DOHA (Reuters) - Rulers of Gulf Arab oil producers closed ranks on Monday as they kicked off a summit overshadowed by disagreements between the region’s two largest economies over how to respond to the dollar’s slide on global markets.
Dollar-pegged Gulf currencies weakened on Monday after Saudi Arabia signaled it would resist a United Arab Emirates push for the region to sever links to the tumbling dollar and track a currency basket instead.
The UAE said it was committed to seeking common ground with its neighbors and an official of the Gulf Cooperation Council said the draft statement prepared for the rulers simply dodged the main bone of contention.
“The statement makes no reference whatsoever to the decline of the dollar,” said the official, who had seen the draft prepared for the rulers to discuss. He asked not to be named.
Rulers of the six oil producers will hold talks in the Qatari capital Doha on Monday and Tuesday.
“The decisions we will make and the joint views we will reach, will boost the march toward integration between our countries...,” UAE President Sheikh Khalifa bin Zayed al-Nahayan said as he arrived for the meeting.
“We realize that our summit is being held amid very important circumstances...” he said in a statement carried by state news agency WAM.
Both sides had raised the temperature of the debate on Sunday.
State-controlled WAM said it expected rulers to change currency policy at the summit in Qatar, but later retracted the report. By then ministers from other states had said reform was not even on their agenda.
“WILL NOT DROP IT”
Bids on the Saudi riyal slipped on Monday off 21-year highs to as low as 3.7182 per dollar after Finance Minister Ibrahim al-Assaf ruled out dropping his country’s peg to the dollar.
“We will not drop it. That’s it,” Assaf told reporters on Sunday in Doha, where he and other finance ministers prepared the agenda for the rulers’ talks.
The riyal hit 3.6800 on November 28, its strongest since 1986 when the central bank fixed the currency’s peg at 3.75 per dollar.
UAE Central Bank Governor Sultan Nasser al-Suweidi had raised expectations the summit could signal a shift in foreign exchange policy when he called last month for Gulf states to sever pegs to the tumbling dollar and track a currency basket.
Bids on the UAE dirham also eased to as low as 3.6715 per dollar. The currency, which the central bank has kept stable at 3.6725 against the dollar since 1997, hit a 17 year high of 3.6561 per dollar on Friday.
Saudi Arabia, the biggest Arab economy with the Gulf’s largest population, ran budget deficits in the 1990s and fears a revaluation would cut the riyal value of dollar-denominated oil revenue.
Its smaller, wealthier neighbors are more concerned the tumbling dollar is stirring trouble among expatriates, who dominate their workforce, and hampering their central banks in the fight against inflation, at decade highs across the Gulf.
After migrant construction workers rioted in Dubai over savings lost to the dollar’s slide, Suweidi said the UAE, the second largest Arab economy, was under mounting social and economic pressure to drop its peg and track a currency basket.
UAE policymakers, from the finance minister to the head of the federal advisory council, then backed his call for currency reform, saying they would only act in concert with neighbors preparing for monetary union as early as 2010.
“The statement will reiterate commitment to the 2010 deadline for monetary union,” said GCC official.
The draft statement will say the rulers recommend a review of the monetary union timetable next year, he said.
“Central bank governors will meet in May to set the tone for any change that might be needed,” the official said.
Additional reporting by Daliah Merzaban in Doha, Inal Ersan in Dubai; editing by Tony Austin
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