Crisis reveals need for new global economic system

The global financial crisis has overshadowed international economic relations and led to a change in many economic concepts and former positions.

The Western world's economy is sinking up to its ears in the global economic crisis and is trying to grab anything to save itself.

This may even lead many Western countries to abandon some firm policies that they took earlier this year.

Just four months ago, many Western officials, especially from the United States and Britain, gave us lessons on how they can protect their nationally and strategically significant economic institutions when they stood firmly against selling the assets of some of these institutions to the sovereign funds owned by China, Russia and Gulf countries.

They even took practical steps to prevent the completion of some acquisitions, such as the campaigns launched by the US Congress against the conclusion of these acquisition operations.

Earlier this week, British Prime Minister Gordon Brown arrived in Riyadh on a tour of the Gulf region to ask some GCC countries to contribute to resolving the economic crisis to prevent it from spreading to productive economy, through pumping more liquidity. He highlighted the historic relations between his country and Gulf states.

Prior to Brown's visit, Robert Kimmitt, Deputy Secretary of the US Treasury Department, visited GCC countries to ask for help, but Brown's visit gains more significance because it came after China turned down a similar call for help from the Europeans, especially France, during the 7th Asia-Europe Meeting Summit (ASEM7) in Beijing in October.

During the summit, French President Nicholas Sarkozy called on China to pump some of its $1,900 billion (Dh6973 billion) liquidity to help Western countries, which was accepted by China on condition that the global financial system would be revised to allow the Asian giant to play a role that is proportionate to its economic power.

The world today is not what it used to be before the crisis.

This applies here too, especially that many GCC corporations faced obstacles when they attempted takeovers in 2007 and 2008.

Hurdles had prompted some GCC companies to withdraw from important deals due to the fierce opposition of legislative and executive bodies in the UK and the US.

Therefore, the Gulf response is expected to include two important aspects the first of which is a wider participation by Gulf countries in the new world financial system, which is being considered in Europe.

This means playing a more effective role in international organisations such as the World Bank, for which Brown was seeking additional financial support.

The second aspect is related to guarantees that can be offered by the West for foreign investments.

This is because the huge cash surplus resulting from high oil prices in the past four years is extremely important for GCC economies, which may get affected by any possible decline in oil prices in case they drop to $50 or $40 per barrel.

In short, the demands of countries that own sovereign funds in Asia and the Gulf region are evolving around the necessity of creating a new system that governs relations between countries within the new global economic system.

Dr Mohammad Al Asoomi is a UAE economic expert.