Identifier
Created
Classification
Origin
09RIYADH406
2009-03-10 13:54:00
SECRET//NOFORN
Embassy Riyadh
Cable title:
SAUDI ARABIA: INFORMATION FOR G-20 MEETINGS
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UNCLAS SECTION 01 OF 03 RIYADH 000406
SENSITIVE
SIPDIS
STATE FOR EB/OMA (WHITTINGTON)
TREASURY FOR IMB (MURDEN, MONROE, BEASLEY)
E.O. 12958: N/A
TAGS: EAID ECON EFIN SA
SUBJECT: SAUDI ARABIA: INFORMATION FOR G-20 MEETINGS
REF: A. A. SECSTATE 17502
B. B. RIYADH 160
C. C. 08 RIYADH 1880
D. D. 08 RIYADH 1850
E. E. 08 RIYADH 183008
F. F. 08 RIYADH 1629
G. G. 08 RIYADH 1572
UNCLAS SECTION 01 OF 03 RIYADH 000406
SENSITIVE
SIPDIS
STATE FOR EB/OMA (WHITTINGTON)
TREASURY FOR IMB (MURDEN, MONROE, BEASLEY)
E.O. 12958: N/A
TAGS: EAID ECON EFIN SA
SUBJECT: SAUDI ARABIA: INFORMATION FOR G-20 MEETINGS
REF: A. A. SECSTATE 17502
B. B. RIYADH 160
C. C. 08 RIYADH 1880
D. D. 08 RIYADH 1850
E. E. 08 RIYADH 183008
F. F. 08 RIYADH 1629
G. G. 08 RIYADH 1572
1. (SBU) Key points:
-- The Saudis have not publicly advocated specific
changes to the international financial system;
-- The Kingdom's greatest concern is to keep its
banks healthy, and to that end it has added
liquidity to the largest banks and stands ready
to do so again.
-- Due to the drop in oil revenues, some major
infrastructure and industrial projects
have been "delayed," but there have been no
prominent voices calling for protectionist
measures;
-- Saudi Arabia has passed a large, countercyclical
budget;
-- Saudi officials believe that the Kingdom can
withstand the current crisis for another "two
years" without serious repercussions; and,
-- Recently the Embassy has noted Saudis and local
expatriates have adopted an increasingly gloomy
assessment of the USG's ability to come to grips
with the financial crisis.
--------------
I. Run-up to the London Summit:
Questions A, B, C, and D
--------------
2. (SBU) Apart from bromides about "the need for greater
caution and tighter regulation of the financial markets" and
hopes expressed for an early end to the crisis, the KSA has
not publicly advocated specific fundamental changes to the
international system.
3. (SBU) We have picked up indications, however, that Saudi
Arabia now seems disinclined to broaden representation at the
G-20. The Kingdom relishes its status as the sole Arab
member of the G-20.
4. (SBU) The number of articles extolling the virtues of
Islamic banking over conventional banking have decreased.
Nonetheless, the KSA would probably garner public support if
it mentioned the principles of Islamic banking at the
upcoming G-20 preparatory meetings.
--------------
RIYADH 00000406 002 OF 003
II. Impacts of the Global Financial Crisis:
Questions E, F, and G
--------------
5. (SBU) The KSA's greatest concern is to maintain the health
of its banks. The most categorical statements the KSA had
made about the financial sector are that the Saudi Monetary
Authority (SAMA) stands ready to inject as much liquidity as
necessary to assure the solvency of local banks. In October,
SAMA reduced its key lending rate by 50 basis points, cut its
demand deposit reserve requirement from 13 percent to 10
percent, followed by directly injecting both U.S. dollars and
Saudi Riyals (SR) into local banks through deposits.
Further, for the first time, the Saudi Supreme Economic
Council explicitly guaranteed bank deposits.
6. (SBU) Of the 10 largest commercial banks, only Saudi
Hollandi bank reported an increase in its 4th quarter profits
over 2007, and this largely due to lower than normal profits
in late 2007. National Commercial Bank, the nation's
largest, reported a 4th quarter loss of $680 million,
primarily due to write downs following the acquisition of a
Turkish bank, Turkiye Finans Katilim Bankasi and the downturn
of the Turkish economy. Eight other banks reported either
losses or lower profits. In the wake of the poor performance
by local banks, SAMA further reduced its key lending rate to
two percent.
--------------
III. The Broader Economic Crisis:
Questions H, I, J, and K
--------------
7. (SBU) The resulting drop in oil revenues has caused the
"delay" of major projects throughout the Kingdom.
Businessmen throughout the Kingdom report that credit is very
difficult to obtain.
8. (SB) KSA officials have assured us that there is "no
discussion" about imposing new tariffs or raising current
ones. In fact, the KSA seems on track in its WTO commitments
to continue lowering tariffs. Inflation has slowed from a
high of about 11 percent last summer to around seven percent.
Nonetheless, popular discontent about the high cost of
living is increasing, but so far this dissatisfaction has
been directed at specific retailers such as auto dealers.
There has been no broader call for protectionism.
9. (SBU) KSA senior officials recently assured a delegation
from the New York Fed that the Kingdom intends to maintain
the $1/SR 3.75 peg.
-------------- --------------
IV. Near-term Outlook and Political/Foreign policy
Ramifications: Questions L, M, N, O, P, and Q
-------------- --------------
10. (SBU) In December, the Saudi Council of Ministers
endorsed the 2009 budget, the largest in the history of Saudi
RIYADH 00000406 003 OF 003
Arabia. It is widely viewed as countercyclical and
confidence building. The 2009 budget forecasts a deficit of
$17 billion, compared with a surplus of $157.3 billion in
2008.
11. (SBU) GDP growth for 2009 is expected to drop to as low
as 1.5 percent compared with 5.7 percent in 2008. Officials
in the Ministry of Labor reiterate their policy to fire
foreign laborers first to cushion Saudis, but are quick to
note that so far there have been no discernable reductions in
the Kingdom's six million person foreign labor force.
12. (SBU) The chief challenge presented by the financial
crisis is its impact on the real economy caused by the drop
in oil revenues, which itself stems from the fall in
international demand and economic activity. In a highly
unusual move, King Abdullah in December announced what he
deemed a "fair price" for oil: $75 per barrel. The
country's 2009 budget reportedly is predicated on an average
Saudi oil price of around $36 per barrel (equivalent to about
$43 per barrel for West Texas Intermediate crude). The
current price the Kingdom is receiving is around $34 per
barrel.
13. (SBU) Saudi officials tell us that that the Kingdom can
withstand the current downturn for another two years without
serious repercussions, but that a slump extending as long as
five years might prove problematic.
14. (SBU) The most likely effect the crisis will have on the
Kingdom's security policy and economic support for U.S.
interests will be an increasing difficulty in providing
financial assistance to troubled regions. To date, however,
the KSA has not pleaded the financial crisis in the context
of its foreign aid policy.
15. (SBU) In the past month, post officers have noted a
growing critical tone about USG "responsibility" and handling
of the financial crisis. In early February, the then SAMA
Vice Governor (later promoted to Governor) expressed to a
visiting New York Fed delegation his hope that the crisis
would result in a more integrated supervisory regime in the
United States. Expat economists, who were hitherto sanguine
about the Troubled Assets Relief Program to resolve the
crisis, have become more pessimistic, and even dismissive of
U.S. efforts.
FRAKER
SENSITIVE
SIPDIS
STATE FOR EB/OMA (WHITTINGTON)
TREASURY FOR IMB (MURDEN, MONROE, BEASLEY)
E.O. 12958: N/A
TAGS: EAID ECON EFIN SA
SUBJECT: SAUDI ARABIA: INFORMATION FOR G-20 MEETINGS
REF: A. A. SECSTATE 17502
B. B. RIYADH 160
C. C. 08 RIYADH 1880
D. D. 08 RIYADH 1850
E. E. 08 RIYADH 183008
F. F. 08 RIYADH 1629
G. G. 08 RIYADH 1572
1. (SBU) Key points:
-- The Saudis have not publicly advocated specific
changes to the international financial system;
-- The Kingdom's greatest concern is to keep its
banks healthy, and to that end it has added
liquidity to the largest banks and stands ready
to do so again.
-- Due to the drop in oil revenues, some major
infrastructure and industrial projects
have been "delayed," but there have been no
prominent voices calling for protectionist
measures;
-- Saudi Arabia has passed a large, countercyclical
budget;
-- Saudi officials believe that the Kingdom can
withstand the current crisis for another "two
years" without serious repercussions; and,
-- Recently the Embassy has noted Saudis and local
expatriates have adopted an increasingly gloomy
assessment of the USG's ability to come to grips
with the financial crisis.
--------------
I. Run-up to the London Summit:
Questions A, B, C, and D
--------------
2. (SBU) Apart from bromides about "the need for greater
caution and tighter regulation of the financial markets" and
hopes expressed for an early end to the crisis, the KSA has
not publicly advocated specific fundamental changes to the
international system.
3. (SBU) We have picked up indications, however, that Saudi
Arabia now seems disinclined to broaden representation at the
G-20. The Kingdom relishes its status as the sole Arab
member of the G-20.
4. (SBU) The number of articles extolling the virtues of
Islamic banking over conventional banking have decreased.
Nonetheless, the KSA would probably garner public support if
it mentioned the principles of Islamic banking at the
upcoming G-20 preparatory meetings.
--------------
RIYADH 00000406 002 OF 003
II. Impacts of the Global Financial Crisis:
Questions E, F, and G
--------------
5. (SBU) The KSA's greatest concern is to maintain the health
of its banks. The most categorical statements the KSA had
made about the financial sector are that the Saudi Monetary
Authority (SAMA) stands ready to inject as much liquidity as
necessary to assure the solvency of local banks. In October,
SAMA reduced its key lending rate by 50 basis points, cut its
demand deposit reserve requirement from 13 percent to 10
percent, followed by directly injecting both U.S. dollars and
Saudi Riyals (SR) into local banks through deposits.
Further, for the first time, the Saudi Supreme Economic
Council explicitly guaranteed bank deposits.
6. (SBU) Of the 10 largest commercial banks, only Saudi
Hollandi bank reported an increase in its 4th quarter profits
over 2007, and this largely due to lower than normal profits
in late 2007. National Commercial Bank, the nation's
largest, reported a 4th quarter loss of $680 million,
primarily due to write downs following the acquisition of a
Turkish bank, Turkiye Finans Katilim Bankasi and the downturn
of the Turkish economy. Eight other banks reported either
losses or lower profits. In the wake of the poor performance
by local banks, SAMA further reduced its key lending rate to
two percent.
--------------
III. The Broader Economic Crisis:
Questions H, I, J, and K
--------------
7. (SBU) The resulting drop in oil revenues has caused the
"delay" of major projects throughout the Kingdom.
Businessmen throughout the Kingdom report that credit is very
difficult to obtain.
8. (SB) KSA officials have assured us that there is "no
discussion" about imposing new tariffs or raising current
ones. In fact, the KSA seems on track in its WTO commitments
to continue lowering tariffs. Inflation has slowed from a
high of about 11 percent last summer to around seven percent.
Nonetheless, popular discontent about the high cost of
living is increasing, but so far this dissatisfaction has
been directed at specific retailers such as auto dealers.
There has been no broader call for protectionism.
9. (SBU) KSA senior officials recently assured a delegation
from the New York Fed that the Kingdom intends to maintain
the $1/SR 3.75 peg.
-------------- --------------
IV. Near-term Outlook and Political/Foreign policy
Ramifications: Questions L, M, N, O, P, and Q
-------------- --------------
10. (SBU) In December, the Saudi Council of Ministers
endorsed the 2009 budget, the largest in the history of Saudi
RIYADH 00000406 003 OF 003
Arabia. It is widely viewed as countercyclical and
confidence building. The 2009 budget forecasts a deficit of
$17 billion, compared with a surplus of $157.3 billion in
2008.
11. (SBU) GDP growth for 2009 is expected to drop to as low
as 1.5 percent compared with 5.7 percent in 2008. Officials
in the Ministry of Labor reiterate their policy to fire
foreign laborers first to cushion Saudis, but are quick to
note that so far there have been no discernable reductions in
the Kingdom's six million person foreign labor force.
12. (SBU) The chief challenge presented by the financial
crisis is its impact on the real economy caused by the drop
in oil revenues, which itself stems from the fall in
international demand and economic activity. In a highly
unusual move, King Abdullah in December announced what he
deemed a "fair price" for oil: $75 per barrel. The
country's 2009 budget reportedly is predicated on an average
Saudi oil price of around $36 per barrel (equivalent to about
$43 per barrel for West Texas Intermediate crude). The
current price the Kingdom is receiving is around $34 per
barrel.
13. (SBU) Saudi officials tell us that that the Kingdom can
withstand the current downturn for another two years without
serious repercussions, but that a slump extending as long as
five years might prove problematic.
14. (SBU) The most likely effect the crisis will have on the
Kingdom's security policy and economic support for U.S.
interests will be an increasing difficulty in providing
financial assistance to troubled regions. To date, however,
the KSA has not pleaded the financial crisis in the context
of its foreign aid policy.
15. (SBU) In the past month, post officers have noted a
growing critical tone about USG "responsibility" and handling
of the financial crisis. In early February, the then SAMA
Vice Governor (later promoted to Governor) expressed to a
visiting New York Fed delegation his hope that the crisis
would result in a more integrated supervisory regime in the
United States. Expat economists, who were hitherto sanguine
about the Troubled Assets Relief Program to resolve the
crisis, have become more pessimistic, and even dismissive of
U.S. efforts.
FRAKER