Saudi Arabia's Expropriations Should Scare Investors - Bloomberg

Saudi Arabia's Expropriations Should Scare Investors - Bloomberg:

"The government of Saudi Arabia is reportedly offering to exchange the wealth of allegedly corrupt royals and officials for their freedom. This is a tactic that has been used by post-Soviet regimes, most widely in Georgia under President Mikheil Saakashvili, but also in President Vladimir Putin's Russia. While it can be effective in supplementing government coffers, it's not great for a country's institutions and business climate.

Saudi Arabia ended up with a budget deficit of $96.5 billion in 2015 (at the current exchange rate) and $83 million last year as it fought for oil market share with the U.S. shale industry and maintained low crude prices. Crown Prince Mohammed bin Salman was instrumental in changing that policy to a regime of hyped-up production cuts; now, he appears intent on plugging the deficit with infusions of what King Salman and the prince deem to be ill-gotten wealth to the tune of at least $100 billion. According to reports from Riyadh, people imprisoned in the capital city's Ritz-Carlton hotel -- a group including some of the country's wealthiest people -- are being told to cough up most of their assets, up to 70 percent in at least one case, in exchange for immunity. 

Saakashvili, who took over a largely bankrupt nation in 2004, fought corruption by similar methods. Since he wasn't a king with absolute powers, he pushed through changes to the country's criminal code allowing deals with justice that could replace any kind of punishment with a negotiated fine. By 2011, the year before Saakashvili's party lost a parliamentary election and he lost most of his power, 80 percent of criminal cases were resolved in this way, according to a Council of Europe report by Swedish diplomat Thomas Hammarberg. Responding to the report, the Georgian government disclosed a rare statistic: In 2010, it received 112.7 million lari ($63 million at that year's average exchange rate) from the plea agreements and court-imposed fines. That covered some 2 percent of government spending for the year.


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