Congress Says No to Obama, What Will Saudi Arabia Do on Treasuries?
U.S. President Barack Obama’s veto was overridden, as the Justice Against Sponsors of Terrorism Act law passes in both the U.S. Senate and U.S. House of Representatives. How will this impact Saudi Arabia’s holdings in U.S. assets for the long-term?
The Kingdom of Saudi Arabia is on the eve of having a gigantic international bond sale – the first ever for the country. The deal is being mandated to Citigroup, JPMorgan Chase & Co. and HSBC Holdings. Saudi Arabia may have to woo potential bond investors with larger coupons depending on demand. The world’s biggest crude exporter wants to use the bond proceeds from the sale to finance an aggressive economic diversification agenda, while fixing a fiscal budget shortfall ravaged by prolonged low oil prices. Tightening its belt, the Saudi Arabian government has slashed pay and benefits of key government officials. For example, Shura council members are getting a 15% pay cut. There are other measures being enacted as well, since the majority of Saudi nationals, about 70%, are employed by the government. Thus, public-sector wages remain a major burden on the kingdom’s finances. Saudi Arabia also has put forth reform ideas such as more state-owned privatizations, possibly creating a mega sovereign wealth fund from selling a piece of Saudi Aramco and possible introducing new taxes.
Earlier this year, when JASTA passed in Congress, Saudi Arabian government officials warned the U.S. government that the law’s passage may force them to sell U.S. assets – particularly U.S. Treasuries.
JASTA and the Veto
On September 23, 2016, the Justice Against Sponsors of Terrorism Act (JASTA) was vetoed by U.S. President Barack Obama. The law would permit the relatives of the victims of the September 11th (9/11) terrorist attacks to pursue lawsuits against Saudi Arabia. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
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