Daily Management Review

For the First Time in 40 Years, U.S. Discloses Saudi Holdings of Treasuries


For the First Time in 40 Years, U.S. Discloses Saudi Holdings of Treasuries
After keeping them a close secret for more than four decades, the US Treasury Department released a breakdown of Saudi Arabia’s holdings of U.S. debt.
According to data the Treasury disclosed Monday in response to a Freedom-of-Information Act request submitted by Bloomberg News, the stockpile of the world’s biggest oil exporter stood at $116.8 billion as of March, down almost 6 percent from a record in January.
Comparable to with China’s $1.3 trillion trove, and $1.1 trillion for Japan, the tally ranks Saudi Arabia among the top dozen foreign nations in terms of holdings of U.S. debt.
“The politics has always been secretive, so have their finances. It does answer the question of how much they own, which is surprisingly not that much,” said David Ottaway, a Middle East Fellow at the Woodrow Wilson International Center, a research institute in Washington.
According to International Monetary Fund data, central banks typically put about two-thirds of their coffers in dollars and Saudi Arabia’s foreign reserves amount to $587 billion. Therefore this disclosure may bring more questions than answers.
Making the holdings show up under the data of other countries, some nations accumulate Treasuries in offshore financial centers. For example, analysts point out to Belgium which held $143 billion of U.S. government debt as of February, is home to Chinese custodial accounts.
If Congress enacts a bill allowing the monarchy to be held responsible in American courts for any role in the Sept. 11, 2001, terror attacks, Saudi officials threatened to sell $750 billion of Treasuries and other assets, the New York Times reported last month. This is a sign that the Treasury’s figures on the kingdom’s ownership fall short of the full tally.
Since 1974, data on foreign ownership of Treasuries were released by the U.S. Since that period, the Treasury has grouped Saudi holdings instead with those of 14 other mostly OPEC nations, including Kuwait, Nigeria and the United Arab Emirates in a policy that of not disclosing the holdings, Bloomberg reported in January. Down from a record of $298.4 billion in July, the group held $281 billion as of February.
The Treasury had provided a detailed monthly breakdown of how much U.S. debt each owns for more than a hundred other countries, from China to the Vatican.
1970s decision was among concessions that U.S. administrations made over the years to maintain America’s strategic relationship with the Saudi royal family and access to the kingdom’s oil reserves in wake of the 1973 oil shock following the Arab embargo.
Due to the monarchy facing fiscal pressure from the decline in oil prices and costly wars in the Middle East, the question of Saudi holdings of Treasuries is gaining importance. According to data from the kingdom’s central bank, last year, in an effort to plug its biggest budget shortfall in a quarter-century, Saudi Arabia burned through 16 percent of its foreign-exchange reserves. Concern over Saudi Arabia’s potential influence on the world’s largest and most important bond market is being prompted by the signs of strain in its economy.
 “As we look at official and central bank and investment holdings of Treasuries around the world, we’ve seen a lot of fluctuations, we’ve seen a gradual erosion of positions that have been held for some time,” said Jim Vogel, head of interest-rate strategy at FTN Financial in Memphis, Tennessee.