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The price of wealth: business and state in labor remittance and oil economies

Published online by Cambridge University Press:  22 May 2009

Kiren Aziz Chaudhry
Kiren Aziz Chaudhry
Affiliation:
The research for the larger project of which this paper is a part was funded by the Social Science Research Council, the American Council of Learned Societies, and the Fulbright-Hays Commission. The views expressed here do not reflect those of the funding institutions. This article could not have been written without the kind encouragement and advice of Stephan Haggard. I thank Samuel Huntington, David Landes, Peter McDonough, Samir Anabtawi, Jacques Delisle, Joshua Forrest, Rem Kinne, Andrew Moravscik, and Greg Noble for their helpful comments on earlier drafts. Most, I acknowledge my debt to my Saudi and Yemeni colleagues, and to Stephen Holmes, in whose company the arguments about state-building and autonomy were developed. Any errors or omissions are mine.
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This article contrasts the effects of state-controlled oil revenues and privately controlled labor remittances on institutional development, state capacity, and businessgovernment relations in Saudi Arabia and the Yemen Arab Republic. These two countries represent extreme cases of dependence on external capital in deeply divided societies presided over by fragile, emerging bureaucracies. By tracing the two cases through a pattern of economic boom (1973-83) and recession (1983-87), the study demonstrates that the type, volume, and control of capital inflows decisively influence the relative development of the bureaucracy's extractive, distributive, and regulatory capacities and affect the ability of the state to respond to economic crisis. In both cases, external capital inflows precipitated the decline of extractive institutions. However, oil revenues and labor remittances had divergent effects on businessgovernment relations, and this circumscribed the state's ability to implement austerity programs during the recession. During the crisis, the Saudi government's efforts to cut subsidies to the private sector and to implement extractive policies were blocked by the state-sponsored merchant class. In contrast, the Yemeni government instituted a thoroughgoing austerity package that targeted the independent merchant class. In both cases, external capital inflows did not augment the efficacy of those that controlled them. These paradoxical outcomes are explained by tracing the different effects of oil revenues and labor remittances on the distribution of economic opportunity in the public and private sectors and the resulting effects on the regional, tribal, and sectarian composition of the bureaucracy and the commercial class.

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International Organization , Volume 43 , Issue 1 , Winter 1989 , pp. 101 - 145
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Copyright © The IO Foundation 1989

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References

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34. Ikenberry, in “Irony of State Strength,” describes a similar pattern in advanced industrial states.

35. Samuel Huntington views the rise in violence in developing countries as a result of the government's inability to respond to demands from social groups. In contrast, Clifford Geertz and Yousef Cohen et al. argue that the rise of violence and primordial sentiments is a predictable response to state penetration in both late and early developers. I subscribe to the latter view and argue, further, that the unequal control over external capital inflows intensifies primordial divisions, thereby making the eventual reconciliation of social cleavages a more difficult process. See Huntington, Political Order in Changing Societies; Geertz, Clifford, The Interpretation of Cultures (New York: Basic Books, 1973), pp. 255–310Google Scholar; and Cohen, Yousef et al., “The Paraoxical Nature of State-Making: The Violent Creation of Order,” American Political Science Review 75 (December 1981).CrossRefGoogle Scholar

36. Chaudhry, Kiren, “The Shifting Fortunes of the Public and Private Sectors in Oil Exporters: Privatization in Saudi Arabia and Iraq,” paper presented to the Social Science Research Council and the American Schools of Oriental Research, 1987.Google Scholar

37. Evans, in “Transnational Linkages,” suggests that the size of the state's domestic role is affected by foreign investment and borrowing.

38. The inductive use of the “state autonomy” concept is illustrated in Nordlinger's, Eric “Taking the State Seriously,” in Weiner, Myron and Huntington, Samuel, eds., Understanding Political Development (Boston: Little, Brown, 1987), pp. 353–90.Google Scholar

39. Skocpol, Theda, “Bringing the State Back In,” Items 36 (06 1982), pp. 1–8Google Scholar; and Nord-linger, Autonomy of the Democratic State. For a good review of what the “statist school” has in mind, see Krasner, Stephen, “Approaches to the State: Alternative Conceptions and Historical Dynamics,” Comparative Politics 16 (01 1984), pp. 223–46CrossRefGoogle Scholar; Migdal, Joel, “State-Society Relations in the Third World: The Nature of the State and the Structure of Society.” paper presented at the Joint Harvard-MIT Seminar on Political Development, Cambridge, Mass., 1984Google Scholar; and Held, David, “Central Perspectives on the Modern State,” in Held, David et al., eds., States and Societies (New York: New York University Press, 1983), pp. 1–58.Google Scholar

40. Ikenberry, John, “Irony of State Strength”; and “The State and Strategies of International Adjustment,” World Politics 39 (October 1986), pp. 53–77.CrossRefGoogle ScholarStephen Skowronek's excellent study of the United States, Building a New American State: The Expansion of National Administrative Capacities, 1877–1920 (New York: Cambridge University Press, 1982), is an exception.Google Scholar

41. The latter issue is taken up in the work of Huntington, Samuel, Tilly, Charles, Braudel, Fernand, and Wallerstein, Immanuel. See also Kim, Joungwon Alexander, “The Politics of Predevelopment,” Comparative Politics 5 (01 1973), pp. 221–35.Google Scholar

42. Cohen et al., “Paradoxical Nature of State-Making.”

43. Ikenberry, , “Irony of State Strength.”; and Peter Hall, “Patterns of Economic Policy: An Organizational Approach,” in David Held, States and Societies, pp. 363–94.Google Scholar

44. Nigeria, the United Arab Emirates, Kuwait, Saudi Arabia, and Iraq all exhibit these characteristics in varying degrees.

45. Amr Sāmī 5904, Islamic date 1351/8/13 (1932), “Letter from the Deputy of the King to Minister of Interior,” asking the latter to inform the principality of Yanbo that the animal tax was both increased and unified at 1.5 qursh for all areas of the kingdom. See also Letter 5915, 1351/8/15, from the Deputy Prime Minister to the Minister of Interior; Letter 5916, 1351/8/15, from the Minister of Interior to the Emirate of Medina regarding the animal tax; and Amr Malaki 7079, 1351/11/10. The unification of tax rates and collection methods is in a single document, Amr Malakī, no number, 1353/3/1 (1934), which was accompanied by personal instructions from the King. See Letter from acting head of King's office, “to all Princes and Sheikhs in all the Regions of the Kingdom,” Amr Malakī 836/1156, 1353/4/5 (1934). This letter defined obligations to the collectors from the treasury, and it insisted that all fees, zakat, and so on were the property of the central treasury, since collectors are salaried, not commissioned on a percentage basis.

46. Dependence on customs duties precipitated international conflict with Iraq, Kuwait, and Turkish garrisons based in Al Hassa between 1914 and 1930. See Public Record Office and Foreign Aid Office (PRO/FO) vol. 2142, especially 44/26063/14 (1914) and 44/28966/14 (1914), for disputes with the Turkish garrisons. For customs disputes with Kuwait, see PRO/FO vols. 9997 and 12240.

47. Memorial of the Government of Saudi Arabia: Arbitration for the Settlement of the Territorial Dispute between Muscat and Abu Dhabi on One Side and Saudi Arabia on the Other, July 1955. For tax policies in Al Hassa province, see PRO/FO vol. 20062, E3733/486/25 (June 1936) and vol. 20064, E2227/25 (23 April 1936). In general, see Saleh al Shoeibi, “Finance Policy in the Time of King Abd al Aziz,” Kingdom of Saudi Arabia, Ministry of Finance, unpublished paper, 1985 (in Arabic).

48. On the tribes of Al-Lays, see Qarār Majlis al-Wukalā' 127, 1357/4/11; on the Asir region, see Qarār Majlis al-Wukalā' 123, 1357/4/8. One of the demands of the Ikhwan rebels in 1928 was the removal of taxation on the Bedouin; see PRO/FO vol. 13713, El 14/3/91 (November 1928). In 1927 and through most of the 1930s, there were disputes between Kuwait, Iraq, and Saudi Arabia on the taxation of Bedouin that migrated into the kingdom during seasonal travels. The Saudis were the first to impose zakat on the Bedouin.

49. According to Awaji's survey data, as early as 1971, 60 percent of the top-level bureaucrats were Nejdi; 28 percent were Hijazi; 3 percent were from the eastern province of Al Hassa; and only 1 percent were from Asir, the most populous province, believed to be the home of over 60 percent of the Saudi population. Saudi Arabia does not publish population figures, but Nejdis do not constitute more than 10 percent of the Saudi citizenry. The imbalance grew even more pronounced in the boom period. Awaji, Ibrahim Al, “Bureaucracy and Society in Saudi Arabia,” Ph.D diss., University of Virginia, Charlottesville, Va., 1971.Google Scholar

50. When the Riyadh Chamber of Commerce was formed in 1962, it had a total membership of nine merchants, while the Jeddah al-Majlis al-Tijari (Trade Council), which existed formally at the turn of the century and predated the creation of the kingdom, had over a thousand members by 1930. See Ghurfah Jiddah: Qisah wa Tārīkh, Publishing and Distribution Unit, Teddau Chamber of Commerce, 1982.

51. The latter distinction was reserved for the Ikhwan, Ibn Saud's fundamentalist Wahabbi army. The best discussion of the early years of unification is by Helms, Christine Moss, The Cohesion of Saudi Arabia (London: Croom Helm, 1978).Google Scholar My observations here are based on readings in the British PRO office, the archives in Riyadh, and interviews with many members of the old Jeddah and Mecca merchant houses and with merchants and industrialists in Riyadh. The only published work on the merchant class is by Field, Michael, The Merchants: The Big Business Families of Saudi Arabia and the Gulf States (New York: Overlook Press, 1985).Google Scholar

52. The 1931 text of the Nizām al-Majlis al-Tijari, National Archives, Institute of Public Administration, Riyadh, documents these exclusive rights of self-regulation in great detail.

53. There are many parallels in the collection and assessment methods used in Saudi Arabia and Yemen during the 1950s and 1960s. See “Memorandum of Conversations with Sir Bernard Reilly and Others at the Department of State,” 3 November 1947, p. 125; “Report on Yemen by Mohammed I. Massoud,” 11 November 1946, pp. 4–5; and “Report on Yemen by Mohammed I. Massoud,” Enclosure 1, Dispatch 30, Yemen Series, U.S. Documents, 11 November 1946; all reprinted in Rashid, Al, Yemen Enters the Modern World (Chapel Hill, N.C.: Documentary Publications, 1984).Google Scholar See also Aadhy, Mohammed al, “A Brief Historical Background of the Public Revenue Growth in Old and Modern Yemeni Society,” unpublished manuscript, Sana'a University, 1982Google Scholar; and Ghalib, Mohammed Anam, Government Organizations as a Barrier to Economic Development in Yemen (Sana'a: National Institute for Public Administration Press, 1979).Google Scholar

54. The main document is Ta'mīm, from the Minister of Finance, no number, 1389/5/12 (1969).

55. Announcement, Ministry of Finance and National Economy, 5784/4, 1393/4/7 (1973). Zakat taxes were to be distributed by Saudis themselves to poor relatives; municipal taxes, road taxes, and all other fees were withdrawn completely. Qarār Ri'āsat Majlis al-Wuzarā' 1653, 1396/11/15 (1976).

56. For a summary of the tax system as it was between 1973 and 1983, see 'Abd al Aziz al Dukheil, “Taxation: Implications for U.S.A. Individuals or Corporations Deriving Income from a Source in the Kingdom of Saudi Arabia and for Saudi Individuals or Corporations Deriving Income, Trading or Purchasing Assets in the U.S.A.,” unpublished manuscript, Riyadh, 14 October 1983.

57. In 1952, zakat and income tax receipts represented 47 percent of government revenues; by 1971, they had declined to 8 percent; and by 1978, income tax, all other taxes, fees, and customs came to only 1.6 percent of government revenues. Derived from documents in the ARAMCO Archive, Dahran, Saudi Arabia.

58. Interview with Sheikh Hussain 'Abd al Latif, Director of DZIT, January 1986. See also Hamid al Soa'ani, “The Internal Organization of the Department of Zakat and Income Tax,” Riyadh, Institute for Public Administration (IPA), 1984 (in Arabic); and al-Bishr, Nasir, “Assessment and Collection of Zakat and Income Taxes in Saudi Arabia,” Riyadh, IPA, 1985 (in Arabic).Google Scholar

59. Figures obtained from the Ministry of Finance and the Customs Department show that the revenue generated by the Customs Department in 1974–85 was 450 million Saudi riyals (SR). Expenditures for maintaining the department in the same period were 30.3 billion SR. Interviews with Sheikh Mahmud Al-Rashūdī, Director of Customs Department, December 1985 to June 1986.

60. See Regulations for Cooperative Societies, R.D. 26, passed on 30 November 1962; repealed in 1974.

61. Ministry of Social Affairs, Study on Changes in the Urban, Rural and Bedouin Communities, vol. 4, Synthesis Report, an internal report prepared for the Ministry of Labor and Social Affairs, Kingdom of Saudi Arabia, 4 vols., Riyadh, 1981, p. 94.Google Scholar

62. The net result of the distribution policies has been highly unequal income distribution: 19 percent of total households subsist on a yearly income of $2,747 (U.S. dollars). Forty-two percent of the households have a total income of less than $5,494. Poverty is concentrated among the bedouin and rural populations and particularly in the populous provinces of Asir and Al Hassa. Wealth is concentrated in the central province among state employees and

63. Total disbursed interest-free loans in 1972–73 were 154 million SR; in 1976–77, the official figure was 14.6 billion SR. See Economic and Financial Survey of the Kingdom of Saudi Arabia, prepared by the International Monetary Fund based on research from 3 February to 8 March 1978. By 1984, the total disbursed interest-free loans amounted to $164 billion (U.S. dollars). The total recorded formal subsidies rose from 39.7 million SR in 1971 to 101 billion SR in 1981. See The Achievements of the Development Plans, 1970–1984, Ministry of Planning, Kingdom of Saudi Arabia, p. 38.

64. Data were derived from a review of annual reports of the Agricultural, Industrial, and Housing Funds. The Saudi Fund, which gives loans for bride price, cars, and so on, does not publish reports of any kind. Some informal gifts sanctioned by the King are disbursed through this fund.

65. The 30 percent rule stipulated that foreign companies subcontract 30 percent of the total amount of all government contracts to local entrepreneurs. Lacking expertise, Saudis typically took the contracts and subcontracted their share to third parties (again, foreigners) and collected commissions and profits without actually participating in the project.

66. These rules and regulations are explained in Mian, Qaiser Javed and Lerrick, Ann, Saudi Business and Labor Law (London: Graham and Trotman, 1982).Google Scholar

67. Interviews with members of Chambers of Commerce, Riyadh, 1985–86, for the estimation of the total number involved in deals that would fall under the rules. These activities can range from small-scale labor import to construction contracts worth billions of riyals. The numbers are derived from Ministry of Social Affairs, Study on Changes. According to the report, the total heads of households in the kingdom is 776,973. The Fourth Development Plan, Riyadh, Ministry of Planning, 1985, puts the total Saudi male labor force for 1980 at 1,366,400. The

68. According to one reliable report, 14.2 percent of farms are held by large urban absentee landlords or agribusinesses, but these constitute 45 percent of the total cultivated area. See Ministry of Social Affairs, Study on Changes, vol. 2, Rural Report, pp. 70–71 and 133.Google Scholar

69. Government-subsidized prices for imported wheat are about $60 per ton for American wheat whose market price was $150 per ton. The government's guaranteed price for domestic wheat is $1,050 per ton, according to Pick's Currency Yearbook, 1982, pp. 654–60. Since the policy did not include any restrictions on the importation of wheat from abroad, grain could be bought at the government-subsidized price, repackaged, and sold back for the guaranteed price of $1,050. The value of connections with the Ministry of Agriculture, which processed authorizations, needs no emphasis.

70. The issue of extreme centralization is explored in Rehman, Osama 'Abd al, Petroleum Bureaucracies and the Dilemma of Development: A Study of the Administration of Development in the Petroleum Producing Nations of the Arabian Peninsula (Kuwait: 'Alim al Mu'arifah, 1982Google Scholar) (in Arabic). For a descriptive-historical account, see Assaaf, 'Abd al-Mu'ti, “Administrative Development in the Kingdom of Saudi Arabia,” M.A. thesis, Institute for Public Administration, Riyadh, 1983 (in Arabic).Google Scholar

71. A single example, among many, illustrates the point. While the implementation of small-scale agricultural improvement and education projects, such as the one managed by ARAMCO

72. Saudi Consulting Center for Finance and Investment, Saudi Shares Services Company Feasibility Study, prepared for the Saudi Arabian Monetary Agency, Riyadh, 1981. A similar variant of market distortions is described in Bates, Robert, Markets and States in Tropical Africa (Berkeley: University of California Press, 1984).Google Scholar

73. Grinsdale, Michael, “The Need and Potential for a Gulf Stock Market,” Saudi Investment Bank, 02 1985, pp. 13–17Google Scholar; Yahya, Sayyed, The Commercial System of Saudi Arabia: Production, Commercial Papers, Companies (Mecca: Mecca Printing Company, n.d.) (in Arabic)Google Scholar; Saudi Consulting Center for Finance and Investment, Saudi Shares Services Company; and Arab Stock Markets: Organization and Capacities, Research Department, Inter-Arab Investment Guarantee Corporation and the Stock Market of Oman, Kuwait, 1985 (in Arabic), pp. 175–209.

74. This section of the paper is based on a thorough review of government documents at the Saudi National Archive, Institute for Public Administration, Riyadh. Searches were conducted under the categories of “donations,” “compensation,” “social security,” “loans,” “gifts,” and “subsidies,” beginning with the year 1924 and ending with the year 1986.

75. Ministry of Social Affairs, Study on Changes, vol. 4, Synthesis Report, p. 94.Google Scholar

76. Percentages and figures in this section are derived from World Bank, USAID, and Yemeni Ministry of Finance sources. Recent reports put direct aid at about $1 billion. See The Economist, 16 January 1982.

77. Burghard, Claus and Hofman, Michael, “The Importance of the Oil Producing Countries of the GCC for the Development of the Yemen Arab Republic and the Hashimite Kingdom of Jordan,” German Development Institute, Berlin, 09 1984.Google Scholar

78. The CPO regularly undervalues remittances to support requests for foreign aid. This affects GNP figures. Remittances outstripped the entire state budget by an average of 500 percent from 1973 to 1976. The figure I use here is three times the official one and even then represents a conservative estimate. Information from money changers and bankers in Yemen suggested that the actual figure for remittances was closer to $4.8 billion in 1980.

79. Derived from the national budget accounts of the Ministry of Finance.

80. Estimates derived from extensive interviews with migrant agents and money exchangers (representing 80 percent of the transactions), Sana'a, December 1986 to May 1987; and interviews with Ali Salami, Controller of Banks and Foreign Currency, Central Bank of Yemen, Sana'a, May-June 1987. Most of the decline is not in earnings abroad, but represents the amount of remittances that are redirected to the foreign accounts of businessmen by the money exchangers. Chaudhry, Kiren, “Between the Mattress and the Bank: Informal Banking in the Yemen Arab Republic,” unpublished manuscript, 1988.Google Scholar

81. Chaudhry, “Between the Mattress and the Bank.”

82. Othman, Othaman Mohammed, “Planning in the Context of Incorrect Information: Planning Statistics in Yemen,” Finance and Industry, no. 6 (Kuwait: Kuwait Industrial Bank, 1985).Google Scholar

83. For a detailed discussion of the penalties for excessive reliance on customs duties, see Due, John F., Indirect Taxation in Developing Economies: The Role and Structure of Customs Duties, Excises and Sales Taxes (Baltimore, Md.: Johns Hopkins University Press, 1970).Google Scholar

84. Migrant agents estimate that the total number of Yemeni migrants is approximately 1.8 million, which is more than three-fourths of the work force. Official figures from the Yemeni Union of Migrants places the number at 1.3 million, while the Yemeni government and the World Bank rely, presumably by agreement, on the figure of 1 million.

85. By far the best work on the subject is Saqqaff, 'Abd al 'Aziz al, “YAR Government Budget Planning, Implementation and Trends,” unpublished paper, Sana'a, 01 1985.Google Scholar

86. The nonfunctioning Land Registration Department is a good example of this. See also section on “Administrative Development” in Mobilizing Domestic Resources in the YAR (Washington, D.C.: International Bank for Reconstruction and Development [IBRD], 1982)Google Scholar; and Gable, Richard, “Government Institutions in the YAR,” unpublished paper, USAID, 1982.Google Scholar

87. For a partial account, see Ross, Lee Ann et al., “An Informal Banking System: The Remittance Agents of Yemen,” Working Note no. 12, Rural Development Committee of the Yemen Research Program, Cornell University, 11 1981.Google Scholar

88. Most of the new merchants in the rural areas of the south used to be migrants and are now migrant agents, according to the survey conducted by the author in Al Udain, Ibb Province, April 1987.

89. Cassam, Mohammed and Miller, Dickinson, “Private Sector Assessment: YAR,” unpublished paper, Sana'a, 02 1985.Google Scholar

90. My survey of Sana'ani market areas showed that although the old local merchant families retained control of traditional markets in the old city, eight out of every ten retailers in the new shopping areas are ex-migrants to the Gulf.

91. For the best synthesis of the literature on rural development in the YAR, see Cohen, John and Lewis, David, “Capital Surplus, Labor-Short Economies: Yemen as a Challenge to Rural Development Strategies,” American Journal of Agricultural Economics 61 (08 1979), pp. 523–78CrossRefGoogle Scholar; Cohen, John et al., “Development from Below: LDAs in the YAR,” World Development (11–12 1981), pp. 1039–62.Google Scholar

92. See Carapico, Sheila, “The Political Economy of Self Help: Development Cooperatives in the Yemen Arab Republic,” Ph.D. diss., State University of New York, Binghamton, 1984,Google Scholar

93. Confederation of Yemeni Cooperative Associations, Financial Accounts of the Cooperatives of the YAR, Sana'a, several years; and IBRD, Mobilizing Domestic Resources in the YAR.

94. Proceedings of the First Conference of Local Development Associations, National Union of Yemeni Migrants, Sana'a, 1978 (in Arabic).

95. Of the public-sector workers, 72 percent are Saudi. In the private sector, the percentages of lower-level jobs held by Saudis in Jeddah, Dammam, and Riyadh went from 27 percent in 1976 to less than 10 percent in 1980, with the lowest percentages coming from Riyadh and the highest from Dammam. Riyadh has the highest concentration of “independent professionals” in the country. See Diwan al-Khidma al-Madaniyyah, Government of Saudi Arabia, 1979–80.

96. In 1964, the Riyadh Chamber had 193 members; by 1984, the number was 18,393, according to the Chamber of Commerce, Riyadh. The growth of the merchant class in the Qasim area is perhaps second only to Riyadh, with 240 in 1979 and 5,877 in 1984. Results are from a survey conducted by the author in Saudi Arabia, 1986.

97. Work on the Saudi middle class completely ignores the existence of private-sector elites, incorrectly suggesting that the bourgeoisie consists exclusively of civil servants. See, for example, Safran, Nadav et al., “The Saudi Middle Class,” Center for Middle Eastern Studies, Harvard University, 1986Google Scholar; and Rugh, , “Emergence of a New Middle Class in Saudi Arabia,” pp. 7–20.Google Scholar

98. For a different prognosis, see Salameh, Ghassane, “Political Power and the Saudi State,” Middle East Research and Information Project (MERIP) Report, October 1980, pp. 5–22.Google Scholar

99. An excellent source of information and a sample of the types of demands made by the Saudi private sector is by the Saudi Consulting Center for Finance and Investment, The Present Status of the Private Sector and its Role in the Saudi Economy, a study commissioned by the Riyadh Chamber of Commerce and Industry, March 1986 (in Arabic), 246 pp.

100. For a review of the tribal basis of the state, see Abir, Mordechai, “The Consolidation of the Ruling Class and the New Elites in Saudi Arabia,” Middle Eastern Studies 23 (04 1987), pp. 150–71.CrossRefGoogle Scholar

101. Middle East Markets 14 (January 1987).

102. Budget of the YAR, 1986–1987, Ministry of Finance, YARG, Sana'a.

103. This decline does not represent a decline in absolute earnings of Yemenis in Saudi Arabia and the Gulf but, rather, an increase in the amount of earnings held abroad in foreign currency owing to uncertain economic conditions at home. Interviews with money changers, 1986–87.

104. In typical fashion, the reinstitution of zakat payments was termed a “continuation” of Royal Decree 8634/28/2/18 issued on 6/29/1370. The new Royal Decree 40, 1405/7/2, stated that the “complete zakat would be collected from all establishments and people who are subject to it.” Islamic law stipulates that zakat can only be collected on profits that remain in the possession of the individual for a full year. In practice, this has rarely been adhered to, even in Saudi Arabia, when there was regular taxation. Now, however, the regime is faced with having to conform to its own professed Islamic values, since the new commercial class has begun to use the same Islamic principles to its own advantage.

105. Resolution of the President of the Council of Ministers 215, 1405/11/5.

106. Resolution of the President of the Council of Ministers 254, 1403/11/14.

107. Palmer, Bruce, “Tax Exemption Revoked,” Middle East Economic Review (December 1985), p. 7Google Scholar; and interviews with officials, Ministry of Finance and National Economy, Riyadh, 1985–86.

108. Resolution of the Council of Ministers 107, 1405/6/24, and 5, 1406/1/13, for travel and passport fees. Stamp fees were raised by Decree of the President of the Council of Ministers 291, 1403/12/3; and post office box fees were raised from 25 SR to 300 SR by Decree of the President of the Council of Ministers, no number, 1405/1/26. Fees for driver's licenses were increased and the road tax was reinstituted by Decree of the President of the Council of Ministers 256, 1403/11/14.

109. See Resolution of the Council of Ministers 14, 1400/2/26, for airport fees on foreign carriers; and Resolution of the Council of Ministers 105, 1405/6/24, for the increase in port fees.

110. See New Regulations for Transfer of Sponsorship, Royal Decree M/451/8 dated 2/4/1406 (14 December 1985). This law made it more difficult for businesses to recruit foreign labor from the domestic pool, since it forced them to get approval before contracting foreign labor and to prove that no Saudi could fill the job requirements.

111. The new General Organization for Social Insurance (GOSI) law required that the employer pay his legal share of the insurance. Essentially, the law withdrew a direct subsidy that had covered the entire share of insurance paid by the employer since 1978, but it was repealed in 1986, having never been implemented. For reactions from the merchants, see “The Future of the Private Sector” and “The Eight Percent GOSI Payment,” Al-Tijarah 28 (11 1985).Google Scholar

112. New York Times, 5 January 1988 and 6 January 1988.

113. Islamic law prohibits interest. Thus, any case involving a loan on which interest was charged would be held for the borrower in a shari'a court. See Sloane, Peter, “Islamic Law in the Commercial World,” The International Lawyer 22 (Fall 1988), pp. 743–65.Google Scholar

114. In mid-1986, a new Committee for Banking and Commercial Papers was created under the Monetary Agency. Designed, presumably, to apply the principles of secular commercial law to disputes involving interest, the committee had not commenced operations by December 1987. Indeed, it is widely believed that the committee was set up to buttress the legitimacy of Saudi Arabia as a major sovereign borrower in the future. Thus far, the Saudi Arabian Monetary Agency (SAMA) has issued bonds only for local banks, which are obliged to buy them. Interviews with Saudi British Bank (BBME), Saudi American Bank (CitiCorp), Saudi Investment Bank (Chase-Manhattan), and National Commercial Bank, Riyadh, 1985–86. For more on the bifurcated legal system, see Mian, Qaiser Jamed and Lerrick, Anne, Saudi Business and Labor Law (London: Graham & Trotman, 1982), especially pp. 217–61Google Scholar; and Turck, Nancy, “Dispute Resolution in Saudi Arabia,” The International Lawyer 22 (Summer 1988), pp. 415–44.Google Scholar

115. In the lean years of the 1950s and 1960s, the National Commercial Bank and the Riyadh Bank also lent to the state. Unlike the “Saudized” banks, which are managed by large multinational banks, the internal decisions of the local banks remain confined to the families that own them. Long relying on methods of concealing interest by making the borrower pay it in advance, the National Commercial Bank and the Riyadh Bank did not suffer from the legal system to the degree that the banks using Western management systems did. Money exchangers in Saudi Arabia also enjoy the dual privilege of being Islamic: they collect interest on loans but do not pay interest on deposits. See Michael Grinsdale, “Money Exchangers in the Kingdom of Saudi Arabia,” unpublished manuscript, Saudi Investment Bank, 21 August 1984; “Saudi Branch Battle Looms Over Al Rajhi Entry,” Arab Banking and Finance 3 (07 1984)Google Scholar; and “Al Rajhi Rings the Changes,” Arab Banking and Finance 2 (09 1983).Google Scholar

116. Interviews with managers of Sholaq for Exchange, December 1986 to May 1987; and interviews with money exchangers in Ibb, Taiz, Al-'Udhain, Sana'a, and Hudaydah. So successful were the government polices that for a few weeks in February the black market rate of the Yemeni riyal was higher than the official rate. On the theoretical possibility of this phenomenon, see Gupta, Sanjeev, Black Market Exchange Rates (Berlin: J.C.B. Mohr, 1981), pp. 7–17.Google Scholar

117. It is important to note that this policy cannot be classified as “import substitution,” since industrialists suffered equally from the ban on imported raw materials.

118. See Qarār Jumhuri (Republican Decree) 34, 1987, “The Registry Department Law.”

119. Interview with Director of Financial and Administrative Departments, General Union for Local Councils. (This named replaced the Council for Yemeni Development Associations in 1985 with the passing of Republican Decree 12, 1985, “Establishment of Local Councils.”) The actual changes are documented in “The Administrative Structure for the Local Councils,” General Union of Local Councils, Sana'a, 1986. As this is a politically sensitive subject, not much has been written about it, except a short paper by 'Abd al-Azīz al-Saqqf on “Redirecting the Cooperative Effort in the YAR,” Sana'a University, 1986.

120. Interviews with Directors of the Department of Income Tax and Zakat, Sana'a, 1986–87; and review of Ministry of Finance accounts for 1968–87.

121. Figures for Yemeni grain imports, which became 100 percent government-controlled in 1986 and are managed by the Grain Corporation, a state-owned enterprise, show the following distribution of total subcontracts, with all but one going to prominent tribal sheikhs: Sheikh Al-Ruwayshan, 17 percent; Sheikh Ba Luhūm, 39 percent; and Public Loan 40, 34 percent. The figures for sugar import, also government-controlled since 1986, are equally revealing: al-Fahim (old Sana'ani merchant family), 20 percent; Sheikh Musallim, 23 percent; and Sheikh al-Ahmar, 20 percent. For flour, all of the contracts went to Sheikh Al-Ruwayshan of Kholan. Internal memorandum, Grain Corporation of the Yemen Arab Republic, Sana'a, 1986.