DUBAI (Reuters) - Gulf Arab oil exporters will move closer to a unified currency when their rulers meet on Monday in Kuwait, which promised to seek the return of the United Arab Emirates and Oman to the monetary union plan.
The UAE, the second-largest Arab economy, dealt a serious blow to the union by pulling out in May in protest at the decision to locate any joint central bank in Saudi Arabia.
Gulf finance and foreign ministers meet later on Sunday to set the summit’s agenda and Kuwait’s finance chief has said bringing the UAE and Oman back was on its wishlist for its forthcoming presidency of the Gulf Cooperation Council (GCC).
“This would strengthen the economies of the region and turn it into an economic bloc of (importance) that would be taken into consideration globally,” the official Kuwait news agency reported Mustapha al-Shamali as saying on Friday.
Kuwait is taking over the rotating presidency of the six-nation GCC, a loose economic and political bloc, for 2010.
The UAE’s pullout, which came three years after Oman‘s, has shaken the politically fragile project as the world’s third-largest oil exporter and key Middle East business hub accounts for a quarter of the region’s gross domestic product.
Fellow GCC members -- Saudi Arabia, Kuwait, Qatar and Bahrain -- stayed the course, but admitted the original 2010 unified currency deadline cannot be met.
The UAE was rather unlikely to announce a comeback at the closed-door summit in Kuwait on December 14-16, but it may reconsider the decision in the coming months, analysts say.
The summit convenes under the shadow of the debt crisis of Dubai -- one of seven members of the UAE federation -- which cost markets across the region since the emirate asked for a standstill on the debt of a state flagship firm on November 25.
The UAE “is unlikely to resume (union) negotiations from a position of weakness and for that reason they are likely to stay out of the single currency for a while yet,” said James Reeve, senior economist at Samba Financial Group in London.
A source close to the matter did not expect to see the UAE’s decision reversed at the summit, and Kuwait said the location of the joint central bank would not be reviewed.
The UAE central bank governor said last month the country had fundamental reservations about the project, including that its monetary council lacked teeth.
The much smaller Sultanate of Oman opted out of the plan in 2006, saying it was not going to be ready for the 2010 deadline.
Analysts said Dubai’s debt pile was unlikely to be much discussed at the summit, in spite of its regional impact.
“It would be interfering into internal affairs of the federation of the UAE and I do not think that is something they want to do,” said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.
Dubai’s debt crisis was unlikely to find its way onto the agenda of the summit, Saudi Arabia’s al-Riyadh newspaper said, citing an unidentified senior Gulf official.
Kuwait’s foreign minister, however, told al-Hayat newspaper that the rulers are going to debate impacts of external economic shocks on their economies in view of Dubai’s debt problems.
The Gulf rulers will use the meeting to decide the authority and shape of the joint monetary council and the willingness of the Saudis to offer concessions for key positions would be key in an attempt to lure the UAE back in the future, analysts said.
Striking a power balance in the union remains a challenge, analysts say, as some smaller Gulf states resist the dominance of Saudi Arabia, the world’s biggest oil exporter. A deal on the new currency regime remains distant in spite of the recent debate.
“If there is sufficient political will and there is a recognition that this is a common project and no single party dominates the project, things would be much smoother,” said Giyas Gokkent, chief economist at National Bank of Abu Dhabi.
“But as it is, I do not think that is currently in place,” he said.
Additional reporting by Rania Oteify; editing by Simon Jessop