Rich Gulf needs more say in global economy: DIFC

DUBAI (Reuters) - Gulf Arab states can play a key role in staunching the global financial crisis but should have a greater voice in world finance as emerging markets gain prominence, the Dubai International Financial Centre's chief economist said.

Nasser al-Saidi told a Reuters Middle East Investment Summit on Wednesday that the global crisis gave new impetus to a planned monetary union among the countries of the world's top oil exporting region that could see a single currency become an alternative to the dollar or euro.

"If you want to resolve global imbalances you need to bring the GCC to the table," Saidi said, referring to the six-member Gulf Cooperation Council, a loose economic and political bloc.

"That does not mean asking them for more IMF contributions. It means giving them more voice. It is totally incongruous to think you can keep the Bretton Woods organisations as they emerged after World War Two ... The world has changed."

It was at Bretton Woods that Western industrialized countries hammered out rules to govern the new international financial system after World War Two, paving the way for the creation of the International Monetary Fund, World Bank and the Bank of International Settlements.

Faced with the worst financial crisis in 80 years, leaders from Britain to the United States have arrived in the Gulf in recent weeks asking oil exporters to pour cash into troubled Western firms and the IMF itself, which just weeks ago was busy imposing transparency rules on sovereign wealth funds (SWF).

The requests have raised eyebrows among Gulf Arab investors whose efforts to buy stakes in Western firms just two years ago met with security concerns and calls for SWF transparency.

"The rest of the world now has to say we need countries like China, like the GCC to enter the international financial architecture," said Saidi, chief economist at the DIFC, a financial free zone in the Gulf trade and tourism hub of Dubai.

"In the GCC, we have to move from being decision takers to decision makers. We need to give more voice and that is why a common currency and a common central bank is important not just for the GCC but for the world."

CURRENCY UNION

Gulf Arab oil producers have been trying to give a push to monetary union after the plan was thrown into disarray by Oman's 2006 decision to drop out and Kuwait's 2007 move to drop a dollar peg seen as key to convergence toward a single currency.

Gulf states are now hammering out details on the shape of a future joint central bank in preparation for a single currency they hope to have in place by what increasingly seems an unlikely 2010 deadline.

"If we create a GCC single currency, I have no doubt it would become a global currency," Saidi said.

"It would be a natural hedge for oil price and inflation risk. If you have it on the table, you can address global imbalances better."

Saidi, a former Lebanese economy and trade minister, said turmoil in financial markets would have less direct impact on the real economy and growth in the Gulf and other emerging markets than in more sophisticated Western systems.

He said growth in the Gulf could slow as a result of the turmoil on capital markets but there would be no recession in the region as mortgage markets were less developed, households were less leveraged and companies were family ownership-oriented and less reliant on bank financing than in the West.

"The world's economic geography has shifted east. China and India and, increasingly the GCC at the center, account for a larger part of the world's trade," Saidi said.

"Your role has changed, you are now a global actor," he said of Gulf Arab states. "So when redesigning the global financial architecture, ensure that the people who are contributing also have a say.

"Contribute but add conditions."

(Editing by Hans Peters.)