Dollar peg 'poses risk to economy'

Abu Dhabi: Soaring inflation resulting from the dirham's peg to the dollar is hurting the UAE's economy and could endanger national security if urgent measures are not taken to arrest surging prices, according to two prominent businessmen.

The government must renounce its foreign exchange regime and address the problem of inflation more seriously, Saeed Abdul Jalil Al Fahim, chairman of the Al Fahim Group, told Gulf News in an interview to be published tomorrow.

"In reality, I think inflation in the UAE is higher than 20 per cent, and this indicates that something is wrong," he said. Al Fahim added that economic activities are incurring losses due to the peg.

According to official estimates, the UAE's inflation rate is around 10 per cent. However, the International Monetary Fund revised its inflation estimate to 11 per cent in 2007.

Reuters reported yesterday that Aamer Al Fahim, a member of the Federal National Council (FNC) and director of the Al Fahim Group, said that the government should explain to the public why it remains committed to the dollar peg and clarify its course on currency policy.

He claimed the peg was not only stoking inflation, but also fuelling discontent.

"We need the government to be transparent in this matter, as we do not want our market to be unstable. There have been cases of violence, and this affects our security," he said.

Minister of State for Fin-ancial Affairs Obaid Humaid Al Tayer is expected to answer a question from Al Fahim on the dollar peg before a meeting of the 40-member FNC next week, the body's secretary-general said on Tuesday.

The dollar peg forces the UAE, and most of its neighbours in the Gulf Arab region, to track US interest rate cuts as the US tries to ward off recession, while Gulf economies surge on the back of a fivefold rise in oil prices since 2002.

His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime of the UAE and Ruler of Dubai, said on Tuesday a committee was studying the country's peg to the dollar, though it would be retained for now.

- With inputs from Reuters