Market Crash and Inaction of Officials

Tuesday, 07 November 2006
By Sabria S Jawahar
The Saudi Gazette

WHAT is happening in the Saudi stock market these days is a real crisis that should have attracted the full attention of all authorities concerned. But unfortunately, we have witnessed nothing but an absolute killing silence. I am not an economist and I have never been interested in the economy. However, I am confused whether we are facing a crisis of money or expertise. A quick review of the general performance of the Saudi economy that depends mainly on oil prices shows that there is no logical explanation for the sharp decline in the stock market. Oil prices are relatively good compared to what experts had expected two years ago. It now ranges between $56 and $60.
At the same time, the country is executing several mega-projects attracting billions of riyals from both local and foreign investors. This shows that the problem has nothing to do with money. The Saudi market is full of liquidity and its performance is characterized as the best as compared to the previous years. So, could it be a crisis of expertise?
If we assume that the problem lies in the shortage of planning minds, I believe that we have a huge number of graduates in all fields from the most prestigious universities all over the world. But, unfortunately, it seems to me that we are not tapping their talents because of bureaucratic hurdles. This may not be a convincing reason for the market crisis as only experts should be working on preparing and executing the country’s monetary policies.
It is obvious though that we suffer a lack of determination to have comprehensive short-and long-term strategic plans that cover both macro and micro aspects of the economy. We don’t know, for instance, where the Saudi stock market will be in the coming five years. Are we going to see a market that truly reflects the strong performance of the national economy? Will we see the middle class prospering due to government subsidy or more people joining the poverty club?
The extreme silence on the part of all authorities concerned – whether the Saudi Arabian Monterey Agency (SAMA), the Ministry of Finance, the Capital Market Authority or the Shoura Council - will only aggravate the already escalating crisis of confidence in a way similar to the crash that began earlier this year and the ‘Black Thursday’ that hit the US market.
We are not expecting officials to react the way the South Eastern countries reacted during the 2002 crisis. But we are calling for the immediate creation of a legal and financial system to save the biggest Arab market and the whole region from the darkness of poverty and its consequences such as depression and violence. Is it logical to keep silent when the market suffers a 16 percent loss in less than a week? For the officials, it seems, the loss of at least SR130 billion in six days means nothing!
It goes without saying that international markets get stabilized only when they are backed up by a strong legal and financial system that acts to end any possible violation or manipulation. So how can we imagine a bourse as big as that of Saudi Arabia, ranked as the tenth internationally, to survive without a legal system to protect all of its components?
This is a true call to the members of the Shoura Council to play their expected role as representative of the public opinion and a mirror to the society’s problems. Last February’s justifications of overdue correction in markets are not acceptable any more.
Stop hiding behind your doors and talk to the poor citizens who are in a state of great shock losing not only what they own but even what they don’t as most of the invested money came as loans from banks.
I know that you are extremely busy discussing the feasibility of a bilateral commercial agreement for aviation with Burkina Faso and the impact of that on the Saudi economy. I agree and fully support your belief that hunting in Burkina Faso is the best way to meet any possible shortage of meat supply during the coming summer. But the future of more than three million citizens is almost equally important. I also know that Burkina Faso is a beautiful country located somewhere in Africa but I have never known that hunting there will bring confidence to the Saudi stock market. Congratulations, Shoura members, the Minister of finance, officials at SAMA and CMA for your great concern and efforts to facilitate the entry in to the poverty club and make it free to all Saudis.
Finally each story has its dark and bright side. The recent sharp decline has its own bright side after the Shoura Council has successfully brought the children of the Saudi mother from a non-Saudi to an equal footing with their Saudi counterparts. Now they can invest in the Stock market.