The global crisis began as a banking crisis before it dominated all the aspects of economic life.
There are several angles for understanding the way the GCC countries dealt with the crisis. The most important of these angles are as follows: The GCC countries as oil producers, as debtor countries and as importing states. Having evaluated the measures that were put in to place in each of these categories, it is evident that to counter the negative effects of the financial crisis the GCC was most successful when individual states were able to coordinate measures with other countries in the region.
The GCC Countries as Oil Producers:
Focusing on energy markets, we can see that the demand for oil has plummeted, the price of oil has dropped accordingly, and the dollar exchange rate has decreased. This has led to the reduction of the purchasing power of oil revenues. The major oil companies and international banks have refrained from participating in petroleum investment projects or financing them, making the burden of financing expansions in production, transportation, refining and distribution rely entirely on the producing countries.
As producers of oil, the GCC countries have effectively managed the impacts of the crisis on the oil market within the framework of OPEC. But dealing with the decline of the dollar can only be done through international bodies such as the G20 and the IMF.
GCC Countries as Debtor Countries:
From this perspective the GCC countries are coordinating with each other in the monetary, financial and banking fields to improve their borrowing credibility. However, the GCC states do not coordinate with each other in lending activities. With the exception of major surplus countries, the rest of the GCC countries have suffered greatly from the decline in lending that resulted from the crisis, along with the high costs that resulted from the growing number of defaults.
GCC Countries as Importing States:
Coordination between GCC countries as importing states is done through collective trade agreements. These agreements create better conditions for collective purchases of certain commodities. The import process is usually performed through the private sector and is subject to competition, even within the same country.
Comparatively Speaking
While these measures are indicative of the sectors that the GCC countries could and do use to cooperate with one another in order to maximize their resilience, in order to gauge the GCCs response to the crisis, it is useful to compare their response to that of other developed regional economies. For example, when the crisis broke out it was expected that the European response would have been more consistent. However, coordination among European countries was less than expected. As for Asian countries, they had taken necessary precautions after the crisis of 1997. Consequently, coordination among these states was more prominent in the monetary field, and has thus far resulted in comparatively higher growth rates. In the GCC a number of monetary measures have been put in place. Yet, coordination has been less than expected when it comes to aiding those public and private businesses that were most hit by the crisis.
The joint efforts of the Gulf officials to face the financial crisis were quick and effective in halting the declining price of oil. At the national level, banks were injected with necessary liquidity as a way to support and encourage lending, interest rates were also lowered, and financial institutions stepped up their activity to compensate for the shortfall in international finance. No doubt large surpluses in a number of GCC countries also contributed to reducing the negative effects of the crisis and prevented the further deterioration of economic activity.
Nonetheless, many shortcomings have emerged in addressing other aspects of the crisis, such as real estate market, the rare buyouts of assets of troubled banks, and the time it took for certain banks to provide loans to save the economy from collapse. There are huge possibilities for greater coordination between the states of the Council on different relevant issues.
Dr. Abdullah bin Ibrahim Al-Kuwaiz
- Saudi economist
