[NYTr] Gulf states will discuss revaluing their dollar-pegged currencies

[All the News That Doesn't Fit]

Bloomberg - Nov 18, 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZIwiAaR.w_Y&refer=home

Gulf states will discuss revaluing their dollar-pegged currencies

By Zainab Fattah and Matthew Brown

RIYADH, Saudi Arabia -- Gulf Arab heads of state, most of whose
currencies are pegged to the U.S. dollar, will jointly discuss a
proposal to revalue their currencies in December, the secretary
general of the Gulf Cooperation Council said.

"It's true," Abdul Rahman al-Attiyah told reporters in Riyadh, Saudi
Arabia, today in response to a question about a Bloomberg News story
that Gulf states, including Saudi Arabia and the United Arab Emirates,
might revalue their currencies in a single step.

A proposal to change the value of the currencies will be considered
at the heads of state summit in Doha, Qatar, on Dec. 3-4, al-Attiyah
said. "This case will be presented to the leaders for them to study,"
he said. The leaders may then pass it on to an advisory committee,
according to al-Attiyah.

Asked whether his country plans to revalue the riyal, Saudi Arabia's
central bank Governor Hamad Saud al-Sayari said: "I will confirm
in the clearest language that there is no change in policies." He
was speaking in an interview in Kleinmond, South Africa, where he
attended a meeting of financial officials from the Group of 20
nations.

Gulf states face record inflation, caused partly by the weakening
dollar that has made imports from Europe more expensive. Consumer
prices rose a record 4.9 percent in Saudi Arabia in August and
inflation in the United Arab Emirates accelerated to a record 9.3
percent last year. Qatar has the highest inflation rate in the
region, reaching 14.8 percent in the first quarter.

"It makes sense for them to do it," said Jens Nordvig, senior global
markets economist at Goldman Sachs Group Inc. in New York, in a
phone interview. "Given the emerging inflation pressures there are
very good reasons for them to allow currency appreciation."

The Gulf Cooperation Council is an economic and political grouping
of six Gulf Arab oil producers. They are Saudi Arabia, the U.A.E,
Kuwait, Qatar, Oman, and Bahrain.

The decline in the value of the dollar is a "concern" to OPEC
members, Qatar's Energy Minister Abdullah Al-Attiyah said after a
meeting of OPEC oil, finance and energy ministers in Riyadh Nov.
16.

Saudi Arabia, Qatar, Bahrain and Oman have repeatedly said they
have no plans to change exchange rate policies. U.A.E. Central Bank
Governor Sultan Bin Nasser al-Suwaidi said on Nov. 15 the country
may drop the dirham's peg in favor of a basket of currencies. Gulf
currencies are under pressure as investors bet governments cannot
manage inflation and keep their pegs.

The leaders will make a decision on whether to abandon a proposed
Gulf single currency at next month's meeting, Hamad Saud al-Sayari,
governor of the Saudi Arabian Monetary Agency, said after a meeting
of finance ministers and central bank governors in Riyadh on Oct.
27.

"It's unlikely they are going to move to a flexible system," Nordvig
said. "If they're going to make an adjustment, they should make one
that matters. Something in the 5 to 10 percent range seems like a
range that would have some impact without being overly dramatic."

The dollar slid to a record low of $1.4752 against the euro on Nov.
9, bringing it down 10 percent since the start of this year, and
it has fallen versus 15 of the 16 most actively traded currencies
tracked by Bloomberg in the past 10 1/2 months.

The Saudi riyal rose to a 20-year high after the Fed cut rates on
Sept. 18 and the Saudi Arabian Monetary Agency chose not to follow.
The riyal and the dirham rose this week after al- Suwaidi questioned
the U.A.E.'s currency peg.

Contracts to buy U.A.E. dirhams in 12 months' time rose the most
in at least 10 years on Nov. 15 after al-Suwaidi's comments, and
were trading at a 2.5 percent premium to the spot price yesterday.

Venezuela backed an Iranian proposal to add the group's concern
over the falling dollar to a summit declaration to be made today.
Saudi Arabian Foreign Minister Prince Saud Al-Faisal said that no
mention of the dollar should be made in the declaration because he
didn't want the U.S. currency to "collapse."

Nigerian Finance Minister Shamsudeen Usman said on Nov. 16 his
country's law has been changed to allow it to diversify its foreign
reserves out of dollars. Angola may shift its international reserves
away from the dollar, Finance Minister Jose Pedro de Morais said.

OPEC's $6 billion development fund is hedging its exposure to the
weakening dollar, Director-General Suleiman Jasir al-Herbish told
reporters in Riyadh yesterday.