Saudi Arabian central bank Governor Muhammad Al-Jasser said the European sovereign debt crisis is not affecting the economies of the Gulf Arab region and the euro will overcome its difficulties.
“My guess is that they will maintain the system, they will overcome the problems,” Al-Jasser told reporters Monday in Seoul, where he is attending a forum hosted by the Bank of Korea. “The impact will be more sluggish growth in Europe and maybe some new measures on the resolution of such fiscal problems. This is going to be the challenge for Europe going forward.”
Al-Jasser, who is leading efforts to form a single currency between four Gulf Arab states, said May 24 that the problems facing the euro had not changed his strategy toward forming a regional central bank. Kuwait’s foreign minister earlier said Gulf states may “pause” to reflect on the monetary union project as a result of difficulties facing the euro, the state-run KUNA news agency reported the same day.
Five of the six Gulf Cooperation Council countries have their currencies pegged to the dollar, while the Kuwaiti dinar is pegged to a basket of currencies.
Europe’s currency is poised for a 7.6 percent drop against the dollar in May. That’s its sixth-straight monthly decline, the longest since a seven-month streak ending in April 2000.
“No, we have none of that happening as a consequence of the difficulties in Europe. We have not witnessed anything,” Al-Jasser said when asked whether the debt problems in Europe have affected Gulf Arab economies. “Debt-to-GDP in all of the Gulf countries is very, very low.”
Saudi Arabia’s Saudi Basic Industries, the world’s biggest petrochemicals maker, and a Bahrain-based retail lender have delayed the sales of dollar-denominated bonds as Europe’s credit crisis has prompted investors to demand higher yields. Sabic Capital, a unit of Sabic, delayed the offer because the spreads were “not what we wanted,” Chief Financial Officer Mutlaq Al-Morished said in a telephone interview on May 26.
Al-Jasser, whose country has the largest stimulus package as a percentage of gross domestic product in the Group of 20 nations, said “the exit strategy from this crisis will be more delicate than usual.”
“Central banks acted in a coordinated way during the crisis but they will naturally look to their domestic financial systems in deciding how and when to gradually reverse policy back towards normal,” he said today during his speech.
“That said, some coordination is in everybody’s interest as we are already starting to see frothy asset prices emerge again in developing economies.”
