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Analysis

US-Saudi balance

THE OMFIF MONTHLY BULLETIN – Press release

4 November 2015, London

Cover Of The Bulletin Nov 2015

In the November Bulletin, OMFIF writers examine the delicate geopolitical and financial relationship between the US and Saudi Arabia over Riyadh’s attempts to keep oil prices low and squeeze out high-cost producers. Saudi Arabia is running down foreign exchange reserves and stepping up borrowing to maintain spending on domestic infrastructure projects, but has run into warnings from the International Monetary Fund that it may be depleting its savings too fast. As the November editorial says, ‘In seeking stability elsewhere, Riyadh may be opening itself up to destabilisation.’

The question of whether the world can take in its stride the prospect of the first hike in US interest rates for nine years is another dominant issue, heading the agenda at OMFIF’s Second Main Meeting in the US, which will be taking place at the Federal Reserve Bank of Atlanta on 12–13 November, hosted by Dennis Lockhart, the Atlanta Fed president. In the November Bulletin, OMFIF Advisory Board chairman Meghnad Desai – a supporter of a US rate rise – says Saudi Arabia’s problems are the world’s problems: ‘For the future, nothing is certain, except there will be less money around to salve wounds than there used to be.’

We examine the role of Saudi Arabia as the world’s ‘swing’ oil producer and the way the Saudi Arabian Monetary Agency is joining a number of other larger emerging market central banks in running down reserves – opening up SAMA’s position to unusual scrutiny. Darrell Delamaide in Washington reports on how speculation on Fed ‘lift-off’ in December is now hardening, after earlier reports of a ‘Fed mutiny’ over interest rates caused concern about Fed Chair Janet Yellen’s leadership of the Federal Open Market Committee.

Other highlights of the November 2015 edition:

  • Miroslav Singer, governor of the Czech National Bank, describes how ‘one size did not fit all’ in the euro area, and praises non-euro states such as the US and UK for using fiscal policy appropriately to escape recession.
  • Daniel Dăianu, of the National Bank of Romania, joins in explaining why the EU’s newer member states are cautious on euro membership as the single currency bloc prepares for a possible fundamental overhaul.
  • Jin Liqun, incoming head of the newly established Asian Infrastructure Investment Bank, explains his thinking on the bank’s operational start-up and praises its ‘world-class charter’.
  • Adrian Armas of the Peruvian central bank outlines how Peru’s structural reforms and fiscal and monetary prudence have allowed Peru to weather commodity price downturns with a strong growth performance.
  • Stefan Bielmeier of DZ Bank ponders the positive implications for government debtors if interest rates remain far lower for far longer than most people expected.
  • Nick Peters of Fidelity Solutions writes that investors’ worst fears over a US interest rate hike and the Chinese slowdown are unlikely to be realised, saying a ‘low-inflation, low-growth paradigm’ will continue.
  • Shumpei Takemori of Keio university says Japan should learn from Greek experience by choosing, in decisions on cutting the budget deficit, only measures that embody a low fiscal multiplier.
  • Michael Stürmer in Berlin describes Angela Merkel’s growing difficulties on immigration, both within and outside her Christian Democrat party, compounded by the swing to the right in Poland’s election on 25 October. 
  • Juan Carlos Martinez Oliva from the Banca d’Italia plays down the prospect of a damaging fall in China’s growth, underlining the stabilising effect of the growing share of services in the Chinese economy.
  • David Smith explains the aftermath of Argentina’s 25 October elections where, for the first time since the return of democracy in 1982, the country faces a run-off between two alternative agendas for restoring economic stability.

 

The OMFIF Bulletin is available to OMFIF members, and to non-members on a subscription basis. To subscribe please contact: membership@omfif.org.

 

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