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Tue 14 Jul 2009 01:16 PM

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Geithner reassures Middle East over global crisis

UPDATE 1: US Treasury Secretary praises Arab investments to help drive economy.

US Treasury Secretary Timothy Geithner on Tuesday praised the massive investments by Arab countries of the Gulf aimed at helping to drive the global economy back to growth.

Geithner, addressing Saudi businessmen, invited more Arab investments into the US economy stressing that the security issues which blocked the investment by Dubai Ports World into US ports three years ago had been addressed.

"I think the world has yet to fully appreciate the scale of ambition and investment we are seeing in the (Saudi) kingdom and the Gulf region to lay the foundation for future growth," he said in the Red Sea port city of Jeddah.

Geithner, on a visit to the region to meet officials from key holders of hundreds of billions of dollars of US debt, stressed the need for spending to restore growth.

"Here in Saudi Arabia, the non-oil economy continues to grow, boosted by one of the largest stimulus packages of any G20 nation and by aggressive monetary and financial sector actions," he said.

Geithner spoke to businessmen at the Jeddah Chamber of Commerce and Industry before meetings with his Saudi counterparts and King Abdullah.

On Wednesday, the treasury secretary is scheduled to meet with UAE officials and the heads of two of the emirates main public investment funds in Abu Dhabi.

Economists in the region said Saudi and UAE officials would be seeking assurances on the recovery of the US economy from Geithner.

"Secretary Geithner's visit will be like a progress report on the state of the US economy," said veteran Riyadh economist John Sfakianakis.

"Since Saudi Arabia is a very important holder of US paper, some explanation about the state of the US economy" is necessary from the top US finance official, he said.

Geithner, in his speech, stressed that Arab investments are welcome in the United States.

"Since the controversy surrounding the Dubai Ports deal in early 2006, our government has put into place a series of reforms designed to safeguard national security, while providing more clarity, predictability and transparency to investors," he said.

"These reforms have not infringed on our open investment policy."

Since that failed deal, Geithner said, publically announced direct investment in the United States from the Gulf has topped $25bn, including the $11bn purchase of GE Plastics by the Saudi petrochemicals giant, Saudi Basic Industries Corporation.

The Jeddah visit underscores the importance of Saudi Arabia as the leading global oil exporter as well as holder of about $400bn in foreign reserves, most of it believed in dollar-denominated assets.

Because the country is so dependent on oil and gas exports economists do not believe Riyadh is considering any radical changes to its dollar holdings.

But the Saudi government has been selling off foreign assets in recent months to fund a massive government investment programme aimed at keeping the economy growing.

Saudi foreign assets have dropped from a peak of $443.2bn dollars last November to $395.2bn at the end of May.

And across the six countries of the Gulf Cooperation Council, foreign holdings have fallen around $300bn, which likely has contributed to the dollar's weakness.

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