x Abu Dhabi, UAE Friday 21 July 2017

The most powerful banker in the Gulf

Profile: Within the GCC, almost no monetary initiative can pass unless the Saudi Arabian giant stands behind it.

Dr Muhammad al-Jasser, vice governor of the  Saudi Arabian Monetary Agency, believes that maintaining the peg to the US dollar is a smart policy for the riyal, even though it may have resulted in short-term inflation.
Dr Muhammad al-Jasser, vice governor of the Saudi Arabian Monetary Agency, believes that maintaining the peg to the US dollar is a smart policy for the riyal, even though it may have resulted in short-term inflation.

The largest economy in the Gulf has a new custodian. Having run the country's finances since 1983, Hamad Saud al Sayyari, 68, has stepped down as head of the Saudi Arabian Monetary Authority (SAMA). It should be a fairly easy transfer, for Mr al Sayyari was replaced by his right-hand man of more than a decade, Muhammad al Jasser. Educated in California at San Diego State University, Mr al Jasser, 54, enters the office of central bank governor during auspicious times. Saudi Arabia is seen by many economists as the only country in the GCC with a chance of rising above the global economic morass this year. With more oil and people than the rest of the GCC combined, if Saudi Arabia fares as well as analysts expect, Mr al Jasser could soon find himself in a position of even greater economic clout with regard to his neighbours - and indeed the rest of the world - than his predecessor ever had.

Take GCC monetary union, for instance. Within the GCC, almost no initiative can pass unless the Saudi Arabian giant stands behind it. So if Saudi Arabia decided to opt out of the project to establish a single Gulf currency, the entire project would almost certainly fall apart. Mr al Jasser may not be the one actually drafting GCC economic policy during the next few years, but he and his delegation might as well be.

To the relief of the region, it seems Mr al Jasser plans to maintain his predecessor's course when it comes to Saudi Arabian macroeconomic policy. Officials and analysts say he has been groomed for the position, and that there should be no radical policy changes from SAMA in the near future. "He is a very strong character," said John Sfakianakis, the chief economist at Saudi Arabian British Bank. "In that way, you will see some change in how SAMA deals with the outside world. He is very captivating, very eloquent."

Mr al Jasser has developed a reputation for steering a straight course in the past few years, despite accusations that policies he advocated were detrimental in the short term. Last year, when there were increasing calls for the country to de-peg the riyal from the US dollar, Mr al Jasser maintained that having the peg was a smart policy, even though it may have resulted in short-term inflation. Now, with inflation on the decline and the dollar resurgent, the peg again seems like smart policy.

"He is a believer at the moment that the peg serves a very important purpose and it is to [Saudi Arabia's] advantage. I think SAMA will hold its position on currency policy, on being a proponent of the common Gulf currency and allocating foreign assets in a very conservative manner," Mr Sfakianakis said. Since October, SAMA has cut its interest rates five times, lowering them by more than half. Mr al Jasser said yesterday that the cuts had alleviated any funding shortage in the nation's banking system. The Saudi economy and financial sector were "now going through a phase of stability that is subject of envy ? This shows the success of the monetary policy", he said.

Mr al Jasser also indicated yesterday that he thought the country would rebound from the effects of the global economic crisis faster than most other countries in the world. If his prediction comes true, Saudi Arabia could use its increased economic strength to gain sway within the region. "The GCC leaders all want the new GCC central bank to be located in their country. It's the crown jewel. And people have been talking about Saudi as the best place, since it is the biggest economy. They are already the biggest players, and any more power could help their chances of winning," said a Kuwaiti banker.

Saudi Arabia finds itself in such a good position now for a number of reasons. First, because of its conservative approach to finance. For the past few years, Saudi officials were chided for being too insular, and for not opening their country up to international capital flows. As recently as last year, Dubai was held up as the model for a new kind of Gulf internationalism, in which large amounts of foreign money could be leveraged to create rapid growth.

Not any more. In the past few months, while Dubai felt the brunt of the global financial crisis, many say Saudi Arabia's more insular economic model has been vindicated. Unlike the UAE, Kuwait and Qatar, Saudi Arabia did not create a property bubble, nor did it allow vast inflows of speculative money to throw its banking system off balance. Additionally, restrictions on foreign investments kept Saudi companies from growing dependent on the availability of foreign money, a mistake that many say the UAE and Kuwait are now being punished for.

"In Saudi Arabia, their exposure to global markets is not too high, their loans-to-deposits ratio is good, so they are still in a good position. We like Saudi Arabia. In the current climate, they feel proud that they did not open up too quickly to international inflow of capital, nor did they embrace globalisation as fast as Dubai did," said Henry Azzam, the chief executive of Deutsche Bank's MENA division in Dubai.

"We are excited about Saudi Arabia as we have not been excited about any market in the region for a long time," said Ibrahim Masood, a senior investment officer at Mashreqbank in Dubai, in a recent research note. "We do expect the Saudi economy to come out of 2009 in better shape than most of its regional peers." Saudi Arabia's saving grace, economists say, is its government's ability to continue spending through the economic crisis. Although the Saudi economy is expected to slow to a near halt this year as oil prices plumb recent lows, the government has stored enough money to continue spending at similar levels.

SAMA, which stores large amounts of the country's oil wealth, sustained a policy of "very liquid, very safe, minimal risk" international assets, Mr al Jasser said in November. The strategy has helped it avoid some of the losses that other Gulf sovereign funds are likely to have sustained in recent months, analysts say. Even if Saudi Arabia emerges from this crisis in a position of economic triumph, there is little reason to think it might finally start opening up or allowing local banks to operate a bit more freely. In fact, Mr al Jasser seems ready to make Saudi Arabia even more inward looking. Last month, he called for the country's banks to be even more strictly regulated by the government, citing a lack of supervision and the irresponsibility of ratings agencies as the prime causes of the global financial crisis.

* With agencies tpantin@thenational.ae