Editor's Note:

Last week a major forum addressing the state of and prospects for the relationship between the United States and the Kingdom of Saudi Arabia was convened in Washington by the New America Foundation (NAF) and the Committee for International Trade (CIT) of the Saudi Chambers of Commerce and Industry. Distinguished speakers spent the day providing perspectives and insights on what the relationship should look like, how economics was shaping the national security picture vis a vis the relationship, the challenges for America in the region and how the perspective on these challenges look from the Saudi Arabian point of view.

Today we are pleased to provide the transcripts from the second session, "Economics as a National Security Imperative: Challenges for Saudi Arabia and the U.S." This is the question and answer segment of the second session.

Separate emails will provide each panelist's remarks and the question and answer period transcript. Transcripts for the remaining panel and luncheon remarks will be provided over the next few days. You can find all of the conference materials and related links at a new SUSRIS Special Section. [ "U.S.-Saudi Relations in a World Without Equilibrium" - Conference Special Section ]

Video  MP3

U.S.-Saudi Relations in a World Without Equilibrium
Conference Transcripts -- Session 2
Question and Answer

[Jane Sasseen] Okay, great. Thank you all. I wanted to start with, kind of touch on some of the� issues that fit� and the question of interdependence that the Governor raised. The Chinese as several of you have mentioned have talked about their feeling that the world is too dependent, in particular because their position in treasuries is too dependent on the dollar. That�s potentially an issue for you all as well. I wanted to get your reaction to the Chinese suggestion of the need for another global reserve currency. Is that something you see as a problem for Saudi Arabia? Is it something you would support? To you Governor, if you could address that please.

[Muhammad Al-Jasser] I think the issue of a global reserve currency is not a mechanical problem that you just decide okay, let�s have a global reserve currency. This is something that is gained over a long period of time of developing markets with a lot of products, a lot of depth, a lot of liquidity, a lot of safety for people to want to hold those assets. And therefore, you all remember before the launch of the Euro, somebody mentioned Fred Burkstein, he I remember a conference, I think it was in 1997 at the IMF, he projected that it would be a major shift from dollar reserves to the Euro once it�s launched. That did not happen. The dollar still commands about 60% of global reserves. And the reason, it�s because of the depth and the liquidity of the dollar market. And the dollar market, just the simple currency, it�s really all the plethora of financial assets that people can hold in different maturities and different forms. So I think raising the issue that we need a global reserve currency, I mean, the Euro is there, the Sterling is there, the Swiss Franc is there. All of these currencies are there, and trying their best to be the ultimate global reserve currency. But the dollar still commands that position, and until and unless very serious major dislocations or policy failures protecting the dollar�s status as the global reserve currency of the world, then I don�t see any changes. And those of us who are in the market, we are looking for liquidity, safety, and� So as long as the dollar or whatever currency provides that, we�re going to be using it.

[Jane Sasseen] Given the risks they had given the U.S. defect, the incredible amount of spending, the concerns that with all the monetary and fiscal policy going into the economy, that we could end up in a very inflationary period, and rising interests rates dropping the dollar over the course of the next few years, what are the risks to Saudi Arabia though that, of that kind of crash in the dollar? How do you protect yourself against that given the enormous stakes you have in the dollar?

[Muhammad Al-Jasser] There are a lot of policies that are available to any reserve manager that they can use to mitigate these types of risks. Let�s remember also that foreign exchange risk, which is the case we�re talking about here, is predicated on the relatively value of currencies. There is no absolute rate for the dollar, there is a relatively rate for the dollar visa via the Euro or the Swiss Franc or what have you. And therefore, if the other economies are not doing much better than the U.S. economy, if they are lagging in the business cycle, Europe for example now, a lot of people are saying that Europe is probably behind the U.S. in getting into recession, but it will take them a longer period also to get out of it. So in relatively terms, it�s not as clear-cut a case, but the dollar alone is in trouble, and therefore people should be looking for the lifeboats out of the dollar. That is not the case yet.

[Jane Sasseen] Oh okay. � could you address, there was obviously a lot of discussion this weekend about the possibility of the brick countries increasing the funding of the IMF through a bond offering that would be separate from the standard� term procedure. Several questions. One, is that something, an idea that you think is potentially useful, constructive, and could you also then form a broadly� address the question of the Saudi position in terms of there�s been a lot of pressure, a lot of discussion as it were, that the Saudis should increase, support some of the increased funding for the IMF, and so far that has not happened. Could you explain why that is? Do you see any change in that position coming? Would this be a route in which you might consider increasing funding, providing more funding towards the IMF?

[Muhammad Al-Jasser] Well, as you mentioned, there has been lot of discussions about providing funding for the IMF� because � And the Americans need to see that the resources are there if needed. And there was an agreement to provide about 500 billion dollars to the, what is called the � as part of the instruments that the IMF has. Saudi Arabia has actually a number � it�s about 50 billion dollars. Now, the decision is to � And there has been a number of countries that have announced their intentions to contribute to that, one of them is the European Union, about 100 billion, the Japanese, 100 billion, the U.S. is proposing also to raise 100 billion, and other countries. So we are getting closer to that target, and for us, there are other needs to help the IMF without, through this specific instrument, or through bonds or different means and I�m sure that the IMF�

[Jane Sasseen] Are you involved in the negotiations with the brick countries? Would you purchase the bonds? Would you purchase some of those bonds?

[Muhammad Al-Jasser] Well, we are looking at different options as far as Saudi Arabia is concerned. I know that there are a number of countries that found the bonds more attractive than being part of this � but as far as we are concerned, a number of countries as well. We are still looking at our options. Saudi Arabia, I mentioned that earlier has been a very active supporter of the IMF. In the early eighties, we singlehandedly carried the programs of the IMF to help Latin American countries. We provided the fund with about 11 billion SDRs to help what was called then Allied Axis of the countries to resources. And before that, we have provided the oil facility, the supplementary facilities, and others. So, again, we�ll look at the different options that are now available and we�ll make a decision accordingly. We should be perhaps by the four meeting looking at the total package and the financing needs of the IMF.

[Jane Sasseen] Okay. Heidi, could you address from - the Minister�s comments not withstanding, and obviously the effort you all have made to stimulate your own economy in the region, there is a perception that Saudi Arabia is not stepping up enough to address the broader funding issues of the IMF, and certainly a sense that there�s been a lot of behind the scenes pressure. Could you address a question? Do you think that there has been enough, are they doing enough I guess really to help address the financial issues in the global crisis?

[Heidi Crebo-Rediker] Well, I�m not personally involved in the negotiations, but it�s my understanding that, first, the negotiations are on going, nothing has been completed yet, so the discussions are still under way. And second, in terms of in particular the stimulus to the economy, which was very much modded by the IMF at these past meetings, is being one of a handful of countries that has actually perused the IMF target of 2%. So I think that there�s no question in my mind that Saudi Arabia is doing what it�s committing to, and as the discussions evolve, I�m hopeful that that will also lead to contribution to the funding mechanisms through whichever way Saudi Arabia feels comfortable doing so.

[Muhammad Al-Jasser]: Can I add just one word? Of course, all of the emphasis in all these discussions is that each country has to do its part domestically to stimulate its own economy and adopt the appropriate monetary policies as well, and in that, I mentioned in my statement, we are the highest among the G20 as far as the stimulus packages are concerned. So we are doing the investment program of 400 billion that King Abdullah announced last November. It�s directly helping our economy, but it will be reflected on the rest of the world, because most of that expenditure will be on goods and services imported from other countries. The other thing, and the government �, is the easing of monetary policy in Saudi Arabia, and again we have done more than our share of that.

[Jane Sasseen] To go back a little bit to one of the things you had talked about, if this bond offering does come through as people imagine it will, it seems to be to some degree a first step towards what the Chinese are talking about. Does this take us down the road to the development of that sort of a reserve currency that would easy some of these pressures, or create that alternative that the Governor was just discussing?

[Ibrahim Al-Assaf] Well, to some extent I think the answer to the question depends on things that we may not know right now. I mean, is this going to be a relatively short-term issue that is only made available to central banks and central banks hold it for a relatively short period of time and then it�s done, or does this really mark the move towards the creation of genuinely tradable instruments that are denominated in STRs. As one of the central banks that holds it at some point basically create a secondary market for these instruments. At this point, we simply don�t know the answer to that question. Beyond what actually happens with this bond issue, how it�s structured, how it�s implemented, I think it is an important indicator of where at least some important players in the international economy want to go. I mean, this is an outgrowth of a Chinese idea, which attracted first Russian support, and then seemingly, basically support from all of the Brits. I mean really any country that has substantial dollar holdings I would think has to be looking at the future and looking at, and all of the things that the Governor said about why no really clear alternative to the dollar has immerged at this point, all of those things are certainly true, but still looking long-term, the system the way it�s constituted now can�t go on indefinitely. There�s going to have to be some kind of greater multi-lateralization of responsibility for reserves, and even if that means nothing more than the U.S. is going to have to strike deals with creditors in which it actually makes commitments that it keeps regarding fiscal policy, monetary policy, things like that, or if you�re talking about the creation of new reserve assets on a multi-lateral basis, that�s got to be the long term trend I think.

[Jane Sasseen] Governor, your reaction to that, the issues and the timeframe that you raise notwithstanding. Ultimately, would it be better off, would it be more in the interest of Saudi Arabia to have a broader base of currency or reserve currency, lessen the dependence on the U.S. dollar?

[Muhammad Al-Jasser] I think it�s not just the question of a wish, I mean as I mentioned there are realities. We are economists, we are business people, we are investors, and we look at the landscape, and we invest and take risks or make hedges on what is existing in the market. And the reality of the market is as we see. But also, I want to add this is not just so that long term nobody should be, everybody is analyzing what�s going to happen down the road. We wouldn�t be worth our salaries, as little as they may be, if we didn�t think along those lines. But also, the U.S., if you notice for example the communiqu� of the IMFC of the IMF, it was clearly stated also to answer such concerns that the exit strategy from all of this huge physical stimulus and monetary easing that is taking place now, is that the exit strategy is already being put in place, that once the recovery starts taking place, that the U.S. and the other major countries, especially those that are going very extensively into stimulus, how to map out the liquidity, how to stabilize the situation, and maintain the value of the assets as the � and the dollar, and the Sterling, or what have you.

[Jane Sasseen] Okay. Let me open up with a few more minutes if anybody out there would like to ask a question, let me open it up. Any questions? The lunch is too delicious apparently. Yes, back there please.

[Question from Audience] Ian Tyler �, Newswriters. One thing that has been notably absent but I guess implicit in what Mr. Leverett was talking about is climate change policy. Right now, there�s the meeting of major economist forum, the State Department discussions going on between the Chinese and the U.S. If the U.S. implements a tough target in terms of emission reductions, how does this change the nature of the relationship between the U.S. and Saudi, and Saudi and China, with the growth that Mr. Leverett was talking about?

[Jane Sasseen] Brad, do you want to take a shot at that first?

[Brad Bourland] Yeah, I think that we haven�t reached a point where there�s been a clash between what is developing U.S. energy policy and Saudi energy policy. But there�s a very strong climate change component to the Obama Administration policy. I�d mention the early wording wanting to eliminate imports from the Middle East and Venezuela. That�s been changed now to say we want to reduce our consumption by 4.2, I believe, million barrels per day over ten years, which is the equivalent of what the U.S. imports from Venezuela and the Middle East. And it may actually be achievable, and it�s not really a bad idea, it�s just a question of how you word it. But one thing Saudi Arabia needs and asks for frequently is security of demand, just like the consuming world needs security of supply, and our minds are focused on the many supply disruptions of the past few decades, Saudi Arabia�s concerned about security of demand. You�re saying specifically that you don�t want our oil, but more broadly you�re saying you don�t want oil, and specific policies to reduce consumption of oil. So I think there�s some good head to head discussions to be had as the administration unfolds and pursues this policy aggressively on climate change, especially in pursuing, and this is a personal view I have, alternative technologies that just aren�t economically viable. I have a thing about ethanol that is just to me as a taxpayer in the U.S., it�s just not economically viable on its own, but we�ve put so much into. So, overpromising on alternatives that can�t deliver in a given economic environment, pushing climate change in a way that is too, let�s say, one dimensional, I think where we end up on this, and China has to come into this fold too. And you see, what I�d use more thoughtful rhetoric on this evolving � direction is looking at the whole energy mix in which hydrocarbons will continue to play a very important role for the long term, in fact, a dominant role, but other viable alternatives that are important for the climate need to come into play. That will evolve over time, but I think there�s quite a sharp distinction between what is the current rhetoric about climate change policy, and what is really the perspective of the world�s major oil producer on this.

[] Yeah, I just want, Brad, I didn�t think that a strong policy with regard to the emissions or carbon dioxide would be not only politically, but also practically feasible. So that, I doubt that it would happen. Now, I mentioned in my statement that we need to work together to provide efficient and clean fossil fuel consumption. And there is a huge potential for cooperation in that area, because as we all agree, the fossil fuels will be there for a long time, even with the growth in other alternative sources of energy. And let me say also that we have recently established a center for research in energy and environment. It�s going to be a big center. We have already a big environment for that center. It will be in Riyadh. The King himself is personally very much interested in this area. So we are also concerned about having the clean sources of energy, particularly based on hydrocarbon. So I think we should be focusing more on that area. But as far as the other sources, I�m not sure. That will be � One thing that we have been facing in those institutions � World Bank and we had been talking about for quite some time. Our colleagues from consuming countries pushing, saying and this tomorrow, and this tomorrow, more money, and I think Flynt mentioned that point, yet at the same time calling for reducing consumption of oil. And this is something that, they cannot go together. They want us to put billions of dollars, and actually much more than what..

[Jane Sasseen] To invest in new production..

[] Exactly, and increasing the capacity. At the same time, calling for increasing taxes and measure to reduce the consumption of oil.

[Jane Sasseen] How concerned are you about the rising level of rhetoric? There�s almost a demonization of foreign oil in this country now, and particular coming out of the new Administration and some of the types of things that Flynt mentioned. What is the reaction within Saudi Arabia to hear that kind of talk from President of one of your closest allies?

[] Well I tell you, again, we have been working with the U.S. in the past as part of international institutions on � to the � of growth. Our concern is that it could affect the growth, especially in developing countries. The impact of putting pressures on those developing countries to give more priority to other � rather than reducing from it. But also in advanced economies as well, because we have also our public of billions. When people read and listen to consuming countries saying reduce your oil consumption, and at the same time asking us for �, it�s very difficult to defend.

[Jane Sasseen] I need one last question peharps?

[Question from Audience] How do you characterize Saudi Arabia�s dealings with other fiancial centers in the golf like Bahrain, Qatar, Kuwait, which made profits recently, and Dubai? How do you link this answer with the U.S. attitude to the area?

[Brad Bourland] Let me make some initial observations on; Dubai, Qatar, Bahrain have fashioned themselves as financial centers, right? And they�re all slightly different. Dubai is, the DIFC, a little separate regulatory enclave, Qatar says the whole country will have the same very friendly regulatory environment, etcetera, and Bahrain actually was the first GCC financial center when Beirut declined with its civil war and it grabbed that opportunity. But the de facto case is that most of the businesses in Saudi Arabia, so if you look at a list of the top ten banks in the GCC for example, five to seven of those banks will be Saudi banks that are headquartered in Saudi Arabia. So just the weight of the Saudi economy makes Saudi Arabia a very dominant, real financial center. What the others are doing are great in advancing the market and the depth of the products and services offered. And there�s probably room for all of them, and the market will decide which has, which comparative advantage over the others, but I wouldn�t look at them as competing to be the financial district or the financial center of the Gulf. What you�ll hear about in Saudi Arabia and Riyadh is there is a real estate development that is the financial district of Riyadh, which will be very attractive, like a Wall Street, where the banks and government offices that relate to markets will be headquartered. And if you visited many of the bank head offices in Riyadh, some of them are very old and they need new head offices. So that financial district will succeed and will grow. But I think there�s room for everybody, they�re all quite different. But just keep in mind, Saudi Arabia is the big player.

[Ibrahim Al-Assaf] I�ll just add one point, which I mentioned in passing in my statement � I agree with Brad. I mean, there is enough business in the region and each one has developed a certain model. I think the important thing is that with this financial crisis that we are going through now, it has sent a message also that light touch or no regulation is not the answer. So this regulatory arbitraging that at times is practiced in certain areas is no longer acceptable to the investors in these institutions. And therefore, probably there will be an improvement in regulatory oversight in all of these markets, and therefore, they probably will be even in a better position to serve the real economic needs, not the speculative economic needs of a very dynamic region we live in these days.

[Jane Sasseen] How confident are you that given where the discussion are within the G20, that that will better a much more effective regulatory, international regulatory system will be created? There�s obviously an enormous amount of discussion, and every time I do an interview with somebody, they talk about the enormous complexity and how hard it will be, and what we often see after one crisis is there�s a solution to that crisis and then ten years later, the financial system finds a way to create another crisis that you couldn�t prepare for. There�s questions of confidence and given the difficulties involved and the challenges in eliminating some of the arbitrage opportunities.

Video  MP3

AGENDA

Panel II: Economics as a National Security Imperative: Challenges for Saudi Arabia and the U.S.

• Introductory Remarks - Jane Sasseen

• His Excellency Ibrahim Al-Assaf

• Heidi Crebo-Rediker

• Brad Bourland

• His Excellency Muhammad Al-Jasser

• Flynt Leverett

• Moderator - Jane Sasseen - Questions and Answers

Related Items - US-Saudi Relations:

• Saudi-U.S. Cooperation: Building Dialogue - Amb Robert Jordan - SUSRIS IOI - Dec 23, 2008

• The Centrality of Saudi Arabia - Amb Wyche Fowler - SUSRIS IOI - Dec 16, 2008

• Manama Dialogue: Continuity and Commitment - Robert M. Gates - Dec 14, 2008

• Saudi National Security and the Saudi-US Strategic Partnership - Anthony Cordesman - SUSRIS IOI - Dec 4, 2008

• SUSRIS Exclusive: Moving in the Right Direction - A Conversation with Ambassador Ford Fraker - Part 3 - SUSRIS Interview - Dec 1, 2008

• SUSRIS Exclusive: The Diplomacy of Business - A Conversation with Ambassador Ford Fraker - Part 2 - SUSRIS Interview - Nov 26, 2008

• "What does Mr. Kissinger propose"? - Prince Turki Al Faisal - SUSRIS IOI - Nov 25, 2008

• SUSRIS Exclusive: Managing the Marriage - A Conversation with Ambassador Ford Fraker - Part 1 - SUSRIS Interview - Nov 24, 2008

• SUSRIS Exclusive: The Vital Triangle: China, the United States, and the Middle East - Chapter Three - Saudi Arabia: The Pivotal State - Jon B. Alterman & John W. Garver - SUSRIS IOI - Oct 17, 2008

• SUSRIS Exclusive: Reforms and Relations: Perspectives on the Kingdom - A Conversation with Amb Chas Freeman - Oct 8, 2008

• Foreign Policy of Saudi Arabia - Prince Saud Al-Faisal - SUSRIS IOI - Sep 29, 2008

• National Day Remarks: "A Strong Relationship" - Amb. Ford M. Fraker - SUSRIS IOI - Sep 27, 2008

• SUSRIS Exclusive: American Businesses and Saudi Opportunities: Missing the Action? - A Conversation with Khaled Al Seif - SUSRIS Interview - Sep 4, 2008

• US-Arab World: Finding Mutual Respect - Rami G. Khouri - SUSRIS IOI - Feb 28, 2008

• American Interests, Policies, and Results in the Middle East - Amb. Chas. W. Freeman, Jr. - SUSRIS IOI - Feb 26, 2008

• Impressions of Arabia, Autumn 2007 - Chas W. Freeman, Jr. - SUSRIS IOI - Nov 26, 2007

• SUSRIS Exclusive: Focus on the Saudi-US Relationship - A Conversation with Robert Jordan - SUSRIS Interview - Nov 19, 2007

• Can American Leadership Be Restored? - Chas W. Freeman, Jr. - SUSRIS IOI - May 31, 2007

• �American-GCC Relations: An Assessment of Reforms, Elections, Challenges and the Prospects for Regional Peace and Stability� - Chas W. Freeman, Jr., Arab-US Policymakers Conference - Oct. 31, 2006

• SUSRIS Exclusive: Crises and Opportunities in U.S.-Saudi Relations - Ambassador Robert Jordan - SUSRIS Interview - Dec 7, 2004

• SUSRIS Exclusive - The Impact of Lebanon on US-Saudi Relations - A Conversation with Robert Jordan - SUSRIS Interview - Aug 16, 2006

• Strengthening the Relationship: Whose Job? A Conversation with Chas W. Freeman, Jr. - SUSRIS Interview - Aug 14, 2006

• The Arabs Take a Chinese Wife: Sino-Arab Relations in the Decade to Come - Chas W. Freeman, Jr.- SUSRIS IOI - Jun 1, 2006

• How Can the U.S. Re-Open for Business to the Arab World? - MEPC Capitol Hill Forum - Part 1 - Ambassador Chas Freeman - SUSRIS IOI - Apr 14, 2006

• SUSRIS Exclusive - U.S.-Saudi Relations: The Path Ahead - Ambassador Chas Freeman Interview - Part II - Oct 30, 2004

• Defining Interests and a Changing Relationship - Ambassador Chas Freeman Interview - Part I - SUSRIS Interview Series - Oct. 29, 2004

• The Way Forward: A Diplomat's Perspective - Remarks by Ambassador Chas W. Freeman, Jr. - 13th Arab-U.S. Policymakers Conference -Washington, DC - September 13, 2004