GCC finance ministers and central bank governors begin an emergency meeting in Riyadh.
GCC ministers consult over crisis
GCC authorities held an emergency meeting in Riyadh today in a bid to shore up confidence in the banking sector and stock markets in the face of an international credit crisis and a looming recession that are threatening the region's six-year economic boom. The meeting of the six-nation bloc in the Saudi capital coincided with the second day of a summit of European and Asian heads of state in Beijing to address the growing global economic storm. GCC finance ministers and central bank governors made no formal statement after their talks, but expressed confidence in sustained growth in the region and reiterated their determination to progress towards monetary union. "The retreat of the US and European economies will have a negative effect on the balance of payments in GCC countries," read an agenda for the meeting. "This means implicitly a retreat in economic activity concerning exports and some service sectors." The global credit crunch has slowed lending in the Gulf and caused a slump on GCC stock markets, threatening to undermine the region's strong growth. Gulf nations have responded individually to the crisis by pouring cash into their banks and capital markets, but have yet to agree on any joint initiative. The UAE plans to inject Dh70 billion (US$19.05b) into its banking system to support interbank lending. After Saturday's meeting, Qatar's finance minister Youssef Kamal expressed confidence that the measures already announced would be sufficient. "The likely effects of the global crisis we can deal with through the measures we have already taken," he said. Ministers also expressed concern over the steep drop in oil prices, which have fallen by half in three months. New York futures closed at $63.74 per barrel on Friday, the lowest level in a year. Heads of state at the Beijing meeting discussed increased supervision of the financial industry, but analysts fear that a co-ordinated global response to the crisis may fall victim to national politics as many of the world's leading democracies enter full-blown recession. After the close of the Riyadh meeting, Mr Kamal said the crisis underlined the need for a common regional currency and central bank. "The crisis proves how much we need a single currency and that a single central bank should be a supervisory body," he said. Finance ministers from five GCC countries have approved a draft pact for monetary union, but they have yet to confirm a date to launch the new currency or decide a location for the central bank. The bloc originally set a deadline of January 2010 for the new currency, but a lack of visible progress has prompted many observers to cast doubt on its viability. GCC heads of state are expected to meet in Oman next month and monetary union is likely to top the agenda. A date for that meeting has yet to be announced. Nasser Saidi,the chief economist at Dubai International Financial Centre, said that GCC nations should use their financial muscle to tailor a joint response. "I think it would send a strong message to the market and to the banking system if the GCC were seen to be acting together," he said. He backed the Mr Kamal's comments on the need for monetary union. "This crisis makes the case for the monetary union and collective action even more important because with a common policy you can pool more resources," Mr Saidi said. The bankruptcy that Iceland now faces would have been mitigated if it had been part of the European Union, he added. President George W Bush will host a summit on Nov 15 in Washington to address the crisis. So far, many developed countries have sparred over how to solve the problems. French president Nicolas Sarkozy has called for stricter government supervision of financial markets while British prime minister Gordon Brown favours placing the world's top 30 banks under the supervision of a panel of regulators. firstname.lastname@example.org *With Reuters