survival global politics and strategy 506 129 150

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Unformatted text preview: tter varies with the price of oil, oil exporters will continue to face adjustment through inflation.79Jeffrey Frankel has also suggested that the oil-exporting countries consider a peg to a basket of currencies that includes the price of oil.80Prominent economists, including former Federal Reserve Chairman Alan Greenspan and Nobel Laureate Professor Joseph Stiglitz, are recommending that the Gulf states consider a revaluation of their currencies to stem the rising tide of inflation in the region.81However, the Gulf peg to the dollar has prevented these necessary economic adjustments. Acting in their own interests, the Gulf states could loosen their peg to the US dollar and slowly shift their reserves out of dollars – a process of or ‘passive diversification’.82Indeed, there have been murmurs that the GCC countries’ central banks would be shifting their reserves away from dollars. For example, the UAE’s Central Bank Governor announced in March 2006 that it would diversify 10 per cent of its foreign exchange holdings from dollars to euros.83Again, in March 2007, the chief executive officer (CEO) of the Dubai International Financial Centre suggested that the UAE would be buying more euros and more yuans.84The fear is that this activity may lead to market signalling where speculators sell off US dollars in the global marketplace. Countless bank and market analysts have advised the GCC to consider shifting towards a more diversified reserve portfolio and an appreciation of local currencies against the dollar.85 Whether the GCC states will continue to peg to the US dollar has become an important issue of larger systemic proportions. 204 Oil DDW 2012 1 Low Prices Good – Democracy 205 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Oil revenues promote corruption that undermines transitions to democracy – Causes conflicts Maloney, Senior fellow at the Saban Center for Middle East Policy at the Brookings Institution, 08 Suzanne Maloney, Senior fellow at the Saban Center for Middle East Policy at the Brookings Institution, 12-5-08, [“The Gulf's Renewed Oil Wealth: Getting it Right This Time?,” Survival: Global Politics and Strategy, 50:6, 129-150, www.brookings.edu/research/articles/2008/12/gulf-oil-maloney] E. Liu There are no simple solutions to the problematic consequences of resource revenues. Democracy is certainly not the answer, insofar as democracy is typically introduced via the mechanism of competitive elections. Resource rents facilitate the typically pre-existing patterns of patronage politics and erode the checks and balances, such as an open press, that might constrain patronage. As a result, resource-rich governments fail to create the kind of public infrastructure that is needed for the development of competitive politics – or, for that matter, for economic growth. Scholars Paul Collier and Anke Hoeffler have demonstrated that ‘in those developing societies where the state has most command over resources, the democratic process has been least effective at controlling them for the public good’.32 According to Stanford University political scientist Larry Diamond, none of the 23 countries that currently derive at least 60% of their export revenues from petroleum qu...
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This note was uploaded on 01/30/2013 for the course ECON 101 taught by Professor Burke during the Spring '13 term at Southern Arkansas University.

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