Rallying call

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US treasury secretary Timothy Geithner made his first visit to the GCC this month.

US Treasury Secretary Timothy Geithner this month made his first trip to the Arabian Gulf to beat the drum for investment in the US economy. But with the region now immersed in the global economic downturn and the price of oil less than half its value of a year ago, will Geithner's calls fall on deaf ears?

When us treasury secretary Timothy Geithner touched down on Gulf soil this month to drum up support for investment in the ailing US economy, wary Arab investors could have been forgiven for protesting they'd heard it all before.

Geithner's first visit to the region since his appointment under US president Barack Obama's new administration was aimed at offering reassurances the US and its dollar remained an island of stability amid the choppy waters of the financial crisis.

A little over a year earlier his predecessor under the Bush administration, Henry Paulson, made the same visit to the region with the same contention, that despite a severe slowdown, the US economy remained a safe haven for Arab money.

This argument has not been entirely borne out. Gulf sovereign wealth funds (SWFs) have seen the value of their holdings cut by roughly $100bn to $1.1 trillion between the end of last year and last month, according to US consultancy firm RGE Monitor.

Furthermore, in the 13 months that followed Paulson's visit not only has the global financial crisis deepened and widened to the shores of the Arabian Gulf, but the price of oil - the principal revenue for the hydrocarbon-reliant region - has more than halved.

However, despite the immersion of the Gulf in the crisis, the region's value to the US economy is undiminished.

"The Gulf has now become a traditional stop that key US financial officials are making, that is a change in relationship to a couple of years ago and that has to do with its financial clout," says Rachel Ziemba, an economic analyst at RGE Monitor.

Not only is the Gulf the largest international investor in US stocks but publically announced direct investment in the US from the region has topped $25bn.

Gulf nations are among the world's largest buyers of US government bonds.

With five of the six Arab states that comprise the GCC - Saudi Arabia, the UAE, Bahrain, Qatar and Oman - pegging their currencies to the dollar, the region is a big buyer of US dollar-denominated assets. The sixth, Kuwait, uses a basket heavily weighted in dollars.

The first leg of Geithner's visit was to Saudi Arabia for meetings with Jeddah Chamber of Commerce and Industry and officials including King Abdullah.

Saudi, the largest economy in the GCC, holds $400bn in foreign reserves; most of it believed to be in dollar-denominated assets.

Geithner also became the first senior US official since Obama's election to visit the UAE, where in Abu Dhabi he met foreign trade minister Sheikha Lubna Al Qasimi and central bank governor Nasser Al Suwaidi, in addition to officials from SWFs Abu Dhabi Investment Authority (ADIA) and Abu Dhabi Investment Council (ADIC).

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