Dubai, November 4, 2008: The immense liquidity at their disposal will catapult the GCC states into playing a significant role in regulating the international financial system, since these are the only states that currently enjoy a great deal of resilience in the face of the meltdown, pointed out speakers at a seminar held jointly by Dubai Press Club, Dubai School of Government and ABN AMRO Bank. They stressed that the impact of the declining prices of oil will be limited to the extent of surpluses and not on the fiscal system.

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Mohamed El Hedi Lahouel, Associate Dean of Academic Affairs, Dubai School of Government, said that the GCC states were doing remarkably well in spite of the meltdown and declining oil prices, and therefore will be in a position to contribute substantially to stemming the crisis. “Since these countries will continue to pump in money to the western markets thirsty for liquidity, their role is becoming really crucial. They will do more to stabilize the global economy than most other countries. We have to see the recent visits of western leaders to the region seeking assistance in this context. I therefore would like to rule out the possibility of a depression as happened in 1929. The situation is drastically different,” he explained.

Drawing the implications from the crisis for the GCC states, Professor Lahouel said: “Primarily, some of the planned expenditures stand to suffer because they were planned on the basis of the expected US$100 plus price of oil. The drop in prices will definitely have an impact here. Although unemployment is a likely result of a meltdown like the current one, it will not affect the region because of the peculiar dynamics of labour here. Since much of the labor force in the region is imported, a possible unemployment scenario will hardly touch the population of GCC countries. At worst, it will affect those countries that export maximum labor force into the GCC countries,” he explained.

Didier Duret, Chief Investment Officer, ABN AMRO Private Banking, struck a rather optimistic note and said a ‘back to basics’ approach is sure to impact positively on the financial markets, particular in view of the proactive role that most governments are playing in order to bring the situation under control and regain lost trust in the fluctuating or collapsing markets. “Although the excesses and adventures of the recent years cannot be repeated any more, high-conviction equities and investment grade bonds are offering solid investments to rebalance their portfolio. Investors must focus particularly on the US – the first into the downturn, and the first out,” he added.

Arguing that there are significant differences between the depression of 1930s and the current situation, Duret said the system today enjoyed much more flexibility in terms of interest rates, FX and process, beside the strong coordination between nations and central banks. “The existence of countries with large surplus funds and sovereign wealth funds is also a significant factor. I am sure the negative impact of the meltdown could be stemmed to a considerable extent through sound policy and careful implementation,” he clarified.

Francois Moute, Chairman, Neuflize Private Assets, said though he was in agreement with Duret on most of the points, he thought the crisis would last for a few years. “I am a bit pessimistic about the situation. What we are seeing today is the culmination of a policy that Ronald Reagan put in place 27 years ago. It is a fallacy to say that the crisis has just erupted from nowhere. It has been on its way for 27 long years. The way out is to increase nominal GDP because that will counterbalance against the multipliers that refuse to work,” he explained.

Blaming hedge funds for the fluctuating oil prices, Moute said oil prices will start moving up only when the Western world begin to stabilize and the emerging Asian economies revive their growth trends. “The Western World is slowly but surely losing their leadership of the world. Countries in Asia, such as China and the GCC states, have begun moving to the centre as far economic leadership of the world is concerned,” he concluded.

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