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Abu Dhabi: The US economy is in dire need of foreign capital and direct investments to recover from the severe slowdown that followed the subprime mortgage crisis, Henry Paulson said on Monday.
The US treasury secretary concluded his tour of the region by visiting Abu Dhabi after meeting officials in Riyadh and Doha where he delivered the message that the US welcomes all investments from the region, including sovereign wealth funds (SWFs).
"Surging oil prices have led to a massive accumulation of capital in the Gulf in a very short time. To put this in context, GCC countries will provide about 18 per cent of global capital exports in 2008 - more than double their share five years ago," Paulson told an audience of officials and businessmen, including board members of the Abu Dhabi Investment Authority (ADIA).
He praised the constructive role of best practices to help allay US concerns about transparency and systematic risks.
"There were two alternatives for US businesses - either to shrink their balance sheets or raise capital. We are recommending that investors recognise their losses as fast as possible and raise capital," he said.
Several SWFs from the region have already injected substantial funds to assist major US and European financial institutions in overcoming the difficult times, including a $7 billion investment by ADIA in Citigroup last year, yet what has been injected so far does not seem to be sufficient from the US perspective.
"Bailing Bear Sterns out of trouble by the US Federal Reserve can be seen by other financial institutions as a green light to take risks," Salem Al Mazroui, a senior executive at ADIA, told Paulson, revealing the worries about the practices of financial institutions in the future.
"The key responsibility in that case was to preserve the orderliness of the fin-ancial markets for the sake of people in the US and the global economy, and I do not think that many banks are thinking today of taking risks hoping that what happened to Bear Sterns will be repeated," Paulson replied.
He said that despite the challenges faced at home and at the global level, the US currency and its economy still remain strong.
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