GCC says turmoil makes monetary union urgent

UPDATE 2: Adequate steps already taken in response to financial crisis - policymakers.
GCC says turmoil makes monetary union urgent
By Andrew Hammond and Souhail Karam
Sat 25 Oct 2008 03:22 PM

Gulf Arab oil producers said they had already taken adequate steps to deal with the impact of the global financial crisis but that turmoil on world markets had given new urgency to their plan for monetary union.

Finance ministers and central bank governors of the Gulf Cooperation Council (GCC) held an emergency meeting on Saturday to discuss coordination of their response to a global downturn that threatens to brake their region's six-year economic boom.

The states, preparing for a single currency by an unlikely 2010 deadline, emerged from the meeting with few public statements on how they would work together.

"The likely effects of the global crisis we can deal with through the measures we have already taken," Qatari Minister of Finance Youssef Kamal said after the meeting in the Saudi capital, Riyadh.

"The crisis proves how much we need a single currency and that a single central bank should be a supervisory body."

The agenda for the one-day meeting included discussion of new steps to shore up confidence in their banking sectors while reviewing regional investment plans.

Saudi Arabia, the United Arab Emirates and four other Gulf states have so far adopted separate policy responses to defrost interbank lending and boost confidence in their stock markets. The GCC also includes Qatar, Kuwait, Bahrain and Oman.

Some Gulf states have guaranteed bank deposits, eased lending restrictions, set up emergency funding facilities for their banks and invested money in ailing stocks.

"There's been no coordination in the policy announcements so far," said Paul Gamble, head of research at Riyadh-based Jadwa Investment.

After Saturday's meeting, Gulf policymakers - who were due to hold a meeting with Saudi King Abdullah - gave few details.

"We express our readiness that there should be permanent coordination between all of us," Kamal said. "This coordination should continue with the central bank governors in particular in order to monitor the situation."

The global turmoil has hit the Gulf region after six years of high oil prices allowed state and private investors to funnel billions of dollars into industry and infrastructure projects.

Banks are now struggling to finance these projects, leading economists and policymakers to expect project delays and forecast lower real growth as the Organization of the Petroleum Exporting Countries (OPEC) cuts crude oil output.

Crude prices have dropped by more than half since hitting record levels above $147 a barrel in July, including a fall of almost $4 on Friday despite an agreement by OPEC to cut output by 1.5 million barrels a day.

"The retreat of the US and European economy will have a negative affect on the balance of payments in GCC countries," read the meeting's agenda, which included a discussion of possible "hysteria" among GCC citizens over their bank deposits and the effect of lower oil revenues on economic growth.

Investor confidence in the region has already taken a hit. Saudi Arabia's bourse plunged more than 8 percent on Saturday, having dropped more than 44 percent this year.

Sovereign wealth funds, meanwhile, have invested oil wealth around the world, including some high-profile buys in US equities that have been hammered during a global market rout.

Policymakers talked about how to "strengthen the role of government in the financial sector", "reassess" Gulf foreign investment policies and look into ways to ensure the stability of the global oil market, the agenda said.

Al-Arabiya television reported that Gulf policymakers would discuss directing more government funds into stocks and bank accounts to bolster confidence. It did not give a source. (Reuters)

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