JEDDAH: Finance ministers of the Gulf Cooperation Council (GCC) yesterday approved proposals to set up a monetary council and a draft charter for a monetary union, bringing the six-member group a step closer to launching the single currency. The ministers of Saudi Arabia, Qatar, Bahrain, Oman, Kuwait and the United Arab Emirates approved the draft agreement for a monetary union and the council’s bylaws during a meeting here.
“The endorsement of the proposals constitutes a major step toward adopting a long-sought single currency,” said GCC Secretary-General Abdul Rahman Al-Attiyah.
Qatari Finance Minister Youssef Kamal, who chaired the meeting, confirmed the agreement on the two vital issues. “We have asked the central bank governors to complete the requirements for the single currency in future meetings,” he added.
While oil-fueled economic growth appears to have shielded GCC states from the worst fallout of the US financial crisis, there is growing recognition that speeding up monetary reforms will help bolster them against future volatility.
GCC central bank governors said on Tuesday they saw little systematic risk from the US financial crisis as their exposure to troubled US banks and subprime assets was limited.
But IMF Director General Dominique Strauss-Kahn, who joined the Jeddah meeting, said the worst of the financial crisis may still lie ahead and could weigh on the world economy.
“As far as the Gulf region is concerned and especially GCC countries, they are very far from these turbulences that are affecting global market. Because they don’t have any connection with what has happened,” Kamal said, adding that the GCC economies remain strong despite the recent global developments.
He said the GCC countries were able to overcome international economic crises as a result of their sound economic policies. He called for greater efforts by the member countries to confront such global turbulences in the future.
The Qatari minister downplayed the effect of the region’s currency pegs to the US dollar in increasing inflation in the member countries. He hoped that the improvement in dollar’s exchange rate and fall in shipping costs would bring down inflation.
Al-Attiyah said the recommendations of the ministers would be presented to GCC heads of state when they hold their annual summit in Muscat later this year. The heads of state must approve them before they come in force for the GCC.
The monetary council, agreed in principle by GCC central bank governors in 2006, would be the forerunner for a GCC central bank, which will issue the single currency. But there is doubt about whether the GCC can meet its 2010 deadline for a single currency.
Al-Attiyah said the ministers had decided to defer a decision on the location of the monetary council until they discuss the issue with Gulf foreign ministers at a joint meeting in the Omani capital Muscat on Oct. 26.
“Achieving monetary union will be a major challenge as much remains to be done to enable the creation of a common currency,” Strauss-Kahn said.
“Overcoming the current inflationary pressures, developing a clear vision of the powers of the future common central bank, choosing an exchange regime of the common currency and harmonizing financial regulation will be critical to this process,” the IMF chief said.
During their one-day meeting, the finance and economy ministers also reviewed the European Union’s response to the GCC’s view on obstacles hampering a long-stalled free trade agreement between the two organizations, Al-Attiyah said.
They will brief Gulf foreign ministers during the Oct. 26 meeting, “and a final decision will be taken regarding the continuation of negotiations” on the elusive deal, which has been under discussion for two decades, he added.
The GCC states have agreed on key convergence factors such as the ratio of budget deficit and public debt to the Gross Domestic Product, interest rates and reserves, but have failed so far to reach a consensus on inflation, which has been one of the main stumbling blocks to the single currency. Al-Attiyah said the ministers also discussed proposed solutions to the hurdles facing effective economic integration between the member states.
— With input from agencies
