Treasury Boss Courts Mideast, Sees Gradual Rebound

Wait. . . Didn't they run on getting away from foreign oil? And does he really believe the Stimuless is a "sustainable fiscal path"?

Should have added his picture to my post yesterday.

Naharnet h/t Her Royal Whyness:

Treasury Boss Courts Mideast, Sees Gradual Rebound

U.S. Treasury Secretary Timothy Geithner reached out to Gulf Arab leaders Tuesday, stressing to some of America's top creditors that his country has a "special responsibility" to steer the world through a global recession that may finally be showing signs of easing.

A key aim of Geithner's trip is to convince the major oil producers that the U.S. still welcomes their business, and has plans to get itself out of a crisis stemming from what he said was an "unsustainable fiscal path."

"The force of the global recession is receding," Geithner told Saudi Arabian business leaders in the commercial hub of Jiddah, the starting point of his first official visit to the Middle East. "Global trade is just starting to expand again."

But while noting that the International Monetary Fund has revised up growth forecasts in the second half of 2009 and into 2010, he cautioned that the signs of improvement were fragile and that the "process of repair and recovery is going to take considerably more time."

"This crisis has been brutal in the extent and severity of damage to economies around the world," he said. "Given the extent of damage to financial systems ... it seems realistic to expect a gradual recovery, with more than the usual ups and downs and temporary reversals."

Geithner's Mideast trip was billed as a follow-up to President Barack Obama's recent overtures to the region. But the stop in the Saudi Arabia — the Arab world's largest economy and OPEC's de facto leader — is also a clear reflection of the growing financial clout of the six-nation Gulf Cooperation Council.

The treasury secretary arrives for talks in the neighboring United Arab Emirates, the No. 2 Arab economy, on Wednesday.

What Geithner has to say in private to officials in the oil-rich region could help determine whether the Obama administration's efforts to right the U.S. economy succeed. The Arab Gulf states are major backers of U.S. companies and government bonds and, as a group, are the biggest U.S. creditor after China.

As the American economy has weakened, it raised questions as to whether the dollar could remain the world's top reserve currency, a key issue for the heavily leveraged U.S. with a deficit that recently topped $1 trillion for the first time. The slowdown also increased concerns that major foreign creditors could look to more lucrative investments in strong developing economies outside the U.S.

"The (Gulf) countries have a big stake in the financial stability of the United States. They're a big creditor," said Nasser Saidi, chief economist of the Dubai International Financial Center. "The earlier you bring the Gulf and the Middle East onto the agenda, the better."

The Gulf states' wealth skyrocketed during oil's earlier boom years, but they have grown increasingly concerned as crude prices and the value of their investments soured.

Five of the GCC nations — Saudi Arabia, the UAE, Oman, Bahrain and Qatar — peg their currency to the dollar. Kuwait uses a basket of currencies that includes the greenback.

"This is a visit to really re-emphasize U.S. leadership and U.S. pre-eminence in the world economy even in the midst of this global downturn," said Tarik Yousef, dean of the Harvard-affiliated Dubai School of Government. "The last thing the U.S. wants is for people to lose confidence in its policies and its currency."

Geithner, who was in London on Monday, said the Obama administration is committed to preserving the openness of the U.S. economy. He said the U.S. realizes it has "a special responsibility" in protecting the value of the dollar, which remains the world's dominant currency.

He was to hold talks with Saudi King Abdullah and his top financial advisers later Tuesday, and will meet with officials from the UAE's powerful state investment funds on Wednesday. From the Emirates, he heads to Paris.

In Saudi Arabia, Geithner laid out a four-point strategy that he said is essential for economic recovery.

It includes stabilizing and repairing the U.S. financial system, helping offset the dramatic contraction in demand, working with the major economies of the world on a coordinated program of macroeconomic stimulus and financial stabilization and focusing on the future by building a stronger and more productive economy.

"In the United States, we need to make sure that as we rebuild, we build a stronger and more productive economy, less prone to crisis, with the gains of growth more broadly shared," he said, adding that the government was determined to cut the deficit once officials were sure the global crisis was over.

America "was on an unsustainable fiscal path before this crisis, and we will not succeed in establishing sustainable recovery without a credible commitment to address our long-term deficits," he said. (AP)

Beirut, 14 Jul 09, 19:38