BRUSSELS, 1 June 2007 — Policy action to solve global trade and savings imbalances may be no better than leaving financial markets to solve the problem, Saudi Arabia’s Deputy Central Bank Governor Muhammad Al-Jasser said yesterday.
“We should be cautious in assuming that any adjustment of global imbalances that is brought about by policy actions would be more orderly than one that is initiated by financial markets,” he said.
“Financial markets seem content to continue supplying capital to the US without demanding a sharp fall in the dollar or a sharp rise in the US interest rate,” he told a seminar on global trade and savings imbalances.
Al-Jasser rejected an International Monetary Fund view that part of the solution to reducing the imbalances would be for oil-exporting countries such as Saudi Arabia to import and invest more.
“It is perfectly understandable and prudent that oil exporters should treat with caution any calls to urgently increase their imports solely to correct global imbalances,” Al-Jasser said.
“The problem for oil exporters is judging whether the current high oil price is likely to continue. If it is, then it may well be right to expand domestic demand and investment as rapidly as is practical, but if the oil price falls, it would be the wrong thing to do,” he said.
“Because oil exporters would be left with falling foreign reserves, falling oil revenues and a half-finished list of major investment projects,” he pointed out.
“Commodities prices are impossible to predict, high oil prices could end at any time,” he said.
