A surge in oil prices over the past five years has pumped a staggering $236 billion in extra funds into the coffers of the six-nation GCC, but such a windfall should not be a substitute for badly needed economic reforms, experts said.

As they enter the second year of their landmark customs union and set off towards the historic monetary union in 2010, the Gulf Cooperation Council (GCC) needs to intensify economic restructuring programmes that have largely slowed down over the past few years because of the surge in oil income.

"This is the problem in the region. When oil prices are low, reforms in the GCC gain pace and when they increase, the reforms lose momentum, as if reforms must be linked to oil prices," said Kuwaiti econ-omist Jassim Al Saadoun.

"In my opinion, reform programmes should be stepped up when oil prices are high because this will allow member states to finance restructuring programmes and at the same time attract investment since local and foreign investors are tempted by the strong economic and fiscal system of any country."

In the absence of real progress in reforms in the GCC, the economies and fiscal balances of the six members have remained highly vulnerable to oil prices as crude sales provide more than two thirds of their income.

Despite a steady expansion in the private sector, which exceeds half the gross domestic product in some members, public spending is still the wheel of economic activity in the 23-year-old economic, defence and political group.

Most members have announced major privatisation programmes but only a fraction of them has been implemented, mainly because of the sharp rises in oil revenues and the reluctance of some governments to quit profitable enterprises.

The six members are also still imposing restrictions on foreign capital despite its decisive role in growth, job opportunities and economic diversity.

"For years, privatisation and attracting foreign investment have formed the main feature of GCC's economic policies given their major role in economic growth," said the UN's Economic and Social Commission for Western Asia.

"But such a process has remained gradual. In most cases, it is still a hesitant operation despite the important developments in the global economy. Without privatisation and major capital flow, the GCC countries will face obstacles in spurring growth and finding jobs for their nations since oil prices are highly volatile and the oil sector has never been a major job provider."

Oil prices have averaged between $23 and $28 a barrel during 2000-03 and are heading for even a higher level this year. The price is in sharp contrast with its level in the previous five years, when it averaged below $17 in some years and tumbled to $10 in 1998 due to a production and price war.

Between 2000 and 2004, the combined income of the six members is projected to climb to around $634 billion from nearly $398 billion during 1995-99. This means they will earn around $236 billion in extra income.

The surge has largely supported their economic and fiscal systems that has been severely hit in previous years, with their budgets recording surpluses or tiny deficits over the past five years and their official reserves peaking at around $52 billion at the end of 2003, more than double the level at the end of 1998.

Their gross domestic product has also raced at between five and 15 per cent over the past five years compared with negative growth in the previous five years.

"Most GCC states have announced reform programmes but they have made no substantial prog-ress because they have been slow and shy," Saudi economist Ihsan bu Hulaiga said. "What they need is a real desire, a clear strategy and a strong determination to carry out large-scale reforms at a quicker pace."

In a recent study, the International Monetary Fund said the GCC needs to pursue reforms because the customs and monetary union would ensure their success. "The planned monetary union of the GCC countries will reinforce the beneficial effects of those reforms and sound macro economic policies."

"The monetary union is likely to promote policy coordination, reduce transaction costs, and increase price transparency, resulting in a more stable environment for business and facilitating investment decisions.

"However, although direct gains, such as increased intraregional trade, from the union might be relatively small for these countries, indirect gains could be more important; in particular, the introduction of a common currency is likely to boost job chances, and enhance growth prospects by contributing to the unification and development of the region's bond and equity markets, and by improving the efficiency of financial services."