November 2, 2008 / 12:17 AM / 11 years ago

Brown seeks Saudi cash in crisis

RIYADH/NEW YORK (Reuters) - Prime Minister Gordon Brown said on Sunday he expected Saudi Arabia to pump money into the International Monetary Fund, the latest salvo in an ongoing effort to contain the global financial crisis that is also expected to bring a new round of rate cuts this week.

Prime Minister Gordon Brown (C) meets with Saudi officials during his visit to King Saud university in Riyadh, November 2, 2008. REUTERS/Stringer

The worst financial crisis in 80 years, which started when a U.S. housing market boom turned sour, has raised fears of recession that one bank official said would spread across the globe, hurting even fast-growing economies in Asia and South America.

China was the latest country to fear it might be hit by the downturn, saying it must maintain a fast pace of growth or risk heightening “factors damaging social stability.”

Governments have cut interest rates, propped up banks and stepped up state spending to try to spur their economies, but some countries have been forced to turn to the International Monetary Fund (IMF) and other global lenders for help.

Brown toured the Gulf ahead of an event-packed week that could see Britain, the euro zone and Australia join a global easing cycle by cutting interest rates and which will be capped by a meeting of the finance chiefs from Group of 20 key economies in Brazil.

Brown urged countries with large financial resources, such as oil-producing Gulf states, to contribute to a new IMF facility and said he expected Saudi Arabia to contribute — after some time.

“The Saudis, I think, will contribute so we can have a bigger fund worldwide,” Brown, who was also seeking investment and help on oil prices, told reporters in the Saudi capital, Riyadh.

“The oil-producing countries, who have generated over $1 trillion from higher oil prices in recent years, are in a position to contribute.”

He later got a positive reception in Qatar, where Prime Minister Sheikh Hamad bin Jassim al-Thani said the cash-rich state was willing to help tackle the financial crisis.

Earlier in Kuwait, the finance minister said the government would base any decision to support international markets on potential returns and investment opportunities.


The IMF, which had $201 billion in loanable funds as of August 28, has offered money to Iceland, Ukraine, Hungary and Belarus to help protect their economies against the crisis. Several other countries are in talks to secure funding.

Officials have said funds could run very low if many more countries requested help.

Brown said cooperation on getting the world economy through the crisis could create a new global order — “fairer, more stable and offering greater prosperity for all.”

He will meet other world leaders at a summit in Washington on November 15 to press for reform of the financial system.

The summit was called by outgoing U.S. President George W. Bush, whose successor will be chosen Tuesday, bringing an end to a hard-fought contest between Democrat Barack Obama and Republican John McCain, which appeared to be tilting towards Obama.

Earlier this year oil prices soared to $150 a barrel, making Gulf Arab energy producers even richer. But the crisis has forced oil markets lower.

The president of oil-producing group OPEC, Chakib Khelil, said its members had no choice but to implement agreed-upon output cuts if they wanted a stable oil price between $70 and $90 a barrel.

Asked what effect Brown’s visit could have on OPEC’s plan to stabilise prices, Khelil said: “Everything depends on the impact on the decision of Saudi Arabia. Therefore, if it slows the cut, or does not do it, then of course there will be an impact on the oil price.”

The Organisation of the Petroleum Exporting Countries (OPEC) decided at a meeting in Vienna on October 24 to reduce production by 1.5 million barrels per day, or about 5 percent from November 1.


The crisis has struck countries around the world, with Sri Lanka becoming the latest to receive an IMF warning that its growth was at risk.

Swiss National Bank Vice Chairman Philipp Hildebrand said the global economic outlook has “massively deteriorated.”

He said the theory of a decoupling of fast growing countries in Asia and South America had turned out to be an “unfulfilled hope.”

Germany, which is on the brink of recession, hopes to safeguard almost a million jobs with the government’s planned stimulus package, Economy Minister Michael Glos said.

China said it feared a downturn in its export markets could hurt many.

“We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development ... and factors damaging social stability will grow,” Premier Wen Jiabao wrote in the Communist Party’s ideological journal.

Governments have pledged about $4 trillion to support banks and restart money markets to try to stem the crisis set off by the bursting of a U.S. housing market bubble.

In Ireland, a senior HBOS banker said the country would need to recapitalize its banks in the next few months because exposure to the falling property market will undermine their capital bases.

“The government is in denial but they are going to have to recapitalize the Irish banking sector,” said Mark Duffy, chief executive of Bank of Scotland, part of the HBOS group, which is being taken over by rival Lloyds TSB.

Still, there were signs that the crisis in financials was easing. A top executive at Europe’s biggest bank HSBC said banking conditions were stabilizing, although he added that credit would remain tight for some time and the financial system could be hit by more shocks.

“I think it is stabilizing,” HSBC Group Chief Operating Officer David Hodgkinson told Reuters. “It takes time for confidence and reassurance to really establish themselves and there is no doubt there are still some banks who are deleveraging, which means that credit is likely to be constrained for a period.”

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Portugal’s government nationalized a small private bank, Banco Portugues de Negocios (BPN) and Bank of Portugal Governor Vitor Constacio said the country would provide up to 4 billion euros to the country’s banks to help them boost their capital ratios during the global financial crisis. The crisis has also stalled privatizations.

After Germany said its planned flotation of rail operator Deutsche Bahn was off the agenda, a senior adviser to French President Nicolas Sarkozy said plans to sell off parts of post office operator La Poste would not go ahead for the moment.

Reporting by Reuters bureaux around the world; Editing by Angus MacSwan and Maureen Bavdek

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