Muhammad Al-Jasser: Diversifying sources of finance Remarks by His Excellency Dr Muhammad Al-Jasser, Governor of the Saudi Arabian Monetary Agency (SAMA), at the Euromoney Saudi Arabia Conference, Riyadh, 17 May 2011. *  *  *  Thank you Padraic for inviting me again to this yearly event entitled this time “Diversifying Sources of Finance.” It is a fact that finance and the financial sector have been at the centre of global attention since the financial market crisis in 2008. That crisis involved a temporary breakdown in the credit system which produced a global recession, and this example shows the critical role that finance plays in generating or undermining economic growth. This morning, I would like to address the role of government, including SAMA, in enabling the environment for private enterprises including the SMEs, and then describe the current situation in terms of local and global sources of finance for economic development. I will conclude with some lessons from the recent global financial crisis. The first source of finance is internal to the Saudi economy, and the second is external. Domestically there is credit intermediation by channeling local savings into productive investments. Externally savings are allocated between economies, where Saudi Arabia competes with others for the global pool of savings. 1. Role of government  The government targets investment in social infrastructure (education, health, housing, etc.) to promote the wellbeing of the people, and is also pursuing diversification of the economy to create work opportunities for its young population.
For example, some banks are marketing synthetic ETFs tracking an index which are not collateralised by the underlying investment in the index but by other assets with the return guaranteed by a swap with a counterparty which involves counterparty risk. Some ETFs are offering a leveraged return up to 3x that on the index. The IMF, among others, has expressed its concerns (in the Financial Stability Report April 2011) and pointed out that the computer-driven trading used by these products could lead to another “flash-crash” like that of April 2010. 8. Conclusion  In conclusion, a supportive macro and regulatory environment is critical to attracting domestic and global sources of capital. Saudi Arabia has been going about this process for many years, backed up by a prudent monetary and fiscal track record. We welcome longterm capital inflows in various sectors of the economy to gain mutual benefits from the economic potential of Saudi Arabia. To promote this, the government has adopted an “open door” policy towards foreign capital which has provided excellent returns to FDI investors. Saudi Arabia has opened up the financial sector to foreign financial institutions by granting licenses to foreign commercial & investment banks as well as asset management & insurance companies to optimize the level of competence and coverage in different financial disciplines. In terms of regulation of financial institutions, we will continue with the prudent policy which has served us well in the past.