The Gulf Cooperation Council (GCC) is also counting on Riyadh to be the biggest contributor to a planned $15 bil-lion development fund. But some GCC sources think it will be difficult to launch this fund as long as the Saudis' financial problems persist.

The problems could worsen even further if, as some Saudis fear, world oil prices plunge as low as $10 a barrel, from around $22 now, once the war ceases. Some Western analysts think that might prompt the Saudis to cut production by as much as 30%. But Ali Johany, a senior Saudi energy economist, thinks that even if they do, prices are unlikely to recover to more than $16.

By all accounts, Saudi Arabia's foreign holdings are rapidly dwindling. The nation is still estimated to have total overseas assets of some $70 billion. But much of that is held by Saudi commercial banks and can't be tapped. And up to a quarter of the total is composed of unrecoverable loans to Iraq dating back to its war with Iran.

In addition, the Saudi monarchy insists on maintaining a lavish welfare state. There is no personal or corporate taxation, and Saudis receive free education, medical care, and construction loans. Such policies have caused consistent yearly budget deficits since 1983, and a rundown in ready cash from $90 billion eight years ago to less than $8 billion today, according to SAMA. In fact, despite surging oil production and prices in 1990, Riyadh ran up a record budget deficit of $15.3 billion, according to Finance Ministry officials. This year, the deficit could be worse.

Although the official Saudi share of the prewar buildup alone was $19 billion, Riyadh analysts say that the real figure was at least 50% higher. Unrecorded in the government budget were $1.5 billion in low-interest loans to the Soviet Union to win support for the anti-Iraq alliance, $560 million to house Kuwaiti refugees, and billions for free oil for Turkey and Morocco. With the war raging, new bills are piling up. British Foreign Minister Douglas Hurd, for instance, received a promise of $1.3 billion from King Fahd during a visit to Riyadh on Feb. 9.

'OUT OF CONTROL.' While no one begrudges the expense of the military effort, such free spending is nonetheless spurring charges of massive waste and price-gouging on military contracts. "The Defense Ministry and Interior Ministry are out of control," says one Western analyst with connections to the Saudi government. Industry sources say Astra Co., a Riyadh-based company with close ties to senior Saudi princes, is enjoying profit margins of more than 100% on a multimillion-dollar Defense Ministry contract to feed troops. Astra President Sabih al-Masri denies the reports.

As war-related spending soars, outlays for roads, hospitals, and other services have all but stopped. At Jubail and Yanbu, the two vast Saudi industrial complexes built in the late 1970s at a total cost of $26 billion, U. S.-Saudi joint-venture maintenance contractors running power plants and desalination facilities are waiting for a $150 million Finance Ministry allocation so their overdue bills can be paid. Even Saudi efforts to contain the oil spill threatening its Persian Gulf coast are being hampered by a lack of ready cash.

Riyadh's new financial reality is sure to diminish Saudi Arabian prestige in the Middle East. For years, the Saudis maintained their clout by carefully spreading their wealth in what Middle Eastern diplomats call "riyal-politik." Beneficiaries ranging from Saddam Hussein's Iraq to Jordan, Egypt, and the Palestine Liberation Organization have enjoyed a Saudi gravy train of around $90 billion in aid over the past 15 years. But that open-checkbook policy looks like a thing of the past.

With the costs of Operation Desert Storm and the inevitable reconstruction growing larger with each fighter-bomber sortie, much of the Saudis' spare cash appears spoken for well into the next decade. The bold dream of a new postwar order in the Middle East, in which the Saudis and other gulf states finance the region's faltering nonoil economies, figures to be much tougher to realize.

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