RAY BEAUCHEMIN'S LETTERS FROM ABU DHABI
'The Arab Street' is a busy intersection
Commentary: Gulf states aren't of one voice but will share currency
By Raymond Beauchemin, MarketWatch, Jan. 6, 2009
ABU DHABI (MarketWatch) -- The situation in the Gaza Strip has dominated headlines around the world since late December, particularly here in the Middle East, where, many in North America might be surprised to know, Arabs and Muslims do not speak with one voice on Palestinian issues.
There really is no single "Arab Street" or "Arab World" reaction to the Israeli attacks on Gaza.
Egypt differs from Qatar differs from Syria differs from the United Arab Emirates differs from Saudi Arabia, all the way down the line. All of which makes sense, of course. All are different countries with different concerns
and relationships with the Palestinians.
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The attacks began on a Saturday, two days before members of the Gulf Cooperation Council (GCC) met in Muscat, the Omani capital. The meeting had been designed for the member countries -- the U.A.E., Oman, Kuwait, Qatar, Bahrain and Saudi Arabia -- to discuss joint infrastructure projects, security issues and monetary union.
Gaza threatened to hijack discussions of these issues, which would have been a shame, because, as important a topic as it is, there really isn't much the GCC can do about it, except, like Norway, for example, condemn the attacks. The GCC's military cooperation scheme, which is called the Peninsula Shield, has, in the 29 years since the GCC's founding, failed to form a force. Neither is there anything resembling an early warning radar system.
So the most the GCC can do is denounce the attacks and pay lip service to Palestinian suffering. Dubai, the U.A.E.'s nominal financial hub, canceled New Year's events. World of good that did. Abu Dhabi, the capital, did not. Shakira, the Colombian-Lebanese singer, went on stage outside the Emirates Palace Hotel as scheduled, though she was asked not to shake her hips so much.
When the Gaza debate finished, the GCC members got down to business.
It was announced that a Gulf-wide electricity grid, through which members will be able to buy or sell surplus power, will come online this month. And plans are continuing to develop a Gulf-wide 1,940-kilometre (just over 1,200 miles) high-speed rail network. Abu Dhabi to Doha in 90 minutes? I'm there.
Most importantly, the Gulf states reiterated their commitment to forming a regional monetary union -- a common currency -- in one year's time. The decision couldn't come at a better time. Members decided to peg their currencies to the U.S. dollar in 2003. The wisdom of that decision -- essentially handing the oars to someone else -- has been questioned in the past year, as the waters of the global economy have grown rough. The drop in value of Gulf stocks and the slowing of GCC economies have made the long-term benefits of regional cooperation strikingly apparent.
Formation of a common GCC currency now is the only way to regain control of the rowboat at a time when -- like the troubles in Gaza -- it is probable the situation will get worse before it gets better.
"If there is anything that we have learned from the financial crisis, it's that we need to protect ourselves. And there is no better protection than our getting together, having a common central bank and a common currency," Nasser Saidi, the chief economist of Dubai International Finance Centre, told the National newspaper in Abu Dhabi in late December.
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The GCC members in Muscat did not answer certain fundamental questions, however, such as: Where's the central bank going to be? And what base will the new currency have? Those decisions, they said, will be reached by the middle of this year. Saidi, however, had plenty of suggestions.
Again, speaking to the National, he said he could see the GCC changing the contents of its currency basket to reflect changing needs rather than a consistent dollar peg. He said a basket that was about 45% U.S. greenbacks, 30% euros, 20% yen and 5% pounds sterling would be ideal -- at least at this point. Later, once trading restrictions on them were lifted, the currencies of the world's fastest-growing economies -- China and India -- could be tossed into the mix, he said.
As for a name for this currency, Saidi proposed something neutral. The names dinar, dirham or riyal wouldn't work because each already has connotations and connections to existing Gulf members. He proposed the "khaliji," which means "of the Gulf."
He said he foresaw a value of about 3.51 to the dollar, which is slightly better than the 3.67 dirhams to the dollar in the U.A.E. now. And, he said, it would likely grow stronger because of the wealth of the GCC members.
He is right, of course, as are the GCC members to be pushing ahead. It was only 10 years ago, after all, that the members of the European Union developed their euro currency. The currency sank almost immediately, and many member states must have been scratching their heads, thinking, "Qu'est-ce-qu'on a fait?" But the countries stuck it out, thinking of the long term, and the currency is now one of the world's most stable -- and, by the end of 2008, almost at par with the British pound.
The GCC, which has been in talks recently with the European Union over a possible Gulf-E.U. free-trade pact, would be wise to continue on the road to monetary union. The E.U. is a good model. Last month, after the Gaza attacks, France, which held the union's presidency at the time, condemned Israel and immediately began work on developing a ceasefire proposal. The Czech Republic, which took on the presidency Jan. 1, took a different tack: Israel, it said, had the right to defend itself against Hamas rocket fire.
If an economic and political entity such as the E.U. can have such divergence of opinion on such an inflammatory topic, the fact that GCC members don't speak with one voice shouldn't be an impediment to its eventual monetary union. End of Story
Raymond Beauchemin is the deputy foreign editor of the National in Abu Dhabi. He has previously worked for the Gazette in Montreal, the Hartford Courant and the Boston Herald.