Monday, June 02, 2008

Paulson Says U.S. Still Committed To Strong Dollar Policy, Monday, June 02, 2008 10:59:39 AM

The `very real` challenges facing the U.S. economy took center stage Monday as Treasury Secretary Henry Paulson spoke before the U.S.-UAE Business Council, reaffirming his commitment to a strong dollar policy.

`As you know, the U.S. economy is going through a rough period,` Paulson told the council during a speech in Abu Dhabi. `We are facing a trio of headwinds - a housing correction, capital markets turmoil and high and rising energy prices.`

Paulson delivered the speech at a wrap up of his four-day visit to the Persian Gulf, where he outlined U.S. efforts to deal with recent market turmoil in the housing and credit markets. One of the major sources of capital for struggling financial institutions during the credit crunch came from the oil-rich countries in the Middle East. U.S. companies raised billions in capital as Middle Eastern companies increased their investments. Paulson assured the council that the U.S. remains open for business and would welcome investments, despite some opposition in recent years from U.S. lawmakers.

`I have met with many leaders from the Middle East who ask if the United States really continues to welcome foreign investment,` Paulson said `As we seek to open new markets abroad, America will keep our markets open at home to investment from private firms and from sovereign wealth funds.`

Oil was also part of Paulson`s focus. Prices have nearly doubled in the last year, hitting a record high of $135.09 a barrel last week. One of the culprits often cited for soaring oil prices is a weak U.S. dollar, a factor that Paulson has continually dismissed. Rather, he cites supply and demand market forces as the chief reason oil has soared to these record highs.

`There are no simple or quick remedies for this, and let me be clear in stating that the Gulf region alone cannot alleviate the pressures in global oil markets,` the Treasury Secretary said. `Speculation and the depreciation of the dollar are likely only small factors behind oil price increases.`

He called on oil-producing countries to use this `historic opportunity` of sky-high oil prices to boost foreign investment.

`We are urging all oil-producing countries to open markets to foreign investment, which would support faster and more efficient growth,`` he said.

Paulson stressed that he remains committed to a strong dollar policy.

`The U.S. dollar has been the world`s reserve currency since World War II and there is a good reason for that,` he said. `The long-term health and strong underlying fundamentals of the U.S. economy will shine through and be reflected in currency values.`

Paulson remained very positive about the long-term prospects for the U.S. economy.

`Overall, I believe that the United States is on the right path to resolving market disruptions and building a stronger financial system,` he said. `Our long term prospects remain strong.`

While the Bush administration has continually stressed that it believes in a strong dollar policy, the value of the dollar has declined for much of Bush`s presidency, hitting record lows against the euro in April.


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