Qatar must depeg, gov't advisor says

Qatar must depeg, gov't advisor says
by Dylan Bowman and Reuters on Saturday, 31 May 2008
DROP PEG: Al-Ibrahim said Qatar must depeg from the dollar due to the Gulf state's soaring economic growth. (Getty Images)Qatar has to delink its currency from the weakening US dollar as the Gulf Arab country's economy is growing, an economic policy adviser to the country's emir said in published remarks.

"We have to delink," Ibrahim Al-Ibrahim was quoted as saying by the London-based magazine Meed, published late on Friday.

"It does not make sense to stay linked to a currency that is declining while our economy is growing. At a time when our currency should be going up, it is going down."

Al-Ibrahim, economic adviser to Emir Sheikh Hamad bin Khalifa Al-Thani, said he is "working hard" to convince the government that keeping the dollar peg is not in its interest, but that any action should be taken in coordination with other Gulf Arabs.

"The problem is really how to deal with Gulf Arab countries in terms of the objective of having one currency," he said. "We do not want to do anything that will disturb that."

Al-Ibrahim's comments come just a matter of days after Qatar's finance minister flatly dismissed claims made by Merrill Lynch that the Gulf state could soon depeg, labelling the report “baseless”.

“This report is completely untrue and baseless,” Kamal told reporters after a GCC cooperation meeting held in Doha.

Yusus Kamal was responding to a report by the US investment bank that claimed the US government had given Qatar and neighbour the UAE the green light to drop their currency pegs to the dollar to help battle record inflation.

The report said the two Gulf states would move to a currency basket within the next six months.

All Gulf states, bar Kuwait, peg their currencies to the ailing dollar. The dollar peg has been blamed for increasing the cost of imports and restricting the central bank's ability to fight inflation.

Gulf states' dollar pegs forces central banks to track US monetary policy to maintain the relative attractiveness of their currencies.

The US Federal Reserve has been slashing interest rates since September to stave off recession at a time when Gulf central banks should be hiking rates to rein in inflation.

Inflation in Qatar, which has yet to publish first-quarter data, rose slightly to 13.74% at the end of December, its second-highest figure on record, as rents and food prices surged.

Qatar is trying to cap inflation at its current level of 13.7%, below a peak of 15% seen earlier this year, the country's finance minister said this month.