Meeting of the minds Governor of Kuwait's Central Bank Sheikh Salem Abdulaziz Al-Sabah (3rd R) stands with (L-R) Deputy Governor Central Bank of The Republic of Turkey Erdem Basci, Deputy Governor Saudi Arabian Monetary Abdul Rahman Al Khalaf, Governor Central Bank of Bahrain Racheed Al Maraj, Governor Qatar Central Bank Sheikh Abdulla Saud AlThani, and Governor of Central Bank of Jordon Dr. Umayya Salah Toukan at the start of the second Kuwait Financial Forum in Kuwait City Sunday. (Reuters) KUWAIT CITY: A weaker dollar, to which most of the currencies of the Gulf are pegged, may force the region's states to appreciate their currencies, a top Arab monetary official said Monday. “Our region is not shielded against the impact of the currency war because our currencies are pegged to the dollar,” Jassem Al-Mannai, director general of the UAE-based Arab Monetary Fund told the Kuwait Financial Forum. “This (currency war) will impact the Arab economies, especially with regard to (higher) inflation and other problems,” said Mannai. “If the (US) dollar continues to slide, it may force countries in the (Gulf) region to appreciate their currencies.” The forum, in its second year, is a two-day meeting of regional banking and finance leaders, which is this year focusing on the impact of the global financial crisis on oil-rich Gulf countries. Mannai later told reporters that if a currency war flares, “I believe the GCC states will certainly start discussing and evaluating the impact on their currencies.” Five of the six-nation Gulf Cooperation Council (GCC) states have their currency pegged to the dollar, while Kuwait pegs its dinar to a basket of currencies in which the dollar is believed to constitute between 70-80 percent. The GCC consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, together responsible for supplying just under a fifth of the world's crude needs. The issue of GCC dollar peg was debated during the boom years of 2007 and 2008 when the heating Gulf economy and sliding US economy went in opposing directions. Gulf states needed to raise interest rates in a bid to halt soaring inflation which hit double digits in most of Gulf states, but were forced to maintain low interest rates because of the dollar peg. The issue also attracted attention after wild speculations on GCC currencies, especially from foreign money, under the assumption that GCC states were going to appreciate their currencies. But the GCC states, spearheaded by Organization of Petroleum Exporting Countries rejected pressures for de-pegging. Mannai and senior advisor at the International Monetary Fund Alfred Kammer also warned of rising inflation in Gulf states because of high food prices. Four GCC states - Bahrain, Kuwait, Qatar and Saudi Arabia - have signed a monetary council pact and set up a monetary council Riyadh, while the remaining two states pulled out. Governor of Central Bank of Kuwait (CBK) Sheikh Salem Abdulaziz Al-Sabah said Sunday the global financial crisis is still affecting many developed and emerging economies worldwide. In a keynote speech, the CBK governor said in spite of global economic recovery thanks to unprecedented financial packages in several countries, many countries are still struggling to wriggle out of further fallout. For instance, several countries are facing budget deficit and hiking public debts, he said. He cited the final communique of a recent G-20 meeting in Canada as stressing the significance of creating an independent financial atmosphere to ensure strong and balanced economic growth as part of sound financial policies which can provide adequate resilience. He pointed to the role of the global financial crisis in highlighting the part of central banks in practicing macro and partial control, and in stressing financial stability and relevant link to monetary stability. The world financial meltdown has contributed to providing an encouraging economic atmosphere that could lead to spurring up economic activities, stable prices and successful shifts in monetary policies, he believed. On the Basel Committee, he said the group of central bank governors and chief auditors had adopted a set of financial reforms in September. He stressed the significance of such reforms to the provision of additional resilience to square up to jolts and offset bank losses so that more flexible and stable banking systems could be found. He said the CBK's moves to face the ramifications of the global financial crisis since September 2008 have contributed to shoring up bank regulations bearing on risk management. Meanwhile, Lebanese Prime Minister Saad Al-Hariri said before the Forum that the Arab region managed to avert a lot of the direct losses of the global financial crisis.This is due to the expanding financial policies that were followed by the Arab governments in order to preserve the economic stability. The Arab countries teem with big growth potentials in light of the its wide-scale youth base and their possession of basic natural resources and high financial liquidity, Al-Hariri pointed out. He also noted that Arab countries are “eligible” for playing an effective role in the global economy through working toward merging into it along with exerting efforts to upgrade the level of the Arab representation in the international institutions, hailing the current Arab representation in the G20. Further, he said that creating job opportunities for youth is a daunting challenge faced by the Arab countries, “and consequently, the private sector should be galvanized into injecting investment and creating new job opportunities and it should be depended on as a lever of economies.” He held that governments are required to play a pivotal role in funding the economic development projects, besides providing political and legislative stability to motivate Arab banks to fund investment projects provided that this comes hand in hand with strengthening the application of international banking and financial criteria to ensure monetary and economic stability in the region. Al-Hariri said the Lebanese economy came out of the financial crisis with high growth rates, low interest rates, a hike in incoming capitals and foreign currency reserve and a favorable balance of payments. He said the government aims at promoting growth and keeping its high steady rates that notched 8 percent in the past three years.
