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Thu 23 Oct 2008 07:17 AM

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Gulf finance chiefs set to discuss global crisis

United front needed to deal with impact of credit crunch in GCC, say analysts.

Gulf finance ministers and central bankers will try on Saturday to put up a united front in the face of a global financial crisis, which threatens to stall troubled plans for monetary union further.

The crisis has done more to expose than heal the divisions endemic to the six-nation Gulf Cooperation Council (GCC), which has tried to underplay the potential impact any crisis might have on the energy exporting bloc.

"There is no evidence that any coordination took place during the crisis," said Mustafa Alani, analyst at the Dubai-based Gulf Research Centre.

"This shows that very little real progress has been made in creating a real unified bloc. I believe that after this crisis we will go even slower," he said.

Policymakers will have the chance to call for more coordinated action at the meeting, said Mohamed al-Mazrooei, assistant to the GCC's Secretary General for economic affairs, even if no proposals have circulated publicly up to now.

"I'm not aware of any draft GCC proposals on how to deal with the crisis," Mazrooei told Reuters.

GCC members are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

Analysts doubt that the meeting will kick start plans to reach monetary union by 2010, a date that policymakers themselves say is unreachable in any meaningful way.

John Sfakianakis, chief economist at SABB bank, HSBC's Saudi subsidiary, said the monetary plan may even lose momentum.

"It's a good time to show support to the project. The only problem is that they have not handled the turmoil as one unit," he said.

At a similar meeting last month, Qatar's Finance and Economy Minister warned that GCC states face stronger financial storms to come if they lack common capital markets and a single central bank, adding that the global financial turmoil compels GCC states to speed financial and economic integration.

His call failed to get the six countries to agree on a location for a planned Monetary Union Council, a nucleus of any regional central bank.

"The crisis has brought out to the open the deep divisions that exist within the GCC," said Khaled al-Dakhil, a prominent Saudi university lecturer of social politics.

"Economic integration seemed the best aspect of the union, but it only looked good because other aspects of the union are totally nonexistent," he said.

The GCC does not have a regional parliament and regimes in the region are not held accountable by their people, he said.

"You can't expect much when you don't have political cooperation. The GCC did not really surpass the principal idea that was behind its inception in 1981 and which was security concern after the Iran-Iraq war," Dakhil said.

The GCC launched its monetary union plans in 2001 but setbacks have since dogged the project.

Inflation has been a key challenge as Gulf states struggle to meet convergence criteria while battling soaring prices.

Most Gulf states have fixed their currencies to the dollar, forcing them to track US rate cuts even as their economies boom.

Oman has already dropped out of the monetary union project and Kuwait threw the plan into doubt when it dropped its dollar peg to free it up to battle soaring prices.

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Shakizada 11 years ago

According to current situation, further, the monetary union may not be a good idea.

Ivo Cerckel 11 years ago

GCC central banks are already independent The GCC does not have a regional parliament and regimes in the region are not held accountable by their people, said Khaled al-Dakhil, a prominent Saudi university lecturer of social politics. The GCC have an experience of central banks which are not “sovereign” but are “dependent” upon the USA Federal Reserve Bank. By being “dependent” upon the USA Federal Reserve Bank, the GCC central banks have an experience of central banks being “independent” from their national government. In the run-up to European monetary union, some European central banks had to be granted independence from their national government. The central banks in France, Italy and Spain all have indeed been granted independence during the 1990s. It is, however, instructive that in none of these cases did the granting on independence pre-date the signing of the 1992 Maastricht-treaty which committed European Union governments to independent central banks. The GCC central banks are already independent. That’s one more reason why GCC Monetary Union is still possible by 2010.