THE SAUDI PUBLIC POSITION ON G-20 SUMMIT ISSUES

C O N F I D E N T I A L SECTION 01 OF 03 RIYADH 001629

SIPDIS

DEPT FOR NEA/ARP, EEB (PDAS NELSON),EEB/OMA (MARLENE
SAKAUE AND ALEX WHITTINGTON),AND NEA/RA
TREASURY FOR IMB (BILL MURDEN, WILBUR MONROE, AND CAROL
CARNES)

E.O. 12958: DECL: 10/29/2018
TAGS: ECON EFIN SA
SUBJECT: THE SAUDI PUBLIC POSITION ON G-20 SUMMIT ISSUES

REF: A. SECSTATE 114420

B. RIYADH 1607

C. RIYADH 1572

D. RIYADH 1507

E. RIYADH 1488

F. RIYADH 1353

G. JEDDAH 456

Classified By: Deputy Chief of Mission David Rundell for reasons 1.4 (b
) and (d)


1. (C) In response to the specific questions in ref A, Post
provides the following answers concerning Saudi attitudes
towards the November 15 G-20 financial summit:

a. (C) Based on public comments made by host government
officials, what are the country's likely objectives in
attending the summit?

To enhance the Kingdom's status as a significant yet moderate
force in international diplomacy, with particular emphasis on
their role in the region. The Saudis clearly would like to
expand their presence at future summits and be consulted when
international financial issues emerge in the future.

b. (C) Are there particular desired outcomes that officials
have identified publicly that they hope to attain?

No specific outcomes have been publicly identified. However,
the King has been repeatedly quoted in the Arabic-language
press describing the current financial crisis as a "covert
war" whose aim is to reduce the financial clout of Arab
countries. Given these comments, it seems likely the King
sees his role at the conference as one of ensuring that the
Arab countries' financial power vis-a-vis the rest of the
world is not eroded by whatever new financial system emerges.

c. (C) Again based on public information, what
recommendations or reforms might the country make?

Based on a wide-range of recent news articles, it is possible
the Saudis will suggest that the international financial
system adopt more aspects of Islamic banking, particularly
that banks should share profit / risk with depositors, an end
to the idea of &too big to fail,8 and a significant
curtailment in the use of derivatives.

d. (C) What are the country's greatest concerns about the
current financial crisis?

Saudi Arabia,s most significant concern in the current
financial crisis is that it will deepen into a significant
global recession, thus further reducing the price of oil,
their chief export, on the global market. We have already
seen a drop of more than 55% in the price of oil since its
high point in July.

As a secondary concern, the Saudis are paying close attention
to domestic liquidity, as high demand for project finance and
speculation on the Saudi riyal was already driving up
interbank lending rates prior to the current crisis.
However, the Saudi Arabian Monetary Agency (SAMA),the

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Kingdom,s central bank, has already taken concrete steps to
address this issue, including lowering the key lending rate,
lowering the reserve requirement, guaranteeing deposits, and
providing banks with direct cash injections. These efforts
have been rewarded with a drop in the interbank rate in
recent days. It is unlikely this will play a major role in
Saudi thinking.

Senior Saudi officials have stressed to us that their overall
financial situation is sound, but note that credit is getting
"tight." Some in the business community have also expressed
concern that this may lead to a delay in the completion of
major infrastructure projects. See ref C and ref F for
further details.

Beyond the direct effects on the Kingdom, Saudis most often
express concern for the real estate market in the United Arab
Emirates. A lot of Saudis have invested heavily in the UAE
property market and any significant decline there would
definitely have an effect on wealthy individuals here.
Nevertheless, it is unlikely this would have an impact on
either the vast majority of the population or the public
finances. See ref G for more details.

e. (C) Based on publicly available information, what issues
are likely to be foremost on the leader's mind?

i. The price of oil.
ii. Seeing that individuals and businesses that were
responsible for unscrupulous lending are held accountable for
their actions. This has been mentioned recently in
Arabic-language newspaper articles and in private meetings
between USG and SAG officials. See ref B for further details.

f. (C) Please provide specific information on the most
important impacts of the financial crisis on the country's
financial sector:

Domestic lending to the corporate sector, and liquidity in
general, has tightened further since the beginning of the
financial crisis; but not as much as in other parts of the
world. The reasons for this are two-fold: First, credit in
the Kingdom was already tight for the reasons explained above
and in ref F. Second, SAMA acted quickly enough once it
became apparent the global financial crisis would affect
liquidity in Saudi Arabia to mitigate the effects of this
spillover. To date no financial institutions have failed or
experienced significant problems. It is generally accepted
that the Saudi government will not allow one of their banks
to fail; and they have explicitly guaranteed all deposits in
Saudi banks.

g. (C) What initiatives has the country taken in response to
the financial crisis?

To date the Saudi government (SAG) has taken the following
steps:
i. Lowered the demand deposit reserve requirement from 13%
to 10%.
ii. Lowered SAMA,s repurchase rate from 5.5% to 5.0%, the
first decline in the rate in more than 4 years.
iii. Explicitly guaranteed all deposits in all banks for the

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first time ever.
iv. Provided the equivalent of $8 billion in direct cash
injections to their banks, the first time they have provided
direct injections in more than 10 years.

Though the domestic stock market has dropped significantly
since the beginning of this crisis, historically it has been
highly volatile and the SAG does not appear concerned about
this recent decline. See ref D for more details on the Saudi
capital markets.

h. (C) How has the outlook for growth, inflation, current
account, exchange rate, and budget deficit changed?

The outlook on each of these factors has changed little as a
result of the financial crisis. Growth, the current account
surplus, and the budget surplus have shrunk slightly for 2008
as a result of the global recession and the drop in oil
prices, with a larger drop expected in 2009. Nevertheless,
Saudi Arabia will likely have both a current account surplus
and a budget surplus in 2009 barring a further significant
decrease in the price of oil.

Inflation has declined slightly, but remains high
(approximately 10%) for the Kingdom when compared to its
historic average of less than 2%. This decline has been in
response to global decreases in the price of food and is
probably not tied to the financial crisis. More details on
inflation in the Kingdom can be found in ref E. The exchange
rate between the Saudi riyal and the U.S. dollar is fixed at
3.75.


2. (U) For further information on questions addressed in this
message, Post's point of contact is Economic Officer
Christopher M. Newton at NewtonCM2 (at) state.gov or (country
code 966) 1-488-3800 extension 4097.
RUNDELL