Qatar is free to drop its peg to the US dollar, US Treasury Secretary Henry Paulson said yesterday, as the Gulf oil producer battles with near record inflation. "This is a sovereign decision," Paulson told reporters in the Qatari capital after meeting the country's prime minister and central bank governor. "It has to do with the economic issues here." An economic adviser to Qatar's ruler had said the Gulf state needs to drop its peg to the dollar because its economy is surging while the US economy is slowing, London-based MEED reported on late on Friday. Still, Gulf Arab policies of pegging to the dollar "have worked well and have served the region well for a long time", Paulson said. Paulson also said so-called sovereign wealth funds were mainly seeking returns on their investment rather than pursuing political goals on behalf of their governments. He said sovereign wealth funds "are pools of investable capital that are seeking the best return". Qatari Prime Minister Shaikh Hamad bin Jassim Al Thani is chairman of the Qatar Investment Authority, which manages about $60 billion of assets, according to Standard Chartered Plc. Strongest pressure: On the currency peg, MEED quoted Ibrahim Al Ibrahim as saying: "We have to delink ... It does not make sense to stay linked to a currency that is declining while our economy is growing ... at a time when our currency should be going up, it is going down." Paulson is on a visit to the Gulf, where five out of the six Arab oil producers peg their currencies to the dollar. In the region, Qatar, the UAE and Saudi Arabia have faced the strongest pressure to revalue their currencies or drop their pegs altogether as their oil-based economies surge — fuelling inflation — while the peg forces them to track the United States in lowering interest rates. Paulson said inflation in the region was relatively high, although monetary policy was not the only driver. Higher global food costs were also fuelling consumer price rises, he said. At 13.74 per cent, Qatar's inflation was the highest recorded among Arab countries in the Gulf last year. On sovereign wealth funds, Paulson said: "Let's have some best practices that are voluntary, that will help make the case for those who want to push back against protectionist sentiments." A strong dollar is in the interest of the United States and its value will ultimately reflect the United States' long-term fundamentals, Paulson said. Iran is isolated from the global financial system due to sanctions from the United States, he said. Khaleej Times

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