Geithner promises to defend dollar - US wants Saudi to increase IMF contribution

Geithner promises to defend dollar - US wants Saudi to increase IMF contribution
By Abeer Allam in Riyadh
Copyright The Financial Times Limited 2009
Published: July 14 2009 13:13 | Last updated: July 14 2009 14:57
http://www.ft.com/cms/s/0/37725454-706c-11de-9717-00144feabdc0.html


Tim Geithner, US treasury secretary, sought to assure Gulf nations on Tuesday about their holdings of treasury bills when he told Saudi business leaders that his country “has a special responsibility to play” in defending the value of the dollar.

He also said that the US is committed to maintaining the openness of its economy to foreign investment and to expanding international trade.

Mr Geithner, who is due to hold talks with King Abdullah and senior Saudi economic officials later on Tuesday, said his talks will focus on the two countries’ commitment to the recovery of the global economy, and efforts to speed up the G-20 reform process. Saudi Arabia is the only Arab member of the grouping of 20 major economic states.

“The force of the global recession is receding,” Mr Geithner said in a speech in Jeddah, a commercial port in western Saudi Arabia. ”The process of repair and recovery is going to take considerably more time. It seems realistic to expect a gradual recovery, with more than the usual ups and down and temporary reversals.”

He said Saudi Arabia would have an “important voice in building cooperation on a more robust framework for the prevention of future crises.”

”The policies of the United States are designed to lay the conditions for a strong dollar,” he said. ”We are very committed ... to making sure that as we get through the crisis, we bring down fiscal deficits and we reverse these extraordinary interventions we’ve taken.”

The kingdom is a major US ally in the region and was the first port of call when Barack Obama, the US president, visited the Middle East last month.

Analysts said it was expected that Mr Geithner would hope to persuade the kingdom to increase its contribution to the International Monetary Fund to help it support economies hardest hit by the financial crisis.

The Saudi government has so far resisted calls from Britain and the US to provide additional funding to the IMF, arguing that instead it has its own stimulus plan at home, which will eventually spill over into the global economy.

Saudi Arabia, the region’s biggest economy and the world’s largest oil exporter, has posted its biggest budget ever this year and has pledged to spend $400bn in the coming five years on infrastructure and its oil industry.

Record oil prices had helped the kingdom to amass foreign assets of around $500bn last year, with most of its foreign reserves invested in US treasury bills.

However, statistics from the Saudi Arabia Monetary Agency, the central bank, show that the authorities have recently withdrawn about $50bn in foreign assets to reinvest at home, and it has pressing domestic issues to tackle, including high unemployment and diluting dependency on oil.

In spite of the region’s petrodollar wealth, the region has been hit hard by the global economic crisis. Growth forecasts for the Gulf states have declined sharply, credit has dried up and a number of prominent companies are facing difficulties.

The strength of the dollar is of particular concern to the Gulf as oil dominates their economies and five of the six members of the Gulf Co-operation Council, including Saudi Arabia, peg their currencies to the greenback.

“The [Saudi] government is very worried about the deteriorating value of the dollar and the mounting debts of the US in the medium- and long-term,” a Saudi economist said.

On Wednesday, Mr Geithner is due to meet officials in Abu Dhabi, the capital of the UAE, which is the Arab world’s second largest economy. Abu Dhabi is home to a broad range of sovereign investment vehicles which have invested billions of dollars in the US.

Investment by sovereign wealth funds in the US in the earlier stages of the financial crisis had raised concerns about their intentions. But, as the crisis has weakened, US officials have been keen to reassure their Gulf counterparts that they welcome investment from the region, which is seen as a source of capital during the downturn.