AGCC Muscat Summit 2008 – Tough task ahead
Though the monetary union agreement has been approved at the Muscat Summit, the launch of a common currency by January 1, 2010, is going to be a tough task for the AGCC states. Akshay Bhatnagar reports

The Arab Gulf leaders would have preferred a better global political and economic environment to hold the two-day long 29th Summit of the Supreme Council of the Arab Gulf Co-operation Council. With Israel’s continuous air strikes on Gaza killing hundreds of civilians and the crude oil prices hovering well below $40 per barrel in the international market, the head of states of Saudi Arabia, UAE, Kuwait, Qatar, Bahrain and the host Oman couldn’t achieve some of the desired results which were expected from the Summit.

On the positive note, the Supreme Council approved the much anticipated monetary union agreement. An official statement issued at the end of the Summit specified, “The Council also approved the monetary union agreement, which covers the legislative and institutional frameworks. It has also approved the basic statue of the monetary council, calling for quick approval of the agreement, so as to establish the monetary council which will undertake the task of working out the technical requirements for the monetary union, in a bid to establish the Central Bank and launching of the single currency.”
 

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However, the establishment of monetary union is not going to be an easy task even from now onwards. Oman had declared in 2006 that it will not be part of the monetary union and there has been no change in its stand on the tactical move, so far. The members of the AGCC will have to ratify the agreement in 2009 before the monetary union could become a reality. There are couple of other tricky issues that need to be sorted out. The member states are yet to arrive at an agreement on the location of the central bank. Atleast four states including Saudi Arabia, UAE, Qatar and Bahrain are keen on hosting the central bank according to a statement given by Mohammad Al Mazroui, assistant secretary-general for economic affairs of AGCC to a prominent Dubai-based daily.

Saudi Arabia’s claim on the location of the central bank seems to be the most legitimate one as it is the largest economy (2008: estimated nominal GDP of $480bn) in the region. If we look around, the central bank of European Union is located in Germany, the largest economy of the bloc. But UAE, Qatar and Bahrain’s quest to position themelves as the financial hub of the region will take a beating if Saudi Arabia gets the central bank.

The AGCC also needs to finalise the name of the new common currency. Though Al Khaliji is speculated to be the name of the new currency but HE Abdul Rahman bin Hamad Al Attiyah, secretary-general of AGCC has categorically stated that no name has been finalised yet and it is expected to be decided in 2009, most probably before the end of the year. The currencies to which the new common currency will be pegged is another highly sensitive issue that needs to be tackled. As of now except Kuwait, all the other five Arab Gulf countries’ currencies are pegged to the US dollar. Kuwait had dropped its dinar peg to the greenback in 2007 in favour of a basket of currencies including the Euro, Yen and British Pound as well. Despite their close relations with the US and the strategic economic compulsions, the Gulf states can’t ignore the fact that the dollar is losing its sheen and they need to reassess their economic interests in a challenging global monetary environment.

Way ahead
The member states have time up to December 2009 to give their nod for the monetary union agreement. Interestingly, the AGCC has a target of introducing the new common currency by January 1, 2010. The secretary-general has denied that there has been any change in the launch date. With hardly 12 months to go, it is going to be a daunting task for the AGCC!

No decision has been taken on banning the unskilled expatriate workforce that has spent more than five years in the AGCC states. The secretary-general informed that in the Muscat Summit they have not arrived at any conclusion and the matter is under discussion. Though details of the specific actions taken on many matters are not available but as per the official statement, “The Council has also reviewed the progress made in the AGCC Common Market, approved the market’s document which includes its principles, requirements, objectives and implementation mechanisms and resolutions taken in its regard. It stressed on the importance for its implementation in a manner that achieves maximum benefit for the AGCC states and citizens. The Supreme Council also discussed the march of economic integration among the AGCC states through the follow-up report submitted to it regarding the work progress made in the Customs Union, the Common Market, the Monetary Union and the long-term comprehensive development strategy 2000-2025, the water link project between the AGCC states, the railway project and study of its economic feasibility, the smart card and its usage to facilitate movement of the citizens.” Yemen which has been knocking on the doors for an entry into the AGCC for long, has been granted membership of the AGCC Standardisation Authority and Gulf Organisation for Industrial Consultancy, the AGCC Auditing Authority and Gulf Radio and TV. It will pave the way for its full membership at a later date.

The Summit has been hailed as a success by many but some of the industry leaders have a different opinion too. Talking to a Dubai based daily, Sheikh Sultan bin Saud Al Qassimi, chairman of Barjeel Securities said, “The people of the Gulf were looking forward to more concrete results from the GCC Summit which after all only occurs once a year. The monetary union agreement will only come into effect on December 12, 2009, weeks before the expected launch of a single currency which is looking less and less likely. There was no accord on the location of the central bank, the name of the currency or its make-up. The people of the Gulf were expecting a coordinated effort to tackle the effects of the global financial crisis on the region at least but it was not the case either. I think overall it is a very disappointing summit.”

Though Sheikh Sultan may have had extremely high hopes from the Muscat Summit but there is no doubt that the Muscat Summit despite the approval of monetary union agreement has left many questions unanswered!

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