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The Independent New York Times

Tokelau, Saturday, November 22, 2008 Weekend Edition, editor - contact sumpinein@gmail.com

At the same time

THE WORLD AS IT IS...WAS? - A CASINO

Opec members have lost about $700bn (£467bn) because of falling crude prices, the oil cartel's president Chakib Khelil said in an interview. Oil prices have fallen 60% from their $147 peak, prompting speculation Opec will cut output again to boost prices. However, speaking to Algerian newspaper El Khabar, Mr Khelil said Opec was unlikely to make a decision this month. He said the following meeting on 17 December would be "the most important" as the cartel would get necessary data. The data will show whether Opec's previous output cuts have been applied by its members. The cartel, which controls 40% of the world's oil supply, agreed on a 1.5 million barrel-a-day reduction last month. On Wednesday, US light, sweet crude stood at $54.47 a barrel, while Brent crude cost $51.84 a barrel. "The Cairo meeting [on 29 November] is considered as an internal debate, while the meeting scheduled in Oran [on 17 December], will be more important in a sense that we will obtain, by that time, more information about the oil market trend," El Khabar quoted Mr Khelil as saying. "All members... are very concerned about the economic situation which has worsened in the United States and Europe who have entered into a recession, followed by Japan," the Opec president said.

Vincent Cable wrote that by the low standards of economic summitry, the G20 meeting rated quite high. There was a predictable, no doubt pre-written, communiqué, full of the usual banalities. And the meeting suffered from the absence of the world's most important politician, who hasn't yet taken up office. But, these necessary caveats aside, there were important achievements. The first is that the meeting took place at all. The ludicrous pretence of the G8 (or G7) that the old western powers should set the global economic agenda has been punctured for good. On a purchasing power parity basis, China has the second-biggest economy in the world and India the fourth. It has been clear for some time that China is lender of last resort to the global system (by, in effect, underwriting US government paper) and the main source of global incremental demand (and commodity price inflation). The Chinese self-parody as the pupil sitting meekly at the feet of a dominant, but erring, master defies belief. It is obviously right that China, India and the other main non-G7 countries should be at the top table. The second achievement was the clear realisation that unless governments hang together they will hang separately. Enough has been learned from interwar history for us to understand the follies of beggar-my-neighbour economics. Perhaps a warning shock was being sent across the bows of the incoming Obama administration not to reinvent the protectionist tariffs of the 1930s in a new guise, directed at China or Mexico in particular, or aiming to salvage the US auto industry through public subsidy. But this new-found concern for open markets has not yet communicated itself to EU or Indian or Chinese trade negotiators, who show no enthusiasm for lifting the block on trade liberalisation under the Doha round. While trade policy is on the back burner, macroeconomic policy co-ordination is not. With a few exceptions - Germany notably - there is recognition of the need for aggressive monetary and fiscal policy and for large-scale intervention to recapitalise banks. These interventions can be and are being undertaken nationally. But governments acting in isolation attract critical attention from capital markets and currency speculators, as Gordon Brown is discovering. Structures like the G20 are the best safeguard against chaotic, unilateral action.

SUNSETS ON OIL

Is the fun over? Saudi Arabia and Dubai are now down by around 50% this year, Kuwait down 20% and the MSCI index tracking the Gulf's key markets has lost 43%. Last week, Kuwait became the third Gulf state to prop up its banking system, guaranteeing deposits after bailing out the country's fifth-biggest lender, Gulf Bank, whose corporate clients had defaulted on currency bets. The United Arab Emirates, of which Dubai is the second-largest member, has guaranteed local bank accounts for three years and made $33bn available to the banking system amid a squeeze in local money markets. Saudi Arabia has put $5bn into commercial banks and set aside $2.7bn for no-fee loans to low-income citizens. Central banks across the region have also cut benchmark interest rates. The main worry now is the real-estate market, where credit conditions are tightening – HSBC will now only lend up to 70% of the value of a property, down from 85% – and the property boom is rapidly cooling. Cairo-based EFG-Hermes reckons property values could slide by 20% in the next three years. "I see the risk of a real-estate bust throughout the Gulf" amid sliding oil prices and a liquidity and credit crunch, says Nouriel Roubini of New York University. And "there's a huge amount of excess capacity being built": Dubai and Saudi billionaire Prince Alwaleed are currently racing to build the world's first kilometre-tall tower. Dubai can tap another emirate, Abu Dhabi, for cash, while the region as a whole boasts a projected $150bn in budget surpluses for 2008. The IMF thinks most Gulf states should be able to balance their budgets unless oil slides below $30 a barrel, says Andrew Crichlow on WSJ.com. With large current-account surpluses and relatively low external financing needs, the region looks more resilient than other emerging markets, says Merrill Lynch, which has lowered its regional 2009 GDP forecast to 4.5% from 6.2%. But while the Gulf may not fall victim to an emerging-market crisis, the notion that it is a safe haven from global turmoil has been well and truly shattered.

THE GREAT DEPRESSION