- Title: SAUDI ARABIA: Central bank backs dollar peg
- Date: 4th January 2010
- Summary: RIYADH, SAUDI ARABIA (JANUARY 4, 2010) (REUTERS) EXTERIOR OF COUNCIL OF SAUDI CHAMBERS BUILDING CHAIRMAN OF COUNCIL OF SAUDI CHAMBERS, ABDUL RAHMAN AL-JARAISI, WELCOMING THE GOVERNOR OF SAUDI ARABIAN MONETARY AGENCY (SAMA), MUHAMMAD AL-JASSER - ON THE RIGHT. BUSINESSMEN AND ATTENDEES SAT AROUND THE TABLE LISTENING (SOUNDBITE) (Arabic) GOVERNOR OF THE SAUDI ARABIAN MONETARY AGENCY, MUHAMMAD AL-JASSER, SAYING "I assure you that the choice of dollar currency was not taken for emotional or political reasons but purely for economic reasons that still stand and most important of these reasons are, first, most of the kingdom's exports - and I am tempted to say all - are assessed and paid using the American Dollar, and about two-thirds of the Kingdom's imports are priced and paid in Dollars, that includes large percentage of imports from Europe, and large percentage of imports from Japan, not to mention all that is imported from Asia. There is a positive impact on the financial situation of the State, and that's achieved by the maintaining of the value of oil revenues as the main source of income to finance the state budget." BUSINESSMEN LISTENING TO GOVERNOR'S COMMENTS (SOUNDBITE) (Arabic) GOVERNOR OF THE SAUDI ARABIAN MONETARY AGENCY, MUHAMMAD AL-JASSER, SAYING "Market economy will always be in the economic cycle, there will be upturns and there will be downturns, or the so-called economic stagnation, as long as there are market economies. Our role as supervisory body is to alleviate the severity of the cycle but not to abolish it because we can not abolish the economic cycle from market economies." VARIOUS OF BUSINESSMEN AT NEWS CONFERENCE LISTENING
- Embargoed: 19th January 2010 12:00
- Keywords:
- Location: Saudi Arabia, Saudi Arabia
- Country: Saudi Arabia
- Topics: Economy,Politics
- Reuters ID: LVADXWAGCKKBJJS3MC3K5R1QQIEU
- Story Text: The Saudi central bank reiterated on Monday its commitment to peg the local currency to the U.S. dollar, saying it brings stability, as business leaders hit out at the bank for not doing more to spur anaemic lending growth.
The Saudi Arabian Monetary Agency's (SAMA) Governor Muhammad al-Jasser sought to inject a dose of realism at a rare meeting with leaders of the private sector, which has endured a particularly tough 2009 as growth shrank to 2.5 percent from some 4.5 percent in 2008.
The Saudi government pins high hopes on the growth of the private sector, which represents some 48 percent of the country's GDP.
As the kingdom seeks to reduce its heavy reliance on oil receipts, the government wants the private sector to create much-needed jobs for a rapidly-growing population instead of relying on cheaper imported labour and alleviate the growing burden of the public wage bill.
Fahad al-Sultan, secretary general of the Council of Saudi Chambers -- which hosted the event -- did not beat around the bush and kicked off the meeting with a series of grievances, chief of which was what he called unjustified conservatism by banks in lending.
He also asked Jasser to grant licences to foreign banks to spur competition among lenders and to issue inflation forecasts to help businesses plan better amid fears that the indicator would again spiral out of control after a relative lull this year. He also asked how SAMA planned to deal with the weakening dollar which raises local input costs.
Jasser said the peg to the U.S. dollar was purely for economic reasons and added that it would be difficult to set an inflation target.
"I assure you that the choice of dollar currency was not taken for emotional or political reasons but purely for economic reasons that still stand and most important of these reasons are, first, most of the kingdom's exports - and I am tempted to say all - are assessed and paid using the American Dollar, and about two-thirds of the Kingdom's imports are priced and paid in Dollars, that includes large percentage of imports from Europe, and large percentage of imports from Japan, not to mention all that is imported from Asia," he said.
"There is a positive impact on the financial situation of the State, and that's achieved by the maintaining of the value of oil revenues as the main source of income to finance the state budget," Jasser added.
The greenback index, to which the kingdom has been linking its riyal since 1986, had been under pressure in recent months, reviving expectations it could help boost inflation in the biggest Arab economy and a major importer of food products.
The world's biggest oil exporter saw annual inflation climbing to 4.0 percent in November, from October's 28-month low on rising home rents and import costs. The government sees the full year inflation rate at 4.4 percent.
Speaking on market economies, Jasser said that upturns and downturn in the economic cycle are inevitable.
"Market economy will always be in the economic cycle, there will be upturns and there will be downturns, or the so-called economic stagnation as long as there are market economies. Our role as supervisory body is to alleviate the severity of the cycle but not to abolish it because we can not abolish the economic cycle from market economies." he said.
Jasser did not say if SAMA would resume the policy of granting licences to foreign banks which it halted in 2007 but he defended local banks' lending record saying they were extending more than 100 percent of their deposits in loans.
Growth in lending to the Saudi private sector was reduced to almost nil in 2009 after double digit growth rates seen over the previous six years.
This slowdown has affected mainly the construction and the industrial sector.
A number of businessmen attending the meeting expressed anger at shortage of loans to the private sector and criticised the lack of visible change in the way Saudi banks deal with project finance. Other attendees defended the central bank's policies saying that holding this meeting alone constituted a step in the right direction. - Copyright Holder: REUTERS
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