Hamad Al-Sayari: Economic and structural policy reforms in Saudi Arabia Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, at the Institute of International Finance, INC MENA Regional Economic Forum, Riyadh, 7 November 2007. *  *  *  It is a great pleasure for me to welcome you at this important gathering organized by the Institute of International Finance and hosted by the National Commercial Bank. I would like to thank the organizers for inviting me to speak to this distinguished audience. I understand that for the next two days, the participants will be deliberating on the state of the global economy in general and the opportunities and challenges facing the Middle East and North Africa (MENA) economies in particular. The Gulf Cooperation Council Countries (GCC) are an important constituent of the MENA region, a marketplace that is undergoing significant transformation where the member countries are opening up their markets and significant structural policy reforms are taking place. Let me begin by providing you with an overview of the ongoing economic liberalization and structural policy reforms currently underway in the Kingdom. Since the discovery of oil in the early 1930s, the oil sector has remained the linchpin of Saudi Arabian economy. Nevertheless over the past three decades, a strategic decision was made to diversify and expand the base of our economy.
For instance, the supervisory authority may put pressure on banks to increase the level of capital – for example, through upward adjustment of capital requirements under the Basel III framework. In addition, authorities may resort to bail-in measures whereby a bank’s existing debt holders would be forced to convert parts of their debt into bank equity or to accept a (partial) write-down of their claims. Of course, authorities face several constraints, due to the lack of specific powers to force resolutions, for example, or incentive problems leading to delayed action. For instance, bail-in measures may take some time to administer because of the complexity of large banking groups and the various legal issues involved. In this context, Europe faces specific challenges given the lack of harmonisation of national systems, which strongly complicates the resolution of cross-border banks. Significant steps are being taken to overcome these shortcomings. I will return to this topic after discussing the implications of deleveraging for monetary policy. Monetary policy and the deleveraging process Whereas the deleveraging of the banking sector is a necessary process to correct the imbalances built up prior to the crisis and to bring the economy back to strong and sustainable growth path, “disorderly” deleveraging can represent a serious threat to price stability. I have already described some of the mechanisms through which deleveraging can spiral off. I would like to now focus on the implications of deleveraging for the transmission mechanism of monetary policy.