The Gulf needs a new regional supervisory framework for banks that goes beyond measures being discussed by world leaders in Pittsburgh, according to the chief economist of the Dubai International Financial Centre (DIFC). Barack Obama, the US president, and his counterparts in the Group of 20 (G20) developed and emerging nations gathered in the US city on Thursday to discuss a plan to reform the global financial system and force banks to reduce leverage to avoid a repeat of the worst financial crisis in 70 years.
The fallout from the debt restructuring of the Saad and Al Gosaibi groups of Saudi Arabia has shown that the Gulf region would benefit from a regional framework for regulation, said Dr Nasser Saidi, the DIFC chief economist. "One of the lessons from the G20 for the Gulf could be the creation of a college of bank supervisors who would meet to exchange information on cross-border exposure, reduce the systemic risk associated with cross-border banks and better supervise the lending and other risks of groups such as Saad and Al Gosaibi," said Dr Saidi.
Between them, Saad and Al Gosaibi owe an estimated US$3 billion (Dh11.01bn) to banks in the UAE, with another $5bn to banks in Saudi Arabia. Regular meetings by banking supervisors from each of the GCC's central banks could also help lay the foundations for stronger corporate governance and risk management, he added. "The G20 will have a closer look at co-operation on cross-border banking, so as to mitigate spillover effects and transmission of shocks for banks with international exposures that could affect them in their domestic markets," Dr Saidi said.
Following the G20 meeting, the Bank for International Settlements (BIS), the organisation responsible for international monetary and financial co-operation, is expected to issue recommendations this year. The G20 meeting is also expected to give Gulf countries the opportunity to press for greater voting power in the IMF, which would give them a bigger say on international issues, including trade. The US is pushing for the G20 to agree on the issue of giving emerging market countries more voting rights in the IMF, a move supported by Saudi Arabia, the largest economy in the Gulf and the region's only member of the G20.
"We have the natural and financial resources and international reserves to play a global role and the G20 should be widened to allow for greater participation from the Gulf," Dr Saidi said. "But first we need to develop our voice on the international financial architecture, on regulatory issues, trade issues and capital markets so we can be heard. "We need to define our strategic interests, as China has been doing."
Gordon Brown, the UK prime minister, said world leaders would institutionalise the G20 as the world's main economic governing council. G20 leaders would meet regularly, with South Korea taking over the presidency next year, he said. "The G20 will take a bigger role in economic co-operation than the G8 has in the past," Mr Brown told reporters. He did not expect any discussion on the Chinese currency at this G20 meeting but said he would like to see China importing more. This would address one of the fundamental imbalances in the global economy. Currently, China is overdependent on exports and its huge savings have financed a debt splurge in the US and Europe.
"We would like to see China importing more from our countries," Mr Brown said. There were $7 trillion of foreign exchange reserves, he said, which were "not necessarily being used in a constructive way". tarnold@thenational.ae