Saudi Clerics' Warning on Inflation May Be A Swipe at the US Dollar

July 7, 2008 - 7:18 PM

(CNSNews.com) - The Saudi government has been fending off appeals to stop pegging the country's currency to the sliding U.S. dollar, and now it faces new pressure with a call by Saudi clerics to take action to curb rising inflation.

"We direct this message to the rulers and officials: We remind you of Prophet Mohammad's words that you are shepherds who are responsible for your flock," 19 clerics said in a statement posted on Islamic websites, according to a Reuters report.

"The rulers should seek to try to remedy this crisis in a way that would ease people's suffering," the clerics said.

One of the clerics identified in the report as having signed the statement, Sheikh Nasser al-Omar, is an Islamist with hostile views towards the U.S.

In November 2004, al-Omar was one of 26 signatories of a fatwa declaring jihad against U.S. forces in Iraq. Earlier that year, he said in an interview with Saudi Arabian Al-Majd television that America was "collapsing from within," noting that "tens of thousands of Muslims have joined the American army and Islam is the second largest religion in America," according to translations provided by the Middle East Media Research Institute (MEMRI).

In 2005, al-Omar posted a fatwa on his website saying Muslims should rejoice over Hurricane Katrina, which he said was "a punishment from Allah for their [Americans'] crimes."

And in April 2006, he said in a lecture broadcast on Al-Jazeera television that the United States was "disappearing."

Ambrose Evans-Pritchard, international business editor of London's Daily Telegraph, described this week's clerics' statement as a "fatwa against the U.S. dollar," saying that although it did not attack the dollar explicitly, undermining the dollar peg appeared to be the aim.

"My own hunch is that the next al-Qaeda strike will not be a symbolic blow to a great building or city, but rather a carefully timed economic blow: either by cutting -- or trying to cut -- the oil jugular, or by trying to precipitate a run on the dollar," he wrote in a blog entry Monday.

The weak U.S. dollar is widely blamed for rising inflation in the Gulf region. Annual inflation now exceeds 5.3 percent in Saudi Arabia, compared to an average of 0.5 percent between 1986 and 2006. Kuwait's annual inflation in September was over six percent, and in Qatar and the United Arab Emirates, inflation has risen to double-digits.

Saudi food prices have risen sharply, and the Riyadh-based firm Jadwa Investment in a recent report forecast food price inflation averaging around five percent a year until 2010.

If the Saudi riyal was not pegged to the dollar -- as it has been for the past 21 years -- rates would rise to contain inflation, economists say. Instead, central banks in the kingdom and elsewhere in the region are forced to track monetary policy in the U.S., where the federal reserve has been cutting interest rates.

The sale of oil, priced in U.S. dollars in world markets, accounts for some 90 percent of Saudi state revenue. High oil prices should be strengthening the Saudi riyal, but the greenback's slump relative to the value of the euro and other key currencies has affected the earnings and foreign reserves of the kingdom and most major oil exporters.

At an Organization of Petroleum Exporting Countries (OPEC) summit a month ago, the leaders of Iran and Venezuela pressed for the countries to stop pricing oil in dollars. Iran is in the process of doing so, with non-dollar currencies already accounting for at least 85 percent of its oil revenues.

Saudi Arabia and others resisted the calls, however, although the summit did agree that members' ministers would meet again to discuss the dollar problem.

A Gulf Cooperation Council summit early this month again grappled with the issue, but also ended with agreement to maintain currencies' peg to the U.S. dollar.

Saudi Arabia is the region's largest economy, accounting for 51 percent of the GCC's total GDP, and others tend to follow its lead, although Kuwait broke ranks last May and started tracking a basket of currencies.

The six GCC states plan to launch a common market in January 2008 and a currency union by 2010.

See Earlier Story:
Ahmadinejad and Allies Want OPEC to Dump the Dollar (Nov. 19, 2007)


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