Identifier
Created
Classification
Origin
07ABUDHABI1899
2007-11-19 12:16:00
CONFIDENTIAL
Embassy Abu Dhabi
Cable title:  

ADIA APPROVES SWF TRILATERAL GROUP; NO DECISION

Tags:  AE ECON 
pdf how-to read a cable
VZCZCXRO9909
PP RUEHDE RUEHDIR
DE RUEHAD #1899/01 3231216
ZNY CCCCC ZZH
P 191216Z NOV 07
FM AMEMBASSY ABU DHABI
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
INFO RUEHDE/AMCONSUL DUBAI PRIORITY 7460
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHGP/AMEMBASSY SINGAPORE 0112
RHEHNSC/NSC WASHDC
RUEHC/SECSTATE WASHDC 0074
C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001899 

SIPDIS

SIPDIS

TREASURY FOR D/S KIMMITT, U/S MCCORMICK, A/S LOWERY, DAS
SAEED, DAS BARTH, DAS SOBEL, RKAPROTH, CBERRY, JROSE,
KMATHIASEN
NSC FOR NRAMCHAND
STATE FOR NEA/IR, NEA/ARP
STATE FOR S/CT, EB/ESC/TFS, INL/C/CP

E.O. 12958: DECL: 11/18/2017
TAGS: AE ECON
SUBJECT: ADIA APPROVES SWF TRILATERAL GROUP; NO DECISION
MADE ON DIRHAM VALUATION

REF: ABU DHABI 01898

ABU DHABI 00001899 001.2 OF 002


Classified By: Ambassador Michele J. Sison, for reasons 1.4 b and d.

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001899

SIPDIS

SIPDIS

TREASURY FOR D/S KIMMITT, U/S MCCORMICK, A/S LOWERY, DAS
SAEED, DAS BARTH, DAS SOBEL, RKAPROTH, CBERRY, JROSE,
KMATHIASEN
NSC FOR NRAMCHAND
STATE FOR NEA/IR, NEA/ARP
STATE FOR S/CT, EB/ESC/TFS, INL/C/CP

E.O. 12958: DECL: 11/18/2017
TAGS: AE ECON
SUBJECT: ADIA APPROVES SWF TRILATERAL GROUP; NO DECISION
MADE ON DIRHAM VALUATION

REF: ABU DHABI 01898

ABU DHABI 00001899 001.2 OF 002


Classified By: Ambassador Michele J. Sison, for reasons 1.4 b and d.


1. (C) Summary. Abu Dhabi Investment Authority (ADIA)
Managing Director Sheikh Ahmed bin Zayed al Nahyan green
lighted UAE's participation in a sovereign wealth fund (SWF)
trilateral group proposed by Treasury U/S McCormick (ref).
The proposed consultative group will include ADIA, the
Government of Singapore Investment Corporation (GIC) and the
U.S. Treasury Department. Sheikh Ahmed also stated the UAE
was still reviewing its currency policy at the federal level,
and that no final decision has been made regarding a possible
revaluation or de-pegging from the dollar. Recommendations
will be provided to UAE President Sheikh Khalifa for his
final word. End Summary.

SWF Trilateral Proposal
--------------


2. (C) On 18 November 2007, Ambassador and Treasury Attach
met with ADIA MD Sheikh Ahmed and his Office Director
Mohammed al Amri at Sheikh Ahmed's request. (Note. Sheikh
Ahmed is the eleventh of UAE founding father Sheikh Zayed's
19 sons and a key player in UAE's financial structure. End
Note.) Sheikh Ahmed stated that ADIA had reviewed the
Treasury SWF proposal and would like to work together with
the USG and GIC to begin reviewing an overall framework for
SWF best practices guidelines. Sheikh Ahmed stressed that
ultimately he would like to include other countries and funds
in this process; however, he agreed to start the talks with
USG, ADIA and GIC, bringing in the others later on for
consensus. Sheikh Ahmed indicated that this decision was
approved by UAE President Sheikh Khalifa and Abu Dhabi Crown
Prince Sheikh Mohammed bin Zayed. Sheikh Ahmed also inquired
about GIC's response to the proposal.


3. (C) Sheikh Ahmed stated that he understood the concerns in
U.S. and other SWF-recipient countries that are directed
towards SWFs engaging in investment for political, rather
than commercial, ends. He also acknowledged to his dismay

that ADIA was often grouped together with these less
reputable funds that are the true source of international
concerns. Sheikh Ahmed affirmed ADIA's commitment to
investing in the U.S., and added that guidelines would be
helpful in allaying concerns about ADIA and communicating its
positive qualities.


4. (C) Sheikh Ahmed advised that his Office Director Mohammed
al Amri will serve as the point of contact for ADIA on this
issue. (Note. While Mohammed al Amri is the undisputed
gatekeeper and trusted confidant to Sheikh Ahmed, whose views
are significant and insightful, he is not a substantive ADIA
official with respect to financial decision making. End Note.)


5. (C) Background. On 11 November 2007, Treasury provided
ADIA with a Concept Note for Advancing Work on Sovereign
Wealth Funds, as promised during a 29 October meeting between
U/S McCormick and Sheikh Ahmed (ref A). The Concept Note
proposed a trilateral working group consisting of ADIA, GIC
and the USG, led by Secretary Paulson, to develop a common
understanding and shape public debate on SWFs. The Concept
Note envisions monthly meetings beginning in mid-December
2007, culminating in a conference/seminar in Washington on
the margins of the IMF and World Bank Spring meetings to
share insights and suggestions from the trilateral group
discussions. End Background.


6. (C) Comment. As recently as last week, ADIA insiders had
told Ambassador and Econ Chief in informal conversations that
Sheikh Ahmed reportedly remained ambivalent towards the
proposal, questioning whether a formal response to the U.S.
proposal was even necessary. Embassy Abu Dhabi assesses that
U/S McCormick's 14 November testimony on SWF, with its
positive statement on ADIA, had a material impact on ADIA's
decision making, as well as encouragement from other federal
and Emirate-level bodies. End Comment.

Dirham - Dollar Peg
--------------


ABU DHABI 00001899 002.2 OF 002



7. (C) Sheikh Ahmed also raised the issue of the UAE dirham
and its peg to the U.S. dollar. Sheikh Ahmed agreed with the
Ambassador that "open communication" between the UAE and the
U.S. regarding UAE plans and intentions was important, adding
that a "well-studied" decision should be made. Sheikh Ahmed
noted that the dirham had been pegged to the US dollar since
the UAE became an independent nation, and that this policy
has served the UAE well. Regarding the decision making
process, Sheikh Ahmed stated that the federal cabinet had
discussed the issue and requested that the Central Bank
prepare a study on valuation and the peg. During this study
-- which is still ongoing according the Sheikh Ahmed -- the
Central Bank sought the input of ADIA and other UAE
institutions. Once a consensus opinion has been reached, the
options will be presented to UAE President Sheikh Khalifa for
his ultimate decision. The deliberations will include
consultations with the UAE cabinet and Supreme Council -- the
rulers of the seven Emirates. (Note: On 16 November, a senior
ADIA investment advisor told Econ Chief that he had been one
of the people asked to provide input on the currency issue.
He noted the problems attracting workers from countries whose
currencies had appreciated against the dirham. "There are a
million Indians" he noted, "we don't want them rioting." He
downplayed the Governor's comments, noting that the Governor
would not be the final decision maker. End Note.)


8. (C) Note. During a 13 November speech in Tokyo, UAE
Central Bank Governor Sultan bin Suwaidi roiled regional
currency markets when he stated that the dirham had "reached
a crossroads now with a further deterioration in the U.S.
dollar," causing an increase in speculation that a
revaluation or de-pegging was in the offing. Suwaidi
continued his statements to the press the following day in
Seoul. Separately, during a visit with Ambassador Sison on 17
November, former Treasury Secretary Lawrence Summers stated
that he was hearing from local funds and economists "less but
sooner," implying that many expected a modest revaluation in
the near term. End Note.


9. (C) Comment. Some regional experts have concluded that
Governor Suwaidi now supports revaluation and possibly even
moving to a basket of currencies, heavily weighted to the
dollar. Seen in this light, Governor Suwaidi's recent press
statements may reflect an attempt to create pressure within
UAE and on Saudi Arabia to support these steps. Many
financial commentators speculate that UAE will be reluctant
to change its currency policy in the absence of similar steps
by Saudi Arabia. End Comment.
SISON