Gordon Brown will visit the UAE, Saudi Arabia and Qatar, seeking Gulf funds to help countries hit by the global financial crisis.
British PM arrives in the Gulf
RIYADH // Gordon Brown, the British prime minister, arrived in the Saudi capital today for a regional tour seeking Gulf funds to help countries hit by the global financial crisis. Mr Brown, who will stop in Qatar tomorrow and in Abu Dhabi and Dubai on Monday and Tuesday respectively, is seeking additional funds to buttress the International Monetary Fund amid the worsening world financial crisis, which has struck the economies of Eastern Europe especially hard. In Riyadh today, the Prime Minister met with King Abdullah bin Abdul Aziz. The British leader, accompanied by his energy and business ministers, as well as two dozen top businessmen, also met Saudi Arabia's senior finance and trade officials for discussions on how to boost trade between Britain and Saudi Arabia. "Saudi Arabia is a key strategic partner for the UK," said a statement issued by the British Embassy in Riyadh. It added that Mr Brown's visit "is an opportunity to build on the growing consensus on action required to stabilise and rebuild the global economic system" as well as a chance "to build on the strong commercial, cultural and educational links between our two countries". A spokesman for Mr Brown told reporters on Friday that countries with large financial reserves such as those in the Gulf region are in a position to "contribute to refinancing the stability of the global financial system. It's in everyone's interests that there is stability and, over the long term, sustainable growth in global markets." Helping bail out the troubled international financial system is a smart move for oil-rich Gulf countries because they would be helping their own trading partners, that is, oil consumers, said Hady Amr, director of the Brookings Doha Centre in Qatar. But, he added in an e-mail, those coming to ask for assistance should recognise that "the Gulf economies are primarily responsible for their own health and that should be their first concern - there is no 'obligation'" to help others. "Second, the financial crisis was brought about through over-leveraging in the West," Mr Amr added. "The Gulf is healthy, not only because of oil revenues, but also because, with a few exceptions, it is dramatically less leveraged. History has now shown us that over-leveraging is bad and that those in the Gulf who avoided this should stick to their principles." Saudi Arabia, the world's largest oil producer, has "a long record of being a strong supporter and good team player in the IMF framework, going back to the early 1980s", said Howard Handy, chief economist and general manager of Samba Financial Group in Riyadh. "The IMF is always short of funding," added Mr Handy, noting that its current lending pot of US$250 billion (Dh918bn) is "not a large amount of money in the current environment". Mr Brown's plea to the Gulf countries for more assistance to the IMF comes at a time when the shifting global economic landscape has led to demands from so-called emerging countries with fast-growing economies, including India, China and Brazil, for a greater role in international financial institutions long dominated by western nations. Mr Brown has already held telephone discussions with leaders in Beijing in an effort to get the Chinese to contribute more. Jose Manuel Barroso, the president of the European Commission, has thrown his weight fully behind Mr Brown's mission. "The idea put forward by Prime Minister Brown, and I completely agree with him, is that China and others could help more with the IMF," he said in Brussels. "Not only China but also the Gulf countries could maybe give a concrete demonstration of their sense of responsibility." Angela Merkel, the German chancellor, is also backing Mr Brown. "We will not be able to continue our economic success unless action is taken," she said. "Without a functioning world economy, we will not be able to safeguard jobs." However, while China appears ready to heed Mr Brown's call for more funds for the IMF, there are doubts that his plan will be so readily accepted in the Gulf. Mr Brown's visit also comes against a backdrop of exasperation among some western leaders at OPEC's decision to cut back oil production five percent (1.5 million barrels a day) in response to rapidly plummeting prices. Hours after the Oct 24 announcement, the British premier said through a spokesman that he was "disappointed" by the move. Abdalla Salem el Badri, OPEC's secretary general, has described it as "surprising" that oil-producing nations were being asked to bail out countries suffering in the current economic crisis. "This crisis created in the (United) States must be solved within the States," he told an oil conference in London. Adam Dixon, a senior member of the Oxford Analytica consultancy, believes that Gulf states would prefer a "piggyback strategy", topping up funds that countries such as Pakistan are receiving from the IMF. "In terms of funnelling it through the IMF ? I don't think so," he said. Mr Dixon added that, while most Gulf states had the cash reserves to pour into the IMF, they could use the "excuse" of falling oil prices not to back Mr Brown's plan. Saudi Arabia already is one of the largest contributors to the IMF and therefore has increased political leverage within that institution. But an overhaul of the IMF structure is likely to be part of the discussions during Mr Brown's Gulf trip, economists here said. "The IMF was set up 60-something years ago and the structure of its capital, and therefore its voting rights, are woefully out of date and need to be revised," said Mr Handy, who used to work at the IMF. Those revisions "will require sacrifices on the part of the European Union and the US in terms of reducing their share of voting rights," he added. Saudi British Bank chief economist John Sfakianakis said the huge wealth earned in recent years by oil-producing Gulf countries certainly imposes an obligation to help out the rest of the world. But at the same time, there should be a recognition of the contributions they have already made by investing, through their sovereign wealth funds, in western economies. On Friday, Barclays, one of Britain's largest banks, announced that it had received a £5.8 million infusion from Abu Dhabi and Qatar. Saudi Arabia, Mr Sfakianakis said, has been supporting the global economy for some time by injecting "confidence in the US economy by buying US treasuries and holding a lot of dollar reserves". It also is investing $129 billion to expand its oil production capabilities "so that in five years time when another prime minister comes and says you are not producing enough oil", said Mr Sfakianakis, they will be able to increase supplies. email@example.com With additional reporting by David Sapsted in London