Memo discussing Saudi‑UAE (KSA) economic challenges and policy recommendations, citing former Deputy NSA Mike Froman and ex‑World Bank President Bo...

3. Insights and strategy counts. Discount opinions of elite. Get to the street to understand. Hire locals. Be local. 4. Act while the going is good. Cost of operating KSA has gone from $12/barrel to $85/barrel. KSA is not financially sustainable with these expenditures. 5. Governance is not fit for purpose in many countries. KSA is unable to solve problems particularly where it requires cross — ministerial action. Too many civil servants. Critical issues for region: 1. Employment 2. Education for employment 3. Economic model needs to be fixed 4. Housing. Huge social issue because inadequate housing means the 20-30 year olds stay at home and that is bad social policy. Mike Froman (Dpty NSA) Glass half empty. Serious financial difficulty ahead. Populace policies adopted to quell people. This includes expenditures and that become embedded as entitlements. (I refrained from asking him if that sounded like another country we know). MENA’s export market is Europe which means they will experience softness. All of this has the makings of a serious financial crisis in the region. We are seeing the beginning of a multi-decade set of issues. No beacon for success. A series of fundamental issues are not resolved, including: Modernism, role of private sector, role of foreigners. Demographics create pressure on solutions because they need to address distribution of wealth. Administration’s early contacts w Muslim Bro (Muslim Brotherhood) are encouraging. They come from mercantile class. Need to work with them. What to do? Admin has a 4 pillar policy towards Egypt. 1. Stabilization. We must, must, must avoid financial crisis. Give financial support (IMF, access to credit markets etc.) 2. Job creation. Expand mandate of EBRD. 3. Broaden participation in governance. Anti corruption laws and asset recovery programs. 4. Integration. Trade and investment. Trade liberal ization. Good regulatory practices (like Dodd Frank?) Problem in Egypt is that there is no one to talk to. Bob Zoellick (just retired as President of World Bank) HOUSE_OVERSIGHT_025802