Middle East Hit by U.S. Financial Crisis
October 9, 2008 by TMO
Courtesy New America Media, Shane Bauer
Editor’s Note: Even oil-rich Arab countries, which until recently were smug about being insulated from the financial debacle on Wall Street, are starting to worry. Analysts are predicting that they are sure to increase regulations and start pulling their economies away from the United States. NAM contributor Shane Bauer is a journalist and photographer based in the Middle East.
SANA’A, Yemen — While Washington was hashing out the terms of its largest financial bailout in history, Arab bankers were telling themselves that everything in the Middle East was as good as ever.
A full-page ad in one Middle Eastern magazine advertised a proposed business park called Falcon City, another fantasy land to add to the skyscrapers and glitter of oil-rich Dubai. Office buildings were shaped to resemble the Eiffel Tower, the Great Wall of China, the Pyramids of Egypt, and the Taj Mahal.
“As a residential or business address, each wonder is a totally amazing investment,” the caption read.
A few days later, the same newsstands spelled dread. Images of fear-stricken men in white robes and kafiyyas, their eyes fixed on strings of red numbers, splashed the front pages. Headlines announced that the Middle East’s markets were crashing, and columnists spit fire, calling on the Arab world to free itself “from the shackles of American imperialism.”
The degree to which Arab investors, which have some $800 billion invested internationally, will rein in their international investments will likely depend on how heavily they are impacted by the crisis. But analysts say that at the very least, Arab countries are sure to increase regulations and start pulling their economies away from the United States.
“U.S. influence has long been waning, both in its capacity to inspire and to intimidate,” says David Levy, senior fellow and director of the Middle East Initiative at the Washington, D.C., think tank the New America Foundation. “The region has been increasingly looking elsewhere for investments and markets. The crisis on Wall Street will only hasten that process.”
But Arab analysts say the United States was becoming increasingly unattractive for investment well before the financial crisis hit. Washington had rejected several investment attempts in recent years by Arab companies on the basis that they were, well, Arab.
The last rejection came when some Gulf companies showed interest in investing nearly $20 billion to help save Citi Group and Merrill Lynch when they were initially threatened with bankruptcy. The deal was stopped in Congress when opponents said an increase in Arab investment in the United States would present a national security problem.
As Arab stock markets fall for their third day since reopening after a one-week post-Ramadan holiday, one thing is clear: those with the most open markets and the strongest ties to the U.S. economy are being hit the hardest.
In the past three days alone, banks in the Persian Gulf have lost about $150 billion. On Tuesday, the Tadawul All-Shares Index, home to the Arab world’s biggest market, finished at its lowest close in four years.
Countries that last week were saying that their economies were “insulated” from international financial disasters are now bailing out their banks. The central bank of the United Arab Emirates pumped $17.5 billion into its banks this week and said it is ready to give more if needed.
Jan Randolph, an economic analyst at Global Insight, says that “Arab investors and banks are going to start looking locally for investments.”
The president of the Union of Arab Banks, Adnan Yusif, has announced that there needs to be an increase in regional investment, and economists have been calling for a meeting of financial ministers and policy makers to come up with a regionwide plan to deal with the crisis.
But inter-Arab economic cooperation might not be easy. The Middle East is home to some of the world’s most closed economies, like Syria, as well as countries whose names are virtually synonymous with unfettered growth, like the United Arab Emirates.
Antagonisms over competing economic ideologies run deep in the Arab world, and the current crisis seems to be reigniting debates about how much regional economies should be bound to the global economy.
“If this crisis does send real shockwaves through the region, and you start seeing that economies more closed to the world are more protected, people might start seeing open economies as a double-edged sword,” says David Levy.
Masa’ad al-Kurdi of the Saudi-owned Al-Majella magazine writes that neo-liberal globalization is to blame for the crisis. “The developing world’s economies are dependent on the U.S., the world’s largest importer, to buy their exports,” he argues. As the dollar weakens, “developing countries are going to pay the most,” writes Al-Kurdi, who concludes that “the United States of America is driving the world into the abyss.”