Saudi seen on top of crisis, transparency an issue

RIYADH (Reuters) - Saudi Arabia's government could step in to buy collapsing stock on the local bourse and the central bank will keep banks liquid if necessary, but the global financial crisis should have a limited effect on the oil giant.

Barring surprises such as the sudden bank collapses that hit other major economies, analysts predict Saudi Arabia's status as the world's largest oil exporter offers it at least short-term protection even though falling oil prices will cut its earnings.

"They have a cushion because of the oil money in the treasury and if anyone's going to be in a safe position it's Saudi Arabia," one Western diplomat said, reflecting the general view in the Riyadh diplomatic community.

But the worldwide falls in stock markets have raised questions about financial transparency in the kingdom, which holds foreign securities worth hundreds of billions of dollars and declines to give details about its investments.

Saudi Arabia's economic profile has witnessed a stunning turnaround in the last decade, while the government -- dominated by the Saudi royal family -- has retained a closed political culture that keeps the disenfranchised public in the dark.

Back in 1998 when King Abdullah, as crown prince, told Saudis bluntly the oil boom was over and the country would have to tighten its belt, gross domestic product was $144 billion and oil was hovering around $10 a barrel. Last year GDP was $446 billion while oil rose to nearly $100 a barrel.

The 2008 budget assumes a modest oil price of $50 a barrel.

"Oil-producing countries have excellent financial cover so they are the least affected by the world crisis. The fear is that U.S. and British oil firms could reduce energy investment in the Middle East," said analyst Aqeel al-Inezi.

MARKET WORRIES

Concern over the fate of Saudi listed firms has led media coverage in Saudi media. Outlets such as Al Arabiya television have had days of feverish coverage aiming to reassure a small elite of wealthy investors that the market will rise again.

The stock market hit its lowest level in four years on Saturday, falling below 6,000 points. On Tuesday it surged 7 percent, in line with other Gulf Arab bourses, to above 6,800.

Investors have already gone through the psychological barrier of a bourse collapse after the market fell 50 percent to around 10,000 in 2006. And the number of daily traders has shrunk considerably since then, as most ordinary Saudis, struggling to manage with high inflation, have kept away.

Industrialist Abdul-Rahman al-Zamil told Reuters in recent days that the government could conceivably buy stock if the market collapses further. Many of the key stocks on the market are already majority-owned by a highly conservative government.

On Sunday the central bank, known as SAMA, cut its key benchmark lending rate for the first time in almost two years and lowered bank reserve requirements, saying inflationary pressures had eased. Price rises in recent months hit their highest levels in 30 years.

SAMA, has also sought to reassure the public that government investments abroad are safe and that liquidity in the wider economy will not dry up.

Lack of transparency means the extent of Saudi Arabia's investment overseas remains unquantifiable. Six major banks have denied they have any exposure to toxic U.S. mortgages.

Deputy governor Muhammad al-Jasser said SAMA's investments abroad were "low-risk" but gave no more details. SAMA's August monthly report showed it had $285 billion invested in foreign securities and $79 billion in foreign bank deposits.

Other government bodies had $63 billion in foreign securities and $5 billion deposits with foreign banks. Their total deposits in banks fell between July and August by the same amount that their foreign securities investments rose by.

Private Saudi investors often prefer anonymity, while their fortunes could have an economic impact at home.

With a 3.4 percent holding in Citigroup, royal entrepreneur Prince Alwaleed bin Talal is the U.S. bank's largest shareholder while his Kingdom Holding is the top private investor in Saudi stocks.

Swiss bank UBS last year sold a stake to a mystery Saudi investor and listed Saudi companies have expanded globally. Saudi industrial giant SABIC acquired General Electric's plastics division for $11.6 billion in 2007.

TRANSPARENCY

Analysts say the Saudi reaction to the global financial crisis has highlighted problems of transparency in an economy that remains fundamentally strong.

Abdulhamid al-Amri of the Saudi Economic Association said official reassurances could have prevented the bourse losses.

"Saudi stocks saw a correction that exceeds declines in markets directly hit by crisis," he said. "The Capital Market Authority as a regulator is not committed to transparency."

A former head of the regulatory body, Ibrahim al-Nasseri, told a Saudi newspaper this week that listed firms do not abide by disclosure requirements and said insider trading continues.

Pressed by a journalist last month to say more about the "the public's right" to information about the Saudi government's exposure to the debt crisis, central bank chief Hamad al-Sayyari said it was not policy to discuss such investments.

(Editing by Dominic Evans)