By Nigel Morris
November 1 2008
Gordon Brown flies out to the Gulf today on a mission to persuade the region’s oil-rich states to help combat the global economic meltdown.
He is expected to meet the leaders of Qatar, Saudi Arabia and the United Arab Emirates and ask them to pump billions of pounds into the International Monetary Fund (IMF), which is struggling to cope with pleas for help from countries facing collapse in their financial system.
The Prime Minister will also urge them not to cut production in an effort to reverse the slide in oil prices over the past month. The size of the challenge facing the British economy was underlined on the eve of the tour, as Mr Brown was warned that levels of debt and borrowing will climb higher than during the last recession in the early 1990s.
A report by the independent Institute for Fiscal Studies concluded that the Government was going into the recession with a “significantly higher” level of debt than in 1990. Even excluding the cost of nationalising Northern Rock, public sector net debt is due to reach 39.7 per cent of gross domestic product this year and is “very likely” to rise above 46.2 per cent within the next couple of years.
The Prime Minister has sought to emphasise the “global” nature of the economic downturn. Ahead of his latest trip abroad he signalled fears that the $250bn (£155bn) fund available to the IMF to help fragile economies might not be enough to cope with the extent of global downturn. Hungary, Iceland and Ukraine have already agreed emergency loans, while other countries queuing up for help include Belarus, Turkey and – critically for regional security – Pakistan.
Mr Brown believes the IMF’s coffers should be topped up by the rapidly-growing economies of the Gulf region, whose revenues have soared as fuel prices leapt this year. He is also targeting China, which is sitting on large reserves of capital.
The extra cash required by the IMF to counter the international turbulence could amount to hundreds of billions of dollars. But Mr Brown will probably run into opposition in the region, whose leaders have already expressed dismay that they are being asked to tackle a problem that has its roots in the turmoil in the American sub-prime mortgage market.
The Prime Minister will also express his opposition to the decision of the Organisation of the Petroleum Exporting Countries to cut output from today by 1.5 million barrels a day.
The Gulf nations, which produce more than half of the world’s oil, have seen the price of a barrel fall from a high of $147 (£91) in July to below $65 yesterday. The Prime Minister’s spokesman said yesterday: “We recognise over that over the long-term global demand for oil is increasing, so over the long-term price is likely to increase. But what we want to avoid is the sharp increases we have seen in recent months.” Mr Brown is also planning to renew his call on the Gulf states to invest in renewable energy technology.
He is being accompanied by Peter Mandelson, the Business Secretary, and Ed Miliband, the Energy and Climate Change Secretary, and more than 20 business leaders.
During a visit to Edinburgh yesterday, Mr Brown said low interest rates and falling inflation, along with lower national debt than other countries, would help Britain survive the turbulence. “It is the first global crisis that we are having to deal with in this new industrial age where so much is global. I am confident that the opportunities for our economy are great in the years to come.”
The shadow Chancellor, George Osborne, yesterday accused the Prime Minister of trying to “spend his way out of recession” at the risk of exacerbating the downturn and saddling future generations with huge tax increases to combat rising national debt.
In a speech drawing dividing lines between Conservative and Labour approaches to the economic crisis, he denounced Mr Brown as irresponsible for suggesting that the Government can “borrow without limit” to stave off recession.
He said the policy of borrowing more to pay for a state “spending splurge” was “a cruise missile aimed at the heart of the economy”, which could require tax rises equivalent to 4p on income tax. But he was attacked by Labour and Liberal Democrat opponents for being “confused” and “out of his depth” in his analysis.
The credit crisis: Latest developments
*PM to urge Gulf states not to cut oil production as Opec reduces output by 1.5 million barrels a day
*Osborne accuses Brown of trying to ‘spend his way out of a recession’
*Barclays to take £7.3bn from investors in Abu Dhabi and Qatar in bid to maintain bonus packages
*Investors in the Middle East could end up owning as much as one-third of banking giant’s shares
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