World’s Top Oil Exporter Keeps Faith in U.S. Debt

Saudi Arabia, the world’s biggest oil exporter, isn’t changing its “positive” view on the U.S. Treasuries market even as Democrats and Republicans quarrel over the debt ceiling, central bank chief Fahad Almubarak said.

“The U.S. current crisis will go away and we think its effect won’t be lasting on our investments,” Almubarak said after a speech in Washington yesterday, where he is attending the annual meetings of the International Monetary Fund and the World Bank. “Our long-term view is positive.”

Oil exports have helped Saudi Arabia accumulate $700 billion in foreign asset reserves, the world’s third-largest after China and Japan, according to central bank figures and data compiled by Bloomberg. More than $500 billion are invested in foreign securities, including Treasuries. Failure by U.S. politicians to raise the debt ceiling limit risks a default.

“We are long-term investors,” said Almubarak, a former Morgan Stanley banker who was named head of the Saudi Arabian Monetary Agency in 2011.

Almubarak also joined central bank and finance chiefs from other emerging markets in urging a gradual, measured withdrawal of stimulus policies introduced by advanced nations.

Monetary Policy

“Quantitative easing is an emerging monetary policy,” he said in his speech, referring to the U.S. Federal Reserve’s program of bond-buying to spur growth. “It has resulted in unintended consequences for emerging-market economies and hopefully it will be withdrawn in a measured way to avoid disruption to the financial markets.”

Saudi Arabia, a member of the Group of 20 large economies, pegs its currency to the dollar and its monetary policy tracks the U.S. Federal Reserve. The country has maintained its benchmark reverse repo rate at 0.25 percent since 2009.

Almubarak said the central bank can use tools such as “cash management and capital adequacy control” to offset unwanted side-effects of low interest rates.

The governor questioned the effectiveness of a call for more coordination among G-20 members, saying policy makers will struggle to reconcile domestic mandates with efforts to limit spillover effects of their actions on other economies.

“Central banks are mandated with domestic objectives toward price stability, employment and financial stability,” he said. “It may be challenging for local authorities to also be responsible for spillovers to other countries that may suffer from unintended consequences of unconventional monetary policy.”

Saudi Arabia’s benchmark Tadawul All Share Index has gained 17 percent this year amid speculation that regulators will allow more access to foreign investors. The market’s capitalization of about $427 billion makes it the largest in the Arab world.

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