Saudi Arabia’s King Appoints New Economic Team Amid Record Spending Plans

Saudi Arabia, the world’s largest exporter of oil, replaced its central bank head and economy minister as it presses forward with a record spending plan aimed at reducing unemployment and reliance on crude exports.

Fahad al-Mubarak was appointed central bank governor, replacing Muhammad al-Jasser, who was named economy and planning minister, state run al-Ikhbariya television said yesterday. Tawfiq al-Rabea was appointed trade and industry minister. The realignment follows the naming of Prince Nayef bin Abdulaziz as heir to the throne in October.

Saudi Arabia’s drive to create jobs comes amid a wave of popular uprisings in the Middle East, triggered in part by unemployment. King Abdullah announced a $130 billion spending plan in the first quarter and in August 2010 unveiled a $384 billion plan to develop transportation, housing and education.

“Al-Jasser’s transfer to the Economy Ministry is aimed at breathing life into it,” James Reeve, senior economist at Samba Financial Group in London, said in response to e-mailed questions today. “Al-Jasser is a well-regarded technocrat, and I expect he will institute quite significant changes there in due course.”

The country needs the non-oil economy to expand at an average 7.5 percent in the next five years to lower joblessness by half to 5 percent, the International Monetary Fund said. Non- oil output growth will slow to 5 percent in 2012 from 5.4 percent this year, while the expansion in oil GDP will grind to a halt next year, IMF data project.

Shares Rise

Saudi Arabian shares (SASEIDX) gained for the first time in four days after the announcement of the appointments. The Tadawul All Share Index advanced 0.8 percent to 6,238.87 at the 3:30 p.m. close in Riyadh.

Al-Mubarak worked as managing director of Morgan Stanley Saudi Arabia before his appointment as the central bank governor. He also was chairman of the Saudi Stock Exchange. He declined to comment on central-bank policies when contacted today.

The latest Cabinet changes, along with King Abdullah’s appointment earlier this year of a successor to the late Prince Sultan as defense minister, are the first since 2009. That year, Abdullah appointed al-Jasser as the central bank governor and named new ministers of information and education.

‘Surprised by Appointment’

The king appointed Prince Nayef, 78, as crown prince on Oct. 28 and later named Prince Salman bin Abdulaziz as defense minister. The appointments followed the Oct. 22 death of Prince Sultan, formerly crown prince. Al-Jasser, who had been a deputy governor of the Saudi Arabian Monetary Agency since 1995, replaced Hamad Saud al-Sayari in 2009. Al-Sayari had served as the central bank’s governor since 1983.

“I was really surprised by the appointment,” Mohammed al- Qahtani, an economist at the Institute of Diplomatic Studies in Riyadh, said in an interview today. “Had al-Jasser stayed at the central bank, he would have had more autonomy. The Economy Ministry doesn’t have any real authority.”

Saudi Arabia hasn’t experienced the unrest that led to the toppling of leaders in Tunisia, Egypt and Libya this year. Saudi Arabia sent troops into neighboring Bahrain in March to crush a mainly Shiite Muslim-led uprising after accusing Shiite-led Iran of interfering in the affairs of the island state. Iran denies the allegation and accuses Sunni Muslim rulers in Bahrain and Saudi Arabia of discriminating against Shiites.

Interbank Rate

Saudi Arabia’s 3-month interbank interest rate, the rate at which banks lend to each other, was at 0.745 percent today, the highest since May.

Saudi Arabia maintained a monetary policy that aimed for stability in the financial industry in the first quarter of this year and last year, the kingdom’s central bank said in an annual report published Dec. 12 on its website.

The kingdom’s banks tightened lending criteria after two businesses owned by prominent Saudi families defaulted on at least $15.7 billion of loans in 2009 and the global credit crisis hurt the economy. Growth slowed to 0.1 percent in 2009 from 4.2 percent the previous year, IMF data show. More than half of new jobs went to foreigners between 2004 and 2009, the International Monetary Fund said in a September report.

“Perhaps they have taken the view that al-Jasser can tackle new challenges at the Ministry of Economy and Planning,” Jarmo Kotilaine, chief economist at Jeddah-based National Commercial Bank, said in a phone interview. “He has often made comments on broader economic-policy issues.”

Under the new central bank governor, the kingdom’s monetary policies are unlikely to change, Kotilaine said. “I don’t think there is any near- to medium-term argument to reconsider the U.S.-dollar peg,” he said. The Saudi riyal is pegged to the U.S. dollar at a rate of 3.75 riyals.

To contact the reporters on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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