United we stand, divided we fall
At a macro-economic level – or ‘big economy stuff’, as we prefer to call it – the lesson of the global downturn is that we are stronger together than we are apart.
February 7, 2011 3:01 by Samuel Potter
Anyway, it’s good that the UAE realizes it is part of a bigger picture. And the recovery is driven not just by that spirit of co-operation, but also by a renewed recognition of co-dependence. For instance, John Greenwood, Invesco’s Chief Economist, told Gulf
News this week that the Gulf’s oil exporting economies have been well served by their dollar-pegs, and are better off because of them.
“With the peg in place, the region’s interest rates are tracking US interest rates, consequently there is minimal pressure on currencies from capital inflows and carry trade,” said Greenwood. In the absence of fixed peg, Greenwood said the region also would have been exposed to exchange rate pressures faced by countries such as Brazil and emerging economies in Asia.
There is a bunch of other technical economic stuff in this article (which, quite frankly, we were surprised to see Gulf News print), but we can spare you all that by saying: Dollar peg good, no dollar peg bad. (Kipp’s Nobel Prize for economics is surely on the way.)
Without the peg, argues Greenwood, all sorts of intervention is needed from policy makers to ensure stability, and this undermines targets on stuff like exchange rates, interest rates, and monetary supplies. Kipp buys all this. Although we have to point out: it’s not like the dollar peg has saved governments from having to intervene in the economy. Just this week the Arab Monetary Fund said, “The intervention by the GCC governments to contain the impact of the crisis and their heavy support for the financial and banking sectors in member states allowed them to limit the crisis repercussions while the non-oil sector maintained its growth despite a slowdown.”
The AMF, which is a bit like a smaller, Arab version of the IMF, says the recovery is coming but will take time, but in the meantime the crisis underscored the need for stronger inter-GCC fiscal and monetary coordination.
What’s Kipp’s conclusion? Simply that increased IMF investment is a good thing; the dollar peg is a good thing; and viewing the recovery as regional rather than country-specific is a good thing. We’re all in this together – they depend on us, we on them, and we’ll all climb out of it together.
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