Most of the time, transparency in government finances is a good thing. But sometimes it isn’t.
For nearly 40 years, the U.S. Treasury has concealed the amount of our debt held by the Saudis and other oil-producing nations in the Persian Gulf. Ordinarily, I would argue that the Treasury owes its loyalty to the financial markets that finance our deficits and buy our debt - and to the American people, of course. Both are entitled to know exactly who holds the mortgage on the nation’s sovereign assets.
However, in the past seven years we have done almost everything in our power to undermine Saudi Arabia, an imperfect but generally reliable ally for generations, to the advantage of Iran’s loathsome regime of terrorist sponsors and hostage takers. The United States’ recent track record in the Middle East has raised concerns that we may be an unreliable partner, especially given the current president’s all-but-meaningless “red lines” and the Obama administration’s unwillingness - or arguably its inability - to set forth a clear policy for the region in the midst of ongoing conflict.
Perhaps the strongest reason for Saudi reluctance to trust us is the recent toothless nuclear deal with Iran. We have already seen the ways in which the agreement emboldened Tehran, and we can be sure that Saudi Arabia has noticed too. While history undoubtedly influences the Saudi perspective on the issue, it is not for nothing that Riyadh views Iran as a growing threat to the entire region.
So the Saudis are now locked in a proxy war with Iran, and the strength - or lack thereof - of Saudi Arabia’s finances are thus strategic information from their point of view. Yet while the precise amount of U.S. debt owned by Saudi Arabia has been a secret since the 1970s, current economic conditions mean that some analysts are nervous about this particular mystery.
A recent Bloomberg article explained how the Treasury Department continues to obscure the precise amount of Saudi Arabia’s stake in U.S. Treasuries. As it always has, the Treasury groups Saudi holdings with those of 14 other nations, mostly OPEC members. This stands in contrast to the Treasury’s more usual practice of disclosing the amounts, large or small, held by other countries. These investments range from only a few million dollars to amounts exceeding $1 trillion, in the case of China and Japan.
The decision to continue shielding Saudi Arabia’s information rankles some economists. Edwin Truman, a former Treasury official who now works for an economic think tank, told Bloomberg that it is “mind-boggling” that the Treasury has not undone the agreement providing Saudi Arabia with such opacity.
The concern, apart from the matter of extending “special treatment,” mainly has to do with the risk of Riyadh selling off Treasury holdings due to the economic strain of plummeting oil prices and the cost of regional instability. Other analysts, however, speculate that the Saudis may want to hold on to Treasuries in an attempt to increase U.S. dollar-based assets, liquidating elsewhere instead. At this point, practically no one in the U.S. has anything other than educated guesses about what the Saudis are doing.
Meanwhile, having been embargoed since the U.S. Embassy takeover in 1979, the Iranians are not significant holders of U.S. Treasury debt. Even so, you can be sure that they are not going to be forthcoming about their own finances.
Transparency from central banks is, in general, something to be encouraged. But economic considerations do not exist in a vacuum. Political and strategic concerns will always affect such decisions, and it understandable that Saudi leaders would remain reluctant to shine a light on their finances in the midst of intense regional conflict. Calling the matter “simply a legacy issue,” as Truman did, misses the reality that if we want to continue to support our allies in the region, shielding information that they consider strategically valuable is not an outrageous demand.
Openness about Saudi Arabia’s Treasury holdings is necessary and appropriate - eventually, but not immediately. Right now, the priority ought to be making certain that the balance of power remains tilted toward the more reliable and less aggressive side of the Persian Gulf. That side is the one occupied by the Saudis.