This is beyond absurd: the Saudis are making more oil money than they know what to do with without inflation - so the answer? Cut public spending! Brad Setser suggests their real problem may be the artificial peg to the dollar..
http://www.rgemonitor.com/blog/setser/252575/ ---------------------------------------------snip Saudi Arabia exports more oil than anyone else. It isn't unrealistic to think the Saudis oil export revenue could approach $400 billion a year if oil stays above $120. Saudi economic development has lagged the Gulf boom towns of Doha, Dubai and Abu Dhabi. Paul Murphy, quoting Goldman's Ahmet Akarli: the Saudi economy has lagged badly behind its peers in the Gulf region in terms of both per capita income and overall living standards – in particular, it lags the rapidly diversifying and prosperous economies of the UAE, Kuwait and Qatar. The right policy course: a bit of austerity. Yep, spending cuts. Or least slower spending increases. That at least is what the Saudi central bank governor suggests. The FT reports: Saudi Arabia's central bank governor on Tuesday called on the government to fight inflation by curbing public expenditure, warning that economic policies in the kingdom faced "a critical situation" …. "The Saudi Arabian Monetary Agency [the central bank] has taken steps to reduce domestic liquidity by raising the statutory reserve requirement several times. Given the dominance of fiscal policies on the economy, it is necessary to reprioritise spending and programme it to fit the absorptive capacity of the national economy," Mr Sayari added. The IMF – which has been arguing for maintaining the dollar peg and limiting inflation with spending cuts – presumably approves. The IMF's advice to Oman is presumably not that different from its advice to the Saudis. Not that the IMF's views matter. The US, which is rumored to have put pressure on the Saudis to maintain their peg to the dollar, presumably does too. Basically, SAMA and the IMF want the Saudis and the Gulf to spend more on global financial assets – as the fiscal contraction only will fight inflation if the oil revenue is sequestered abroad – and less at home. All just to maintain a peg to a currency that isn't a good fit for an oil-exporting region.
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