En route to South America, I stopped in Geneva for business and in London for pleasure (actually to attend a family wedding). The day I left London the weather was pleasantly cool and so in the morning I went for a walk. As I walked, I noticed the number of different nationalities on the street — Arab, African, Asian — and I remembered the time when London was quintessentially British in terms of food, goods and the way of life.
I ended my stroll in a cafe not far from Harrods which now belongs, as most of us know, to an Egyptian who has long and unsuccessfully sought British nationality. As I had my breakfast and read the newspapers, I was struck by the number of articles about finance, the economy and interest rates.
I suddenly remembered Abdul Aziz ibn Naif Al-Areer, a Saudi economist. He believes that a low interest rate would stimulate development schemes in the Kingdom because banks would accumulate money at low costs that in turn would allow for increased liquidity. Thus, new projects could be financed competitively and reasonably. The Saudi Monetary Agency (SAMA) would also be able to reduce the banks’ reserves requirement for long term loans or deposits thus creating surplus of money for banks who would be more eager to lend and finance productive projects.
Dr. Al-Areer suggests that the US interest rate be linked to the cost of stimulating the Saudi economy. He also warns of getting used to recession and explains that “growth rate should be never go lower than 6 percent for the standard of living for Saudis will decline and qualified youth would be without jobs for years to come.” Al-Areer continued. “What has SAMA done to increase the low 1.1 percent growth in the last decade? If the US interest rate were lowered, SAMA could stimulate the Saudi economy by persuading banks to lend money rather than investing abroad. It is imperative to create new products by local investment, abolish discounts for deposits of more than three years and utilize SAMA legal reserves which exceeds 11 billion riyals to allow liquidity in commercial banks.”
In fact, Dr. Al-Areer’s ideas are worth discussing provided they are supported by comparative studies as well as evaluating the pluses and minuses. The knowledge is there but we have to have the tools for applied scientific research. We have to cooperate with foreign bodies that provide us with our needs — and I don’t mean the US or Europe who are reluctant to provide these needs and when they do it comes at a high cost. Asia is the alternative because most things, including technology, are cheap. I agree with many Saudi economists who are concerned about our future but I differ with Dr. Al-Areer as to the importance of low US interest rates stimulating development and investment.
Our banks extend facilities with one hand and take with the other; in addition the Saudi economy does not perform well and take advantage of fluctuation of interest rate by playing the markets. Moreover, there is great wealth hidden, but with inherited obstacles, in the Saudi economy which had a negative effect on us like a bad spell. We must admit that there is a sense of contradiction in our lives, while we act rich we perform poorly. We are still rooted in the past. We live as we are in the year 1422 but want to build our economy with the tools of 2001 and these two are incompatible.
