However, oil-rich countries that haven't traditionally spent a whole lot of their wealth developing infrastructure or creating economic opportunities at home. Poor, young citizens with no jobs sparked the riots and revolutions in Egypt, Libya and Tunisia over the past few months which, in turn, created general unrest in the area.
As a result, Saudi Arabia announced $37 billion worth of additional domestic spending that will go toward pay increases, affordable housing and unemployment benefits. Other countries, including Kuwait, Bahrain and Oman, have also boosted spending on domestic or simply handed out cash to the public to maintain peace.
Eliot Kalter, a former International Monetary Fund official who is now a senior fellow at The Fletcher School's Center for Emerging Market Enterprises, says that the increased spending at home won't lead those countries to pull out of long-term investments abroad.
Instead, he sees a slight danger that sovereign wealth funds will lose their appetite for U.S. Treasurys and other liquid instruments that are held in cash-like reserves. But Kalter also notes that the funds are "very smart and very careful" about not selling assets in a way that will meaningfully affect prices."For example, people are always saying, 'We'd better watch out about the Chinese because the Chinese hold a large percentage of U.S. Treasurys and what happens if they just get sick of the dollar and they dump them?'" says Kalter. "Well, of course they won't because if they dump them then they're going to affect their own holdings. They have a trillion dollars almost -- $700 billion or so - of U.S. Treasurys!" Michael Diaz, Jr., a managing partnerof international law firm Diaz Reus & Targ has extensive experience with businesses and investors in the Middle East. He points out that the recent rise in oil prices has benefitted major sovereign wealth funds in the area and may pay for the domestic programs they're announcing. In fact, the recent social revolutions have, ironically, helped push prices higher as investors became concerned about oil supplies. "Sovereign wealth funds are based on the price of commodities and the price of oil is going through the roof right now," says Diaz. "They're going to have even deeper pockets and this type of situation that's happening now in the Middle East with Libya and Tunisia, etc., only helps their bottom line. I don't see it as a downside."
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