JEDDAH/DOHA, 3 December 2007 — Custodian of the Two Holy Mosques King Abdullah will lead the Kingdom’s delegation to the 28th GCC summit, which is scheduled to start in the Qatari capital of Doha today, the Royal Court announced yesterday.

The two-day summit will discuss major economic and political issues, including Iran’s nuclear standoff with the West, terrorism, the Middle East peace process, GCC common market and ways of further strengthening ties among the six-member Gulf Cooperation Council.

Earlier, Saudi Finance Minister Ibrahim Al-Assaf ruled out severing the riyal’s peg to the dollar before Gulf Arab rulers meet today. “We will not drop it. That’s it,” Al-Assaf told reporters after a meeting of Gulf finance ministers in Doha.

UAE Central Bank Gov. Sultan Nasser Al-Suweidi said last month he was under intense social and economic pressure to drop the peg to the tumbling dollar and track a currency basket to contain inflation. He said the UAE would only act in concert with its GCC neighbors, unlike Kuwait, which in May scrapped a peg the six had agreed to keep in place until monetary union in 2010.

GCC finance ministers did not discuss dropping their pegs to the dollar or any other currency reforms at a meeting to set the agenda for a summit of rulers, the ministers of Qatar and Kuwait said yesterday. “We did not discuss revaluation, or the peg, or dollar weakness,” Mustapha Al-Shamali, Kuwait’s finance minister, told reporters after the meeting. Host Qatar’s Youssef Hussein Kamal, said: “Dropping the peg to the dollar is not on the agenda of the finance ministers’ current meeting.”

SABB Chief Economist Dr. John Sfakianakis told Arab News, “By not dropping the dollar peg Saudi Arabia as well the rest of the GCC, excluding Kuwait, have taken a decision that is sensible and in the best economic interest of the states. The cost of dropping or revaluing would be far greater than the benefits at this stage.

“A revaluation would lead to minimal changes in price pressures which are dominated because of local overheating of economies and not because of the declining dollar. The cause of inflation in the GCC is due to the price of oil, not the dollar and a euro peg or a basket of currencies and it would not necessarily eliminate or even have a significant impact on the price pressures that we see today.” He added, “Dubai, for instance, has consistently been ranked over the past two years as one of the most expensive cities in the world and two years ago the dollar was not declining. Hence, there is more to the story of the declining dollar.”

According to Dr. Mohamed Ramady, professor of finance and economics at King Fahd University of Petroleum and Minerals, the GCC summit and the finance ministers’ deliberations will reconfirm current peg policies and no significant move from the dollar in the near term.

“The fact that the issue will not even be on the agenda is significant enough and speaks volumes about the sensitivity of the issue given the enormous worldwide interest on any moves of GCC countries in de-pegging from the dollar. The statements from various central bankers over the past few days — including those of Bahrain and the UAE — have been more assertive in stating that the current peg levels will be defended and that speculators are warned.”

“This unified policy is also significant,” according to Dr. Ramady, “given the media speculation that others in the GCC are going the Kuwait way and pegging their currency against a basket of currencies.” He said, “To help defray the erosion of income due to double digit inflation, and to underscore its determination to stand by the dirham’s peg to the dollar, the UAE government is pointing on increasing public sector wages starting next year by 70 percent. This will remove the need for adjustment in the near term. The issue for all GCC countries, however, remains what happens in the US and the Fed’s actions if the current economic slowdown persists, causing a further fall in the dollar and US interest rates.”

Mansoor Siddiqi, a UAE banker, said, “This news comes as a setback. With inflation at an all-time high, the weakening of the dollar and, concomitantly, the strengthening of the India rupee, things have been getting increasingly difficult for us, Indian expats. Doing away with the dollar peg would have been a much-needed respite for people like us who send a significant portion of their salaries back home.”

However, he added, “Despite the disappointment, we also need to understand that removing the dollar peg is a double-edged sword. If the dirham were to be revalued, the income from oil sales would plummet and have an adverse effect on the economy. Indeed, the UAE government, for its part, is walking a tight rope. It is trying to balance the impact of the weakening dirham by increasing the salaries of expatriates. But it is a short-term measure. And, in the long-term, corrective steps will have to be taken to redress the situation. Perhaps, we will simply have to wait for the next GCC Summit for the issue to be resolved.”

Meanwhile, the GCC and the European Union failed yesterday to overcome obstacles to a free trade agreement that has eluded them for nearly 20 years, Kamal said. He told reporters of the failure after a meeting between GCC negotiators and European Trade Commissioner Peter Mandelson on the sidelines of a ministerial meeting in the Qatari capital. Kamal said an announcement on the setting up of a GCC Common Market would be made at the summit.

The ministers had gathered to prepare for the two-day annual meeting of the heads of state of the GCC — grouping Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates — opening today.

The GCC confirmed yesterday that it had invited Iranian President Mahmoud Ahmadinejad to attend its summit this week, the first such invitation to the Islamic Republic. “President Ahmadinejad will be the guest of the summit,” GCC Secretary-General Abdulrahman Al-Atiyah told reporter.

— Additional input from agencies