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Indonesian President Susilo Bambang Yudhoyono addresses the opening of the 5th World Islamic Economic Forum in Jakarta. March 2, 2009, ( Reuters photo) |
The latest World Islamic Economic Forum which convened in Jakarta on March 2 to 3, 2009 was the fifth such a forum in four years and the largest Muslim gathering yet.
Held in the splendor of the Ritz Carlton Hotel, the forum was attended by 1,557 delegates from 38 countries.
Modeled on the World Economic Forum, which convenes in Davos in Switzerland each year, the event is designed to bring together business leaders, politicians, and academics to discuss the current economic challenges facing the Muslim World.
Over 90 business leaders from the Muslim World attended— a reasonably impressive number although most were locals from Indonesia.
This year’s meeting, like the recent Davos forum, was not surprisingly dominated by the gloomy news about global financial markets and the worsening recession which threatens many Muslim economies from the oil-rich states of the Gulf Cooperation Council (GCC) to the poorest states such as Bangladesh and the Muslim countries of Sub-Saharan Africa.
As the World Islamic Economic Forum was conceived as a business-friendly organization during a period of increasing prosperity for many parts of the Muslim world, it faces particular challenges in an economic environment where many businesses are failing and unemployment is rapidly rising.
Unimaginable Crisis
| One year later the leading GCC sovereign wealth funds have lost a major proportion of their assets. |
In Kuwait, when Indonesia agreed to host the fourth Islamic World Economic Forum in January 2008, it could not have envisaged that the global recession could have been so deep.
Although at that time there were warning signs in the United States and the United Kingdom of a significant economic downturn, many in the Muslim World believed that they would be immune, thanks to record oil and gas prices and a boom in trade with China.
Indeed Indonesia, the most populous Muslim country, believed that the forum would be an opportunity to showcase its economy, and attract direct investment from GCC-based multinational companies and portfolio finance from GCC sovereign wealth funds, as well as investment companies.
One year later the leading GCC sovereign wealth funds have lost a major proportion of their assets.
The plummeting global stock markets and to a lesser extent the increasingly toxic debt instruments packaged and endorsed by international investment banks, such as Lehman Brothers, caused losses to GCC 's assets.
With the collapse of oil prices, governmental finances in Saudi Arabia are back in deficit, and even oil and gas-rich Abu Dhabi has been forced to give priority to baling out its neighbor Dubai, squeezing the funds available for the wider Muslim World.
The theme of the fifth World Islamic Economic Forum was ambitiously designated as "Food and Energy Security and Stemming the Tide of the Global Financial Crisis".
Unfortunately, it is too late to achieve this, and the economy of the host nation, Indonesia, is expected to grow at best by 1.9 percent in 2009, the lowest rate for a decade, according to the Economist Intelligence Unit.
Even this may be optimistic, with exports falling by over 20 percent in December 2008, compared to a year earlier.
Data releases are always slow in Indonesia, but export data is expected to show further major falls for Jan. and Feb. 2009.
Indonesia will be less directly affected by the slowdown in the GCC than the Muslim countries of South Asia, as with tens of thousands of their construction workers being laid off in the GCC, remittances to Pakistan and Bangladesh are collapsing.
Most of Indonesia's migrant workers in the GCC are housemaids, whose employment is less vulnerable.
Absence of Practicality
| If Indonesia wants to expand its Islamic finance activity in the long term, it would be better advised to open its market to GCC-based Islamic banks. |
President Susilo Bambang Yudhoyono of Indonesia, in his opening speech to the forum, called on delegates not to despair, and urged Muslims and non-Muslims to work together to overcome the crisis; fine words, but without specifics.
The President proposed the creation of an "Islamic World Expenditure Support Fund", a noble idea, but it was unclear who was going to support it and for how much.
Because of Indonesia's economic size and population exceeding 230 million, Jakarta will be attending the G 20 Summit in London, where it seems that Indonesia's President will be proposing a "Global Expenditure Support Fund".
As the European Union could not even agree on a fund for its own members at the recent Brussels EU summit, it seems unlikely that this idea will gather any support.
The other Muslim countries invited to attend the G 20 Summit are Saudi Arabia and Turkey.
As Saudi Arabia only pledged $1 billion to help re-construct Gaza at the Donor Summit in Sharm El Sheikh, it is clear that Riyadh is very cautious in its commitments.
As the Turkish economy is expected to contract by 1.5 percent in 2009, and the government is currently negotiating an IMF bail-out, it is clearly in no condition to contribute to any support funds, Islamic or more general in terms of remit.
Much of Indonesia’s hope for financing is through sukuk as last year $ 450 million was raised through a sovereign issuance.
Global sukuk issuance has also been adversely affected by the global financial crisis, yet with few new sukuk offered for over six months apart from domestic corporate issues in Malaysia for relatively small amounts.
If Indonesia wants to expand its Islamic finance activity in the long term, it would be better advised to open its market to GCC-based Islamic banks, as Malaysia has done in the case of Al Rajhi Bank and Kuwait Finance House.
At present Shari`ah compliant assets account for only 3 percent of total bank assets in Indonesia, so there is clearly scope for expansion.
This would represent a positive outcome from initiatives, such as hosting the fifth World Islamic Economic Forum.
However, Indonesia’s desire for closer financial links with other Muslim countries outweighs its economic nationalism remains to be seen.
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