Central bankers from the six Persian Gulf Arab states may agree on the framework for a single regional currency at a meeting on Monday, increasing chances they will keep their currencies’ pegs to the dollar, said economists.
Governors from the six-member Persian Gulf Cooperation Council, which includes Saudi Arabia and the United Arab Emirates, agreed in April to meet in Doha, Qatar, to lay down the principles for monetary union in 2010, according to PGCC officials, Bloomberg wrote.
Dollar Peg
Success may ease pressure on their governments to revalue their currencies against the dollar or drop the links completely, which has intensified as inflation accelerates to records in the region. US Treasury Secretary Henry Paulson said last week he’d been assured the Arab states will maintain the pegs, helping to prevent a further weakening of the dollar.
“The plan for currency union does seem to have received a fresh lease of life in recent months,“ said Simon Williams, chief Middle East economist at HSBC Holdings Plc in Dubai. Any sign the plan is in disarray again would refocus attention on the possibility of currency revaluations.
Contracts to buy UAE dirhams and Saudi riyals in 12 months’ time have fallen 0.4 percent against the dollar since Paulson said on June 2 that Persian Gulf Arab states are unlikely to drop their links to the dollar following meetings with Saudi Arabian and Qatari government officials.
“They probably will try to hold the line until 2010, until they’ve accomplished currency union, and then think about changing,“ said Eckart Woertz, chief economist at the Gulf Research Center, in a telephone interview from Berlin.
The PGCC states, which also include Bahrain, Oman, Qatar and Kuwait, in 2001 agreed to form a European Union-style monetary union with a single currency by 2010 to help boost regional trade.
The project was thrown into doubt last year when Oman said it would not join the single currency and Kuwait dropped its peg to the dollar, citing faster inflation.
“The market will be looking for evidence that the renewed enthusiasm for currency union is being translated into concrete agreements on the many technical, economic and political disagreements that have impeded progress so far,“ Williams said.
The Persian Gulf Arab states meet all the five convergence criteria except for inflation, which stipulates that consumer price growth must be within 2 percentage points of the average of the six PGCC states.
The other criteria refer to budget deficits, interest rates, foreign reserves and the ratio of public debt to gross domestic product.

Inflation Threat
“From a technical perspective on a number of fronts I don’t think they have made headway,“ said Giyas Gokkent, head of research at National Bank of Abu Dhabi, the emirate’s largest lender by market value. Inflation in Saudi Arabia accelerated to a record 10.5 percent in April as the cost of food and housing soared. In February, Kuwaiti inflation quickened to 10.1 percent, while in Oman consumer prices rose an annual 11.1 percent. Qatar has the highest inflation rate in the PGCC, with consumer prices jumping 14.8 percent in the first quarter from a year earlier.

As oil prices soar, airlines are coming back down to earth with a bump--cutting routes and capacity, ramping up prices and axing jobs as bosses freely admit the industry is in the “worst crisis since 9/11“.
Oil prices on Friday broke through the 139-dollar-a-barrel level for the first time in New York and $138 in London, powered by a wilting dollar. A weakening US currency lowers the cost of dollar-priced goods, such as oil, for foreign buyers and drives up demand, CNN wrote.
With sober analysts such as Goldman Sachs suggesting the price could reach $200 a barrel within two years, the aviation industry appears to be in a nose-dive.
Airlines are particularly susceptible to hikes in the oil price, as jet fuel makes up a substantial part of their operating costs.

Sovereign wealth funds, seen as the new heavyweights of global finance, have stirred political fears in western capitals, but a report says the giant investment funds should not be viewed as economic threats.
The Monitor Group consultancy said in a survey to be released Monday that SWFs “do not appear to be active in ways that threaten the economic or national security of foreign countries where they invest.“
William Miracky, a Monitor Group senior partner and former Federal Reserve economist, told BBC that political worries about foreign government-run investment funds are “overdone“.
The guardians of the global financial system, the World Bank and the International Monetary Fund, are racing to draw up a voluntary code of conduct for SWFs amid calls for better transparency.
“There is nervousness about the rise of nations outside the ’club’ that has dominated international finance since World War Two and the potential corresponding loss of power and influence,“ the Monitor Group report said.
China and Russia have set up SWFs in recent years and Iran set up a fund in 1999. All three countries have thorny political relations with the United States.

Japan’s energy chief launched a meeting of ministers from the world’s top industrialized nations Sunday by warning that soaring oil prices could trigger a global recession if they’re not checked, AP wrote.
The Group of Eight rich nations met in northern Japan with representatives from China, India and South Korea to discuss oil and gas markets, energy investment, energy security and climate change amid deepening concerns about the world economy.
“The situation regarding energy prices is becoming extremely challenging,“ Akira Amari, Japan’s trade and energy minister, warned his colleagues Sunday.
“If left unaddressed, it may well cause a recession in the global economy.“

EU labor ministers will seek on Monday to break years of deadlock on granting temporary workers more protection and setting work time rules, blocked mainly by Britain.
The prospect of a breakthrough at a meeting in Luxembourg on the long-stalled issue of temporary agency workers emerged last month after London announced an agreement on equal rights for such workers in Britain, AFP wrote.
The agreement paves the way for Britain to lift its opposition to setting minimum EU standards for such workers, who are estimated to count eight million across the 27-nation bloc and whose numbers are growing.
The use of temp workers has boomed in recent years in Europe as they often give business more flexibility, much to the concern of unions, which say they suffer from scant job security.
The European Trade Union Confederation said a deal on temporary workers rights “would be a very welcome signal that the deadlock in the development of social Europe is broken, and that social progress at EU level is both necessary and possible.“