KUALA LUMPUR, 4 July 2005 — The realism is slowly arriving at the Jeddah-based Islamic Development Bank (IDB). To what extent this is converted into pragmatism and delivery where it matters for its 56-member countries will be dependent on the recommendations made by the IDB Vision 1440 (2020) Commission, headed by former Malaysian Premier Dr. Mahathir Mohamed, and the extent of their adoption by the multilateral development bank (MDB) itself.
The IDB board of governors, meeting in Kuala Lumpur last week to celebrate the MDB’s 30th anniversary, could not have wished for a more appropriate host and setting. Malaysia is a rare Muslim functional state and a success story amongst the IDB’s membership.
Delegate after delegate could not help singing the praises of Malaysia in the way it has managed to blend a stable multi-cultural, multi-ethnic and multi-religious democracy with economic and technological development without sacrificing the Islamic principles and heritage of the majority Muslim Malay population.
Malaysian Prime Minister Abdullah Badawi, may be tempted to fall for this flattery, but as a technocrat he realizes that his country has still a long way to go in achieving its own version of Vision 2020 — a policy which sees Malaysia becoming a fully industrialized democratic country by the year 2020.
This was arguably the most positive IDB annual meeting in the MDB’s three decades of existence. Nigeria was welcomed as the 56th member country of the IDB. The board of governors approved the establishment of the IDB Vision 1440 (2020) commission; and recommended the establishment of a stand-alone trade financing entity, the Islamic Trade Finance Corporation, with a proposed authorized capital of $3 billion and a paid-up capital of $500 million, comprised of the current assets of the IDB’s Islamic Banks’ Portfolio and the Export Financing Scheme.
This separation of the trade financing function of the IDB from its development financing mandate is seen crucial in its efforts to boost intra-Islamic exports from the current 12 percent to 20 percent by the year 2010.
The proposed Islamic Trade Finance Corporation is to be located at IDB headquarters in Jeddah.
In terms of institutional and capacity building, Malaysia, a net beneficiary of $760 million of IDB financing to date, has already embarked on a joint program of cooperation with the IDB to boost the productive capacity of member countries such as Bangladesh, Sierra Leone and Mauritania in selected sectors. Malaysia and the IDB, for instance, are piloting and funding a palm oil project in Sierra Leone.
The IDB Vision 1440 Commission, which will have the task of developing a strategic vision for the MDB, indeed has capacity building in its sight. “This vision,” stressed IDB President Dr. Ahmad Muhammed Ali, who was re-elected for another 5-year term, “will embody the blueprint for chaneling the bank’s development efforts more effectively in order to enable it to rise up to the economic, development and social challenges which face its member countries. The strategic vision will take into account the changing development requirements of its member countries, including the employment of knowledge and information and communication technologies to promote growth and institutional capacities in this vital field.”
Malaysia at the same time wants the IDB to adopt a more business-like approach to its activities especially in its policy and delivery capacities.
Badawi proposed three key themes for action — cooperation through trade and capital flows; Islamic finance as a competitive advantage; and human capital development.
Malaysian Second Finance Minister Nor Mohamed Yakcop has urged the IDB to set up an Islamic Bond Fund to specifically promote economic development in especially the poorer member countries. Nor, the architect of Malaysia’s pioneering bilateral payments arrangements (BPA), is keen for more IDB countries to adopt this payment settlement scheme between developing countries which bypasses expensive correspondent banking arrangements with Western banks in New York, London, Frankfurt, and Tokyo. Malaysia, for instance, has such a BPA in place with only nine IDB member countries at the moment. Kuala Lumpur is even envisioning settlement of trade on both bilateral and multilateral arrangements.
Badawi warned that the Muslim world, with 20 percent of the world’s population and with enormous natural resources, faces several critical challenges. “The time,” he concluded, “has come for the IDB to confront these problems afresh.
We must plot the strategic direction ahead so that the IDB can contribute more meaningfully and effectively toward increasing the social and economic status of its members.”
