November 2015: Oil and reserves

Three sets of asymmetries are rippling across the world economy. First, the dollarʼs rise is helping exports in many parts of the world, not least Europe. Yet it seems to be causing more problems, particularly in hard currency debt-ladened emerging market economies, than alleviating difficulties. Second, the slower growth outlook, which makes the world dangerously dependent on expanding economies like China and India, has been an important factor buoying stock prices. Delays in Fed lift-off ‒ and more signs of easing in Europe ‒ are a solace for financial markets, even though US rates will have to rise, perhaps as early as December. Third, the sharp fall in oil prices, still hovering around $50 a barrel, appears to be causing disproportionately negative repercussions. Oil-importing nations seem more preoccupied by the negative effects on their own activity than the stimulatory ones, while oil-dependent countries are seeing their lower revenues translated to declining demand that is depressing not simply their own, but other nations’ economies.

Saudi Arabia, the theme of this edition, is at the centre of this nexus of competing pressures, which is immensely complicated by regional wars and conflicts where the Saudis are increasingly in evidence. In multiple ways ‒ many of which are still imperfectly understood ‒ Saudi Arabia has emerged as a world economic stabiliser. Some of these results could be counterproductive. In seeking stability elsewhere, Riyadh may be opening itself up to destabilisation. The Saudi Arabia Monetary Agency has dug deeply into its reserves to help overcome the country’s fall in demand. SAMA’s behaviour has sparked a debate about whether such a hybrid organisation ‒ part central bank, part sovereign fund ‒ should have a clearer mandate separating its roles as a short-term stabiliser and as a long-term wealth provider for future generations.

All these issues ‒ the subject of reflections by Meghnad Desai, Darrell Delamaide, David Marsh and Ben Robinson ‒ will be high on the agenda at OMFIF’s Atlanta meeting. Stefan Bielmeier, Nick Peters and Shumpei Takemori comment on various aspects of central banks’ low interest rate policies. Daniel Dăianu joins Miroslav Singer in explaining why the European Union’s newer member states are cautious on euro membership. Michael Stürmer describes Angela Merkel’s growing difficulties on immigration, significantly compounded by the swing to the right in Poland’s election on 25 October. Jin Liqun, incoming head of the newly established Asian Infrastructure Investment Bank, explains his thinking on the bank’s operational start-up. Juan Carlos Martinez Oliva plays down the prospect of a damaging Chinese slowdown. Adrian Armas detects Peruvian economic bright spots, despite the commodity price slowdown. David Smith analyses the political and economic outlook in Argentina, where the Peronists seem in danger of losing control in an election run-off on 22 November.

In the review section, George Hoguet describes Martin Wolf’s study of the international financial crisis. William Keegan praises what he describes as Charles Moore’s surprisingly balanced account of the middle section of former British Prime Minister Margaret Thatcher’s long premiership. Staying in the field of UK politics, Keegan provides a bittersweet account of the lives and careers of two renowned UK chancellors of the exchequer who died within a week, Geoffrey Howe and Denis Healey

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