Timothy Geithner, the US Treasury secretary, held a series of closed-door meetings Wednesday with top UAE officials and sought to dispel concerns that the US and its dollar have become a hazardous destination for Gulf investments. "It will remain the policy of the United States to remain committed to a strong dollar," Mr Geithner said in an interview yesterday with Al Arabiya television. The dollar, he said, "will remain the principal reserve currency".
Mr Geithner is the first senior US official to visit the UAE since President Barack Obama took office. Officials stressed that the purpose of his visit was primarily diplomatic, aimed at opening a dialogue between Abu Dhabi and Washington on a more equal footing than the one that characterised relations during the Bush administration. But economists and analysts said Mr Geithner also needed to allay concerns in Gulf capitals about the continued openness of the US to Arab investment, and how those investments might be affected by the Obama administration's efforts to stimulate the US economy.
"The strength of the US dollar is a key parameter for the Gulf states," said Ala'a al Yousuf, the chief economist at Gulf Finance House in London. "What the Gulf will be looking for from secretary Geithner is reassurance that the US government would do whatever is necessary to stimulate the US economy." Gulf nations are among the world's largest buyers of US government bonds and corporate shares. With their currencies pegged to the US dollar, most have to recycle surplus oil revenues into dollar-denominated assets. The US recession has battered the value of those assets, with some sovereign wealth funds suffering losses of as much as 40 per cent on their holdings.
While they stand to benefit from a US recovery, however, many governments and investors worry that paying for the massive fiscal stimulus necessary to resuscitate US growth will involve such heavy borrowing that the value of the dollar will suffer. Tristan Cooper, a senior analyst at Moody's Investors Service in Dubai, said: "Dollar volatility complicates economic management in the Gulf, given fixed exchange rates, while the path of global oil prices will be heavily influenced by confidence in US economic resilience."
Mr Geithner's visit was part of a whirlwind, four-nation tour that took him through London and Saudi Arabia, where he addressed business leaders in Jeddah, met King Abdullah and visited an oil refinery. Mr Geithner was scheduled to travel to France last night after a dinner with Sheikh Mohammed bin Zayed, the Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces. Officials said the visit was designed to build on the tone set by Mr Obama during his trip to Egypt last month. The US president stressed the need for Americans and the Muslim world to end what he called a long cycle of mistrust. "There must be a sustained effort to listen to each other, to learn from each other, to respect one another and to seek common ground," he said in his address there.
While Mr Geithner's itinerary reflected the Obama administration's more consultative tone, it also highlighted the differences between Mr Geithner and his Republican predecessor, Henry Paulson. When Mr Paulson, a former Wall Street banker, came to Abu Dhabi in June last year, he stayed at the Emirates Palace hotel and delivered a lecture on US economic policy to a hall full of officials and executives. Mr Geithner, a former central bank official and treasury bureaucrat with no experience on Wall Street, stayed at the same hotel, but confined his morning meeting there to only a dozen people, including Sheikha Lubna Al Qasimi, the Minister of Foreign Trade.
In a statement afterwards, he said: "It is conversations like this that move us one step closer to the president's commitment to deepen ties between business leaders, foundations and social entrepreneurs in the United States and Muslim communities around the world." In addition to his meeting with Sheikha Lubna, Mr Geithner met officials from the Abu Dhabi Investment Authority and the Abu Dhabi Investment Council, as well as Nasser al Suwaidi, the Central Bank Governor.
Mr al Suwaidi told Bloomberg in an interview that the Treasury secretary had reassured him on the health of the dollar. "It's very important to give realistic committal messages to the international markets," Mr al Suwaidi said. "I would say he's done that." Apart from a few remarks following his meeting with Sheikha Lubna, however, Mr Geithner limited his public statements on the economy and investment to a taped interview with Al Arabiya television network, scheduled for broadcast today, according to US officials.
Mr Geithner said yesterday in Abu Dhabi that his visit was aimed at strengthening the relationship with the UAE and the Gulf, and to help advance a global conversation on making the world economy less prone to financial crises like the present one. "We need to ensure that we're not sowing the seeds for future crises," he said, referring to global imbalances that many economists say set the stage for the turmoil that has wracked the world's economy. "Many of the challenges that you're seeing in Abu Dhabi, and that the Emirates is confronting, are challenges confronting the broader global economy," he said.
But it was education, not the economy, that topped the official agenda. "Just one month ago, President Obama reminded us that we must recognise that education and innovation will be the currency of the 21st century," Mr Geithner said in a statement handed out to reporters after his morning meeting. Mr Geithner was more forthcoming on the issue of the dollar while in Jeddah on Tuesday. "Given the dollar's role in the international financial system, and the significant impact of the US economy on global economic conditions, we fully recognise that the United States has a special responsibility to play," he told the Jeddah Chamber of Commerce.
"That is why the President, in his first budget to Congress, made it clear that as soon as recovery is firmly established, we will bring our fiscal deficit down to a level that is sustainable in the long term." @Email:firstname.lastname@example.org