US Treasury Secretary Timothy Geithner, on a visit to the Gulf, stressed on Wednesday the need to create the foundations for balanced global economic growth to avoid future crises. “We do not just want to address the immediate cost of the financial crisis, but we want to rebuild a stronger foundation for a more balanced growth globally,” he told reporters in the United Arab Emirates. “We need to make sure that as we emerge from this crisis that we are not sowing the seeds for future crises,” he said. “That is going to require looking for future sources of growth that are going to be sustainable, and that we create the foundation for a stable financial system,” he added. His visit to the UAE and Saudi Arabia and several European countries is believed to be aimed at shoring up confidence in the US economic recovery. Geithner also said that Washington wants to work with its allies to build a stronger financial foundation for the world as it emerges from its worst recession in decades. Geithner's comments followed a closed-door breakfast meeting with United Arab Emirates Foreign Trade Minister Sheikha Lubna Al-Qasimi and other officials from the Arab world's second largest economy held at the UAE's federal capital. “We of course want to not just address the immediate causes of the financial crisis,” Geithner said after the meeting. “We want to rebuild a stronger foundation for more balanced growth globally.” “The UAE and the GCC countries have played an important stabilizing role (in the global economy). You've seen them intervene in support of US banking institutions,” said Nasser Saidi, chief economist of the Dubai International Financial Center. “What we need to see is a recognition of the important role of the GCC on the international level.” The Gulf states' wealth skyrocketed during oil's earlier boom years, adding to their political clout in the process. But leaders in the region have grown increasingly concerned in recent months as crude prices and the value of their investments soured. Five of the Gulf Cooperation Council nations - Saudi Arabia, the UAE, Oman, Bahrain and Qatar - peg their currency to the dollar. Kuwait uses a basket of currencies that includes the greenback. As a group, Gulf governments hold more than $400 billion worth of US investments, making them second only to China as America's biggest creditor, Saidi said. “Income from foreign assets in terms of investment positions is becoming as important as income from oil. People tend to forget that,” Saidi said. He also held talks with top UAE officials and the Abu Dhabi Investment Authority (ADIA), the world's largest sovereign wealth fund, which is believed to have significant exposure to the US economy. “Gulf countries are very important as investors, even though they don't have that much money to spend this year” because of lower oil prices, said Eckart Woertz, program manager for economics at the Gulf Research Center in Dubai. “That's a large part of why he's coming.” Geithner also said that the United States remained firmly committed to a strong dollar and that he was reassured during a Gulf visit that the dollar would remain the region's principal reserve currency. “It is the policy of the United States and it will remain the policy of the United States to remain committed to a strong dollar,” he said in an interview with Al Arabiya television on Wednesday. Geithner, who visited Saudi on Tuesday and was in Abu Dhabi in the United Arab Emirates on Wednesday, said the view he had heard in the region was that the dollar “will remain the principal reserve currency.” Five of the six Arab states that comprise the Gulf Cooperation Council - Saudi Arabia, the UAE, Bahrain, Qatar and Oman - peg their currencies to the dollar. The sixth, Kuwait, uses a basket heavily weighted in dollars. Geithner on Tuesday cautioned that while the global economy is on the road to recovery it will likely be a bumpy one, full of minor setbacks. Geithner said that the increase in public debt and a loss of household wealth will work against a smooth economic recovery. “This crisis has been brutal in the extent and severity of damage to economies around the world,” Geithner said in Jeddah. “Given the extent of damage to financial systems, the loss of wealth, the necessary adjustments to a long period of excessive borrowing around the world, it seems realistic to expect a gradual recovery, with more than the usual ups and downs and temporary reversals.” In terms of the labor markets, Geithner stressed that employment situations will remain difficult until economies begin to grow again and employers gain confidence. In addition, the credit markets - while improved from the height of the credit crunch - will remain “unusually tight” for some time. Geithner also pledged to support a strong dollar, recognizing the prominent role the currency plays in the economy.
