AMF Chief Tackles MENA Financial Reform, Arab Spring Fallout
The Arab Monetary Fund (AMF) is continuing on its mission to further MENA financial reform while at the same provide support to countries emerging from the upheavals of the Arab Spring. The fundï¿½s Director General and Chairman of the Board, Jassim al-Mannai, talked about the progress made so far and issues that still need to be tackled in an exclusive interview with MEES. Melanie Lovatt reports.
The Abu Dhabi-based AMF has already provided financial support to countries suffering the economic impact of last yearï¿½s revolutions and is ready to offer further help as it continues to assess their needs. The loan it recently granted to Egypt ï¿½ $470mn in two tranches for budgetary support ï¿½ was the largest dispersed since its inception in 1976. The AMF has also sent missions to Tunisia and Yemen to assess their financing and technical needs, and is discussing aid packages with the authorities in Tunis and San'a. Yemen, as one of the poorest Arab countries, faces huge challenges and over the years has benefited the most from AMF assistance, receiving 22 loans worth $820mn through to end-2010.
The AMF is participating with other international financial institutions in the Deauville Partnership with the Arab Countries In Transition, which was launched in 2011 by the G8 forum of governments. This is to support democratic transition, strengthen governance, foster economic and social inclusion, create jobs, support private sector-led growth, and advance regional and global integration, said Dr Mannai. He characterizes the partnership as a new approach to the Marshall plan which was implemented to help European countries recover after World War II. It is similar ï¿½in a way that the concerned countries and the international community have committed themselves to make a joint and determined effort to create the conditions for stability and prosperity in the Arab Spring countries,ï¿½ he said. He notes that the AMF welcomes any strategy that ï¿½relies on home-grown reforms and programsï¿½ and strengthens cooperation with international institutions.
Growth Outlook Challenging
In light of the turmoil from regime change for some countries, ongoing protests in others, and other pressures such as the Eurozone crisis, Dr Mannai characterizes the near term economic growth outlook for Arab countries as challenging. He distinguishes three economic groups within the AMF membership (the 22 countries that make up the League of Arab States). For Arab oil and gas exporters, the outlook appears favourable with activity to remain relatively strong, he said. While a projected slowdown in world demand as result of slower global economic growth would tend to push oil prices down, any supply disruptions could trigger a much larger price spike upwards, he said, warning that the short term impact could be amplified if an adverse oil shock spilled over to financial markets. He points out that the Arab oil producers have already provided strong financial support on a bilateral basis to Jordan, Morocco, Egypt and Tunisia, with Saudi Arabia also shipping oil products to Yemen to help it overcome shortages.
For the second group, the Arab Spring countries, which are mostly net oil importers (except Libya), the growth prospects are uncertain in light of the heightened domestic tensions at the political and social levels and the difficult external conditions in Europe and elsewhere, said Dr Mannai. The third group of countries which have been affected to a lesser extent by the political turmoil in the region and are also going through political transformation should achieve moderate economic growth, he said. The AMF lent a record AAD118mn ($548mn) to its members in 2010 and expects 2011 to near these levels, disclosed Dr Mannai. Loans are denominated in Arab Accounting Dinars, which are equivalent to three times the IMFï¿½s Special Drawing Rights (as of 15 June $1=SDR0.658).
In tandem with its push to help countries emerge stronger on the other side of the Arab Spring, the AMF continues with its usual activities. It fulfils a similar role to the IMF and has, since its inception, sought to assist its member countries to foster the macroeconomic conditions needed for sustainable economic growth and promote an environment conducive to private sector development, said Dr Mannai. In addition to managing its own resources, the AMF accepts deposits from Arab central banks and monetary institutions. This activity has been in an uptrend, said Dr Mannai, suggesting that it reflects member statesï¿½ increasing confidence in the AMF. Over the last five years deposit taking climbed 300% to about SDR6.5bn from about SDR 1.6bn, he revealed.
The AMF has helped usher through significant advances amongst its members, which include budget deficit reduction, control of inflation and external sector improvement such as foreign reserves accumulation. ï¿½This progress allowed for a reduction of the vulnerability of Arab economies to external shocks, as shown by the resilience they exhibited during the fuel and food price spike of 2008 and the global financial crisis,ï¿½ said Dr Mannai. However, as a result of the pullback of international bank funding to the region in the wake of the Eurozone crisis the AMF has stepped up assistance. Its Arab Trade Financing Program (ATFP) unit has been active in granting credit lines to Arab countriesï¿½ accredited banks to facilitate the financing of Arab tradersï¿½ transactions, both between Arab countries and with the rest of the world. The ATFP has been encouraging banks to use the credit lines provided to finance cross-border transactions of small and medium sized enterprises (SMEs), which often struggle to secure loans from local banks.
One of the AMFï¿½s stated objectives is to pave the way towards creation of a unified Arab currency. Despite the difficulties thus far in achieving GCC currency union and concerns that the Eurozone sovereign debt crisis raises over monetary union in general, Dr Mannai maintains it is still a desirable goal. He sees possible benefits including the elimination of exchange rate risks and currency conversion costs, and greater economic integration among countries through deepening trade and investment links. The launch date will depend on the progress achieved by the Gulf Monetary Council, which oversees technical and statistical issues.
Focus On Financial Markets
Improvement of financial markets, a key factor in accelerating economic and social development, has been a major objective of the AMF. Progress in this area has varied across the 22-member countries and much remains to be done, asserts Dr Mannai. Strides have been made in improving financial disclosure, but Arab stock markets still need to better enhance the non-financial disclosure practices related to corporate governance. To promote harmonization of stock market practices in the region, in 2009 the AMF launched a technical initiative with the IMF aimed at improving the efficiency and enhancing the functioning of the public and corporate debt market, and promoting international best practices, said Dr Mannai.
Asked what else is needed to further develop the capital markets in the region, particularly for the debt side which has been slow to take off, Dr Mannai answers that the investor base for bonds and their Shari'a compliant equivalent, sukuk, needs to be broadened. ï¿½Sukuk from the region tend to go into the hands of banks and foreign buyers looking for regional exposure. What is lacking so far is the full range of institutional investors characterized by pension funds and insurance companies,ï¿½ he explained. ï¿½Government, industry and regional institutions have to work on improving the basis for institutional investors in the region,ï¿½ he stresses. The AMF and the European Bank for Reconstruction and Development (EBRD) have launched a joint program to help policy makers identify key market development issues and needed reforms to develop an efficient framework for the corporate bond market.
In addition to cooperating on bond market development, during the past 10 years the AMF has launched several initiatives jointly with the World Bank, IMF, European Central Bank and International Finance Corporation (IFC) with the objective of modernizing and improving payment and credit reporting systems, and developing legislation. This year it launched a housing finance initiative with the World Bank to help member states establish efficient policies in this area. Dr Mannai said that the AMF takes pride in the considerable success of most Arab countries in achieving macroeconomic stability, liberalizing their economies and building capacity. However, the progress has been accompanied by frustrations and he admits the regionï¿½s economic performance, despite all efforts, remains below its potential. Continued problems include persistent unemployment, unequal distribution of income and prevalence of regional disparities. He recommends that ï¿½the agenda of market liberalization and the focus on macroeconomic stability and growth, while laudable, needs to be expanded to bring more inclusiveness and transparency.ï¿½
© Copyright MEES 2012.