LONDON, 25 July 2005 — The recent announcement by the Islamic Development Bank (IDB) that it has set up an IDB Vision 1440 (2020) Commission and that it is working on a 10-year Master Plan for the Islamic Financial Services Industry, bears an uncanny resemblance to similar initiatives launched by Malaysia over the last decade. The IDB Board of Governors at its 30th meeting held in Kuala Lumpur at end June 2005 approved the establishment of the commission, to be headed by none other than former Malaysian Prime Minister Mahathir Mohamed; and the preliminary work of the Master Plan.
IDB President Dr Ahmad Muhammad Ali, re-elected for a further term at the Kuala Lumpur meeting, is a great admirer of the Malaysian approach to Islamic financial and economic management. “Malaysia,” he stresses, “symbolizes the ideal of how Islamic values can be upheld in contemporary times side by side with miracles performed in economic and technical development. Under the able and visionary leadership of Zeti Akhtar Aziz, governor of Bank Negara, in particular, Malaysia has played a pioneering role in the development of the Islamic financial services industry. Malaysia has also taken the lead in putting in place the 10-Year Master Plan for Islamic Banking and Islamic Capital Market.”
But whether these similarities end here or whether they will be reflected in the eventual implementation and development of the IDB Vision 2020 and in the 10-year Master Plan for the Islamic Financial Services only time will tell.
The IDB Vision 2020 is aimed at coming up with a strategic vision for the pan-Islamic multilateral development bank (MDB) through the next 15 years. Presumably, this would be to enhance its three core objectives of promoting intra-Islamic trade between its 56 member countries which currently stands at only 12 percent; to promote Islamic banking and insurance worldwide; and to alleviate poverty in member countries, most of which especially those in Sub-Saharan Africa are classified as Least Developed Countries (LDCs).
The 10-year Master Plan for the Islamic Financial Services would chart a road map for the next decade of Islamic financial development, and would look at five functions — Islamic banks; Islamic insurance; Islamic capital markets; Islamic non-banking financial institutions; and Islamic financial infrastructure. According to Malaysian Prime Minister Abdullah Badawi, the plan “will provide a shared vision and a common goal to be achieved over the next ten years. More importantly, the Master Plan would provide a guided and sequenced approach to allow us to focus our energy and efforts towards achieving the vision.”
Compare these to the “original” Malaysian initiatives. In Wawasan 2020 (Vision 2020), titled “Malaysia: the Way Forward” Mahathir did indeed chart a road map for the future course of the Malaysian nation and how it should embark on developing the country into an industrialized one.
Mahathir outlined this road map in a speech he gave to the Malaysian Business Council in Kuala Lumpur Feb. 28, 1991. In his conclusion, he warned: “This is the agenda before us in this council and before the nation. I hope you will discuss this agenda and criticize or improve on it. Whether we achieve perfection or consensus on this agenda is not absolutely important. No formula is perfect. But the least perfect and the least productive is the perfect agenda unimplemented.”
The drivers for Malaysia’s Vision 2020 are different to those of a 56-member pan-Islamic organization whose member countries have disparate economies ranging from some of the highest per capita income countries to newly industrialized economies; developing countries; and some of the poorest nations on Earth.
One of the key drivers was “a full partnership in economic progress”. Mahathir spoke for the empowerment of the then economically-disadvantaged Bumiputera (Malay) population. “There is a need to ensure the creation of an economically resilient and fully competitive Bumiputera community, so as to be at par with the non-Bumiputera community. There is a need for a mental revolution and a cultural transformation,” stressed Mahathir.
Mahathir went on to outline nine central strategic challenges which Malaysia had to overcome before it can become a fully developed country - a united nation; the creation of a “psychologically-liberated, secure and developed society”; developing a more mature democracy; establishment of a moral and ethical society; establishment of a more mature and tolerant society; establishment of a scientific and progressive society; ensuring an economically just society; and the establishment of a prosperous society, with an economy that is fully competitive, dynamic, robust and resilient.
How these translate into a strategic vision for an MDB is a moot point. But those involved with the IDB 2020 Vision Commission agree that the institution needs its own version of “a mental revolution and a cultural transformation”. The IDB has of course taken a risk in appointing a former prime minister with a reputation for blunt-speaking. Perhaps this was a deliberate decision on the part of the board.
Similarly, the Malaysian Financial Master Plan was born in 2001 in the aftermath of the Asian financial crisis - one of the worst in the region. In this respect it was forced upon the country by national, regional and global circumstances. It essentially brought home the risks and challenges of both “good” globalization (strength, soundness, competitiveness, and corporate governance of domestic financial institutions); and “bad” globalization (the fair-weather friendship of foreign fund managers who speculate on vulnerable currencies simply to maximize returns and profits).
Mahathir, to the chagrin of the IMF, went it alone by introducing a tax on fund managers; banning speculation on the ringgit; imposing capital controls; and pegging the ringgit to the US dollar.
Malaysia also successfully restructured its financial and corporate debt through innovative structures. All this paved the way for an orderly and creative adoption and implementation of its Financial Sector Master Plan. In fact, in the case of the Islamic banking component and market liberalization, the plan was brought forward by three years, indicating both confidence and flexibility.
But at a pan-Islamic level, too many opt outs and flexibility could undermine the plan even before it is implemented. The European Union is a classic example where opt outs on immigration and border controls; on the euro; and on the future constitution, have turned into a working nightmare, and is in danger of undermining the European project.
