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To begin with, it should be stated that the economic system and financial structure of the United Arab Emirates are based on the oil and natural gas trade. Originally, this system is regarded to be the most stable, as energy resources are considered to be the most required and the most reliable source of national income. Taking into consideration, that UAE is one of the largest world economy system actors, it should be emphasized that the impact of world financial structures and organizations, which regulate the currency exchange and financial flow processes can not be ignored. Consequently, the impact of the International Monetary Fund should be regarded and researched for creating a complete image of the Arab economy.
Analysis of the Economy
The analysis of the financial system and the economy, in general, is generally started from the GDP indicators. The fact is that the GDP rates of the United Arab Emirates are in the fourteenth position in the world, and the third in the Middle East region (in accordance with the data by International Monetary Fund). Thus, the total financial flow of the UAE economy was $198 billion in 2008. The small population of this country makes the GDP rate immense, consequently, the position of Arab Emirates is constantly rather high in the world financial rates.
As it has been already stated, the main source of national income is oil and natural gas extraction and export. The United Arab Emirates is regarded to be among the most economically developed states, moreover, this development was rather rapid and steady, as energy resources are the most required legal point of the world export.
Impact of the IMF
To begin with, there is a strong necessity to mention that the financial system can not be impacted by the IMF essentially if it is stable, constantly developing, and powerful. This impact may be performed only through the regulation of international financial norms and economic principles for establishing the norms of fair competition and steady and homogenous development of the world economy.
Originally, the Financial System Stability Assessment, which is applied for the economies of the developing states was prepared by the researchers of the World Bank and International Monetary Fund as background documentation for the periodic consultation with the member country. Nevertheless, this document is unable to impact the financial structure of the UAE. Nevertheless, the joint mission of the World Bank and IMF visited Abu Dhabi and Dubai in 2007 for updating the results of the Financial Sector Assessment Program for the Arab Emirates, entailing the economic activity and supervision in the newly established Dubai International Financial Centre. (Alnasrawi, 2007). The fact is that research activity is the only serious way the IMF may impact the economy of the United Arab Emirates. In the light of the fact, that this is the energy resources supplier State, the world is interested in stable prices for oil and gas, which may be stable only in the circumstances of stable economic, political, and social circumstances in the Middle East region. Thus, this research activity may be regarded as the mutually advantageous cooperation of the IMF and the UAE. This cooperation entails the recommendations for the Arab economists, made based on the performed researches, and, on the other hand, it presupposes steady economic development, which is advantageous for all oil-consuming countries. Eichengreen (2005, p. 345) emphasizes that such cooperation has its positive results for UAE: “The recommendations caused major increases in imports occurred in manufactured goods, machinery, and transportation equipment, which together accounted for 80% of total imports. Another important foreign exchange earner, the Abu Dhabi Investment Authority ‑ which controls the investments of Abu Dhabi, the wealthiest emirate ‑ manages an estimated $360 billion in overseas investments & an estimated $900 billion in assets.” Taking this notion into consideration, there is a strong necessity to emphasize that the FSAP data were discussed by the Arab economy experts, and the main findings of this update, and the possible influence of the IMF on the economy. First, it should be stated that in the context of high oil prices, sustained buoyant growth, and strong domestic demand, banks have provided ample credit after the IMF had advised to improve the credit conditions and simplify the initial requirements for gaining the credit. Originally, this was aimed at supporting the finance major public and private urban construction projects. Consequently, influencing the banking sector is another way IMF may impact the economy, nevertheless, this impact may be performed only as of the recommendations. Thus, facing serious corrections in the sphere of the real estate market, some banks found their reserves depleted. Then, supplementary regulation and close oversight of real estate marketing strategy were recommended. Nevertheless, this strategy was recommended in the context of preserving the banking system, and maintaining its effective activity, while the matters of inflation and foreign investments were not taken into consideration.
The other factor of influence is stated in the research by Goode (2007, p. 158). He states the following notion: “U.A.E. equity markets lack depth and diversification and have been subject to high volatility. The market for debt instruments is also thin and there are no sovereign securities. To support the safe and sound expansion of capital markets, staff recommends strengthening supervision, notably by transferring all of the federal responsibility for oversight of securities markets to ESCA and removing barriers to foreign participation in financial markets; and improving corporate governance and disclosure requirements.” In the light of this fact, it should be stated that the capital markets, which are generally subjected to essential modification through the update process, are not kept stable, as banks pay too much attention to real estate markets and do not take into consideration the stability of capital markets, which are essential for the allover economic development.
Pros and Cons of IMF Impact
Originally, it has been already stated that the impact is arranged in the form of mutually advantageous cooperation, consequently, there are more pros for this impact. Thus, IMF experts are interested in the steady development of the Middle East economy and give the necessary recommendations for the banking system of UAE. Initially, these recommendations presuppose the necessary changes, however, sometimes these are made without taking into consideration the particularities of the Arab financial system, which makes these recommendations useless and ineffective.
Finally, it should be stated that the impact of IMF on the economy of United Arab Emirates can not be regarded as a serious factor for economic development, nevertheless, the recommendations, which cause changes in the banking and financial structure of the UAE are generally regarded as the important and integral part of world cooperation.
Alnasrawi, Abbas. Arab Nationalism, Oil, and the Political Economy of Dependency. New York: Greenwood Press, 2007.
Brune, Nancy, Geoffrey Garrett, and Bruce Kogut. “The International Monetary Fund and the Global Spread of Privatization.” IMF Staff Papers 51.2 (2008): 195
Eichengreen, Barry. International Monetary Arrangements for the 21st Century. Washington, DC: Brookings Institutuion, 2005.
Goode, Richard. Economic Assistance to Developing Countries through the IMF. Washington, DC: The Brookings Institution, 2007.