TREASURY UNDER SECRETARY QUARLES' MEETINGS WITH

C O N F I D E N T I A L MANAMA 000585

SIPDIS

SIPDIS

STATE FOR EB, NEA/ARP
TREASURY FOR U/S QUARLES AND KRAMANATHAN

E.O. 12958: DECL: 04/09/2016
TAGS: ECON EFIN ETRD EINV PREL BA
SUBJECT: TREASURY UNDER SECRETARY QUARLES' MEETINGS WITH
FINANCE MINISTER


Classified By: Ambassador William T. Monroe, reasons 1.4 (b) and (d).


1. (C) Summary. Treasury Under Secretary for Domestic
Finance Randal Quarles and Financial Economist Karthik
Ramanathan met March 17 with Minister of Finance Shaikh Ahmed
bin Mohammed Al Khalifa. Shaikh Ahmed said new investment
opportunities in Bahrain were attracting increasing local
investment, adding that Islamic Banking was a key component
of Bahrain's economic diversification. He said Bahrain's
political decision to support the dollar was firm, adding
that Bahrain had seen no ripple effect from the Dubai Ports
controversy. Shaikh Ahmed also said Indian companies were
currently looking at investment with and in Bahrain. End
Summary.


2. (C) Under Secretary Quarles, accompanied by the
Ambassador, Treasury Economist Karthik Ramanathan, and
Econoff, called on Minister of Finance Shaikh Ahmed March 17.
Shaikh Ahmed noted that investment dollars in Bahrain were
increasingly being drawn to "tremendous" local opportunities
and added that real estate and telecommunications in
particular are currently acting as magnets for new
investment.


3. (C) Shaikh Ahmed observed that rising standard of living
expectations were contributing to recent local development.
"I remember when people used to be content to travel abroad
and enjoy the lifestyle of the U.S. and Europe and were
content with that for two months out of the year. Now they
want it for twelve months out of the year," he said.


4. (C) He added that Bahrain had recently taken steps to
address its unemployment problem. "In a way, this helps
combat terrorism." He said developing investment, medical,
and education sectors would position Bahrain favorably
throughout the GCC. "Bahrain has no bubble," he asserted.


5. (C) Shaikh Ahmed said economic diversification was a key
principle of Bahrain's economic strategy and that Islamic
banking was an important part of that diversification. He
applauded U.S. regulatory receptivity to Islamic banking, in
comparison to the EU's banking system, which he said was not
as accommodating. He asked about broader licensing of
Islamic funds in the U.S. He said there would be investors
in the region, after looking at experiences in the U.K.,
looking for new areas to invest. "I don't think people look
except where opportunity is."


6. (C) On Bahrain's asset positions he said, "Generally we
invest around the world, but we still support the dollar -
we've taken that political position." Asked about any effect
the Dubai Ports World controversy might have, Shaikh Ahmed
replied, "That's for them to comment on. We haven't felt a
ripple-effect. Nothing has happened to change our position,
that's very clear. We are doing some hedging, but
historically more than ninety percent of our position has
been in U.S. currency." Shaikh Ahmed said a further
devaluation of the U.S. dollar would have no impact on
Bahrain's holdings. "It's not a strategic decision - it's a
political decision."


7. (C) Shaikh Ahmed said Indian companies were currently
looking at investment with and in Bahrain. He noted that the
strong growth rates of the Indian and Chinese economies
represented new opportunities, adding that "India's profit
margins are higher."


8. (U) This cable has been cleared by Treasury Under
Secretary Quarles.

SIPDIS
MONROE