Saudi, UAE look for assurances on US economy: analysts

Saudi Arabia and Gulf holders of billions of dollars of US debt will be seeking assurance on the US economy when Treasury Secretary Timothy Geithner visits the region this week, economists said Monday.

Amid calls from China, Russia and now France for a new global reserve currency, Geithner will have to sell a vision of recovery even as the US economy continues to falter, they said.

"Secretary Geithner's visit will be like a progress report on the state of the US economy," said veteran Riyadh economist John Sfakianakis.

"Since Saudi Arabia is a very important holder of US paper, some explanation about the state of the US economy" is necessary from the top US finance official, he said.

On Tuesday, Geithner arrives in Jeddah, the Red Sea business centre where much of the Saudi government has repaired for the summer months. He will address the Jeddah Chamber of Commerce and Industry and meet top officials, including possibly King Abdullah.

On Wednesday, he is scheduled to meet with United Arab Emirates officials and the heads of two of the UAE's main public investment funds in Abu Dhabi.

Economists said the key US interest is making sure the petro-economies of the Gulf keep most of their foreign reserves in dollar-based assets, especially US Treasury debt.

"This is a reassurance trip," a UAE-based economist who works for a government agency told Dow Jones Newswires. "Geithner wants to let Abu Dhabi and Saudi know that their investments in the US are safe."

Sfakianakis points out that senior US treasury officials regularly visit Saudi Arabia to discuss economic and finance issues.

"It's an annual visit. (Former) Secretary (Henry) Paulson visited Saudi Arabia a year ago," he said.

It underscores the importance of the kingdom as the leading global oil exporter as well as holder of about 400 billion dollars in foreign reserves, most of it believed in dollar-denominated assets.

Because the country is so dependent on oil and gas exports -- also denominated in dollars -- economists do not believe Riyadh is considering any radical changes to its dollar holdings.

But the Saudi government has been selling off foreign assets in recent months to fund a massive government investment programme aimed at keeping the economy growing.

Saudi foreign assets have dropped from a peak of 443.2 billion dollars last November to 395.2 billion dollars at the end of May.

And across the six countries of the Gulf Cooperation Council, foreign holdings have fallen around 300 billion dollars, which likely has contributed to the dollar's weakness.

In the background too are the calls for a new international reserve currency similar to the Special Drawing Rights used by the International Monetary Fund.

China first raised the issue, followed by Russia, and French President Nicholas Sarkozy last Thursday suggested his support, saying a "multipolar world must be a multicurrency world."

Also on the menu for talks in Jeddah are cooperation in fighting financing for terror groups, keeping the price of oil in a stable range that will help the world economy recover, and ways to keep up pressure on Iran to prevent it from developing nuclear weapons.

Geithner will also likely pitch for more Saudi and UAE investment in the United States, according to a Treasury official who briefed reporters in Washington ahead of the trip.

"He will reiterate that we are open to foreign investment from the region," the official said.