TREASURY UNDER SECRETARY QUARLES' MEETING WITH

C O N F I D E N T I A L MANAMA 000586 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' MEETING WITH CENTRAL BANK DEPUTY GOVERNOR 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 23 with Bahrain Monetary Agency (BMA) Deputy Governor Anwar Khalifa Al Sadah. Deputy Governor Anwar confirmed that, despite concerns on the U.S. account deficit and effects of Sarbanes-Oxley legislation, the BMA maintains strong confidence and investment in the U.S. He predicted that the recent Dubai Ports controversy would not have any consequential effect. End Summary. ¶2. (C) BMA Deputy Governor Anwar March 23 confirmed Bahrain's strong investment in the U.S. "We have investments in the U.S. money market. Part of it is managed internally and the other portion is managed externally by other advisors." He said Bahrain's holdings were primarily invested in the Treasury Market and, up to five percent was in high yield and corporate instruments. He said Bahrain currently held no Treasury Inflation-Protected Securities (TIPS). "You should take that as a sign of trust" in the Fed he said, regarding the lack of TIPS holdings. Deputy Governor Anwar noted that the dollar suited Bahrain's exchange rate regime best and that Bahrain was fairly diversified within U.S. Treasury instruments. ¶3. (C) Deputy Governor Anwar commented that Bahrain diversified beyond dollar assets to some degree beginning four years ago. When asked about the likelihood that Bahrain would migrate to a basket of currencies, Deputy Governor Anwar replied that regardless of the outcome of the GCC's currency unification process, Bahrain's position was unlikely to change. He did express concern at the size of the U.S. current account deficit, particularly vis-a-vis China. He also expressed concern about the potentially growth-dampening effects of Sarbanes-Oxley compliance costs. ¶4. (C) On the Dubai Ports controversy, he observed "there were a lot of special circumstances that led to that result. I don't see it having an effect, but I wouldn't be surprised if there is more noise." ¶5. (U) (U) This cable has been cleared by Treasury Under Secretary Quarles. SIPDIS MONROE