Yemenis fret over currency as powers meet in London

* Few believe London conference will help economy

* Riyal's decline against dollar hits ordinary Yemenis

By Ulf Laessing

SANAA, Jan 27 (Reuters) - Anwar al-Qadasi is too worried about the impact of Yemen's diving currency on his auto parts business to pay much attention to a high-level meeting going on in London to galvanise international support for his country.

Like many of his fellow Yemenis, he has no time for international diplomacy and little hope it can improve his lot as he struggles to make ends meet in a country facing myriad economic problems and a rising threat from Islamist militants.

Yemen's currency, the riyal, has plunged to its lowest level in years against the dollar as people worry about rising instability in the Arab world's poorest nation.

For Qadasi, the currency's fall has meant a surge in the cost of steel, a key material for his business, which opens out onto a small dusty street in the capital Sanaa and is filled with old welding machines and workers huddled over spare parts.

"The economy is so bad," Qadasi said. "There is little demand and now the riyal fall makes all raw materials even more expensive. We depend on imports."

Some 5,600 km (3,500 miles) northwest of Qadasi's workshop, foreign ministers from leading Western powers, Gulf states, Egypt, Jordan and Turkey are meeting on Wednesday to discuss ways to stabilise Yemen. [ID:nLDE60P1BC]

International concerns about the country have flared since Yemen-based Al Qaeda in the Arabian Peninsula (AQAP) claimed responsibility for an attempted Christmas Day bombing of a U.S.-bound airliner.

The foiled attack has turned Yemen into one of the main fronts in the West's battle against Islamic extremism. Foreign countries agree that fixing the economy and offering Yemen's growing youth population alternatives to radicalisation are crucial to stabilising the country and confronting al Qaeda.

IMMEDIATE IMPACT

But Qadasi and other ordinary workers in the capital see little hope that the London conference can help bring substantive changes to their daily lives.

They have felt an immediate impact from the riyal's decline because Yemen buys everything in hard currency, be it food, raw materials or electronics. The country only exports a small amount of oil, some gas, and food items like honey.

In 2009, it spent more than $2 billion -- about the amount it made from oil exports -- on buying petroleum products such as diesel that it cannot produce in sufficient quantities itself.

"Everything is getting more expensive. Basic food items, transport, just everything," said steel worker Hisham Muhammad as he loaded new material into a welding machine.

The central bank has sold more than $400 million since December to stabilise the riyal and says that this is already more than the market can absorb. But it has come under fire for not acting quickly enough to prevent the currency's decline.

Last week, when moneychangers said the riyal YER had fallen to 215 riyals to the dollar from 208 riyals the previous week, the central bank offered $200 million, but the market took up only $150 million of that.

On Wednesday, the currency was changing hands at 213 riyals to the dollar.

"The reason for the fall is the wrong central bank policy. They just don't inject enough dollars quickly when the riyal is falling," said Muhammad Hassan, who owns a foreign exchange shop in downtown Sanaa. "People then just change more and more riyals into dollars."

There is little transparency. Some blame small dealers for influencing prices, others importers.

"It's the biggest traders who monopolise the trade and dictate prices," said Khaled Abdulwarith, who owns a shop selling electronic consumer goods such as kitchen knives.

"Nobody is buying now because of the fall of the riyal. Usually at the start of the year the economy improves a bit but not this year," he said, looking around his empty shop.

PROJECTS DELAYED

Diplomats doubt the government will be able to spend the same amount on selling dollars this year as in 2009, when the central bank payed out $1.9 billion to stabilise the riyal.

"With oil reserves dwindling and so many challenges this will be difficult," a diplomat in Sanaa said, declining to be identified.

Of Yemen's 23 million-strong population, more than 40 percent live on less than $2 a day, and the government estimates about one in three citizens is unemployed.

Abdulwarith said he believed the London meeting could produce some positive decisions to boost the economy, but his colleague Ridha al-Zubairi had zero expectations.

"It will be like the last meeting. Lots of plans but nothing will be implemented," he said.

Some $4.7 billion in foreign aid was pledged at a London donor conference event in 2006, but many projects have been delayed as the Yemeni side had no capacity or transparent tender procedures.

Like many Yemenis, exchange dealer Hassan is worried the conference might also bring foreign intervention to fight al Qaeda and solve the country's many conflicts, which also include a Shi'ite rebellion in the north and separatists in the south.

"It will only get worse. They want to divide Yemen," Hassan said. (Editing by Noah Barkin)