November 21, 2008 / 4:24 PM / 11 years ago

INTERVIEW-UAE central bank chief says dollar peg stays

(Adds comments on IMF, dollar, financial packages)

*UAE central bank chief says will stick to dollar peg

*Banks to have extra provision to cover property fall

*Gulf states could provide cash in return for influence

By Marilyn Gerlach and Marc Jones

FRANKFURT, Nov 21 (Reuters) - United Arab Emirates Central Bank Governor Sultan Nasser al-Suweidi said the region has no intention of severing its currency peg to the U.S. dollar despite the latter’s recent surge in value.

Speaking to Reuters on the sidelines of a banking congress in Frankfurt the central bank head said: “We were criticised for staying with the dollar when it was weak, so I don’t think we should be criticised for staying with the dollar when it is strong.”

He said the bank would “stay with the peg”.

Asked whether the dollar would remain the prominent global currency, Al-Suweidi later told reporters he thought it would.

“Look at the underlying fundamentals, the U.S. economy is a very important economy and will continue to be a very important economy... I don’t believe in these doomsday predictions for one line going straight down.”

He said Gulf states flush with oil cash could also provide more money to global rescue plans controlled by the likes of the International Monetary Fund but only if they gained more influence in return.

“If they are given more voice then they will provide money maybe... They will not be providing funds without extra voice and extra recognition,” he said.

Commenting on the declining value of the property market in the Gulf region, he told Reuters UAE banks would have to take extra provisions to cover the fall in value.

“In the economic downturn all sectors of the economy slow down by a certain degree and we have to take proper provisions at banks, and that is what we intend to do,” he said.

He said he did not know yet what the volume of provisions would be.

“I don’t know before we see how they develop into next year. We will take whatever downturn, whatever decline in value there is, we will take it into provisions. And because UAE banks are well capitalised, so we will have no problems to meet this extra provision,” al-Suweidi said.

Asked whether there is a danger Dubai sovereign debts would default, he said: “In terms of banking, I don’t see any danger, we are willing to meet all the external debt of banks and we have absolutely no problem there.

“It’s a matter of time. Whenever they mature, we will replace them and we intend to repay all of them.”

Regarding the external debt of banks, “we will have absolutely no problem in repaying, and we intend to repay” all outstanding amounts.

CREDIT?

Al-Suweidi said the interbank market remained tight, not because credit is unavailable “but because rigidity has developed in the market out of fear of what will happen in the international global financial crisis.”

“Banks are not so freely lending but this is a shock situation. They are not lending at the same rates as before. That is quite natural at this point in time. It’s the response of banks to the interbank squeeze of the interbank market.”

The decision by mortgage lender Amlak to stop lending was part of this process.

“Everybody is very careful about lending at this point in time because there’s a shock in the system, the interbank system,” he said.

“All banks’ lending are affected, all banks, because they have to decide what to do and they have to be very careful with the interbank market. When the interbank market is not working properly like anywhere else in the world, banks are careful in the lending.”

On how long the situation would continue, he said: “I don’t know, this is the one million dollar question.”

In addition to support for the property market, the UAE has put together a raft of measures to bolster the financial sector.

On whether there was a need for additional packages, Al-Suweidi said:”For the time being I don’t think so, but we will see how things evolve in 2009.” (Reporting by Marilyn Gerlach; Editing by Ruth Pitchford)

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