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ECONOMIC WOES: ISLAM’S ANSWER (Saudi Arabia)

Posted by Gilmour Poincaree on December 10, 2008

9 December 2008 Editorial

PUBLISHED BY ‘ARAB NEWS’ (Saudi Arabia)

Major new ideas or radical change tend not to happen in normal times when systems are running smoothly and people are generally content. It is in times of crisis that great change is usually triggered. We are in a time of crisis. Hardly a day passes without new tidings of financial disaster. The latest grim news is from the German insurance industry that predicts that 200,000 businesses will go bust in Europe and 62,000 in the US next year — which suggests that 2009 will not see the start of an economic recovery. Perhaps, given that we live in such “interesting” economic times, it is not so surprising then that on the same day the German report was published came the suggestion, from Saudi Arabia’s Grand Mufti Abdul Aziz Al-Asheikh, that Muslim countries form an economic bloc.

The grand mufti’s comments, made in his address to the nearly three million pilgrims assembled at Mount Arafat for what is the spiritual climax of the annual Haj, has been picked up by the media across the world as if his sermon was political and economic. It was not. The main theme was a call to Muslims to show the world “the bright face of Islam”, to demonstrate forgiveness, love and peace and to shun extremism which can lead to terrorism.

It is far from the first time that the grand mufti has made such calls. What was new, however — and it clearly explains the sudden global interest — is his accompanying comments on the world’s present economic woes, the charge being that they have been brought about by human greed. Specifically it is the use of interest as the foundation of international finance that is to blame. From there has come the proposition that Muslim countries should reject interest, adopt Shariah-compliant economics and unite to form what could become, as he put it, a “formidable economic power”.

The grand mufti is not alone in taking a moral approach to the crisis; other religious leaders around the world have also blamed it on human greed. Nor is the idea of an Islamic economic union new. Calls for one regularly surface. Former Pakistani Prime Minister Shaukat Aziz is a keen supporter of the idea. But the ideas are timely. The remarkable growth in Islamic banking in recent years was because an increasing number of concerned Muslims with financial muscle could see that many aspects of international banking and finance were inimical to Islamic law. They demanded an alternative. But, growing though they are, Shariah-compliant economics has remained the minority system. The Western economic order dominates — across the Muslim world too. The big difference now, however, is that that old order is seen to have demonstrably failed. In these uncertain times, governments and states are looking for ways to stimulate fresh economic growth. In Muslim countries, it is bound to result in renewed interest in Islamic finance and in an economic union. Given the present circumstances, perhaps such a bloc is an idea whose time has come. Certainly it deserves serious consideration. Of course, it would not be a good thing for the world to be divided into potentially competing blocs. That would be dangerous. Large, collaborating blocs, however, are a different matter. Not that an Islamic economic union could happen overnight. It would have to begin small and grow — the European Union’s path to its present existence. How it might come about is one thing; enthusiasm for it is another. In the present climate, it would indeed be remarkable if support for the notion does not grow.

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PUBLISHED BY ‘ARAB NEWS’ (Saudi Arabia)

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Posted in BANKING SYSTEMS, CENTRAL BANKS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FOREIGN POLICIES, INTERNATIONAL, INTERNATIONAL RELATIONS, ISLAM, ISLAMIC BANKS, ISLAMIC DEVELOPMENT BANK, MACROECONOMY, PAKISTAN, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, SAUDI ARABIA, THE FLOW OF INVESTMENTS | Leave a Comment »

ARAB ECONOMIES TO GROW DESPITE SETBACKS

Posted by Gilmour Poincaree on December 2, 2008

December 1, 2008 at 9:10 AM EST

OXFORD ANALYTICA – Exclusive – PUBLISHED BY ‘THE GLOBE AND MAIL’ (Canada)

SUBJECT: The impact of the world economic downturn on Arab economies.

SIGNIFICANCE: In contrast to the severity of the downturn in other parts of the world, the Arab world appears likely to experience relatively moderate losses. However, certain countries may be particularly vulnerable.

ANALYSIS: The IMF’s latest downward revisions of growth rate projections for 2009 place Arab countries in third place at 5.3 per cent after China and India at 8.5 per cent and 6.5 per cent respectively, although World Bank figures are somewhat less optimistic. Positive growth prospects reflect two key factors:

Macroeconomic fundamentals are positive, in particular the prospects for sustained investment growth, which will be driven by accumulated oil revenues and continuing oil incomes.

Regional capital markets, which have been hit by the crisis, are among the smallest and least significant in emerging markets.

Investment. Buoyant investment activity is now and will continue to be supported by oil income and wealth: The current account surplus of oil economies is expected to double to some $132-billion (U.S.) in 2008 against $77-billion in 2007.

Arab sovereign wealth funds possess at least $1.53-trillion in assets, with considerably more in reserves and accumulated private wealth.

Despite the slashing of oil revenues due to the present fall in oil prices, accumulated assets are likely to make up the difference from a regional standpoint – although particular countries may suffer.

Intra-Arab foreign direct investment has been rising steadily, from $8.8-billion between 1985-1995, to nearly $17-billion between 1995-2002, to $77-billion between 2002-07, with $14-billion in 2007 alone: FDI accounts for 12 per cent of regional capital formation compared to 7.8 per cent in developing countries as a whole.

GCC investors are now investing around 25 per cent of their oil wealth in the region compared to 15 per cent in 2003.

In oil, gas and energy, $520-billion worth of projects are planned for 2009-2013, down from a projected $650-billion before the crisis; even if only $400-billion worth are financed, $8-billion to $10-billion a month of investment will take place.

The crisis in Europe and the United States will strengthen the need for geographic diversification, and will confirm intra-Arab investments as a key category in Arab portfolios.

Investors will likely diversify away from real estate and tourism into other sectors such as food, transport, and medical diagnostics.

There have been official promises to maintain intra-Arab capital and investment flows, although the use of resources in domestic bailouts may limit the fulfilment of such commitments.

Market losses. The four largest markets – Dubai, Egypt, Kuwait, and Saudi Arabia – have lost up to half of their value, mirroring heavy losses elsewhere. Another four markets – Abu Dhabi, Bahrain, Qatar, and Oman – registered relatively moderate losses of 20-40 per cent. All had fallen from historical highs in summer, 2008.

There are a number of channels of contagion from global financial markets:

Exits by non-Arab investors have most seriously affected the more open Arab stock markets, namely those of Egypt and the United Arab Emirates.

Exposure to the US prime and sub-prime markets has affected players in Kuwait, Qatar and the UAE.

A more significant channel is heightened fear and uncertainty about the unfolding global recession; the region’s markets, whose trends have been dominated by excitement and herd behaviour, joined the global panic.

Negative sentiment overwhelmed the effects of positive fundamentals, including the strong results of many listed corporations for the first half of 2008.

Mitigated impact. Yet there are good reasons to believe that the falls in Arab markets will be less enduring, and have less negative broader impact, than in markets elsewhere:

The fall in OECD financial markets is the most severe in decades; in contrast, wild swings in the region are common.

Arab stock markets are highly volatile, narrow and illiquid; only a small proportion of total capitalization is traded.

The dominance of financial institutions in market indices made their fall in the present crisis inevitable; financials constitute 56 per cent of the S&P’s Pan Arab index, compared to 16 per cent in the Latin America index and 36 per cent for Africa.

Remarkably, the four smallest markets – Beirut, Jordan, Morocco, and Tunis – retained gains, indicating that intra-Arab investments have constituted a successful portfolio diversification strategy.

Arab markets are still constructing operational and regulatory structures. Gaping holes remain in corporate governance rules and practices, and the culture of retail investors is still underdeveloped. In 2007-2008 a series of investigations targeted insider dealings and share manipulation. Fines were handed to listed firms, brokers, and investment companies in Jordan, Egypt, UAE, Saudi Arabia, and Oman. However, the relative unsophistication of markets and their lesser significance in the broader economies has shielded Arab countries from the worst effects of the financial crisis.

Slowdown. The downside risks are not to be underestimated in a deep and complex world crisis: Oil revenues will be dented by declining world demand, forcing oil-rich countries to engage in belt-tightening and possibly threatening FDI flows to other Arab countries.

The cost of finance, in terms of spreads, has already risen to all-time highs, and all types of capital raised are below 2007 levels.

Falls in exports will cause losses across the region; many once-booming industries such as petrochemicals and fertilizers are now faced with sliding markets.

Falls in tourism will hit players such as Morocco, Egypt, and Dubai; falls in remittances will hit North African countries.

Dubai’s fall is likely to be the sharpest, linked as it is to the bursting of an enormous real estate bubble; mortgage lending had quintupled in the last five years, and government debt is high at around $70-billion.

Egypt, which is poor and heavily indebted, is likely to be hit hard by declines in the stock market, oil and gas income, and Suez revenues; even a moderate downturn is likely to feed growing public discontent.

CONCLUSION: Losses on Arab stock markets have wiped out abnormally high returns, but not the prospects of solid positive returns. The region is finally drawing on what has long underpinned East Asian and European growth: domestic and intra-regional investment. Supported by ample reserves and SWF resources, this strength should help the region to weather a world recession. Growth prospects are therefore dented, but remain positive.

From the Oxford Analytica Daily Brief

Copyright 2008 – Oxford Analytica Ltd. All rights reserved.

Founded in 1975, Oxford Analytica’s 1,000+ analysts provide international organizations with monitoring, research and consultancy services that explore the strategic implications of policy, economic, financial, industry, trade and security developments around the world.

www.oxan.com

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PUBLISHED BY ‘THE GLOBE AND MAIL’ (Canada)

Posted in BANKING SYSTEMS, CENTRAL BANKS, CHINA, COMMERCE, COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, ECONOMY - USA, EGYPT, ENERGY, EUROPE, FINANCIAL CRISIS - USA - 2008/2009, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FOREIGN POLICIES, IMF, INDIA, INDUSTRIAL PRODUCTION, INDUSTRIES, INTERNATIONAL, INTERNATIONAL RELATIONS, ISLAMIC BANKS, ISLAMIC DEVELOPMENT BANK, LYBIA, MACROECONOMY, MOROCCO, NATURAL GAS, OPEC, PETROL, REGULATIONS AND BUSINESS TRANSPARENCY, STOCK MARKETS, THE ARABIAN PENINSULA, THE FLOW OF INVESTMENTS, THE LAST DAYS OF GEORGE WALKER BUSH - 2008/Jan. 2009, USA, WORLD BANK | Leave a Comment »

ASSETS OF ARAB BANKS SET TO REACH $2 TRILLION

Posted by Gilmour Poincaree on December 1, 2008

Sunday 30 November 2008 (02 Dhul Hijjah 1429)

by Mahmood Rafique – PUBLISHED BY ‘ARAB NEWS'(Saudi Arabia)

MANAMA: The consolidated assets of the Arab banks are set to reach $2 trillion with a projected net profit of $40 Kuwaiti traders follow the dealings of Kuwait's Stock Exchange in Kuwait Citybillion by the year-end, a senior official at the Union of Arab Banks, announced.

Adnan Ahmad Yousef, chairman of Union of Arab Banks, who attended the 2nd Arab-Greek Economic Forum last week in Athens, said that despite the economic upheaval, Arab banks would witness 15 percent annual growth in 2009.

Adnan, who is also chairman and chief executive of the Manama-headquartered AlBaraka Banking Group (ABG), said that the rapid growth of Arab banks had made them one of the most rapidly growing segments within the global banking system. “The balance sheet of Arab banks increased significantly in 2007 rising to $1.69 trillion, an increase of 30 percent over 2006. Our banking sector is made up of 470 institutions forming 267 commercial banks, 45 Islamic banks, 52 investment and national banks, 49 specialized banks and 57 foreign banks,” he said.

This sector, he said, employed more than 370,000 employees scattered across some 15,000 branches around the world. The sector plays a great role in the Arab economy, where it finances production, trade and investment. “It is also considered an essential partner in enhancing economic and social development, and laying the solid grounds of our economy that is always aimed at constant growth and the availability of credit between different Arab economies,” he said.

“As for Islamic finance the number of Islamic banks and institutions operating today in more than 75 countries in five continents is almost 300. Over 120 Islamic banks or 40 percent based in the Arab world and mainly in the GCC and their total assets reached more than $520 billion,” he added.

The Arab banking industry, he said, has shown a sustained growth and development and more Arab banks are making it to the list of the top 1,000 banks. By the end of 2007, 80 Arab banks were on the list, when nine of them made it for the first time.

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PUBLISHED BY ‘ARAB NEWS'(Saudi Arabia)

Posted in BANKING SYSTEMS, CENTRAL BANKS, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL MARKETS, FOREIGN POLICIES, INTERNATIONAL, INTERNATIONAL RELATIONS, ISLAM, ISLAMIC BANKS, ISLAMIC DEVELOPMENT BANK, KUWAIT, REGULATIONS AND BUSINESS TRANSPARENCY, THE ARABIAN PENINSULA, THE FLOW OF INVESTMENTS | Leave a Comment »

IMF TERMS PACKAGE A STRONG SIGNAL TO DONORS: $3BN TO BE RELEASED INITIALLY, $13BN NEEDED FOR ‘STABILISATION’ (Pakistan)

Posted by Gilmour Poincaree on November 26, 2008

November 26, 2008 Wednesday Ziqa’ad 27, 1429

by Anwar Iqbal

WASHINGTON, Nov 25: The executive board of the International Monetary Fund has approved a $7.6 billion loan for Pakistan under a programme that also requires Islamabad to reduce its fiscal deficit to 3.3 per cent of the GDP and bring down inflation to six per cent.

“By providing large financial support to Pakistan, the IMF is sending a strong signal to the donor community about the country’s improved macroeconomic prospects,” said IMF Deputy Managing Director Takatoshi Kato. The programme was approved at a board meeting at the IMF headquarters in Washington on Monday.

“The programme aims to restore the confidence of domestic and foreign investors with a tightening of fiscal and monetary policies, while maintaining social stability through targeted spending,” the IMF said.

Hours after the approval, IMF’s mission chief to Pakistan, Juan Carlos Di Tata, told a news briefing on Tuesday that most of the adjustments for reducing fiscal deficit would come from eliminating fuel and electricity subsidies and from eliminating exemptions on income and agriculture taxes.

The government has already withdrawn fuel subsidies, while its efforts to increase electricity rates caused widespread protests this summer. Any measure that leads to an increase in fuel prices or electricity rates is bound to cause more violent reactions and may further reduce the already depleting popularity of the current government.

But the IMF assured the people of Pakistan that “expenditure on the social safety net will be increased to protect the poor through both cash transfers and targeted electricity subsidies”.

While many in Pakistan questioned the government’s wisdom in going to the IMF, the Fund’s mission chief for the country warned that Pakistan was not out of the woods yet. He said the country needed as much as $13 billion during the current financial year to stabilise its economy.

Mr Di Tata spelled out some of the conditions attached to the loan, but said the IMF had not asked Pakistan to reduce defence spending because it was for the government to determine how it wanted to bring down its expenditure.

He said that out of the $7.6 billion pledged on Monday, Pakistan would get a total of $4.7 billion during the current fiscal year. The rest will be disbursed after quarterly reviews during the next 23 months.

“The regular monitoring of the economy … will show how the macroeconomic objectives set by the government are being met and whether they need to be adjusted in the light of changing circumstances,” the IMF said.

Besides the IMF, the World Bank and the Islamic Development Bank will also give $3.8 billion to Pakistan during the current fiscal year, while $4.5 billion will come from the Friends of Pakistan club and other donors.

Earlier, the IMF issued a statement saying that Pakistan would get immediate access to $3.1 billion from the $7.6 billion pledged and this amount may be deposited into Pakistan’s account at the US Federal Reserve in New York as early as Thursday.

The IMF expects Pakistan’s economic growth to slow to 3.4 per cent in the current fiscal year from 5.8 per cent the previous year. It is forecast to recover to five per cent next fiscal year.

The Fund expects the country’s budget deficit to be reduced to 4.2 per cent of gross domestic product in the current fiscal year and 3.3 per cent the following year — from 7.4 per cent at the end of June.

“The reduction will be achieved primarily by phasing out energy subsidies, better-prioritising development spending and implementing tax policy and tax administration reforms,” Mr Kato said.

The State Bank of Pakistan, which recently conducted a two-percentage point hike in the discount rate, is expected to bring down inflation and shore up reserves, the IMF said. The central bank is also expected to stop financing the government.

The programme includes measures to improve monetary management and enhance the SBP’s bank resolution capacity, and avoid the use of public resources to support the stock market.

Mr Di Tata noted that the reduction in expenditures would create room to increase spending on the social safety net.

The fiscal programme for 2008-09 envisaged an increase in spending on the social safety net of 0.6 percentage points of GDP to 0.9 per cent of GDP, the IMF said.

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PUBLISHED BY ‘DAWN’ (Pakistan)

Posted in BANKING SYSTEMS, CENTRAL BANKS, ECONOMIC CONJUNCTURE, ECONOMY, ENVIRONMENT, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, GASOLINE, IMF, INTERNATIONAL, ISLAMIC DEVELOPMENT BANK, MACROECONOMY, MILITARY CONTRACTS, NATIONAL WORK FORCES, PAKISTAN, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, THE ARMS INDUSTRY, THE FLOW OF INVESTMENTS, WORLD BANK | 1 Comment »