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Eye of the storm
While some Arab governments appear to have successfully fought off the worst effects of the global economic crisis, long-term challenges loom.
May 12, 2009 3:06 by Ed Blanche
At the Gulf Cooperation Council (GCC) summit in Doha in late March, Sheikh Hamad bin Khalifa Al Thani, the emir of Qatar, warned that the collapse of confidence wrought by the global economic crisis “has affected the Arab world more than others. Given its location and resources, its issues and problems and its previous and subsequent conditions, the Arab world is in the path of the wind, and the eye of the storm.”
The economic gloom got short shrift at that summit, overwhelmed by the perennial divisions in the Arab world that had been sharpened by Israel’s invasion of the Gaza Strip and the threat of an expansionist, nuclear Iran.
That may have been because the six GCC states – Saudi Arabia, the UAE, Kuwait, Qatar, Oman and Bahrain – which form the economic nerve center of the Arab world, have been cushioned by the vast reserves they have accumulated over six years of soaring oil prices (Saudi Arabia alone made $1 billion a day when prices were hovering around $150 a barrel in 2008).
The GCC countries have stored huge amounts of cash in government-controlled investment funds, although it’s hard to tell how much; they are not in the habit of disclosing figures to the public.
All have taken emergency measures, primarily massive fiscal-stimulus packages to bail out their banking systems as the crisis has engulfed them. What happens with the GCC will weigh heavily on the poorer Arab countries that depend so much on them. Egypt alone is expected to lose as much as half of the $6 billion a year it receives in remittances from some two million of its nationals who have been working in the Gulf.
So how successful have the Gulf states been at countering the global downturn, and averting dangers that still lie ahead?
Saudi Arabia, the Arab world’s largest economy and the globe’s leading oil exporter, has avoided much of the carnage and continues to pursue an expansionist public policy vigorously, with a 36 percent increase in project spending. But then the kingdom has, as one analysis put it, “enough overseas reserves to pay for four complete annual budgets, without drawing on any other income.”
Even so, the Financial Times (FT) concluded in January that direct state intervention has done little to address the crisis, and in some cases has meant throwing good money after bad. The Doha Stock Exchange continued to fall even after a government bailout, and has lost more than a quarter of its value so far this year.