No Magic Solution for Inflation, Says Al-Assaf

No Magic Solution for Inflation, Says Al-Assaf
P.K. Abdul Ghafour, Arab News

Ibrahim Al-Assaf

JEDDAH — “There is no magic solution to the problem of inflation,” Finance Minister Dr. Ibrahim Al-Assaf said yesterday. He underscored the recent measures taken by the government, such as pay hike and subsidy for essential commodities to offset the impact of inflation.

The minister made this comment during a meeting with the 150-member consultative Shoura Council in Riyadh.

Osama Abu Gharara, deputy chairman of the council’s finance committee, said Al-Assaf had not spoken about revaluation of Saudi riyal against a declining US dollar.

However, Hamad Al-Sayari, governor of Saudi Arabian Monetary Agency (SAMA), who also attended the Shoura meeting, downplayed the effect of riyal-dollar peg on the Kingdom’s inflation that reached a record high of 6.5 percent last December.

“The riyal-dollar peg has not much effect on the problem of inflation. All exports of Saudi Arabia and other Gulf countries are in dollars and most developing countries use dollar in trade. Moreover, shipping and insurance expenditures are also calculated in dollars,” he explained.

Shoura Council Chairman Dr. Saleh Bin-Humaid said the council wanted an explanation from the minister on the purchasing power of Saudi riyal, future of the GCC currency union, oil prices, stock market situation and the measures taken by the state to contain inflation.

“Minister Al-Assaf told the meeting that the problem of inflation now exists in all countries. He also explained the economic policies taken by his ministry in this regard,” the Saudi Press Agency said quoting Ahmed Al-Yahya, assistant secretary-general of the Shoura.

Al-Assaf told the meeting that government’s direct subsidy for essential commodities such as flour, rice and baby milk in addition to indirect subsidies to many other products would help offset increasing cost of living caused by rising prices.

Speaking about the housing crunch and growing rents, the minister said the Real Estate Development Fund was providing citizens up to SR300,000 to build houses. “We know that this amount is not enough due to rising prices but people should find suitable means to complete their houses,” he added.

Al-Assaf denied allegations that his ministry was delaying payments to contractors. “We are now revising our relations with other government departments and developing electronic infrastructure to speed our work,” he added. He said Saudi Arabia’s taxation system was one of the best in the world.

On his part, Al-Sayari blamed growing inflation on the increasing demand for services. “The rate of inflation differs from one Saudi city to another,” he added.

He said the Ministry of Finance does not interfere in SAMA’s affairs. “SAMA is totally an independent institution.”

Al-Sayari said SAMA had given license to 10 foreign banks to operate in the Kingdom. He urged Saudi banks not to deduct more than one-third of salary from people who have taken loans and more than one-fourth of salary from pensioners. “If they do otherwise it would be a violation of the rule.”

Ihsan Bu-Hulaiga, chairman of the Shoura’s finance committee, said yesterday’s meeting with Al-Assaf examined the Kingdom’s monetary and foreign exchange policies. He objected to taking “hasty” actions in order to tackle inflation. “Instead, these issues should be dealt with by thoroughly examining all options that are available... not just foreign exchange reform,” he told Reuters.

Mohammed Al-Jasser, deputy governor of SAMA, said last month that it would take a “precipitous” decline in the dollar for Saudi Arabia to consider revaluing the riyal. A weaker riyal makes imports more expensive.

Kuwait has allowed its dinar to rise almost six percent since it broke ranks with its neighbors in May and severed the dinar’s link to the dollar to track a currency basket partly to help contain imported inflation.