Islamic finance and global security

Published March 10th, 2009 - 02:15 GMT

Islamic finance and global security

When Malaysian Prime Minister Abdullah Ahmad Badawi opened the Fifth World Islamic Economic Forum (WIEF) in Jakarta, Indonesia in the first week of March he said that the Western financial system had collapsed because of “unbridled greed” and that Islamic finance was an alternative to a failed Wall Street model.

 

Indonesian President Susilo Bambang Yudhoyono also called for continuing support for free trade as a response to the crisis but that nations should work “toward a development oriented trade regime” via the World Trade Organization.

 

The Forum focused on three big issues , first how would the Muslim world and countries of the South be hit by the global economic crisis, second how to deal with this, and third what role could Islamic banking and finance play ?

 

The Forum discussed the impact of the global economic crisis  and associated instability, including concerns over falling trade and revenues, negative impacts on global growth, food prices, and environmental and energy issues.

 

The Organization of Islamic Conference (OIC) played a key role in the formation of the World Islamic Economic Forum. Its influence on the agenda was clear, with underlying recognition that South-South co-operation, particularly between Arab and Muslim states, still fell far short of being able to absorb available liquidity in the Gulf States and Saudi Arabia, or to increase intra-trade between OIC members.

 

In practice Muslim countries still do little trade with each other. When the World Islamic Economic Forum started in 2004 trade between its member was only 4 percent. It has now doubled in five years to 8 percent, but the OIC target is 25 percent.

 

The Forum discussed whether Islamic banking and finance had enough track record and substance to really compete with the Western financial system, or whether Islamic banking and finance, as it expanded, would slither down the same slippery slide as its Western counterpart, into derivatives and dodgy deals.

 

The debate on Islamic finance and global security was animated by Baroness Pauline Neville Jones, United Kingdom Shadow Security Minister and National Security Adviser (on the Conservative front bench) who made a keynote speech looking at the impact of the global crisis on Southern countries and relationships with the West.

 

Baroness Neville Jones said the United States Central Intelligence Agency estimated that one quarter of the countries in the world were already partly destabilized by the Western recession and global crisis.

 

She acknowledged that the biggest protests and direct political fall-out were hitting Europe and the United States.

 

But the biggest security problems arising are expected in Southern countries with low financial reserves, and less underlying economic strength than the Middle East or Asia.

 

So the hardest hit Southern countries will be in Africa, Latin America and parts of the ex-Soviet Union in Central Asia.

 

She also acknowledged that “We needed sounder banking practice and improved ethical codes and that Islamic banking might have something really important to teach other forms of banking”.

 

Baroness Neville Jones forsaw a social as well as an economic function for Islamic banking and finance and that there was a need “to make banking and finance more socially aware”.

 

Asked about the negative impact of the unresolved Israel-Palestine dispute on relations with the West, she said she was pleased that Palestine and Afghanistan would now be put at the top of the agenda by the new US administration.

 

After a decade of listening to Westerners on the Muslim threat, terrorism and the global war to end it, it made a welcome change to hear her say that the invasion of Iraq had been wrong, “I and my party supported invading Iraq and it was a mistake”. 

 

We learned a big lesson, she went on, observing that partnership for open societies and participation in economic prosperity was a better basis for Western policy towards Southern countries and that the West “should move away from a colonial style”.

 

The Western world is now relying on countries in the Middle East and Asia, many of them Muslim-led, to help refinance the world economy and to supply economic demand to help get world trade and economic activity going again.

 

This is a good time to strengthen capacity and pursue the expansion of Islamic banking and finance as part of an emerging new international economic order, promoting Muslim modernization and global security through economic and social development.

 


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