GCC decision will cool pressure on currency

Dubai: The GCC leaders' decision to act individually on the revaluation is likely to douse off mounting pressure on the currency, an economist said.

Dr. Belaid Rettab, director of Dubai Chamber of Commerce and Industry's (DCCI) Data Management and Business Research (DMRD), also urged some quarters to stop speculating on a revaluation as it can seriously hurt the local economy.

“The decision to act within the framework of GCC is very much relaxing. I hope that announcement has relaxed the pressure on the currency and the speculation would not be that intense so that the government can take some time to take the accurate decision,'' Rettab told Gulf News on the sidelines of yesterday's economic forum organised by DCCI and DMRD.

“The speculators have been speculating so far without any control and that is dangerous to the economy. If you give more power to the speculators, they will start undermining the confidence of the investors,'' Rettab added.

He said the easiest way to address inflation is revaluation because it will help “electrify much of the negative impact that the dollar peg has result in, such as the imported inflation which has been estimated to equal about 15 to 20 per cent.''

“In the medium term, the solution should be something like a basket of currencies and in the long term, some kind of a float system,'' he added.

However, Rettab said the government doesn't have to revaluate the dirham if its soul purpose is not only to address inflation, because a weak local currency can help boost exports and attract more indirect investments.

“So it depends on the general goals of the government. It's not an easy decision to make. The whole exercise is very tedious and it will take much time before things are clear,'' Rettab explained.

Discussions on the GCC currency peg kicked off yesterday's DCCI forum in the wake of the recently concluded Doha Summit and the integration process of the GCC Monitary Union (MU) that is slated for a 2010 launch.

Experts said factors like disparities in inflation, interest and exchange rates undermine the convergence of economies in real terms, as the GCC MU was threatened by the changing structures of the GCC economies.

In 2004, the GCC countries agreed to adopt the official convergence criteria of the EU but research found this criteria to be almost unbinding for the members.

Experts felt that the considerable disparity in the countries' oil revenues and gas reserves would “inevitably impact the structure of the economies in the future'' while the “fiscal budgets between the resource-rich and the resource-poor countries'' are seen as debilitating factors.