Riyadh, Asharq Al-Awsat- Saudi Finance Minister Ibrahim al-Assaf has expressed confidence in his country’s economic situation, stressed that no worrying indicators have been observed, and asserted the continued implementation of the projects and programs included in the budget by saying “we have the ability to continue this.” He pointed out that his country has both the flexibility and capability to change if conditions changed and believes in the need to continue the investment programs sanctioned by the budget, adding that it is ready to take measures that ensure the full implementation if the need for this arises.
Al-Assaf expected the Saudi economy to continue its good performance compared to many economies in the world and praised the financial and monetary policy that is followed saying the good and effective control and supervision by the Saudi Monetary Agency [SMA] over the banks have had a positive effect on limiting the impact of the financial crisis.
In an extensive interview with Asharq al-Awsat Al-Assaf said the G20 summit represents a follow up of what has been implemented of the action plan and the ongoing developments in the global economy following the stimulus package of all the group’s countries. He pointed out that there would be more focus on the anticipated results of this stimulus on restoring confidence and improving economic indices and added that four questions would be asked forcefully at the summit’s table if the policies being implemented by the countries have not achieved what was expected of them, especially in the developed countries, and these are the reasons, the need for new policies, what is the message to the world, and the vision of the prospect of the future economy.
The Saudi minister did not hide his worry from what the global economy now commonly calls “trade protectionism” which some countries have included among the stimulus package when they announced that purchases should be of local origin. He pointed out that there would be great damage to world trade and to developing and rising countries if this policy was followed. Other details of the reality concerning the Arab economic integration, the proposals to develop it, oil prices, and the local Saudi economy’s dossiers are in the following interview:
[Asharq Al-Awsat] It was reported that The G20 summit currently taking place in the British capital would discuss the resumption of lending activities by reviving it after having gone through almost stagnation and also discuss the international financial policies and governmental expenditures. Can we have the most prominent proposals for these two issues?
[Al-Assaf] The G20 summit in London follows the Washington one which approved a statement that included what policies the countries had taken and would take to stimulate their economies through a detailed action plan that included what should be done in the short term which was set at the end of March 2009 in terms of developing the accountability and supervisory of the financial institutions criteria, strengthening cooperation between the institutions that draw up these criteria, improving the risk management in the financial institutions, and expanding the membership of the financial stability forum to include the 20 countries, Saudi Arabia among them. For the long term, the plan called for developing the accountability for these institutions, a unified global criteria, and strengthening the IMF’s supervisory role. Therefore the London summit is one of following up what has been achieved of the action plan, reviewing the global economy’s development in light of the stimulus packages which all the group’s countries have approved, and finding whether these have achieved the desired result of restoring confidence and improving the economic indices or whether the crisis has exacerbated and the policies implemented by the countries have not achieved what was hoped for, especially in the developed countries, the reasons for this , whether there is a need for other policies, what message should the London summit have for the world, and what is the group’s vision of the global economy’s prospects during the immediate coming period?
[Asharq Al-Awsat] What about Saudi Arabia’s participation in the summit? Is it presenting proposals or visions that can restore vitality to the global economy and rectify its past mistakes?
[Al-Assaf] As a member of the group, the Kingdom of Saudi Arabia takes active part in the meetings of the finance ministers and central banks governors at all levels: Experts, undersecretaries, and ministers. The custodian of the Two Holy Mosques took part in the group’s first summit which was held in Washington on 15 November 2008. His participation was accorded a unique welcome and his speech had broad impact. He referred to the causes of the crisis, from the uncontrolled globalization to the shortcomings in supervision, and the markets’ urgent need for supervision, including the financial markets. The kingdom’s views as presented to the summit’s preparatory meetings are represented by the need to reform the financial sector in the damaged countries and this could be a precondition for the stimulus to have the desired results. Saudi Arabia therefore asserted at these meetings — whether through its interpositions at these meetings, its written observations to the group’s secretariat (which at present is Britain as it chairs the G20 for this year), or the statements issued by the group — the need to reform the financial sectors and to strengthen the supervision of financial markets and tools and widen it to include all the markets, including the reserves and the credit classification establishments. It also underlined the need to take the expansionist financial and monetary policies that contribute to the restoration of confidence and economic growth. It warned of the consequences of resorting to protectionist policies and restrictions on trade and investments because of the negative effects that these have on the global economy’s growth, especially developing countries that are dependent on exports.
[Asharq Al-Awsat] You fear the so-called “trade protectionism” in view of the emergence of calls for it, especially the imposition of tariffs or subsidies for exports, which contravenes the World Trade Organization’s rules and damages the global economy, and you mentioned that this would be discussed at the London summit. Might we know the most important points which might be presented within this context?
[Al-Assaf] Indications of a disposition toward trade protectionism started to surface following the appearance of signs of economic recession and an increase in the unemployment rates as a result in several countries and this is really worrying. Several countries made it clear in their stimulus packages that purchases should be of local origin. If countries, especially the developed ones, follow this policy, then the damage to world trade and to developing and rising countries will be great, especially those depending on exports. This will put the whole world in a worse position instead of a better one, particularly if the damaged countries took reciprocal action. Saudi Arabia therefore asserted in the custodian of the Two Holy Mosques’ speech that it was necessary to act to continue the liberalization of trade and investments which improved the world’s living standards during the past decades and also rescued millions from poverty. At the group’s recent ministerial meeting which was held in Horsham, Britain, I asserted on behalf of the kingdom this approach and our hope that this disposition would not prevail and turn into a concrete reality because of the damages it would cause to everybody.
[Asharq Al-Awsat] Despite the devastating global financial crisis, the Saudi economy has not been affected as much as many other countries and there are even reports pointing out that the kingdom’s economy is considered among the best in the world in the face of the crisis. To what do you attribute this?
[Al-Assaf] It is first due to the grace of God Almighty and then to the wise economic policy of the Kingdom of Saudi Arabia’s government under the leadership of the custodian of the Two Holy Mosques and his highness his faithful crown prince. The kingdom followed a balanced economic course based on economic reform and modernization and the strengthening of the private sector’s role. The government also benefited from the improvement in oil prices during the past few years to pay back the public debt and spend on the material and social infrastructure projects. This stimulated the economic growth. The government was keen to build the reserves so as to deal with any fluctuations in revenues. This policy contributed to the achievement of the positive economic indices. Public debt was reduced to a large extent and the good revenues allowed the approval of the biggest budget in the country’s history this year and it saw a large increase in investment that reached 36percent. In the monetary policy sector, Saudi Arabia adopted an expansionist policy to deal with the shortage of liquidity in the local market. Moreover, the SMA’s good and effective control and supervision of the commercial banks in the kingdom had the positive effect of limiting the impact of the crisis on the Saudi banking sector. The governmental financial institutions are continuing their loans to projects more speedily than before and the percentage of loans for projects by the General Investment Fund was raised from 30 to 40 percent. These policies undoubtedly helped reduce the impact of the crisis on the Saudi economy. We are expecting our economy to continue its good performance compared to many global economies.
[Asharq Al-Awsat] Despite its great economic influence, Saudi Arabia remains outside the G8 summit. Following the recent developments in the world, do you believe that the G20 can pull the rug from under the feet of theG8’s summit?
[Al-Assaf] Many countries are still outside the G8 like China, India, and Brazil. There were various proposals to enlarge this group to become the G13 or G14. Generally speaking, this crisis proved the eight countries’ need for the cooperation of the economically-important rising countries in the G20 group. It is therefore obvious that the view was taken that the G20 is the better forum for discussing the global economic issues because its membership is more representative of the global economy. Its members represent around 85 percent of the global national product and two thirds of the earth’s population. The group has proved since its establishment its ability to build international consensus on important issues related to the structuring of the global financial system and the reform of the international financing institutions.
[Asharq Al-Awsat] Putting aside the London summit, politics dominated over economic affairs at another summit, the Kuwaiti economic summit, and the latter did not take resolutions giving impetus to economic integration. You had referred in the past to obstacles facing the Arab economy. What are the reasons which you believe affected the Arab economic integration?
[Al-Assaf] Regrettably, Arab economic cooperation has not risen to the desired level despite the attempts to develop and raise it. There are several reasons for this, among them the difference between the Arab countries in economic policies, approaches, and systems, the similarity of productive structures in them, the absence of the adequate political support for developing this cooperation in several Arab countries, and the prevalence of political affairs and their impact on economic cooperation and integration projects and programs. Attempts were made to revive and vitalize Arab economic integration and these succeeded partially. One of these successful attempts was the establishment of the greater Arab free trade zone despite the obstacles it is facing, like not reaching total agreement on the rules of origin. But what has been achieved is considered a success compared to previous attempts. Action is underway at present to develop this zone by removing all the obstacles and impediments from the way of inter-Arab trade and reaching an Arab customs union, which the Kuwait summit approved. This decision was one of the most important economic decisions made at this summit. Efforts are also continuing to encourage inter-Arab investments and we hope that the Arab countries will be able to overcome the difficulties facing the development of the Arab economic integration as this is the guarantor of stability and strengthened relations between the Arab countries and an incentive for Arab economic growth and development. On the other hand, the Kuwait summit approved what looks like a roadmap for developing the joint Arab economic action through the Kuwait declaration and action plan. The decisions included vital fields of trade, investment, land transport, and railroads. There is no doubt that what was approved reflects high aspirations but it is important to continue the good action and implementation and deal with any obstacles or impediments hampering the implementation. Even if this implementation is slow, it is still the objective that is important. I remember what was said when the executive program for the greater Arab free trade zone was approved, namely, that the implementation would be slow and over 10 years. But now this program has been completed, praise be to God, and what remains is to build on what has been achieved to develop it.
[Asharq Al-Awsat] What proposal can you offer to raise this integration to higher levels, especially as the Arab region has had a unified Arab market since 2005 and yet the levels remain way below the Arab citizen’s hopes?
[Al-Assaf] One of the things that must be taken into consideration is the gradualism in implementation, the availability of the technical preparations for it, and the political commitment to implement the decision. This requires a critical review and an in-depth study of the integration projects that are proposed, internal coordination in each country and having them approved before taking the collective decision on them, an understanding of the implementation problems in all participating countries and the need of some of them for longer time to be able to implement the decision in full, and the provision of technical assistance to the countries that need it as well as activation of the follow-up mechanisms.
[Asharq Al-Awsat] Locally, oil prices saw during the past period dramatic events that made them drop by around 70 percent during a very short period of time and hence the prices got very close to the estimates of many economists about the Saudi Arabia’s calculation of oil prices in its budgets which might lead to a greater deficit than expected in it 2009 budget. How can Saudi Arabia balance between expenditures and revenues so as not to cause greater deficit, or in other words, is it possible for the government to resort for example to borrowing or to covering the difference from the reserves?
[Al-Assaf] We are continuing with the implementation of the projects and programs included in the budget and have the ability to continue to do so. The financial year is still in its early days and we have not observed any worrying indicators. We have the flexibility and capability to change if – God forbid – conditions changed in a negative way. The one thing we are keen on is to continue with the investment program as approved by the budget and if there is a need to take measures to ensure full implementation then we are ready to do this.
[Asharq Al-Awsat] Talking about the Saudi budget, what are its indicators during the first quarter?
[Al-Assaf] As I said in my answer to the previous question, we do not have indicators that are different from what is targeted. By virtue of its specialization, the ministry is watching very closely and with the various government quarters the expenditures and revenues and how much they are in line with the budget. All the indicators we have are assuring.
[Asharq Al-Awsat] To strengthen transparency which the custodian of the Two Holy Mosques has called for and stress it constantly, Saudi Arabia always postpones the publication of some indicators about the Saudi economy to the budget statements, that is, at the end of the year. Why they are not published for example quarterly?
[Al-Assaf] There is a qualitative and quantitative development in the statements and statistics about the Saudi economy. The General Statistics and Data Authority [GSDA] exerts, together with the concerned government quarters, great efforts to publish the statistics and indicators. Many economic statements are published weekly, monthly, and quarterly and they include the monetary and fiscal ones, foreign trade statistics, and the balance of payments. The SMA publishes them in its bulletins and on its internet website. Observers understand the extent of the qualitative development taking place but this does not mean there is full satisfaction with what has been achieved but there is a desire to develop further. In view of the development program being implemented by GSDA, we are optimistic. But all must work to reach the desired goal by meeting all the criteria for publication and periodicals in accordance with the cabinet’s decisions and in line with the international developments.
[Asharq Al-Awsat] Going back to the global financial crisis, has it affected the government’s plans to privatize some sectors which it had named along time ago?
[Al-Assaf] The privatization program is proceeding according to plan and there is no doubt that the current crisis imposes itself when such issues are discussed but this does not impeded the program whose implementation depends on the availability of the technical elements. As an example that this program is proceeding according to plan, the cabinet approved at its session on Monday 19 Rabi al-Awwa 1430 Hegira, the establishment of a holding Saudicompany under the name of the “Holding Water and Electricity Company” for the purpose of investing in water and electricity generating projects which are owned by the General Investment Fund – the Saudi Government’s investment arm -or in which it has shares. This is the best evidence that the government is continuing with its privatization program and its enthusiasm for its success by providing the technical and economic elements for its success. The aim is not just to transfer ownership from the government or management to the private sector but to have more revenues than if the government continued to have ownership or management or both.
[Asharq Al-Awsat] What about the government’s shares in some companies whose shares will be offered for public subscription, like for example Al-Ahli Bank and the share which the General Investments Fund had bought in the Samba financial group – formerly the Saudi-American Bank – after the Citi Bank’s withdrawal from the group in 2003?
[Al-Assaf] What I said in my answer to your previous question applies to this issue. The aim of privatization is to improve the service by developing the establishment put up for privatization. This requires the provision of the technical elements in the establishment itself which help the success of its privatization and also the provision of the economic elements which help achieve this success. The establishment might be technically ready for privatization but the prevailing conditions might not help its success. Hence the government is studying very closely through the Higher Economic Council the availability of these elements because failure in privatization will have negative consequences for the process itself and this is what we do not wish or desire.