Saudi Considers Paying Contractors With IOUs

Saudi Arabia, facing declining oil prices, has stopped paying contractors, leading to $40 billion in outstanding bills. A similar situation occurred in Dubai during its financial crisis, where contractors were paid partially in cash and the rest in IOU notes, akin to government bonds. Contractors, unfamiliar with holding such instruments, often sell them to banks at a discount to obtain immediate cash. This practice was also seen in Saudi Arabia in the 1990s.

What was one of the initial steps Saudi Arabia took to conserve cash when oil prices dropped?

• Reducing government salaries

• Raising taxes

• Halting payments to contractors

• Increasing oil production

What financial instrument did Saudi Arabia use to manage its liquidity issues?

• Corporate stocks

• Foreign currency reserves

• IOU notes

• Government bonds

How long were the IOU notes typically held before maturity?

• Two years

• Three years

• Ten years

• Five years

What did contractors typically do with the IOU notes they received?

• Held them until maturity

• Sold them to banks

• Used them as collateral for loans

• Traded them on the stock market

Why might contractors not receive the full value of the IOU notes when selling them to banks?

• Contractors lack negotiation skills

• Banks offer a discounted rate

• Banks charge high fees

• The notes are not legally binding