Malaysian Govt Keen on Closer Cooperation With OIC, IDB

Islamic Development Bank

LONDON: If Dr. Mahathir Mohammed, Malaysia’s former prime minister, was widely perceived as the champion of Muslim causes, his successor Abdullah Badawi, who took office on Nov. 1, 2003, may well be remembered in the future for the reform of those very structures that are supposed to deliver these causes, including good governance, market reforms, poverty alleviation, intra-trade, and economic, scientific, and cultural cooperation.

Above all, the Badawi camp are keen to reform the OIC (Organization of the Islamic Conference) and its most important organs such as the Islamic Development Bank. They are also frustrated that after decades of trying Malaysian trade with the Gulf states remains relatively low; and Malaysia, despite impressive economic growth and achievements in the last decade, has hardly attracted any inward investment flows from the Gulf, supposedly with its huge liquidity.

The only GCC country with which progress is being made is the UAE. According to Martrade (the Malaysian External Trade Development Corporation), Malaysian exports to the UAE for the first 11 months of 2003 topped the $1 billion for the first time. This figure is set to rise to $1.4 billion for the whole year. UAE exports to Malaysia — mainly oil products, gold, and non-ferrous metals totaled some $300 million for the same period.

But before Prime Minister Badawi can start in earnest, he has two pressing matters at hand to deal with. He has to call general elections before April 2004, and then he has to face the annual convention of UMNO (United Malays National Organization), the dominant party in the ruling Barisan Nasional Coalition, usually in June of any given year.

The chances that Abdullah Badawi will be ousted or lose both the elections and the convention, when the top posts in UMNO are voted, are as remote as finding life on Mars as we know it on Earth. The elections are merely to legitimize his rule for a further four years; and the convention to consolidate his leadership of UMNO.

There have been suggestions that Badawi is a stop-gap premier who will make way for Najib Bin Abdul Razzak, the deputy premier and minister of defense, the true heir-apparent to Dr. Mahathir. Others also suggest that Badawi’s policies are a mere continuation of Mahathir’s policies. These reports have got to be taken with a pinch of salt. The fundamental difference between the two is that while Mahathir was more of a conviction politician, Badawi is an arch technocrat.

His first Cabinet does suggest a continuation of the previous regime, but with elections so close at hand, it would have been a folly to institute radical changes. The problem of having a strong ruler such as Mahathir in power for so long (almost two decades) is that it stifles the development of successors. In the Malaysian political scene, the absence of a strong opposition further exacerbates the development of a truly democratic polity. Anwar Ibrahim was the designated heir, but he was too impatient and tried to stage a palace coup against Mahathir.

Prime Minister Badawi however has made his intentions clear. His significant new Cabinet appointment is that of Second Finance Minister Nor Mohd Yakcop. In the aftermath of the Asian financial crisis; the sacking of Anwar Ibrahim as finance minister (and deputy premier); the appointment and later resignation of Tun Daim Zainuddin as finance minister, Mahathir decided to assume the portfolio of Finance Minister in addition to that of Home Affairs Minister. This anomaly of Second Finance Minister was then created. There are signs that Badawi may revert to the pre-financial crisis system and appoint Nor Mohd Yakcop as the finance minister.

Nor is a seasoned back-room campaigner. He, as senior adviser, together with the late Governor of Bank Negara (the central bank) Jafaar Hussein, was the architect of the Malaysian Islamic banking system; and the country’s dual banking model, in which Islamic banking operates side-by-side with the conventional system, cooperating but not inter-acting. Nor resigned following a currency trading scandal at Bank Negara during the 1990s when Anwar Ibrahim was the finance minister and when the country lost billions on the currency market. Nor and Governor Hussein took the rap, although Anwar was ultimately responsible for the policy. He returned to corporate life as head of Abrar Corporation.

Nor later returned as an adviser to Bank Negara, and during the Asian financial crisis Mahathir appointed him as his Special Economic Adviser. He took much credit for spearheading Malaysia’s successful handling of the crisis, which included the introduction of capital and exchange controls; pegging the Malaysian ringgit to the US dollar; banning speculation on the ringgit; imposing an exit tax on fund managers; and restructuring Malaysian corporate debt and the financial sector. The policy worked spectacularly and without a single penny from the IMF. So much so that the IMF and George Soros, a long time critic of Mahathir, had to acknowledge that the Malaysian policy after all had its merits and worked. Malaysian GDP, according to Bank Negara, is set to increase to 5.5 percent to 6 percent in 2004 compared with 4.7 percent in 2003.

Nor Mohd Yakcop of course also pioneered the Bilateral Payments Arrangement (BPA), a central bank payments clearing system aimed at facilitating Malaysia’s trade with the developing countries without having to resort to the costly correspondent banks in London, New York, Frankfurt. In the latter part of the Mahathir regime, Nor also played an major role of introducing the concept of the Islamic gold dinar (IGD), which is an advance on the BPA, but based on the IGD as the accounting unit and thus the price of gold as the benchmark. Malaysia has already signed bilateral agreements with several OIC countries (including two or three GCC countries) to use the IGD as the accounting unit to settle trade accounts between the two central banks.

The company which was set up to effect the Islamic dinar project, IGD Practice (Labuan) Bhd has recently acquired a 34 percent stake in Kazakhstan Golf Mining Corporation, which owns Artul Trud Closed Joint Stock Company, which in turn owns the Bolshevik Gold Mine, one of the largest in the world.

Malaysia currently holds the chairmanship of the OIC, and over the next three years, according to well-placed Malaysian sources, Premier Minister Badawi wants to facilitate a number of measures aimed at reforming the OIC and the IDB. What these measures entail only time will tell. The OIC has singularly failed in making any meaningful impact on its mandate of promoting intra-Islamic relations especially in the field of economic cooperation, poverty alleviation, education and so on. Half of the OIC member countries are some of the poorest in the world and heavily indebted. Of these most are plagued by civil war.

Not surprisingly, the ultimate challenge of reforming the OIC will be to promote good governance, which surely is the core issue of the Muslim countries.

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