Saudi Arabia has no intention of depegging its currency from the weakening US dollar, Finance Minister Ibrahim al-Assaf said on Saturday following a meeting with US Treasury Secretary Henry Paulson.
Al-Assaf said the government takes into account the kingdom’s interests when making such decisions, the official Saudi Press Agency (SPA) reported.
“We have said more than once that we have no intention to depeg the riyal from the dollar,” SPA quoted al-Assaf as telling reporters at a news conference in the western seaport city of Jiddah.
Kuwait was the first country in the six-member Gulf Cooperation Council, which includes Saudi Arabia, to shun its peg with the dollar by allowing the dinar to float against a basket of currencies.
The dollar’s decline has pushed up the cost of imports into the Gulf, fueling inflation. The decline has also watered down the benefit of record oil prices.
Al-Assaf said he updated Paulson on the economic situation in the kingdom, the world’s largest oil exporter, as well as about Saudi Arabia’s oil policies, SPA said.
Asked whether he discussed soaring oil prices during the meeting, Paulson said that current oil prices are a “burden” on economies around the world, the agency reported.
On Wednesday, David McCormick, the Treasury’s undersecretary for international affairs, said in a briefing to preview Paulson’s Middle East trip that Paulson would be urging “all countries to open up their oil markets to investment that boosts yields, exploration and production.”
But he said that Paulson would not make any specific request for nations to boost their production during the current period of soaring oil prices.
On a trip to the Middle East earlier this month, US President George W. Bush failed to win the help he sought from Saudi Arabia to relieve skyrocketing US gas prices. Saudi officials said they already were meeting the needs of their customers worldwide and there was no need to pump more.
Meanwhile, Paulson said on Saturday that the link of Gulf currencies to the dollar is a sovereign matter, as he started a Gulf tour in the Red Sea city of Jeddah.
“This is a sovereign decision for Saudi Arabia and the rest of the region’s states,” Paulson said following talks with Saudi officials, SPA quoted him in Arabic.
“The [future of the] link between these currencies and the dollar rests in the hands of these governments,” SPA reported him saying at a press conference with his Saudi counterpart, Ibrahim al-Assaf.
Five of the Gulf Cooperation Council’s member states — Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates — have so far shrugged off calls for an adjustment to their exchange rate regime, saying it would harm their economies.
But Kuwait decided last May to part ways with the dollar link, pegging its dinar to a basket of currencies. The dinar has since appreciated by some 7.7 percent against the greenback. The policy of pegging currencies to the dollar enhanced monetary stability and benefited domestic economies when the US and Gulf economies were heading in the same direction.
Now, Gulf economies are growing at a rapid pace, spurred by an unprecedented oil windfall. In contrast, the US economy is on the verge of recession as a result of the weak dollar, high energy prices and a liquidity crunch.
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