Saudi Arabia to the Rescue?

Sources: UK Confident Saudis Will Help IMF, Financial Times; Gordon Brown Extracts IMF Pledge from Saudis, The Australian; Britain's Brown Urges Economic Leadership from New US President; Calls for Gulf IMF Role, Chicago Tribune

After a four-day trip to the Gulf region this week, Gordon Brown, the UK’s prime minister, stated that he expected Saudi Arabia to provide funding to the International Monetary Fund (IMF) to help it bail out economies hit by the financial crisis.

Saudi Arabia, the world’s largest oil producer, has generated profit windfalls of billions of dollars from higher oil prices in recent years. Although the region has been affected by the financial crisis, the states in the Gulf have accumulated massive surpluses held in sovereign wealth funds. Thus, as Saudi Arabia is in a position to contribute, it will be the only Middle Eastern member of the Group of 20 nations that is scheduled to attend a meeting in Washington later this month.

Although Saudi Arabia wants to be seen as helping to tackle the global crisis, Saudi officials intend to spend some of its windfall profits domestically in order to rectify past failures to invest in the country’s infrastructure and public services. Thus, although Saudi Arabia is likely to contribute to the IMF, the domestic priorities of Saudi Arabia could well come before helping Western economies.

In addition, Saudi Arabia, as well as other Gulf nations that have contributed during the crisis, is interested in whether it will assume a more involved role in a new financial order. After returning from his trip to the Gulf, Brown agreed that the structure of the IMF needed to change to reflect rising power in the Gulf. Specifically, Brown stated that he accepted the “argument that those countries which do contribute…should have a greater say in the overall governance of the IMF….”

Discussion: If Gulf States contribute substantially to the IMF, do you believe that the structure of the IMF will change to allow those states to be more involved in its governance? If so, do you expect any fundamental changes in the way that the IMF operates? Do you think that the wealthy Gulf States have a “duty” to contribute to the IMF?