SAMA governor stresses during meeting with Saudi businessmen soundness of kingdom’s monetary policy

Jasser: Monetary policy spared kingdom global financial crisis woes

SAMA focused on maintaining monetary, financial stability in coordination with other economic institutions in kingdom

Governor of Saudi Arabian Monetary Agency Dr. Mohammad bin Suleiman al-Jasser highlighted the soundness of the Saudi monetary policy which helped the Kingdom of Saudi Arabia in avoiding the dangers of the world financial crisis and its consequences.

Due to wise directives by Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz Al Saud, Crown Prince Sultan bin Abdulaziz, Deputy Premier, Minister of Defense and Aviation and Inspector General, and Second Deputy Premier and Minister of Interior Prince Naif bin Abdulaziz Al Saud, the Saudi economy was not exposed to the current financial crisis, Governor of SAMA said.

In a speech during the first meeting with businessmen, Governor of SAMA said that the local economy continued growth in 2009 and gross domestic product registered a positive growth rate of 0.15%.

Governor of SAMA added that the government managed to increase actual spending in 2009 by 5.7 compared to 2008 despite the decrease of total revenues in 2009 by more than 54%.

On the riyal's peg to the US dollar, Dr. Jasser highlighted the benefits of this policy adding that the policy was based on economic reasons which still exist.

The Saudi Arabian Monetary Agency (SAMA), established in 1952, is the central bank of the Kingdom of Saudi Arabia.

At the time of its establishment, Saudi Arabia did not have a monetary system of its own. Foreign currencies were used as a medium of exchange, along with Saudi silver coins. Saudi bank notes had not yet been issued. Banking was conducted by foreign bank branches. Therefore, the first task of the SAMA was to develop a Saudi currency.

The SAMA also paid attention to the need for promoting the growth of a national banking system. In March 1961, Saudi Arabia converted to the Saudi Riyal, in accordance with Article VIII of the Articles of Agreements of the International Monetary Fund.

In the 1970s and early 1980s, the SAMA focused on controlling inflation as the economy boomed, expanding the banking system, and managing foreign exchange reserves. From mid 1980s, SAMA’s priorities have been to introduce financial market reforms.

The functions of the SAMA include issuing the national currency, the Saudi Riyal, acting as a banker to the government, supervising commercial banks, managing foreign exchange reserves, promoting price and exchange rate stability, and ensuring the growth and soundness of the financial system, operating a number of cross-bank electronic financial systems such as (SPAN, Tadawul, SARIE, SADAD and MAQASA). The Saudi central bank reiterated on Monday its commitment to peg the local currency to the U.S. dollar, saying it brings stability, as business leaders hit out at the bank for not doing more to spur anemic lending growth.

The Saudi Arabian Monetary Agency's Governor Muhammad al-Jasser sought to inject a dose of realism at a rare meeting with leaders of the private sector, which has endured a particularly tough 2009 as growth shrank to 2.5 percent from some 4.5 percent in 2008.

The Saudi government pins high hopes on the growth of the private sector, which accounts for nearly represents some 48 percent of the country's GDP.

As the kingdom seeks to reduce its heavy reliance on oil receipts, the government wants the private sector to create much-needed jobs for a rapidly-growing population instead of relying on cheaper imported labor and alleviate the growing burden of the public wage bill.

Fahad al-Sultan, secretary general of the Council of Saudi Chambers -- which hosted the event -- did not beat around the bush and kicked off the meeting with a series of grievances, chief of which was what he called unjustified conservatism by banks in lending.

He also asked Jasser to grant licenses to foreign banks to spur competition among lenders and to issue inflation forecasts to help businesses plan better amid fears that the indicator would again spiral out of control after a relative lull this year. He also asked how SAMA planned to deal with the weakening dollar which raises local input costs.

"There is also the issue of the availability of information and transparency on the repercussions of crises that happen around us ... The picture has not been clear for the private sector during the credit crunch and the Dubai troubles".

Jasser said the peg to the U.S. dollar was purely for economic reasons and added that it would be difficult to set an inflation target.

The greenback, to which the kingdom has been linking its riyal since 1986, had been under pressure in recent months, reviving expectations it could help boost inflation in the biggest Arab economy, a major importer of food products.

The world's biggest oil exporter saw annual inflation climbing to 4.0 percent in November, from October's 28-month low on rising home rents and import costs. The government sees the full year inflation rate at 4.4 percent.

"Businessmen understand better than anyone else the benefits of pegging the riyal to the dollar," said Jasser who mentioned that most of Saudi foreign trade, oil revenues and commodities trade are in dollars as well as 60 percent of global reserves.

"The pegging to the dollar has brought stability and investment," he added.

Jasser did not say if SAMA would resume the policy of granting licenses to foreign banks which it halted in 2007 but he defended local banks' lending record saying they were extending more than 100 percent of their deposits in loans.

"It is impossible to imagine how banks refrain from lending, one of the main sources of their profits ... Saudi banks get mostly short-term deposits and grant long-term loans which forces cautious risk management".

Growth in lending to the Saudi private sector was reduced to almost nil in 2009 after double digit growth rates seen over the previous six years.

This slowdown has affected mainly the construction and the industrial sector.

Hamad al-Shuweyar, who heads the chambers council real estate committee, told Jasser that banks have reduced lending to real estate developers while they have engaged themselves in investment in property in a market that suffers a chronic housing shortage.

Abdullah Bakr Redwan, who owns a contracting company, said contractors still face the same difficulties in getting loans as in 2009.

Abdul-Rahman al-Zamil, who chairs a large family-run industrial group, defended the central bank's policies. "The fact that this meeting was held and allowed the private sector to float its concerns is a good thing in itself ... Everybody suffers now from the slowdown in lending because the financial system has its limitations," he said.