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Jeddah: US Treasury Secretary Henry Paulson said on Saturday the dollar peg for currencies in the Arab countries had served the region well and any changes to the peg would be a sovereign matter.
Dollar pegs in all Gulf states except Kuwait force their respective central banks to match US interest rate cuts, and has helped fuel inflation as their economies are booming due to record oil prices.
This also reduces their purchasing power for goods denominated in other currencies.
Asked about his concerns over the dollar peg, Paulson, on a visit to Saudi Arabia and Qatar on Sunday and the UAE on Monday, told a news conference:
"That is a sovereign decision ... The dollar peg, I think, has served this country [Saudi Arabia] and this region well. That speaks for itself."
Qatar's top economic policy adviser Ebraham Al Ebrahim was quoted on Friday as saying that Qatar must de-link its currency from the dollar peg. But Saudi Finance Minister Ebrahim Al Assaf, who joined Paulson in the news conference, reaffirmed his commitment to the dollar peg.
Turning to the price of oil, which hit a record high of more than $135 a barrel last week, Paulson reiterated his calls for additional investment in oil producing countries, particularly from foreign sources, to help increase production.
"There is no doubt that the current prices are a burden on economies around the world and a burden on people around the world," Paulson said.
Assaf agreed, saying Saudi Arabia was investing billions of dollars to increase both upstream crude oil production and downstream refining capacity to help meet global demand.
Paulson said he has some problems with the housing rescue plan under consideration in the US Senate, but will work to craft a bill that President George W. Bush can sign.
"Some parts of the legislation are modestly helpful and others are not helpful," Paulson said. "It's a big part of my job to work to get the strongest possible housing bill on the president's desk so he can sign it and we can get GSE reform."
Despite data last week showing that first-quarter growth was slightly better than previously thought, Paulson said there was still difficulty ahead. "My message is not changing. I'm not declaring victory. I'm going to say we're going through a tough period, that I believe growth will be relatively stronger by year end. I don't know that, but I believe it," he said.
Paulson said his main message will be to emphasise the US commitment to staying open to foreign investment and will urge regional leaders to do the same, particularly in the energy sector.
He said the world needs to increase the supply of traditional fossil fuels as well as alternative energy, but a lack of foreign investment in many oil producing nations in the Middle East, and others with state oil monopolies, has stalled oil production growth.
Greenback: Saudis stick to stand
Saudi Arabia won't end its currency peg to the dollar or revalue the riyal, Finance Minister Ebrahim Al Assaf said.
"As we have said many times we have no intention of depegging or of revaluation," Al Assaf said yesterday at a press conference in Jeddah with US Treasury Secretary Henry Paulson.
Saudi Arabia wants stable oil markets that would be free of the recent price fluctuations, the world's top oil exporter's finance minister said. "We don't like these extreme volatilities in the [oil] market. They are not good for the consuming countries and they are not good for the producing countries," Ebrahim Al Assaf said.
- Bloomberg
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