Financial studies affirm Saudi Arabia's inflation decreased

Mayor of financial district in London stresses importance of coordination with Saudi financial sector

Abul-Gheit calls for cooperation to confront global financial crisis

Obama starts tax cuts; brings down budget deficit 50%

Fresh measures by European countries, ASEAN finance ministers to face meltdown

Inflation in Saudi Arabia will grow at a slower pace in the third quarter, reflecting a jump in prices during the same period last year and government food subsidies, the Kingdom’s central bank said.

Inflationary pressures will remain strong as government and private spending increases, exacerbated by the holy month of Ramadan in September, the Saudi Arabian Monetary Agency said in a quarterly inflation report published on its website.

Saudi inflation accelerated to a record 11.1 percent in July, from 10.6 percent in June, after averaging less than 1 percent in the five years through 2006.

Inflation exceeded 10 percent in five of the six Gulf Cooperation Council states as oil-fueled economic growth created shortages of housing and services, while a weaker US dollar made imports more expensive.

“Projections indicate continued inflationary pressures in the Saudi economy during the third quarter of 2008, but probably at a slower pace than the preceding period,” the central bank said in the report.

Lower global food prices, a stronger US dollar and lower inflation among trading partners should help slow inflation in the second half of this year, Howard Handy, chief economist at Samba Financial Group, said.

Saudi inflation will average 9.7 percent this year, falling to 7.1 percent in 2009, according to earlier survey.

Saudi Arabia has tried to limit the impact of rising food prices by increasing government assistance. It will provide SR1.2 billion ($320 million) in aid to families during Ramadan to help them cope with higher prices, the state-owned Saudi Press Agency reported on Aug. 31.

“Unfavorable economic circumstances in certain regions of the world have influenced the supply of food commodities and thus raised the price of food products in general,” the central bank’s report said.

Saudi Arabia’s efforts to diversify its economy and develop infrastructure with new industrial cities, such as the $120 billion King Abdullah Economic City on the Red Sea coast, are spurring inflation by boosting demand for building materials.

Housing shortages and rising costs for construction materials “are expected to contribute to maintaining and probably raising prices and rentals of residential units, especially in the short term,” the bank said

Prince Dr. Abdulaziz bin Mohamed bin A'ayaf, Mayor of Riyadh received Lord Mayor of the City of London, Ian David Luder currently visiting the Kingdom.

During the meeting, they exchanged cordial talks and discussed a number of issues of mutual interests.

Prince Dr. Abdulaziz bin Mohammad bin A'ayaf held a dinner for Mayor of London Ian David Luder. The event was attended by a number of officials.

The government of Dubai launched a $20 billion long-term bond program to help the Gulf emirate meet its financial obligations, mainly re-payment of debt that will mature this year.

The first portion of $10 billion was fully subscribed by the central bank of the United Arab Emirates (UAE), based in Abu Dhabi, an official statement said.

This is the first such step to help Dubai, part of the seven-member UAE, tackle a slow-down in its real-estate sector and a stock market rout amid a global credit crunch that has caused project delays and hundreds of job cuts.

With an initiative from the Foreign Ministry, the meeting of Asia-Middle East Dialogue of Experts (AMED) on the global financial crisis was held in Cairo, on February 15th and 16th. The meeting witnessed the participation of one hundred experts from 37 states, in addition to the World Bank, World Trade Organization (WTO), the Arab League, Gulf Cooperation Council (GCC), the African Development Bank, and ASEAN.

The Foreign Ministry organized this meeting out of its conviction of the importance of urging the member states of (AMED) to interact with the current crisis through exchanging ideas and expertise on the causes of it. The meeting tackled the possibility of achieving cooperation between the states of both regions in order to reach creative ideas to contain the negative economic and social repercussions of the crisis and to contribute to the international efforts to flourish the global economy as soon as possible.

Foreign Minister Abul-Gheit inaugurated the meeting. The General Coordinator of the Meeting, Ambassador Raouf Saad, delivered a speech on behalf of the Foreign Minister. Minister of Finance, Dr. Youssef Boutros Ghali, and Minister of Investment, Dr. Mohmoud Mohieddin, participated in the meeting, and each presented his ideas and vision regarding the possibility of dealing with this crisis on both national and international levels.

Serious and frank discussions were held concerning the identification and analysis of the crisis' causes. The discussion witnessed the presentation of several constructive ideas and suggestions to overcome the impact of the crisis on the economies of the member states of (AMED) through cooperation, exchange of expertise, enhancement of regional integration, reform of international institutions, as well as expanding the participation and representation of the developing countries in such institutions and other economic groups that in charge of governmentalizing the world financial system and participating in its reformulation.

The Egyptian Initiative to hold this meeting highlighted the Egyptian influential role in underlining the role of Asia and the Middle East in dealing with this crisis and contributing to the ongoing international efforts exerted in this regard.

US President Barack Obama has signed into law the USD 787 billion economic stimulus package, which according to him would rejuvenate the American economy and create as many as three to four million jobs in the next two years.

Minutes before he put his signature on the 1,534-page American Recovery and Reinvestment Act in Denver, Colorado, Obama said: "We have begun the essential work of keeping the American dream alive."

The stimulus bill was passed last week by the US Congress House of Representative and Senate - without much support from the opposition Republicans. While no Republican voted in its favor, only three Senators supported the bill in the Senate.

The stimulus plan combines three main elements: help for the unemployed and those in need of Medicaid and food stamps; tax cuts for families and small businesses; and investments in infrastructure, energy, education and health care.

Obama cautioned Americans not to immediately expect miracles with the passage of the bill, as the US has a long way to go in reviving its economy.

"Today does not mark the end of our economic troubles. Nor does it constitute all of what we must do to turn our economy around," he said.

"But it does mark the beginning of the end the beginning of what we need to do to create jobs for Americans scrambling in the wake of layoffs; to provide relief for families worried they won't be able to pay next month's bills; and to set our economy on a firmer foundation, paving the way to long-term growth and prosperity," Obama said.

Terming it as the sweeping economic recovery package in the US history, Obama said: "What makes this recovery plan so important is not just that it will create or save three and a half million jobs over the next two years.

It's that we are putting Americans to work doing the work that America needs done in critical areas that have been neglected for too long work that will bring real and lasting change for generations to come."

The money would be used to not only save and create three to four million jobs, but also would result in mega investment into modern infrastructure projects, funding projects which would help the US become energy independent, education and push more funding into scientific research.

It will make the most significant investment in America's roads, bridges, mass transit, and other infrastructure since the construction of the interstate highway system. It will make investments to foster reform in education, double renewable energy while fostering efficiency in the use of our energy, and improve quality while bringing down costs in healthcare," Obama said.

Middle-class families will get tax cuts and the most vulnerable will get the largest increase in assistance, in decades, he said. "With this Act we begin the process of restoring the economy and making America a stronger and more prosperous Nation," he added.

US Secretary of State Hillary Clinton called on China to invest more in US treasury bonds, to aid the both economies during the global financial crisis. In an interview with the Shanghai Dragon TV channel, Clinton said "it would not be in China's interest if we were unable to get our economy moving again."

"We are truly going to rise or fall together. We are in the same boat and thankfully we are rowing in the same direction," Clinton said.

China is the US' largest creditor, and has some 585 billion dollars of foreign currency reserves in the form of US treasury bonds. Clinton said that helping the US' economic recovery would benefit China, in stimulating Chinese exports to the US.

"Our economies are so intertwined," she said. "The Chinese know that in order to start exporting again to its biggest market . . . the United States has to take some drastic measures with the stimulus package. We have to incur more debt."

"The Chinese are recognizing our interconnection," Clinton added. "We are truly going to rise or fall together. By continuing to support American Treasury instruments, the Chinese are recognizing" that interconnection.

The global financial system is still far from sound and the toxic debt blighting bank balance sheets is undermining government recovery efforts, the head of the IMF warned.

"The whole world's financial system is not yet healthy and thus recovery effects are not sufficiently strong," Dominique Strauss-Kahn, managing director of the International Monetary Fund, told France Inter radio.

"We must finish the job of cleansing bank balance sheets," he insisted, complaining that some banks and national regulators were not working quickly enough to identify and isolate the bad credit which provoked the collapse.

"I'm worried, because the plans that are being put in place are headed in the right direction but don't go far enough," he warned, calling for more coordination between governments struggling with national recovery plans.

Some countries have partly or wholly nationalized banks hit by the credit crisis, others have pushed through rapid mergers and some experts have said so-called "bad banks" must be established to absorb toxic debt.

Many commentators fear, however, that billions of dollars in non-repaid loans are still lurking on institutions' books, disguised in a thicket of complex financial instruments and undermining trust in the credit market.

Some 3.5 million European Union (EU) citizens will lose their jobs this year due to the economic crisis, an EU report said.

'As business and consumer confidence fell sharply in December and dropped again in January, further deterioration in the labor market situation is foreseen for the months ahead,' the European Commission said in its first monthly survey of the EU job market.

The report forecast employment growth in the EU will turn negative in 2009, with overall employment contracting by 1.6 percent or some 3.5 million jobs, while the average EU unemployment rate is set to increase by about 2.5 percentage points in the coming two years.

Metal and machinery, motor industry, financial services and transport and storage sectors have been hit the hardest. A net loss of more than 100,000 jobs was announced in these sectors in the four months from October 2008 to January 2009.

However, wholesale and retail trade appeared to be the most resilient sector, with significant new jobs announced over recent months.

Unemployment in the EU is expected to rise to nearly ten percent by the end of 2010 from seven percent predicted for 2008, the report said.

It warned young people and those on temporary employment contracts have been the first to be hit by the rise in unemployment, but elderly people, foreign nationals and low-income households are also likely to be at the forefront of those most affected by the wider impact of the downturn.

Leading industrial countries have pledged to avoid protectionism as they battle the global economic crisis.

Finance ministers at a G7 meeting in Italy said raising barriers to free trade would make the downturn worse.

Hours earlier, the US Congress approved a $787bn economic recovery plan that includes a 'Buy American' clause.

G7 ministers said stabilizing the world economy and financial markets was their priority. They said they would work together to support growth and jobs.

The 'Buy American' clause has raised fears that protectionism could be growing in the world's largest economy.

The world-wide downturn means many Chinese workers are also seeking jobs. But in a statement after the meeting, new US Treasury Secretary Timothy Geithner dismissed such concerns.

"All countries need to sustain a commitment to open trade and investment policies which are essential to economic growth and prosperity," he said.

Ministers also called for urgent reform to the International Monetary Fund, saying the crisis had shown weaknesses in the world financial system.

"We agree that a reformed IMF, endowed with additional resources, is crucial to respond effectively and flexibly to the current crisis," the ministers' statement said.

The G7 comprises the US, the UK, Japan, Germany, France, Italy and Canada.

Britain's Chancellor of Exchequer (Finance Minister), Alistair Darling, said it was a stepping stone to a meeting in London in April of the G20 group, which also includes big emerging economies such as China and India.

Finance ministers from Japan, China, and South Korea and across South East Asia agreed to broaden and increase a regional liquidity fund, in the wake of the global financial crisis.

The three, plus the ten members of the Association of South East Asian Nations (ASEAN) penned an agreement at a summit in Phuket, Thailand, to 'multilateralize' the Chiang Mai Initiative (CMI) fund, and to increase it to 120 billion dollars.

Until now the CMI has taken the form of multiple bilateral agreements on currency swapping.

Meeting at Thailand's premier vacation island, 550 kilometers south of Bangkok, the finance ministers also agreed to beef up the regional surveillance mechanism for the CMI, by setting up an independent regional watchdog in conjunction with the International Monetary Fund.

How long it will take to implement the multilateralization is not clear.

Thai Finance Minister Korn Chatinkavanij, who co-chaired the Phuket meeting with his South Korean counterpart Jeung Hyun Yoon, pointed out after the meeting that the various countries have differing approval processes.

'But we expect the approval schedules to be discussed in the next meeting in Bali [in May],' he added.

Until the surveillance mechanism is in place and all countries have approved the multilateralization, the current bilateral system will remain in place.

It was also agreed at the meeting that the ASEAN countries - Thailand, the Philippines, Singapore, Malaysia, Vietnam, Myanmar, Laos, Cambodia, Indonesia and Brunei - will put up 20 per cent of the 120 billion dollar fund, with the remaining 80 per cent being contributed by China, Japan and South Korea.

The country-by-country breakdown has not yet been finalized, said China's Finance Minister Xuren Xie said.

'We have a good idea of the splits, both among the ASEAN countries and among the plus-3 countries,' Korn noted.

When asked whether the absence of the new Japanese Finance Minister, after the recent resignation of his predecessor in an alleged drunkenness scandal, had had any effect on the talks, Korn said, 'As far as we were concerned, the Japanese government was represented,' he replied. 'There was no negative impact whatsoever.'

The ministers also made a strong plea for Western countries not to increase protectionist trade barriers in a bid to shield their domestic industries, and to stabilize their own economies and financial markets.

'Free and fair trade must be maintained,' Korn said, not only within Asia but globally.

He also called for the development in Asia of 'relevant policies for the development of domestic economies in order to counter the effects of reductions in exports.'

The ministers, in their joint statement at the end of the conference, noted the importance of the Asian Bond Markets Initiative (ABMI) and hinted at relaxation of international currency regulations: 'We recognize the important role of the private sector in the development of bond markets, particularly in cross-border bond transactions and settlement issues. We will explore ideas for new arrangements that would provide development assistance to the region while addressing unexpected liquidity constraints.'

Finally, the ministers called for 'an immediate and substantial capital increase' for the Asian Development Bank, calling for agreement on this before the next annual meeting of the ADB, in three months' time.