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Gulf Arabs to agree fiscal unity,cbank HQ in doubt

The summit, billed as an economic forum but overshadowed by the Israeli air strikes in Gaza, is expected to finally deliver an agreement on the long-planned monetary union.

Kuwait's finance minister said Gulf Arab states will have until Dec. 12 next year to enact a monetary union agreement once approved by the rulers at the meeting in the Omani capital.

The union would enable GCC countries, most of whom peg their currencies to the U.S. dollar, to have the option of adopting a more flexible foreign exchange regime, facilitate trade and shield their economies against global pressure.

Gulf states have given renewed emphasis to getting the project back on track this year after Oman decided in 2006 not to join monetary union. Months later Kuwait severed a peg to the dollar that was intended to remain intact until the union.

Leaders were not seen reaching a compromise on where the headquarters of a common central bank would be, according to some delegates, including a Gulf Cooperation Council official from Oman.

"The Gulf central bank is unlikely to be decided in this summit," the GCC official told Reuters.

The UAE, Qatar, Bahrain and Saudi Arabia are vying to host the regional central bank, which will be independent from the governments of member countries, according to a final draft of the monetary union deal seen by Reuters last month.

The GCC is an economic and political bloc of U.S.-allied oil producing nations.

The Gaza issue has not derailed the bloc's economic agenda as they seek to better coordinate fiscal policies to weather a global crisis that has sent major economies, including the United States and Japan, into recession.

Gulf states have so far adopted mostly separate monetary and fiscal policies to address the credit crunch that is derailing expansion projects and slowing economic growth prospects.