Petrodollar Recycling - Recycling Petrodollars

Recycling Petrodollars

These surpluses could be profitably invested in other nations. Alternatively, the world economy would have contracted if that money was withdrawn from the world economy while the exporting nations needed to be able to profitably invest to preserve their wealth for the future.

While recycling petrodollars reduced the recessionary impact of the 1973 oil crisis, it caused problems especially for oil-importing countries that were paying much greater prices for oil and incurring debts. The International Monetary Fund (IMF) estimates that the foreign debts of 100 developing countries increased by 150% between 1973 and 1977. Johan Witteveen, the Managing Director of the IMF, said in 1974, "the international monetary system is facing its most difficult period since the 1930s."

From 1974 to the end of 1981, total current account surpluses for all members of OPEC amounted to $450.5 billion. Ninety percent of this surplus was accumulated by the Arab countries of the Persian Gulf and Libya, with Iran also accumulating oil surpluses prior to the Iranian Revolution in 1979.

The petrodollars were invested by commercial banks in the US and Europe. As the recessionary condition of the world economy made investment in corporations less attractive, bankers lent the money to developing countries especially in Central and South America such as Brazil, Argentina and Mexico as well as other developing countries like Turkey. The 1973 OPEC crisis had created a vast dollar shortage in these countries, however, they still needed to finance their oil imports. In 1977, Turkish Prime Minister Suleyman Demirel summarized this shortage as "We're even in need of 70 cent." In subsequent decades, some of these nations have had difficulty in repaying these debts, leading to charges by anti-globalisation activists that it was a form of neocolonialism. This process also contributed to the growth of the Euromoney market as a rival to US monetary markets.