To this, Finance Minister Ibrahim al-Assaf responds diplomatically but firmly saying, “This is not our opinion. We will continue to play our role responsibly, but we are not going to finance the institutions just because we have large reserves.”

Brandie Gordon

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An international group, the Friends of Pakistan (FOP), which includes Saudi Arabia, China, France, the US, the UK and the UAE, met in Abu Dhabi to develop ideas to steady the Pakistani economy. The rules and procedures of the FOP prevent the nations from helping Pakistan to fully raise the $5 billion needed to fulfill its debts. Zadari has put off a loan from the International Monetary Fund as a last resort, hoping a Saudi oil facility will provide a loan.

Brandie Gordon

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In Washington D.C., Turkey met recently with the International Monetary Fund, to which it owes millions in loans. The country has been hit severely by the economic crisis and its currency’s value is rapidly declining. A deal has been worked out concerning its debt and future loans, although the details of the agreement are still under negotiation.

Turkey’s crippled economy needs to recover soon. The country is struggling to build an economic foundation, but is becoming increasingly smothered by debt.

Olorunbunmi Hambolu

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Saudi Arabia is the Gulf region’s largest economy. However, a significant portion of its GDP is accounted for by government spending.

The most conspicuous government projects can be found in Dubai, where, in just a few years a city comprised of mostly a single trip of tarmac turned into one of the most glorious display of modern sky scrapers.

Crude oil has retreated from a historical high of $150 a barrel in the past month or so to a more modest $100 range. Suffice to say that Saudi Arabia needn’t worry about a fiscal deficit just yet. In fact, in the most recent OPEC meeting, member countries were vocally divided on what the medium term equilibrium price should be for oil. Surprisingly, Saudi Arabia opined in support of a lower crude price than other member countries.

One would think that OPEC controls the nozzle of the world’s crude supply and has unchallenged power to reduce production to bolster prices. However, the economics of oil is not quite so simple. While recent hikes in crude prices are an often-cited reason for inflation in the US, inflationary effects are much more amplified in the Persian Gulf. Take Saudi Arabia, for example. Its currency is pegged to the greenback for price stability of its main export. However, it stymies the power of the Saudi central bank to employ monetary policies to curtail inflation. While the Fed has been lowering interest rates aggressively to spur growth, Saudi Arabia has suffered from pretty ugly inflation, which erodes wealth and could potentially have severe social political consequences.

The revelation in the IMF study is that the internal as well as external politics of OPEC are really quite complex. And the divergent break-even crude price adds further complication to an already diverse region of the world.

Bo-yun Liu

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