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Monetary Union Ratification by Year-end

ABU DHABI -- The four members of the Gulf Cooperation Council comprising Saudi Arabia, Kuwait, Bahrain and Qatar are expected to ratify the monetary union agreement by the end of this year, according to a top official.

Mohamad Al Mazroui, assistant secretary-general for economic affairs in the Gulf Cooperation Council, or GCC, said on Tuesday that the ratification of the treaty is fundamental for creation of the monetary council, a precursor to the proposed GCC Central Bank, which will be issuing the common currency.

"I expect that the four countries will ratify the treaty to form the monetary union before the year-end. But this is an expectation, and expectations can change any time," Al Mazroui said during a Press briefing at the end of the 33^rd round of the Council of Arab Central Bank Governors and Monetary Institutions in Abu Dhabi on Tuesday.

To a question of whether the remaining four countries would be able to meet the 2010 deadline set for the formation of common currency and monetary union, Al Mazroui said: "My answer is clear, this will be possible only after the states which are willing to participate in the common currency project ratify the treaty."

Although all the six-member GCC countries have directly or indirectly pegged their currencies to the US dollar, the ambitious plan of forging together a Gulf single currency by 2010 received a blow earlier this year when the UAE, the region's second biggest economy, pulled out of the union sighting significant differences of opinions including the proposed location of the Central Bank and its independence. Another GCC member, Oman, dropped out of the union in 2006.

On Monday, speaking on the sidelines of the same conference, the Governor of the UAE Central Bank, Sultan bin Nasser Al Suwaidi, ruled out the possibility of the country rejoining the monetary union. However, Al Mazroui said the GCC will continue to make efforts to bring the UAE back into the union. "Such efforts will always be made," he said.

No Rescue Package for Banks

Arab Central Banks have decided against launching any bailout package for the banks that have exposure to the two troubled Saudi conglomerates, Saad and Algosaibi groups. "The banks cannot expect any bailouts from the governments for the defaults in the loans extended by them," said Hamood Sangour Al Zadjali, executive president of Oman Central Bank.

"They must follow the principles of 'Know Your Customer' and make proper risk analysis before taking any lending decisions. They themselves will have to make provisions for bad debts. These are A, B, Cs of banking anywhere," said Al Zadjali, who also presided over the 33^rd annual conference.

Saad and Ahmad Hamad Algosaibi and Bros Co. are embroiled in a legal battle in the US after defaulting on debts, with according to some estimates stands at $22 billion raised from about 120 banks worldwide.

Separately, Al Zadjali said that they have reached an agreement to ease regulations governing the opening of branches by a bank registered as a local bank in a member country in other GCC countries.

The GCC countries will soon evolve a common benchmark to measure inflation in accordance with the international norms, according to Al Zadjali. The Omanese Central Banker said that the statisticians from the six GCC members were working on a new arrangement to determine the inflation levels after giving due weight to all the relevant parameters including the consumer price index. "Our idea is to arrive at more reliable figures indicating the levels of inflation in the GCC countries, and to keep them as low as possible," he said.

By T. Ramavarman

© Khaleej Times 2009