Forbes says UAE should stick to dollar peg but recommends one-off “corrective” revaluation

The UAE should keep its currrency pegged to the US dollar, but make a one-off revaluation of 8-10 per cent, according to leading economic editor, Steve Forbes. He told the Leaders in Dubai Business Forum 2007 that the weak dollar was the result of mistakes made by those setting US monetary policy, but it was important to maintain a stable currency and this could only be achieved by maintaining the dollar peg. Mr Forbes, Editor in Chief of the internationally respected Forbes Magazine, made his comments as part of his address about the Rise of China and opportunities this created for Middle East businesses. “If one wants proof that the US monetary policy is wrong, you only have to look at the price of gold. When the price of gold goes above US$450 there is going to be distortion, and it currently around $US780-$US800.” Mr Forbes said there were other lessons for the Middle East from the Chinese experiences of recent years, including the need to avoid concentrating on only one area of the economy. The Chinese economy was 95 per cent export manufacturing based and this made it vulnerable to any downturn in its major markets, which are the US and Europe. While its progress had been most extraordinary, China was still largely an assembly economy and it would probably be a decade before it achieved its desire to become a high tech leader. He said China also faced ongoing problems in protecting intellectual property rights. While the Central Government was doing its best to honour its World Trade Organisation obligations, local government officials were more “liberal” and, as a result, 70 per cent of the Microsoft product in China was a “knock off”. While the Chinese Government had welcomed foreign direct investment of all kinds in recent years it was now becoming more discriminating in areas outside of the Western and Central regions. It was also looking more to investment from companies that were environmentally and services friendly. He said China was trying to avoid the problems that Japan and South Korea had experienced through having a high class export profile but poor internal service delivery. According to Mr Forbes, it was this factor that led to both economies suffering a 15 year recession during the 1990s and early part of the 2000s. For all of the problems, Chinese exports has grown from $US21 billion in 1978 to more than $US1.2 trillion last year – a more than fiftyfold increase. Twelve interntional businesses in China had increased to over 40,000 in the same period; and the per capita income had risen from $US16 a year to $US2000 and rising rapidly. Leaders in Dubai Business Forum 2007 is supported by Founding Sponsors: Citi Private Bank and Nokia; Leading Master Developer: Dubai Properties; Headline Sponsors: Addax Bank, Bidaya and The Monarch Dubai; Supporting Sponsors: Omniyat, Ithmar Capital, Al Barari, Damac Properties and Dubai Real Estate; Official Technology Partner: Fujitsu Siemens; Knowledge Partner: SP Jain; Official Event Courier: TCS