Gulf economic role underestimated: IMF chief

International Monetary Fund Managing Director Dominique Strauss-Kahn said the role of Gulf Arab states should be re-evaluated because they are underestimated by the global economy.

“The role of those countries, the global economies underestimate, and in my view we should re-evaluate the share, the influence they have,” Strauss-Kahn said. “Not only on the global recovery this time, but the global economy in general.”

Policy makers from the Group of 20 advanced and emerging economies agreed to give China and other “underrepresented” countries more of a say at the IMF through a transfer of at least 5 percentage points of so-called quotas, which determine voting shares and access to IMF loans. The G-20 will also replace the G-7 as the global forum for economic issues, giving Saudi Arabia, the Arab world’s largest economy, more say in global events.

The Gulf Cooperation Council’s role “is very important in the recovery,” Strauss-Kahn said. “As the recovery will go on there is a risk of an increase in oil prices so the way the GCC will manage this question has a lot to do with the risk of a double-dip or the real recovery of the global economy.”

Oil prices have advanced 76 per cent this year after hitting a low of $33.98 a barrel in February. Crude oil for November delivery rose 95 cents, or 1.2 per cent, to $78.53 a barrel yesterday on the New York Mercantile Exchange, the highest settlement since October 15, 2008.

Economic growth in Gulf countries was hurt as oil prices declined from a record high of $147.27 a barrel in July last year. The Saudi economy will contract 1 per cent this year as the debt problems of family-run businesses dissuade banks from lending to the entire private sector, Riyadh-based Jadwa Investment Co said in a July 28 report.

“The crisis has revealed vulnerabilities in some GCC banking sectors which need to be addressed,” Strauss-Kahn said. “Nevertheless, these vulnerabilities are of a non-systemic nature and the GCC countries have deployed the necessary resources to keep them contained.”

The Saudi Arabian Monetary Agency cut the reverse repurchase rate three times this year, taking it to the lowest level since Bloomberg data began in September 2007, as it tried to stimulate lending in the country. Saudi Arabia, the Arab world’s largest economy is drawing on foreign assets to fund a $400 billion spending programme over five years to boost oil production capacity and complete large development projects.

Four Gulf Arab states that are working toward a single currency are “still far” from reaching monetary union, Strauss-Kahn said. Five of the six countries in the GCC are pegged to the dollar, while Kuwait is pegged to a basket of currencies.

“It’s an old tradition, it’s an old practice for this region to be pegged to the dollar, of course it has advantages as always for a peg and it may have also some drawbacks,” Strauss-Kahn said.