Qatar 'extremely comfortable' despite
sanctions, markets stabilize
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[June 13, 2017]
By John Davison and Andrew Torchia
DOHA/DUBAI (Reuters) - Qatar's financial
markets stabilized on Monday after a week of losses as the government
showed it could keep the economy running in the face of sanctions by its
neighbors.
The finance minister of the world's richest country per capita played
down the economic toll of the confrontation, and said the government was
"extremely comfortable" with its financial position, with the resources
to endure the pressure.
Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic
and transport ties with Qatar a week ago, accusing it of fomenting
regional unrest, supporting terrorism and getting too close to Iran, all
of which Doha denies.
The biggest diplomatic rift in years among the rich states of the Gulf
has disrupted Qatar's imports of food and other materials and caused
some foreign banks to scale back business.
On Monday, it was becoming clear that Qatar could keep the economic
damage from becoming critical. Some of its food factories were working
extra shifts to process imports from nations outside the Gulf, such as
Brazil. Shipping lines have re-routed container traffic via Oman instead
of the UAE.
Such measures may involve delays and raise costs for Qatar; on Monday
Fitch put Qatar's AA credit rating on Rating Watch Negative, saying a
sustained crisis could hurt its credit outlook. But they are unlikely to
prevent the economy from functioning in any fundamental way, economists
say.
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The diplomatic confrontation has become a major test for the United
States, which is closely allied to the countries on both sides. Qatar
hosts the Middle East headquarters for U.S. air forces; Bahrain hosts
the main base for the U.S. Navy.
As the world's leading exporter of liquefied natural gas, Qatar's wealth
has allowed it to crown its small Gulf peninsula with skyscrapers. It
has also given the government the means to take an outsized role in
regional affairs, sponsoring factions in revolts and civil wars and
brokering peace deals across the Middle East. Several neighbors have
been furious for years.
"STARVE THE BEAST"
In Washington, U.S. President Donald Trump, who has strongly backed the
countries imposing sanctions on Qatar despite a more neutral stance
taken by the State Department and Pentagon, said the measures were
helping to stop terrorism funding.
"One of the big things that we did and you are seeing it now is Qatar
and all of the things that are actually going on in a very positive
fashion. We are stopping the funding of terrorism," he said during a
photo call with cabinet officials. "We are going to starve the beast.”
Qatari Foreign Minister Sheikh Abdulrahman al-Thani told a news
conference in France that Qatar "still had no clue" why the nations cut
ties. He denied that Qatar supported groups like the Muslim Brotherhood
that its neighbors oppose, or had warm ties with their enemy Iran.
So far, the measures do not seem to have caused a serious shortages of
supplies in shops. Some people have even joked about being "blockaded"
inside the world's richest country: a Twitter page called "Doha under
siege" pokes fun at the prospect of readying "escape yachts", stocking
up on caviar and trading Rolex watches for espresso.
But an economic downturn could have more dire consequences for the vast
majority of Qatar's 2.7 million residents, who are not citizens but
foreign workers. Migrant laborers make up 90 percent of Qatar's
population, mostly unskilled and dependent on construction projects such
as building stadiums for the 2022 soccer World Cup.
In an interview with CNBC television -- one of the first public
appearances by a Qatari economic policy maker since the crisis erupted
-- Finance Minister Ali Sherif al-Emadi said the government was
"extremely comfortable with our positions, our investments and liquidity
in our systems".
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The energy sector and economy are essentially operating as normal and no
serious impact has been felt on supplies of food or other goods. Qatar
can import goods from Turkey, the Far East or Europe and will respond to
the crisis by diversifying its economy even more, he told CNBC.
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Staff members speak with passengers at Hamad International Airport
in Doha, Qatar June 12, 2017. REUTERS/Naseem Zeitoon
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"Our reserves and investment funds are more than 250 percent of
gross domestic product, so I don't think there is any reason that
people need to be concerned about what's happening or any
speculation on the Qatari riyal."
Jason Tuvey, a Middle East economist at London-based Capital
Economics, said that as long as the other Gulf countries did not
interfere with Qatar's gas exports, the tiny state should be able to
carry on without a serious recession.
"It seems Qatar would be able to weather quite a prolonged period of
sanctions," he said, adding that economic growth, fueled by
government spending and infrastructure projects, was "highly
unlikely to grind to halt".
Qatar, like other Gulf states, has tried to diversify from oil and
gas. The sanctions have hurt one of its highest-profile enterprises,
fast-growing airline Qatar Airways, which says it has been cut it
off from 18 of its destinations.
"It is actually a travesty of civilized behavior to close airline
offices. Airlines offices are not political arms," CEO Akbar Al
Baker told CNN. "We were sealed as if it was a criminal
organization. We were not allowed to give refunds to our
passengers."
He added that he was "extremely disappointed" in Trump. Washington
"should be the leader trying to break this blockade and not sitting
and watching what's going on and putting fuel on (the) fire."
UNDERPINNED BY WEALTH FUND
Qatar's riyal currency, pegged at 3.64 to the U.S. dollar, was under
pressure last week as banks reacted nervously to the diplomatic
rift. On Monday, the currency came off last week's lows in the spot
<QAR=> and offshore forwards markets <QAR1Y=W>.
Bankers said the central bank, which has $34.5 billion of net
foreign reserves backed by an estimated hundreds of billions of
dollars of assets in Doha's sovereign wealth fund, was supplying
enough dollars to keep exchange rates under control.
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The cost of insuring Qatar's sovereign debt against default
<QAGV5YUSAC=MG> fell back for the first time in a week. Yields on
Doha's international bonds <XS140578215=TE> dropped almost 10 basis
points and the stock market <.QSI> stabilized after sliding 8.7
percent in the past week.
Tuvey said the main threat to the economy was that Qatari banks
could find it much harder to obtain wholesale funding from other
banks to sustain growth in their loan portfolios. However, if the
situation becomes critical, the Qatari government can liquidate some
of its overseas assets to fund its banks, as Saudi Arabia did last
year when its banks faced a squeeze.
Qatar's sovereign wealth fund has major stakes in top Western
companies such as Credit Suisse <CSGN.S>. Asked by CNBC whether it
might now sell some of those stakes to raise money, Emadi indicated
this was not on the cards for now.
Qatar's normally bustling border with Saudi Arabia was deserted on
Monday. Soldiers in an armored pick-up truck looked out over
barbed-wire at sprawling dustland separating Qatar from Saudi
Arabia. Indian migrants who work at the border in green uniforms lay
on inspection platforms sheltering from the sun.
Normally, thousands of passengers and hundreds of trucks from Saudi
Arabia pass through the crossing each day, bringing fruit and
vegetables, as well as construction materials.
(Additional reporting by Tom Finn and Ibrahim Saber at the Abu Samra
border crossing and Steve Holland in Washington; Editing by Peter
Graff and Peter Millership, Larry King)
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