Geithner courts Mideast, sees gradual rebound

A key aim of US Treasury Secretary's trip is to convince the major oil producers that the US still welcomes their business.

Timothy Geithner saudi 88 248 (photo credit: )
Timothy Geithner saudi 88 248
(photo credit: )
US Treasury Secretary Timothy Geithner reached out to Gulf Arab leaders Tuesday, stressing to some of America's top creditors that his country has a "special responsibility" to steer the world through a global recession that may finally be showing signs of easing. A key aim of Geithner's trip is to convince the major oil producers that the US still welcomes their business, and has plans to get itself out of a crisis stemming from what he said was an "unsustainable fiscal path." "The force of the global recession is receding," Geithner told Saudi Arabian business leaders in the commercial hub of Jiddah, the starting point of his first official visit to the Middle East. "Global trade is just starting to expand again." But while noting that the International Monetary Fund has revised up growth forecasts in the second half of 2009 and into 2010, Geithner cautioned that the signs of improvement were fragile and that the "process of repair and recovery is going to take considerably more time." "This crisis has been brutal in the extent and severity of damage to economies around the world," he said. "Given the extent of damage to financial systems... it seems realistic to expect a gradual recovery, with more than the usual ups and downs and temporary reversals." Geithner's Mideast trip was billed as a follow-up to President Barack Obama's recent overtures to the region. But the stop in the Saudi Arabia - the Arab world's largest economy and OPEC's de facto leader - is also a clear sign of the growing financial clout of the six-nation Gulf Cooperation Council. Geithner arrives for talks in the neighboring United Arab Emirates, the No. 2 Arab economy, on Wednesday. What Geithner has to say in private to officials in the oil-rich region could help determine whether the Obama administration's efforts to right the US economy succeed. The Arab Gulf states are major backers of US companies and government bonds and, as a group, are the biggest US creditor after China. As the American economy has weakened, it raised questions as to whether the dollar could remain the world's top reserve currency, a major issue for the heavily leveraged US with a deficit that recently topped $1 trillion for the first time. The slowdown also increased concerns that major foreign creditors could look to more lucrative investments in strong developing economies outside the US. "The [Gulf] countries have a big stake in the financial stability of the United States. They're a big creditor," said Nasser Saidi, chief economist of the Dubai International Financial Center. "The earlier you bring the Gulf and the Middle East onto the agenda, the better." The Gulf states' wealth skyrocketed during oil's earlier boom years, but they have grown increasingly concerned as crude prices and the value of their investments soured. Five of the GCC nations - Saudi Arabia, the UAE, Oman, Bahrain and Qatar - peg their currency to the dollar. Kuwait uses a basket of currencies that includes the greenback. "This is a visit to really re-emphasize US leadership and US pre-eminence in the world economy even in the midst of this global downturn," said Tarik Yousef, dean of the Harvard-affiliated Dubai School of Government. "The last thing the US wants is for people to lose confidence in its policies and its currency."