Khaleej Times - 15/5/2006
The dollar's decline is creating inflationary pressure in the United Arab Emirates, which has pegged its dirham to the US currency, an economy ministry official said yesterday.
The US currency's slide against the euro was a key factor in Kuwait's decision to revalue its dollar-pegged dinar by 1 per cent last week and markets have been speculating that other Gulf Arab central banks would soon follow suit.
Adulla bin Ahmed Al Saleh, an undersecretary at the economy ministry, told reporters inflation in the UAE could hit 6 per cent this year, unchanged from the ministry's figure for 2005, partly due to the rising cost of non-dollar imports.
"There is an impact for sure. It will affect inflation. This is not only a problem for us, it is a problem for the US as well," he said on the sidelines of the Gulf Arab trade ministers' meeting in the UAE capital Abu Dhabi.
While most of the exports from the Gulf, which supplies a fifth of the world's oil needs, are denominated in dollars, the bulk of its imports are priced in other currencies. Dollar weakness fuels inflation.
Kuwait's finance minister said on Saturday his country's revaluation was meant to offset the impact of the dollar's slide on investments and inflation. The dollar has hit year lows against the euro this month.
The Saudi and Qatari central banks have sought to quash market speculation that they would follow Kuwait's move. The UAE central bank has declined comment, but most analysts think a dirham revaluation is unlikely in the short-term.
Asked how the UAE planned to tackle inflation, Saleh said the government was hoping that new laws to encourage competition would help bring prices down.
"We are working towards changing the competition law and a new companies law. It will allow more competition. The companies law should be passed before the end of the year," he said, without elaborating.
Companies law amendments: A United Arab Emirates ministerial panel yesterday approved 40 amendments to the companies law, the official Wam news agency said. The agency did give any details of the amendments.
"The ministerial committee for legislation approved in a meeting today ... a federal bill to amend some of the articles of the corporate law," said Wam. "The committee forwarded the approved amendments to the cabinet for its next meeting to take the appropriate decision," it said.