GCC MONETARY UNION WITHDRAWAL CRITICIZED

C O N F I D E N T I A L SECTION 01 OF 02 MUSCAT 000229 SIPDIS SIPDIS STATE FOR NEA/ARP, EB/CBA, EB/IFD/OMA COMMERCE FOR ITA COBERG TREASURY FOR OIA VALVO E.O. 12958: DECL: 03/06/2017 TAGS: ECON EFIN EIND EINV PGOV MU SUBJECT: GCC MONETARY UNION WITHDRAWAL CRITICIZED REF: MUSCAT 56 Classified By: DCM Alfred A. Fonteneau for Reasons 1.4 (b, d) -------------- Summary -------------- ¶1. (C) The Omani government's decision to opt out of the proposed GCC currency union received sharp criticism from an Emirati economics professor during a public lecture sponsored by the Oman Economic Association. The well-attended forum provided a unique opportunity for a non-Omani national to directly criticize the Sultanate's announcement that it would not join the monetary union in the presence of government officials, though a Central Bank official separately commented that overall enthusiasm for such a union appears to be muted among his regional banking colleagues. End Summary. -------------- Integration through Currency -------------- ¶2. (U) On March 3, 2007, POLE Assistant attended an Oman Economic Association-sponsored lecture entitled "GCC Unified Currency after the Sultanate's Withdrawal: What Are the Alternatives?" Dr. Abd al-Razaq Faris al-Faris, an Emirates University economics professor and advisor to the UAE Chamber of Commerce and Industry, argued that a currency union was essential to the progression of greater GCC cooperation. He stated that the union would enhance the sense of both sovereignty and unity among GCC nationals. Faris also highlighted the importance of eliminating currency exchange to promoting inter-GCC commerce and travel. He commented that the current peg of the GCC currencies to the U.S. dollar would provide a stable platform for the new single currency, something that was not available for the launch of the Euro. -------------- Obstacles to Overcome -------------- ¶3. (U) Faris mentioned that the GCC had several obstacles to overcome in order to make the currency union a reality. He noted that the GCC countries still lacked sound monetary policies and reliable statistics. Their economies also lacked a degree of transparency illustrated by the fact that only Kuwait and the UAE publish the IMF's monetary report for their countries, which contain previously "hidden" statistics such as the budget of the head of state and real unemployment rates. A final disadvantage to the currency proposal, Faris stated, was the setting of fiscal and budgetary caps based on European Union standards, as opposed to tailoring them according to GCC needs. -------------- Request for Reconsideration -------------- ¶4. (U) Faris lamented that Oman's "shocking" announcement was a setback for the currency union and emphasized it was "not too late yet" for the Sultanate to change its position. He claimed that Oman had a moral obligation to reconsider its "unwise" decision since all GCC members had previously agreed in 2000 to proceed toward a single currency. He added that GCC central banks could be persuaded to revise the proposed criteria in a way that would be specifically tailored to the GCC economies. ¶5. (U) Faris warned that the GCC currency union would go forward even if another country withdrew, asserting that the formation of a strong economic block is the "natural way" forward for the GCC economies. Otherwise, Faris added, the GCC will lose out on several fronts, especially those countries that "have chosen to dance to a different tune." He requested that the 200 participants in attendance speak out on this issue and urge the Sultanate to reconsider its decision. -------------- Somber Atmosphere -------------- ¶6. (C) In a February 28 meeting with Econoff, Central Bank Executive Vice President Mohammed Nasser al-Jahdhamy noted MUSCAT 00000229 002 OF 002 that the overall mood on the feasibility of the currency union was pessimistic. He commented that the vibe he received while attending a recent IMF regional meeting in Abu Dhabi was muted, with no one expressing confidence that the union would be solidified by 2010. -------------- Comment -------------- ¶7. (C) The Oman Economic Association forum provided a unique, public opportunity for a non-Omani national to directly criticize the Sultanate's decision not to join the monetary union in the presence of government officials. Such criticism of the government's economic policy and its obsession with the confidentiality of some financial reporting is indicative of greater public interest in government decision-making. It also shows the timid emergence of the term "GCC nationalism," as promoted by the lecturer. Nevertheless, as reported reftel, the Omani government appears to be unmoved by such discussion, and will likely continue to follow its cautious, wait and see approach to the development of the currency union. End Comment. GRAPPO