Month: April 2010

Spain trims consumer aid in electric car plan

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The efficient rollout of a network of charging points for electric cars will also help to reduce Spanish consumers’ electricity bills, according to Prime Minister Jose Luis Rodgriguez Zapatero.

“The electric car can contribute to reduce the cost of power as it will increase the use of generation and distribution infrastructure,” Zapatero said at the government’s presentation of its strategy to develop the electric car in Spain.

Spain’s socialist government has grouped together six of its ministries, major car manufacturers, energy companies and infrastructure groups, which pledge to build a network to serve an expected 250,000 plug-in cars by 2014.

A network of charging points for electric cars could utilise excess power generated by Spain’s many wind farms at off-peak times and currently wasted due to lack of demand.

Spain’s capacity to export cheap wind energy has been hampered by a lack of interconnection with the rest of Europe through France, to which it has a capacity to export just 1.4 gigawatts of power.

The government will invest 590 million euros and replace public sector conventional vehicles with electric ones to meet the target for 250,000 plug in cars in 2014, 85 percent of which are expected to belong to commercial fleets and 15 percent to private owners.

Tact needed as Saudi takes lead Gulf monetary role

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The world’s top oil exporter and biggest Arab economy wants a cohesive Gulf political and economic bloc that it can lead and which would also counter rival Iran’s sway in the region.

But its insistence on dominating the monetary union, with a planned single Gulf Arab currency, risks adding to disgruntled voices in the six-member Gulf Cooperation Council.

Two states, Oman and the UAE, have already dropped out of the monetary union.

“The Saudis will definitely dominate the currency union and eventually get more political influence, which will have a geopolitical impact,” said Mustafa Alani of Dubai-based Gulf Research Centre.

That was natural in a union comprised of one big state and five smaller ones, he said.

“This is the problem for the GCC and the source of the existing sensitivity and mistrust: The belief that the big brother is trying to dominate us.”

Saudi central bank chief Muhammad al-Jasser was recently named to head a forerunner to a regional central bank, the Riyadh-based Gulf monetary council, underlining the kingdom’s sway in a single currency project. His term will last a year.

Riyadh, a US ally, is already home to many Gulf entities including the GCC General Secretariat, an executive body similar to the European Commission.

The monetary council will mainly work on the regulatory framework of a Gulf central bank and push for more coordination of monetary and foreign exchange policies to pave the way for the launch of a single currency. But any strengthening of the Gulf union would also bring more political cohesion to the bloc.

That could serve Gulf states, several of whom have marginalised Shi’ite populations, in efforts to counter non-Arab, Shi’ite Iran. Saudi Arabia has voiced concerns over Iran’s sway in neighbouring Iraq as well as in Lebanon.

“The GCC has not always shown a great coordination when it comes to its foreign policy. The existence of a consensus within the GCC will help to limit the influence of Iran in the region,” said Khaled al-Dakhil, a prominent Saudi political writer.

“We have seen some consensus within GCC towards the UAE-Iranian dispute about Abu Musa islands and toward Iran’s nuclear ambitions,” he added, referring to a longstanding territorial dispute over Gulf islands.

Changing ties
The Gulf monetary union, designed to emulate the euro zone, has been delayed by old political rivalries. The UAE, the second largest Gulf Arab economy, quit the project after heads of state chose to base the central bank in Riyadh, dealing a serious blow to a plan that had been languishing since 2001.

Diplomatic ties between Saudi and the UAE have remained strained ever since. Now only Bahrain, Kuwait, Qatar and Saudi Arabia are forging ahead with the project.

Last year, the GCC abandoned a 2010 deadline for issuing common notes and coins, and the monetary council has said fixing new dates for launching the single currency was not a priority.

“Saudi Arabia is telling other GCC countries that if this Gulf economic entity was to ever see the day, then its centre of gravity will have to be here in Riyadh not in Dubai or Abu Dhabi. The Saudis want to dictate the pace of change,” a Riyadh-based Western diplomat said.

That dominance will increase pressure on Riyadh to deliver on the project and to prevent any more defections. Recently improved ties between Qatar and Riyadh have helped keep Qatar on board, analysts say.

“There is a form of an alliance building up between Saudis and Qataris. Qatar has a very active foreign policy so it is a bonus to the Saudis. Losing Qatar would pose a serious problem to the monetary union,” Dubai-based Alani said.

Kuwaiti analyst Ali al-Nimesh, whose country has made luring the UAE and Oman back a main aim, said it was not wrong for Saudi to play a leading role, but the union should be inclusive.

“There is no Gulf currency without the UAE and Oman. The UAE is the second largest oil producer in the Gulf after Saudi. It is also commercially active in export and import and free trade zones and in Gulf tourism. Oman is not less important,” he said.

Oman, which opted out in 2006, is seen as close to Iran and jealously protective of its cultural identity from the influence of Saudi’s austere brand of Wahhabi Islam.

Dakhil said Saudi dominance had been natural when its smaller neighbours, including a younger UAE, looked to Riyadh as a natural mentor. But the UAE now wanted more equality.

Those who back the Saudi push to dominate decision-making in the GCC point to its large native population, its ability to defend Gulf Arab interests as a member of the G20, and a higher concentration of native workforce in its financial system.

“Has the UAE managed the repercussions of the global crisis better than Saudi Arabia?” Saudi economist Mohammed al-Jadeed said.

Jawad al-Anani, an economist who had held ministerial portfolios in Jordan, said a prolonged absence of the UAE from the monetary union would erode Saudi influence in the region.

“The UAE’s absence will dilute the gains for Saudi Arabia as a leader of this project. It will expose more what GCC has achieved in 30 years, which to the exception of a perfectible customs union, remain very little,” Anani said.

Southeast Asia could grow 5.6% this year – ASEAN

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Southeast Asian economies will grow up to 5.6 percent this year but the expansion could be jeopardised if economic stimulus is withdrawn too early, according to a report by a regional body.

Nevertheless, the governments of the 10-member Association of Southeast Asian Nations (ASEAN) need to design an orderly exit strategy to show that they have inflation expectations under control, said the latest draft of the ASEAN Surveillance Report. “Following the pace of growth in Asia, the ASEAN economy will grow by about 4.9 percent to 5.6 percent in 2010 with ASEAN economies recording moderate to strong growth,” it said. The report was presented at a meeting of deputy finance ministers and central bank governors.

ASEAN comprises an array of economies at different stages of development including Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Asia is leading the global recovery, in part thanks to robust stimulus policies launched during the financial crisis.

All eyes are now on how and when these countries take back the stimulus and address what some economists see as a rising risk of inflation.

The ASEAN report said “the urgency for exiting from stimulus measures was not high as the inflation risk remains benign, debt levels are sustainable and there is little evidence that private demand is self-sustaining”.

The region needed to design an exit strategy “to anchor expectations and to assure the community that expansionary policy settings will not lead to inflation and further financial instability”, it said.

“Timing is crucial as moving too early could undermine economic recovery while prolonged action could create costly distortions and volatility.”

The report advised countries to remove special financial and credit support before raising interest rates. So far, Malaysia and Vietnam are the only two ASEAN members who have raised rates.

“As economic growth is far from self-sustaining, the fiscal stimulus should continue, though fiscal consolidation measures should also be put in place,” it said.

Authorities needed to use monetary and exchange rate policy to “minimise the incentives for volatile capital flows and cross-border transactions”.

It said it might help to “tighten prudential limits on capital inflows and to monitor highly leveraged institutions and to ensure that excessive risk taking is not happening”.