$343bn Saudi foreign reserves in 'safe' assets, nothing for IMF

Vice-governor of the Saudi Arabian Central Bank Mohammed Al Jasser told journalists in Dubai yesterday that the Kingdom’s $343 billion in foreign reserves were held in ‘very liquid, safe, minimal risk’ international assets. ‘Our bank exposure to international markets is extremely small’ he added.

His comments followed remarks by Saudi Finance Minister Ebrahim Al Assaf in Washington that the Kingdom has no intention of tapping into these funds to recapitalize the IMF. ‘There were lots of rumors that we are coming here to pay the bill, there is no such thing,’ he said.

However, His Excellency emphasized that Saudi Arabia would make good its promise to invest $400 billion in the oil and gas sector over the next five years. Saudi Arabia has responded promptly to the global financial crisis to secure its domestic economy, cutting interest rates, lowering bank reserve requirements, guaranteeing bank deposits and injecting billions into its banking system.

Brown’s blundering

But it appears that last week’s visit to the Kingdom by the hapless British Prime Minister Gordon Brown has backfired as his request for money to boost the IMF’s war chest has been ignored.

Al Assaf commented: ‘This is his opinion. This is not our opinion. We are not going to pay more than others. We have been playing our role responsibly and will continue to play our role, but we are not going to finance these institutions just because we have large reserves.’

Mr. Brown’s blundering diplomacy is part of his quest to flood the world with money to avoid a deep recession that will surely cost him his job when he faces his first-ever general election as Prime Minister. As Finance Minister he presided over the UK housing boom and a massive expansion of public spending, now seen as reckless domestic economic management which has left Britain the worst exposed economy in the global financial crisis.

Domestic investment for global benefit

Saudi Arabia is acting responsibly in looking to invest its money in long term economic infrastructure rather than short-term, highly inflationary spending by desperate Western politicians. New supply is the way to prevent another oil crisis, not handing money to the IMF.

It is also not surprising that local Saudi investors are also choosing to invest in sound money like gold, of which a group of businessmen recently bought $3.5 billion, apparently just before the price correction of the past couple of weeks.

Caution now reigns among Persian Gulf investors who have seen early investments by their sovereign wealth funds in Western banks decimated by stock market crashes. The feeling is that markets abroad need to find a bottom while good investments can be found closer to home in national infrastructure development.
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