Tuesday, May 22, 2007

(This story was originally published on Monday.)

By Majdoline Hatoum

Of DOW JONES NEWSWIRES

DUBAI (Zawya Dow Jones)--Kuwait's decision to end its dinar's peg to the dollar and link it to a basket of currencies instead is seen as the beginning-of-the-end of plans by the oil-rich Gulf states' to establish a monetary union by 2010.

"This is an additional complication in the face of establishing the Gulf Cooperation Council's monetary union and single currency," Simon Williams of HSBC bank told Zawya Dow Jones Monday. "It basically indicates there will definitely be a delay to the 2010 plans."

Kuwait, the fourth-largest oil producer in the Middle East, made its move on Sunday saying it was aimed at curbing the country's imported inflation.

But the oil-rich sheikdom stressed the move won't alter its commitment to meet the 2010 planned deadline for a monetary union among the six Arab monarchies, which include Saudi Arabia and the United Arab Emirates in the Persian Gulf. This assurance failed to convince observers. There's now only a 10%-15% chance of forming the monetary union by 2010, Standard Chartered said in a report.

"Kuwait's turning away from an FX system it adopted as part of the convergence process toward the single currency could be seen as symbolic, especially with Oman already ruling itself out of monetary union," the bank said.

Doubts over achieving monetary union by 2010 were originally raised when Oman said last December it wasn't joining the union.

Contacted by Zawya Dow Jones, Mohammed Al Jahdhamy, Oman's central bank's senior vice president, said the country's stance towards monetary union remains the same.

"We have made our position clear, we aren't joining the GCC monetary union by 2010," he said.

Al Jahdhamy, who declined to comment on how Kuwait's switch from a dollar peg would affect the union's plans, also said Oman has no intention to change its foreign exchange policy and will keep the Omani rial's peg to the dollar.

"We are standing by our position...we don't intend to change our policy and the Omani rial will remain pegged to the dollar," he said.

-By Majdoline Hatoum, Dow Jones Newswires; +9714 3644964; majdoline.hatoum@dowjones.com

Copyright (c) 2007 Dow Jones & Company, Inc.

(END) Dow Jones Newswires

22-05-07 0504GMT