June 2 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said it will take ``months'' before financial-market turmoil ends and that he ``very strongly'' supports a strong dollar.
``We're talking about months and there will continue to be bumps in the road,'' Paulson said in response to questions after giving a speech in Abu Dhabi at the end of a four-day day trip to the Persian Gulf. Paulson was repeatedly asked about what the U.S. is doing about the weakness in the dollar, which has fallen 14 percent against the euro in the past year.
``Markets respond to economic fundamentals,'' he said. ``Every economy is going to have its ups and downs, and the U.S. is going through a tough period. I believe the long-term economic fundamentals will be reflected in our currency.''
Paulson's trip comes as U.S. financial institutions, reeling from the subprime mortgage crisis, have been forced to raise billions of dollars in fresh capital, some from the Middle East. He sought to assuage concerns raised by a 2006 Congressional outcry that prompted a Dubai company to abandon its bid to buy six U.S. ports.
``I have met with many leaders from the Middle East who ask if the United States really continues to welcome foreign investment,'' Paulson said in his speech to the U.S.-United Arab Emirates Business Council. ``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.''
Subprime Losses
The collapse of the U.S. subprime mortgage market and subsequent financial upheaval has led to more than $386 billion in asset writedowns and credit losses worldwide.
Middle East countries have accumulated $4 trillion to invest because of record oil prices, consulting firm A.T. Kearney said in a May 26 report. The region accounted for about half of the $3.3 trillion of the assets in the world's sovereign wealth funds last year, the report said. That includes the Abu Dhabi Investment Authority, the largest of the funds.
Paulson has urged the region's sovereign wealth funds to adopt voluntary codes of conduct being drafted by the International Monetary Fund to address concerns that the funds might be used to further political and strategic goals, and to defuse protectionist sentiment.
Abu Dhabi's fund invested $7.5 billion in Citigroup Inc. in November. Morgan Stanley and Merrill Lynch & Co. have also received capital from Gulf funds.
Paulson also urged Gulf economies to reduce barriers to international investment. He said greater overseas investment would allow oil-producing nations to increase output while also bringing new technology and creating jobs.
`Historic Opportunity'
Record oil prices present Gulf countries with ``an historic opportunity to shore up their economic fundamentals, diversify their economies and make needed investments in human capital -- steps that should help avoid the boom and bust cycles of the past and support broad-based growth,'' Paulson said.
The region faces challenges from rising oil revenue, including inflation, he said. Measures such as price controls and wage increases ``are likely to exacerbate the problem.''
Paulson repeated his stance that record crude prices were being driven by supply and demand, rather than speculation and the weakness of the dollar.
``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,'' Paulson said. He called for more investment in production technology and alternative energy sources.
``We are urging all oil-producing countries to open markets to foreign investment, which would support faster and more efficient growth,'' he said in the speech.
Review Process
The U.S. has improved the process of reviewing overseas investment in sectors of the economy that are considered important to national security following the outcry over a proposed investment by Dubai Ports World in 2006, Paulson said.
Paulson assured investors that a $150 billion fiscal stimulus package will help the U.S. overcome ``a trio of headwinds'' from the collapse of housing prices, turmoil in financial markets, and record oil prices. While it will take ``some time'' to work through, ``we also expect to see a faster pace of economic growth before the end of the year,'' he said.
``Although I believe we are on the right path, a number of our important credit markets are still not functioning as normal,'' he said.
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