Gulf States Consider IMF Requests During Domestic Turmoil

Just a few months ago, the Gulf states were rolling in oil money as crude soared to record highs.

Now, their domestic economies are in turmoil, as falling oil prices have also depleted coffers in some of the region's wealthiest countries, including Saudi Arabia.

The oil-rich Gulf states' fortunes are changing just as the West turns to the region for help.

British Prime Minister Gordon Brown is wrapping up a trip through the region asking for "hundreds of billions of dollars" to help the cash-strapped International Monetary Fund rescue a growing number of countries from imminent bankruptcy. Raising the stakes, Mr. Brown has promised Gulf leaders more pull at the IMF if they donate funds. "I very much accept the argument that countries that contribute in this way should have a greater say in the governance of the IMF," he said at an oil conference in Abu Dhabi yesterday, the first time he has spoken publicly on the issue.

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But as Gulf states retrench their own economies against fallout from the credit crisis, domestic problems could trump the needs of the troubled Western economies which are seen as the source of the problem.

Saudi Arabia is already one of the largest contributors to the IMF. But when it comes to doing more to bail out ailing economies, analysts say Gulf states might prove more reticent, preferring to funnel money through other channels, such as the OPEC Fund for International Development, where they already hold sway.

"Our priorities are not the same as [Mr. Brown's]. We have to think about our own economies first," said Ihsan Buhulaiga, a leading Saudi economist based in Jeddah.

"If his expectation is these states have lots of cash to throw around, he is in for a big surprise," Mr. Buhulaiga said. "The help will be there, but not at the level he might hope for," he added.

Gulf rulers have had to adapt to their changed circumstances. In Saudi Arabia, infrastructure and public services started crumbling even before fallout from the credit crisis prompted the government to extend special credit to its neediest citizens.

A large chunk of Saudi's petrodollars are already being funnelled into a $500-billion (U.S.) plan aimed at diversifying the Kingdom's economy away from oil.

Saudi is building a constellation of 'Economic Cities' meant to create millions of jobs and lure industry from overseas, but the economic downturn has rulers nervous.

Mr. Brown expressed confidence the funds will be forthcoming.

However, it remains unclear whether his words will be enough to persuade Gulf leaders from Saudi Arabia, Qatar, the United Arab Emirates to donate hundreds of billions. Analysts in the Gulf say while Mr. Brown won't leave empty-handed, the money will fall short of his hopes.

The economic crisis has already made the West more dependent on Gulf states, which hold huge reserves of money in sovereign wealth funds.

Mr. Brown's visit comes after Barclays, one of Britain's largest banks, announced that it had received a £5.8-million ($10.8-million) infusion from Abu Dhabi and Qatar.

But Gulf states may become even more reluctant to invest in those kinds of deals as they retrench.

"The confidence has collapsed," said Mustafa Alani, senior adviser and research program director at the Dubai-based Gulf Research Center.

"It's a wait-and-see time and whether it's sovereign wealth funds or private investors, the whole environment is holding on to its cash."

As Mr. Brown wraps up his Gulf tour today in Dubai, he will press the case that the global downturn will deepen unless oil-rich states step up and pitch in.

"It is in all our interests to stop this contagion and to rebuild confidence in the global financial system," he said yesterday.

"I very much hope the Gulf states will be able to contribute to these efforts."

Author: Jo Amey