VZCZCXRO3897
PP RUEHDE RUEHDIR
DE RUEHDO #0213/01 0731301
ZNR UUUUU ZZH
P 131301Z MAR 08
FM AMEMBASSY DOHA
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 7695
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE

UNCLAS SECTION 01 OF 02 DOHA 000213 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN PREL INRB QA
SUBJECT: QATAR CONSIDERS MAJOR CHANGE IN MONETARY POLICY 
 
 
¶1. (U) Summary:  Reversing all previous official statements, 
Qatar's Prime Minister indicated March 12 that Qatar might 
change the peg of its currency from the dollar in an attempt 
to constrain spiraling inflation. However, he said the 
government would not make such a major policy change 
unilaterally and would opt to change Qatar,s monetary policy 
in concert with other Gulf Cooperation Council countries. 
Contradicting the head of government, Qatar's Deputy Central 
Bank Governor downplayed March 13 any depegging from the 
dollar or revaluation of Qatar's currency in a statement to 
the press.  While it is still not clear if Qatar will revalue 
its currency in the near future, if it does so, the action 
would likely come in early April, coinciding with the start 
of a new fiscal year.  What is certain is that Qatari 
officials are not speaking on the currency issue with one 
voice.  End Summary. 
 
Key Officials Discuss Monetary Policy Change 
-------------------------------------------- 
 
¶2. (U) Ibrahim Al Ibrahim, economic advisor to the Amir, has 
remarked in the media in the past month that pegging 
Qatari riyal to only one currency, the U.S. dollar, has many 
disadvantages, especially if the U.S. adopts monetary 
policies that are in conflict with those of Qatar. In an 
address to businessmen and bankers, for example, this 
influential and respected advisor said countries belonging to 
the Gulf Cooperative Council (GCC), which he described as 
heavyweights in the world of investment and trade, should not 
link their currency to any other country's currency. Al 
Ibrahim, however, justified maintaining the dollar peg for 
the time being as necessary to preparing for the launch of a 
common Gulf currency. In a separate interview in the 
Financial Times, Al Ibrahim said the official position is "We 
won't delink but that doesn't mean forever; it means for the 
foreseeable future." 
 
¶3. (U) Subsequent recent remarks by the Prime Minister and 
Minister of Foreign Affairs Hamad bin Jassim Al Thani (HBJ) 
strengthened the probability of an imminent change, most 
likely in early April, following the closing of the books on 
the government's fiscal year on March 31. The Prime Minister 
said March 11 he believed the Qatari riyal is currently 
undervalued by around 30 percent and that revaluation is 
being considered, among other measures, to tackle inflation. 
However, Qatar's Prime Minister urged GCC states to bridge 
differences over a single currency, saying monetary union 
could avert possible unilateral revaluations.  In contrast to 
the Prime Minister, Deputy Central Bank Governor Fahad bin 
Faisal Al Thani said March 12 that there was "no plan" to 
depeg the riyal from the dollar.  Instead, he stated that the 
Bank plans to keep the peg at its current 3.64 riyals/dollar 
for "the time being." 
 
Measures to Tackle Consequences of Dollar Devaluation 
--------------------------------------------- -------- 
 
¶4. (U) Revaluation of the Qatari currency or a complete 
severing of it from the dollar in favor of a basket of 
currencies would mark the third move by the government of 
Qatar to tackle monetary problems blamed on a devaluating 
dollar. In October 2007, Qatar announced that the country's 
sovereign wealth fund, the Qatar Investment Authority, had 
cut its exposure to the dollar by more than half from 99 to 
40 per cent. Earlier, the Qatar Central Bank increased its 
holdings of gold to 158.1 million Qatari riyals ($43.4 
million) from 44.3 million riyals in order to diversify away 
from the weakening dollar. 
 
Sharp Break from Long-standing Policy 
------------------------------------- 
 
¶5. (U) Al Ibrahim,s remarks broke sharply with Qatar,s 
long-standing commitment to the peg. Until recently, the 
top-ranking economy-related officials, including the Prime 
Minister, Minister of Finance and Central Bank Governor, 
repeatedly reiterated that the country would maintain the 
peg and that this policy is in the interest of Qatar, 
because preserving the credibility of the regime helps the 
country attract investment. The Qatari riyal has been fixed 
at 3.64 to the U.S. dollar since June 1980. This de facto 
peg was formalized in 2001, replacing the formal peg to 
the Special Drawing Rights (SDR) rate, and providing a 
stable platform for the economy.  The peg also minimized the 
role of monetary policy in managing short-term liquidity. 
According to Al Ibrahim, who heads a government body that 
charts economic development, rising inflation starting in 
2004 fueled by rapid economic growth prompted a review of 
Qatar,s monetary policy.  He regularly notes that prices in 
Qatar soared 157 percent between 2003 and 2007, and rents 
and prices of building materials prices have gone up more 
 
DOHA 00000213  002 OF 002 
 
 
than 200 percent over a short period of time, forcing some 
resident families to leave the country for good. 
 
Another View... 
--------------- 
 
¶6. (U) Some government and private economists have taken 
issue with the positive assessment on revaluation, arguing 
a revaluation at this time might not be in the best 
interest of Qatar's economy for the following reasons: 
 
- At a time when Qatar is competing for capital, a 
revaluation would make the country more expensive and 
consequently less appealing to foreign investors; 
 
- A revaluation would lead to higher export prices, and 
exports like petrochemicals would become less competitive, 
thereby hurting the country's efforts to diversify away 
from oil and gas; 
 
- A revaluation might lead to a series of revaluations; if 
the dollar reverses its plunge and begins to surge again, 
Qatar,s monetary authority would need to devaluate its 
currency, which would cause the currency regime to lose all 
credibility; 
 
- The policy change might not reduce inflation. Inflation 
in Qatar is mostly driven by the lack of affordable 
housing, which cannot be addressed by currency 
appreciation; 
 
- Finally, a revaluation would likely reduce the riyal value 
of Qatar,s hydrocarbons revenue, which accounts for more 
than 60% of GDP and roughly 85% of export earnings and 70% of 
government revenues.  Currency appreciation would also result 
in less available local currency when converted from U.S. 
dollars. In addition, a revaluation would significantly 
reduce the value of Qatar,s foreign assets in U.S. dollar 
denominated investments. The last thing Qatar needs now, 
these critics argue, is a reduction in its income while the 
government is spending huge amounts of money on health, 
education and large infrastructure projects - and allocating 
more money to its sovereign wealth fund. 
 
Comment 
------- 
 
¶7. (SBU) The recent public (and contradictory) comments by 
key officials lead us to believe the government is on the 
verge of deciding whether it will revaluate Qatar's 
currency against the dollar at the change of the fiscal 
year in April, which private and government experts believe 
would be both practical and timely.  Fundamentally, we 
sense there has been a strategic shift in political 
calculations surrounding inflation, as the senior 
leadership now appears to view persistent inflation as an 
increasing threat to social harmony between the large and 
growing expatriate population and the increasingly small 
Qatari minority.  Should U.S. policymakers wish to dissuade 
Qatar from the leadership's revaluation course, offering 
viable solutions to Qatar's current inflation problem will be 
key.  Ultimately, it would probably take a phone call from 
Treasury Secretary Paulson to HBJ to cause the GOQ to take 
pause. 
 
Bio Note 
-------- 
 
¶8. (SBU) Besides serving as economic adviser to the Amir, 
Ibrahim Al Ibrahim is also vice-chairman of the board of 
directors of RasGas and a member of the boards of Qatar 
Petroleum, Qatargas, and Industries Qatar. He was recently 
appointed secretary general for development and planning 
and is also a member of a committee set up by the Amir to 
evaluate ways to tackle inflation. Prior to working in 
Qatar, Ibrahim was an associate business professor at the 
University of Hawaii, director of economic development at 
Arab Petroleum Exporting Countries, and senior economist at 
Oxford Institute for Energy Studies. He holds a PhD in 
business administration from New York University. 
RATNEY