18 Jan 2007

Oman's decision, as announced by its minister of economy, to withdraw from the single GCC currency has caused a state of confusion among the rest of the GCC's member states, especially since Oman will host the next GCC summit in December.

Oman may have its justification that it is currently unable to fulfil its commitments to the GCC's plan on creating a single Gulf currency.

In fact, Oman's financial and monetary policy is different from the policies of the other five GCC nations.

In the last two decades, Oman resorted to employing some monetary tools and mechanisms to tackle financial problems.

For example, it devalued its local currency to tackle the budget deficit. However, such short-term tools cannot be always employed because Oman pegs its national currency to the US dollar.

As a principle, Oman's decision should not impede the plan of setting up a single GCC currency because it isn't necessary that all the GCC member states adopt the single currency at the same time.

In the European Union's case, although five years have passed since the issuance of the euro, almost half the member states have not yet adopted the single currency.

There was a similar incident when GCC countries agreed on setting up the Free Trade Area in 1983, and Oman asked to be given five years to get ready and prepare its foreign trade and economic affairs. Oman was given the exception, and then joined the GCC Free Trade Area in 1988.

Hopefully, the GCC countries will continue pushing ahead with the plan and preparations for setting up its single currency on time. Oman can follow suit once it arranges its financial and monetary situation, hopefully within five years.

It is for Oman's economic interest to join the single Gulf currency as soon as possible, because it means that the country will see flow of more GCC investments.

In the meantime, the GCC countries can help Oman overcome its financial and economic difficulties through central banks and development portfolios.

In the case of the European Union states, which faced difficulties in joining the single currency, they were given help from other European countries to go through these difficulties.

Even though Oman is not ready now to join the GCC single currency, according to its minister's statements, joining will significantly contribute to the stability of its financial and monetary situation in the future.

Oman should have asked to be given a specific period of time instead of announcing its withdrawal, provided it will join whenever it is able to fulfil the commitments agreed upon by the GCC countries to issue the single currency.

Reaction

Even though the GCC countries have regretted the Omani minister's statement, the remarks issued by the GCC's Secretary General were assuring that the single GCC currency plan would continue.

The GCC states have been through many experiences in their joint work over the past 25 years, and should learn from them.

GCC citizens and all concerned parties pin much hope that such obstacles will be removed from the way of the joint GCC action and Oman's joining the single currency.

It would be better for the GCC countries to give Oman more time to get ready and put its economic and financial affairs in order, rather than postponing such a vital project, which is very important to all GCC countries with no exception.

Additionally, the technical committees tasked with preparing for the setting up of the single currency have already taken wide strides and set key elements of its success.

The writer is a UAE economic expert.

By Dr Mohammad Al Asoomi

Gulf News 2007. All rights reserved.