they can be more easily absorbed by the large U. S. capital market and recylced to other oil-consuming countries. The recent removal of limited U. S. capital controls, temporarily instituted during the fixed-exchange-rate period of the 1960's for balance of payments purposes, should facilitate this recycling. As Arab governments increase their knowledge and sophistication in handling the se growing funds and recognize the need to shift portions of their portfolio into longer terms securities, pressure will be reduced on the international banking system. The Treasury Department has recently offered the sale of special Treasury securities to Saudi Arabia and Kuwait with a range of options and maturities. "Up to now, there has been relatively little investment from gulf countries in the United States. What investments have occurred have been by private individuals operating through third parties or by established organizations such as the Kuwait Investment Company. Most of these investments have been in real estate, shopping complexes, and high-quality stocks. Unfortunately, no precise figures on investment in the United States by gulf states exist. The portfolio investment reporting requirements set by the Securities and Exchange Commission make no provision for differentiation by national origin. Even if they did, the practice of channeling investments through financial intermediaries makes it difficult in may cases to establish beneficial ownership accurately. The Commerce Department does attempt to compute figures for foreign direct investment according to national origin. However, the rule of confidentiality precludes publication of such date except in aggregated form. "While oil producers are reviewing their investment options, they are now seeking to develop their own financial institutions. Currently, there are proposals for setting up an Arab stock exchange, creating an Arab investment fund, and establishing a $1 billion Arab Petroleum Investment Company. Various American banks and financial institutions are now placing more emphasis on providing investment rather than commercial banking services. this way they hope to steer investment capital to the United States while helping these countries create their own financial institutions. In "Mr. Chairman, the last year has made us more aware than ever before of the vital importance of the gulf region. The most recent Arab-Israeli war has underlined the inter-relationship between progress toward a just and lasting peace in the area and the strengthening of constructive relationships between the United States and the Arab oil producers in the gulf. Thus, progress toward a permanent settlement in the Middle East is a significant element in our present policy toward this area. However, the rise in oil prices combined with the rapidly growing financial resources of the gulf countries has created a new complex problem without precedent in economic history. "What we are doing is to work with these countries in all three areas that I have just mentioned-internal development, encouraging them to expand their aid, and helping them find ways to invest surplus funds to avoid monetary dislocations. Given the size and variety of the U. S. capital market, we expect to attract substantial inflows from the gulf. At the same time we will continue our efforts to cooperate with oil-consuming countries as they seek to manage the economic dislocations they face in paying for their oil. Reading List 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Al-Fazi, Ala. Independence Movements in Arab North Africa. New York: Octagon, 1969. Badeau, John S. "Our Changing Role in the Middle East" Burton, Captain Sir Richard F. A Pilgrimage to Al-Madinah Collins, Larry and Lapierre, Dominique. O Jerusalem. Dayan, Major General Moshe. Diary of the Sinai Campaign. Epp, Frank A. Whose Land is Palestine? problem in historical perspective. The Middle East Grand Rapids, Mich: Eliav, Arie L. Land of the Hart. Translated by Judith Yalon. Hurewitz, Jacob Coleman. Middle East Politics: The Military Insight Team of the London Times. The Yom Kippur War. Ismael, Tareq Y. Governments and Politics of the Contemporary Middle East. Homewood, Ill.: Dorsey 1970. 11. Lawrence, T. E. Seven Pillars of Wisdom. Garden City, N. Y: 12. Ling, Dwight L. Tunisia: From Protectorate to Republic. Nutting, Anthony. Nasser. New York: Dutton, 1972. 13. 14. Zuandt, William B. Algeria, 1954-68 Revolution and Political Leadership: 587-271 0 - 75 - 12 MILITARY DETERRENCE Will the military balance shift during the remaining years of the 1970's? It's a fact now that the Soviet Union's inventory of modern, highly technical, strategic weapons is approaching, and in some cases surpassing ours, both in quality and in quantity. And, within a few years we can expect that the People's Republic of China will also have the capability of launching ICBM's against targets in the United States. This change in the balance of power is a major concern to all of us and the threat is continuing to grow. Improvements in Soviet strategic weaponry-- surface, subsurface and air--continue as evidenced by the increasing expenditures of research and development appropriations. The following excerpts from the Secretary of Defense James Schlesinger amplify the above remarks. In his February 1975 report to the Congress on the FY 1976 Defense Budget and FY 1976-1980 Defense Programs, Secretary Schlesinger stated in part: "The U. S. Role "A major issue that we must face as a nation concerns the degree of initiative and leadership that the United States should provide in the face of these global complexities. As a result of events last year in the Middle East, no one can doubt that the world has become truly interdependent and that American citizens remain vitally concerned with its evolution, Clashes in various parts of the world have demonstrated the importance of U. S. diplomatic efforts both to foreign governments and to our own citizens. And we are all aware that we have become vulnerable to nuclear attack. It is also quite obvious that the United States will remain one of only two superpowers for many years to come. For that very reason, however passive and restricted our role in specific situations, we will loom as a major factor in the calculations of other nations, and many of them will seek to involve us in their affairs. Such was the case in the earlier part of this century; it is even more so now. "But none of the se realities mean that we must take initiatives, try to shape the future to our ideals, work toward results favorable to our interests, or forestall unwanted challenges. In principle, at least, a relatively passive policy, a sense of limited liability, and a minimal military posture are alternatives that are open to us. "Some of our citizens might even find favor in such a role, provided that their own particular oxen were not gored in the process. An active foreign policy implies risks, but so does passivity. There is no risk-free policy. In the face of uncertainty and a not altogether friendly world, it is more prudent to shape the future by our own actions than to let others do it for us. "It is also worth recalling that a number of factors, in addition to our diplomatic relationships with the Soviet Union and the People's Republic of China, have changed during the last generation. The United States, while remaining the great arsenal and reserve of democracy, has also joined its first line of defense; moreover, it is alone as the superpower of the non-communist world. It is all well and good to add up the population and gross In the meantime, despite the promising dialogues begun with the USSR and the PRC, it would surely be unwise to forego the maintenance of a balance of power in critical areas of the world. "Perhaps all will go well without the maintenance of such balances and the deterrence of hostile acts that go with them. Perhaps we can now depend on the good will of others to preserve the independence and territorial integrity of our friends and the protection of our far flung interests. But we ought not to tempt fate in that particular fashion. That being the case, there is no alternative to a strong defense establishment for the United States as a basis for its continued leadership in the world. "Moreover, there is little reason why we should expect this requirement to change in the future. Despite our hopes for detente and an end to the cold war, we have been driven out of the Paradise of isolation and noninvolvement which characterized the America of the nineteenth and early twentieth centuries; and as Thomas Wolfe reminded us in another connection: We can't go home again. No longer can we expect other nations by themselves to man the front |