Press Release No. 07/243

Press Release: IMF Managing Director Rodrigo de Rato Commends GCC Countries' Domestic Policies and Calls for an Accelerated Implementation of the Remaining Steps Toward Achieving Monetary Union

October 27, 2007

Mr. Rodrigo de Rato, Managing Director of the International Monetary Fund (IMF), issued the following statement today after a meeting in Jeddah, Saudi Arabia, with the finance ministers and central bank governors of the six-nation Gulf Cooperation Council (GCC): ¹

"I appreciate the opportunity for the Managing Director to meet regularly with the finance ministers and central bank governors of the GCC and to exchange views on the challenges facing the region and ways to address them. I would also like to thank H. E. Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, for hosting this meeting in the Kingdom.

"The global economic expansion remains strong, despite the adverse effects of the recent turbulence in financial markets. I welcome the role played by the GCC authorities in maintaining stability in the oil market by increasing production to meet growing global demand. I fully endorse the investment projects undertaken by the GCC countries in the oil and gas sectors. Implementation of these projects will play a central role in meeting the medium-term global demand for energy by increasing crude oil production and refining capacity.

"Economic performance in the GCC countries remains strong, underpinned by continued high oil prices and strong policies. In a fundamental shift, the non-oil sector is now becoming the main engine of growth, with this sector's contribution to real GDP growth increasing to over 80 percent. A key challenge in some countries of the region is to contain inflation. In these countries, continued structural reforms and flexible application of national labor policies, together with alleviation of capacity constraints and phasing of some of the large investment projects currently being undertaken in these countries should reduce inflationary pressures.

"It is notable that the financial sector has withstood well the impact of the stock market corrections in 2006 due to timely pre-emptive prudential measures and the overall favorable macroeconomic environment. Stock prices started to recover by the second quarter of 2007 and have remained stable during the recent turbulence in advanced economies' markets associated with the subprime mortgage lending.

"I welcome the authorities' resolve to take advantage of the current favorable environment to build stronger macroeconomic foundations and pursue structural reforms, including strengthening the financial sector, undertaking labor reforms and creating an enabling environment for greater private sector participation. GCC countries are in the midst of implementing a massive investment plan under private-public partnership arrangements, which should improve physical infrastructure, broaden the production base, and generate employment opportunities for the GCC nationals. Over the past years, the policies of the GCC countries leading to higher public expenditure, apart from strengthening domestic growth and fulfilling social objectives, evolved in a manner that is conducive to the resolution of global imbalances.

"Significant progress toward regional integration in the GCC has already been achieved through elimination of barriers to free movement of goods, services, capital and national labor, and a common external tariff. Although some important differences have emerged in members' positions on the progress toward the monetary union, there is considerable momentum among the members to form the union. Deep political commitments provide the necessary environment to pursue an accelerated implementation of the remaining steps, including a formal agreement on the convergence criteria, establishment of a common market and customs union by 2008, and putting in place the necessary institutional framework and infrastructure. As in the past, the Fund stands ready to assist in this endeavor by providing policy advice and technical assistance in areas of its expertise."