The Future of Islamic Banks
A number of professors of economics at Al-Azhar University in Egypt recently discussed the problems and the future of Islamic banks. They were asked if they thought that the war in Afghanistan was a precursor to striking at the Islamic banks by freezing their assets because the amounts earmarked for "zakat" (Islamic charity) were actually diverted to finance terrorism. The following is a summary of their answers.
Dr. Muhammad Abdul-Halim Omar, Professor of Islamic Economics, said Islamic banks are "firmly rooted, strong and solid." The first Islamic bank, Dubai Islamic Bank, was launched in 1975 and since then Islamic banks have increased to 200 across the Muslim and Arab countries, transacting business at $400 billion annually. The growth of these banks in numbers and size is proof of their success. In addition, these banks provide a measure of security equal to that provided by any other bank. The Islamic banks are part of the banking systems in the countries in which they operate and are subject to the same rules and regulation. "No evidence has been uncovered," insists Dr. Omar, that these banks have been engaged in terrorist financing orin money laundering.
While Dr. Omar doubts that the U.S. intends to strike at the Islamic banks [by freezing their assets in the West] he nevertheless asserts that "America plans to strike at Islam and all its institutions, and it is conceivable that it will strike at Islamic banks… by preventing their correspondent banks [in the West] from dealing with them." [In fact, this is the primary concern of the Lebanese banks because of their government's refusal to freeze the accounts of Hizbullah. See item on Lebanon below].
Omar expresses another concern, stating the war on terrorism costs the U.S. an enormous amount of money and "what better way is there for the U.S. than to confiscate frozen accounts to finance its own war."
Dr. Hassan Shihata, another Professor of Islamic Economics, discounts any measures against Islamic banks by the U.S.because many of them have branches there and its expenditures on "zakat" are well documented. He mentions "Bank Faisal"which keeps the saving accounts of "all leading Arab personalities" and no one should suspect a bank of this stature to finance terrorism. However, he says, it is conceivable that "the war of the jungle" will prevail, and the world will no longer be a world of laws and rules [in the event the U.S. confiscates the assets of Islamic banks in the West].
Dr. Ahmad Tamam, another Professor of Islamic Economics, takes the opportunity to warn Muslims to eschew European and American banks because their assets are subject "any day to confiscation or freezing." This could be "a great calamity…Weask Allah Almighty to save us from its consequences."
Looking into the future, Dr. Muhammad Ali Al-Jarji, Director of the Islamic Institute for Research and Training in Saudi Arabia offers a number of counter-measures "to confront any American virus" that could inflict Islamic institutions. This calls for the establishment of pan-Islamic banking institutions with proper planning and programming and vitalizing the stock exchanges to attract capital. Source: Lailatalqadr.com, November 26, 2001.
Limited Arab Deposits Overseas Are Repatriated
Notwithstanding alarmist statements by some economic analysts about the danger of confiscation of Arab assets overseas, few Arab investors "are thinking of repatriating their deposits of $800 billion overseas." However, one Saudi analyst estimates the repatriated capital to Saudi Arabia at "hundreds of millions of dollars." The Saudis, who own the lion's share of Arab deposits overseas, have sustained losses estimated at $40 billion since September 11, mainly in the stock exchange.
At a conference on "investments in informatics" held recently in Dubai a number of participants suggested that the events on September 11provided a golden opportunity for Arab countries to invest their bank deposits in large, local projects. A more realistic opinion was expresses by Ra'afat Radhwan, head of the informatics department in the Egyptian prime minister's office who pointed out that "investment recognizes neither nationality nor borders but only the rate of return." Total Arab investments in Arab countries in 2000 amounted to $3.2 billion with the biggest shares going to three countries—Tunisia, $700 million; Lebanon, $350million; and Sudan, $330 million.
[Al Azhar economics professors and other commentators and analysts, including those quoted above, seem to overestimate the absorptive capacity and the investment opportunities of their markets. The World Bank, with fifty years of experience and a highly trained technical staff, finds it difficult to identify investment opportunities in excess of $20-25 billion annually in developing countries all over the world. Moreover, even if rich investment opportunities were to be found for Arab capital deposited overseas, it is doubtful that Arab investors, many occupying high-level government positions, would chose to sacrifice the safety of the West for the political volatility in their own countries.]
Source: Al-Shark Al-Awsat, November 19, 2001.
Lebanon Appeals to U.S Not to Shake Its Economy
The Lebanese Government has appealed to the United States to ease its criticism of Lebanon following the latter's refusal to place Hizbullah on the terrorist list, freeze its assets and surrender three of its activists led by Imad Mughaniyya. The Lebanese appeal asks the U.S. to appreciate the special political and economic situation of the country, particularly during the period of forthcoming holidays.
Government sources indicated that the US Government has demanded that the Lebanese Government should stop the activities of Hizbullah on Lebanon's border with Israel and put an end to its expansion elsewhere in the world.
The reason Lebanon finds itself in a bind stems from its endorsement and support of Hizbullah's activities and, hence, it becomes legally responsible for the party under Security Council's resolution No. 1373. Failure to implement the resolution will place Lebanon in danger of economic embargo and international isolation.
Sources: Al-Hayat, November 21, 2001; See Salim Nassar, "The Lebanese State Looks for Escape to Avoid Resolution 1371," Al-Hayat,November 24, 2001.
Kuwait: Governor of Central Bank Against Expansion of Islamic Banking
Sheikh Salem Abd Al-Aziz Al-Sabah, the Governor of the Central Bank of Kuwait, confirmed that there was no linkage between Islamic banks and terrorist activities. He hastened to add, however, that "Islamic banking activity should not be expanded to include additional economic activities if these activities could be performed elsewhere."
Source: Al-Qabas, November 10, 2001.
U.A.E.: Central Bank Freezes Accounts and Investments of 30 Companies
The United Arab Emirates has expanded its war against organizations and individuals suspected of financing terrorism or engaged in the transfer of money for this purpose. The number of these suspects has reached 119. In a recent circular, the Central Bank of the Emirates has instructed the local banks to freeze the assets of 30 new entities which include, inter alia,insurance agents, contracting companies, gas stations, trading offices and even a cafeteria.
Source: Al-Hayat, November 19, 2001.
Egypt: Governor of Central Bank Warns of Decline in FDI
The recently appointed Governor of the Central Bank of Egypt, Mahmood Abu Al-Uyoon, has warned that foreign direct investment in Egypt is likely to decrease by 30% in the coming year and that tourism income has already declined by 60%. Hewas confident that the new foreign exchange regime, established last August, was working satisfactorily.
However, on the black market, the Egyptian pound has been in a free fall in the last few days. Concerned that the Central Bank could not meet the demands of importers for dollars, the pound has declined by more than 16% vis-à-vis the dollar to reach a new low rate of 5 pounds for the dollar.
Sources: Al-Sharq Al-Awsat, November 27, 2001; Al-Sharq Al-Awsat, November 29, 2001.
Syria: Status of Private Banks
In an interview with the Syrian daily Tishreen, the Syrian Minister of the Economy, Muhammad Al-Imadi answered a question about the on-going discussions in Syria to permit the opening of private banks (all banks in Syria are currently government owned) Imadi recounted President Bashar Assad's latest decree on licensing new banks and outlined the procedures for reviewing and approving applications to open such banks, provided they have a starting capital of no less than $30 million (no request has been approved so far). The minister expressed his confidence that "our banks (public sector) are able to live in a competitive environment with private banks." Imadi underscored the "advantages and facilities" of the central bank of Syria"which might be lacking in other banks." When the Tishreen journalist replied: "Your Excellency, this is the case only because there is no alternative," Imadi skipped to another question. (see a statement by EU below).
Source: The Daily Star (Beirut) November 28, 2001.
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OIL NEWS
Southeast Asian Countries Seek Alternative Sources of Gas
Gas projects under development in the Russian Sakhalin Islands in the Pacific will provide much of the natural gas to a number of countries in Southeast Asia to substitute for natural gas imported from the Middle East. The events of September 11 have prompted these countries to look for alternative sources of supply.
The four biggest markets in the area are those in Japan, Korea, China and Taiwan that import 60% of their natural gas requirements from the Middle East. Sakhalin I, developed by Exxon Mobil, will begin supplying gas to Japan by pipelines,currently under construction. It will become operational in 2008 and could carry 28 million cubic meters of gas to Japan daily.Sakhalin II is developed by Shell with a total investment of $9 billion. It will begin exporting liquefied gas by 2006, and the exports will reach its maximum target of 9.6 million cubic meters by 2010. The liquefied gas will meet 25% of the requirements of the Southeast Asia market at prices estimated to be 7-10% below the prices of competitive sources.
Source: Al-Hayat, November 18, 2001.
OPEC Threatens To Increase Production
Faced with a persistent refusal by Russia to reduce its oil production, OPEC is threatening to use its overcapacity of 5 millions b/d to overwhelm the oil market and bring the prices sharply down in an effort to force non-OPEC producers, primarily Russia,to reduce their daily production by 500,000 which will trigger OPEC requires to reduce its own production by 1.5 million b/d.
Source: Al-Sharq Al-Awsat, November 28, 2001.
Record Imports By U.S. of Iraqi OilAccording to the Department of Energy, U.S. imports of Iraqi oil have reached a record of 1.247 million b/d in September. This is the first time since August 1990 that U.S. imports of Iraqi oil have exceeded 1 million b/d. The last record was 1.120million b/d in July 1990, a month before the Iraqi invasion of Kuwait.
Iraq has become the sixth largest source of oil for the U.S. market. The Bush Administration will have to study the subject "if it decides to target the Iraqi Government in its war against terrorism."
Source: Al-Sharq Al-Awsat, November 6, 2001.
U.S. and U.K. Seek to Reduce Dependence on OPEC Oil
The U.S. and U.K. are determined to reduce their dependence on oil imported from OPEC countries. According to available statistics, the share of OPEC oil imported by the U.S. has declined from 62% in 1980 to 46% in 2000. During the same time frame, the U.K.'s import of OPEC oil has declined from 60.4% to 12.6%. At the same time, Russian oil companies are seeking to increase their oil export to the U.S. from the current level of 72,000 b/d to 1 million b/d.
However, the Middle East and Gulf countries have the largest proven oil reserves in the world, estimated at 649 billion barrels compared with reserves of 69 b/b in central and south America, 66 b/b in Russia, 59 b/b in the Far East, 28 b/b in Mexico and 22 b/b in the U.S.
Source: Al-Hayat, November 17, 2001.
Gulf Countries May Face Difficulties Joining the World Trade Organization
Oil is a two-edged weapon for the Gulf countries should they chose to join the World Trade Organization. On the one hand,oil-producing countries prefer to see oil marketed freely with no restrictions imposed on its consumption. On the other hand,the industrialized countries might question OPEC's monopoly, controlled production and administered prices that run contrary to the principal tenet of free trade upon which WTO was founded.
Source: Al-Hayat, November 22, 2001.
Jordanians Top List With Secret Numbered Accounts in Swiss Banks
According to a recent survey, Jordanians top list with numbered accounts in Swiss banks, followed by Kenyans, Israelis and Greeks.
Source: Al-Hayat, November 28, 2001.
Iran to Take Legal Steps on Turkish Gas Import Delay
Iran Oil Minister Zanganeh has threatened that Iran would take legal action against Turkey for failing to meet a deadline for the import of Iranian natural gas. The gas was to flow via a pipeline from Tabriz to Ankara but Turkey has argued that the metering station at the border was not ready for operation.
Under a $30 billion dollar deal, sealed during the term of Turkish Islamic Prime Minister Necmettin Erbakan, Iran would initially supply 105 billion cubic feet of gas a year and increase it gradually to 350 billion cubic feet in 2007. The minister believes that Turkey's failure to act was "political."
Source: Tehran Times, November 11, 2001.
Iraq: "Economic Consequences of American Aggression on Afghanistan"
Iraq, which has been the most critical of the American war on terrorism and which chooses to refer to the Northern Alliance as"American agents," advances a Marxist interpretation of U.S. involvement in Afghanistan. In the government paper, Al-Thawra,Khudair Abbas Al-Naddawi, argues that the war in Afghanistan represents a pattern in American history to resolve its economic crises through war. The author finds examples of this "belligerent behavior": Korea in 1950, Eisenhower's intervention in Lebanon in 1958, Vietnam in 1967 and of course the "thirty-country aggression against Iraq in 1991."
Underlying the continuous aggression" against Afghanistan is the vast wealth of oil and gas in the Caspian Sea and Central Asian countries which the U.S. eyes as a new source of energy that would change the energy balance in the world and which will greatly benefit the large American oil companies. The extended war on terrorism will permit the U.S. "to encircle any competitive presence" that might explore the riches of the region. [Readers familiar with the history of the Soviet Union will not fail to recognize the concept of encirclement in Stalin's paranoia about "the encirclements of the Soviet Union."]
Source: Al-Thawra (Baghdad), November 29, 2001.
INDIVIDUAL COUNTRY NEWS
Syria: No Privatization of Public Sector for Strategic Reasons
The Syrian Minister of Planning, Issam al-Zaim considered it unlikely that the public sector in Syria would be privatized."Maintaining the public sector," he affirmed, "is a strategic and security necessity if Syria were to face Israeli aggression which its (Israel's) leaders hints at persistently." In case of conflict, he added, "we want to ascertain that the state has the capacity to ensure the supply of water, electricity, fuel, bread and the means of transportation and communications." And this, he said,"requires a public sector run by the state."
Mr. Al-Zaim pointed out that "the Syrian economic philosophy is based on the principle of multiplicity, meaning that the private and public sector co-exist and co-operate with each other." It is in this spirit that the government has opened before the private sector investment opportunities in telecommunications, transportation and the banking and financial sector.
Source: Al-Hayat, November 19, 2001.
Syria: European Union Regrets Lack of Economic Reforms
Mark Birini, the Head of the European Union Mission in Syria, expressed the EU's disappointment for the lack of comprehensive economic reforms in Syria which has been negotiating with the EU for partnership since 1998. In a speech at the Syrian-European Business Center in Damascus, Birini said that the European and Syrian leaders agree on one important point that, to achieve economic reforms and economic growth, effective policies and institutions are required. "Unless," he said,"there is understanding of this equation on the national level and until a consensus is reached about it, and until the leaders in the public and private sectors are determined to move toward genuine economic transformation and be prepared to bear the cost then the country could not make a big jump forward." He also said that the reform requires "hard decisions, efforts and sacrifices to remove a number of concessions and distortions."
Sources: Babil (Baghdad) and Al-Sharq Al-Awsat, November 26, 2001. Government-controlled press in Syria made no reference to Mr.Birini's speech.
Syria Freezes Iraqi Accounts
Syrian authorities have frozen "tens of millions of dollars in the bank accounts of Iraqi government agencies" in response to warnings from Jordanian and Western sources regarding the "dangers" resulting from a number of countries in the region seeking to increase their bilateral economic relationships with Iraq. These relationships could backfire should the U.S. decide to take military measures against Iraq to stop its program for the production of Weapons of Mass Destruction.
The decision by Syria to freeze the Iraqi bank accounts is the result of trade disagreements between the two countries regarding the implementation of various commercial contracts between Syrian suppliers and Iraqi agencies. In the meantime,Syria has forbidden three key Syrian traders from traveling to Baghdad because of complaints by the Iraqi authorities that the Syrian goods imported by Iraq are either inferior quality or do not meet the specifications agreed upon in the commercial contracts.
Source: Al-Hayat, November 18, 2001.
Jordan: Between America's Hammer and Israel's Sickle
This is the title of a commentary by Salamah Na'amat on the state of the economy in Jordan. The essence of the commentary is that Jordan has fallen victim to two major events in two subsequent months of September. After making much economic progress in 2000, and with tourism on the rise, came the Intifada in September 2000 which paralyzed the tourism industry. In the first 9 months of 2001 tourism was beginning to revive and exports to rise when the country was hit by the events of September 11.
Jordan's principal obstacle to economic reforms is the heavy burden of external debt, which amounts to $7 billion. Recent attempts by Jordan to reduce the debt through cancellations by major lender countries among which Japan is the largest, have failed.
The writer concludes with this warning: "Perhaps it is useful for the United States and countries like Japan and France to understand that Jordan, if left alone to deal with regional crises dictated by Washington and Tel-Aviv, will not be able to continue indefinitely to play a moderate role in facing extremism, and be reasonable in facing insanity. Poverty, like terrorism, does not recognize moderation or reason."
Source: Al-Hayat, November 19, 2001.
Iraq: Water Crisis
Iraq's Minister of Irrigation, Rasool Abdul Husain Sawadi was visiting Syria last week to discuss Iraq's water crisis. Iraq and Syria have appealed to Turkey to reactivate the tripartite water commission to discuss the sharing the waters of the Tigris and Euphrates in accordance with international law [on riparian rights.] The commission was created in 1987 but has not met since. There is no indication that Turkey has responded to the appeal.
Sources: Babil (Baghdad) and Tishreen (Damascus), November 26, 2001.
Afghanistan: Donors Conference to be Held in Tokyo, in January
A donors' conference, at the ministerial level, will be held in Tokyo next January to review the reconstruction of Afghanistan. At least 22 countries would participate. The World Bank has estimated the cost of Afghanistan's reconstruction at $25 billion over a long period of time. None of the potential major donors, e.g., U.S., U.K., Japan and the World Bank has yet to indicate its level of financial support.
Source: Al-Hayat, November 22, 2001.
Yemen: The Role of Women in the National Economy
Yemen's population is 20 million, half of which are women. However, only 20.1% of women work, of these, 50% work in agriculture and 20% in banking and finance. The rest of the working women are scattered in various sectors, including the government sector. The low ratio of Yemini women reflects two facts: first, the customs and traditions that restrict the role of women to the home; and second, 76.2% of women are illiterate.
Source: Al-Sharq Al-Awsat, November 26, 2001.
"Economics of Fear" Control the Maghreb Countries
A public opinion survey carried out by a French company on behalf of a Maghreb country (which was not identified) reveals that "economics of fear", following September 11, control the minds and thinking of government officials. The economic losses in non-oil producing countries are enormous and their implications could drive some countries to paralysis. Economic analysts in the region are concerned that most governments will pay a high price on both the economic and the growth levels because they have failed to prepare their countries to absorb the economic shocks. These governments have no clear-cut policies to "absorb the floods that are coming, even if they only came in stages."
Source: Al-Hayat, November 15, 2001.
Kuwait Received $800 Million as Compensation for Invasion
The UN Sanctions Committee has transferred $800 million to Kuwait, bringing the total received by Kuwait to $5.5 billion in compensation for its invasion by Iraq. This amount is earmarked by the United Nations for Kuwait from the sale of Iraqi oil. Kuwait, in turn, distributes the money to individuals and entities who sustained losses as a result of the invasion.
Source: Al-Qabas, November 10, 2001.
Israel: Sharp Rise in Unemployment
According to figures published by the Central Bureau of Statistics the number of the unemployed in Israel has registered an all time record of 234,000, or 9.3% of the labor force, in the third quarter of the calendar year. Sources in the Bank of Israel(central bank) estimates that unemployed could reach 250,000 in the fourth quarter.
Source: Ha'aretz, November 25, 2001.
Palestinian Authority
American-Israeli-Palestinian Working Group on Water Meets
The tripartite group on water met in Tel-Aviv on November 14 at the offices of the US Agency for International Development(USAID). A statement issued by the American Consulate subsequent to the meeting said the purpose was to strengthen the Israeli-Palestinian collaboration for the implementation of water infrastructure projects in the West Bank and Gaza. One project under consideration is for water desalination in Gaza that would produce, upon implementation, 20 million cubic meters of water that would be piped from north to south. USAID has recently embarked on a $30 million dollar project that will provide drinking water to 100,000 people in Hebron and Bethlehem.
Source: Al-Hayat Al-Jadeeda, November 16, 2001.
PA: Interview with Economic Adviser to Arafat
In a revealing interview with Al-Hayat Al-Jadeeda on November 19, 2001, the Economic Adviser to Chairman Arafat, Dr.Maher al-Kurd made a number of points about the current state of affairs regarding the Palestinian economy:
- Lack of Sovereignty: It is impossible to achieve economic and social development without national sovereignty on internal and external trade and finances, infrastructure, economic rights and natural resources.
- Inadequate Institutions: The total commitments made by the donor countries since the Oslo Agreement have reached $7 billion through 2000 but only $4.5 billion was disbursed, leaving an undisbursed balance of $2.5 billion because of the PA'sweak institutional capacity to implement projects and programs.
- Aid Not Properly Spent: A lot of aid resources were not spent on rebuilding infrastructure, e.g., roads, transportation and housing, or on growth areas to create employment opportunities is agriculture and industry. Aid was largely spent on studies,technical assistance and other activities which did not contribute to the improvement of economic conditions.
- Bank Savings Channeled Abroad: Personal savings reached $4 billion but only 25% of that amount was used for productive loans, and another 50% were transferred for deposits in foreign banks.
- Role of Diaspora: Palestinians in the Diaspora brought no new investments. On the contrary, they benefited from monopolies and from the foreign aid intended for the local Palestinians.
PA: Arab Fund For Economic Development Approves Funding for Housing
The Arab Fund for Economic Development, located in Kuwait, has given its preliminary approval to fund the construction of housing units in Rafah and Khan Younis for families whose houses were destroyed by Israeli forces.
Source: Al-Hayat Al-Jadeeda, November 26, 2001.
Saudi Arabia: $6 Million in Food Aid to Palestinians in Ramadan
Saudi Arabia will distribute 200,000 food baskets to needy Palestinian facilities during Ramadan at a cost of $6 million.
Source: Al-Hayat, November 13, 2001.
*Dr. Nimrod Raphaeli is Senior Analyst of MEMRI's Middle East Economic Studies Program.
