JEDDAH: The global economy is passing through the worst recession since the Great Depression. Therefore, coming out of it will be a slow and painful process. But all recessions end sometimes. It is the nature of business cycles — this was the message given by Moeen Qureshi, chairman of the Washington-based EMP Global (Emerging Markets Partnership).
However, Qureshi, former caretaker prime minister of Pakistan and senior vice president finance of the World Bank, is optimistic that the world will see some signs of recovery at the end of this year and industrialized economies will witness growth next year.
Qureshi, who is in the Kingdom for discussions with the Islamic Development Bank (IDB) concerning plans for a successor fund to the present IDB Infrastructure Fund, which EMP is managing, told Arab News that Gulf countries were in a better position to weather the global financial crisis because their banking system is very sound. “The Gulf banks did not invest heavily in subprime assets or any other toxic assets,” he said.
“The main exports of Gulf countries are oil and gas. These exports are less affected by short-term changes in demand. This gives great strength to their economies,” he added.
Qureshi said Saudi Arabia’s position has been strengthened during this recession because it has the largest domestic market in the Gulf; it is the largest exporter of petroleum, has much larger forex reserves than other countries in the region and has very sound fiscal and monetary polices. Saudi Arabia has maintained stability in it currency, he added.
As Saudi Arabia has embarked on major economic project, Qureshi said “Setting up economic cities is in Saudi Arabia’s interest because it will spur investment within the country that will ultimately boost the economy.”
Qureshi also defended the policy of sovereign wealth funds (SWFs). “SWF is a good idea because governments can invest their reserves in productive undertakings within the country and also they can wisely invest in other projects.
Referring to Pakistan, he said the country was passing through a very difficult political and economic phase. “There is need for a national unity government. The objective of this government should be to agree on a national program to strengthen the economic conditions of the country and to restore public confidence,” he said. In talking about India-Pakistan relations, Qureshi said they should have peaceful and friendly relations for their mutual benefits.
Excerpts:
The world is passing through a severe recession and some economists are comparing it with the Great Depression. What is your opinion of the present economic gloom?
My feeling is that all recessions come to an end eventually, and that 2010 will be a much better year than 2009.
The global crisis began with subprime problems in the United States and subsequent banking crises worldwide. Do you think the housing and banking problems will be over soon?
No, I think they will constitute a drag on the Western economies for some time. As regards housing, we should begin to see a recovery by the end of this year. Still, there has been a major negative household wealth effect which will continue to depress consumer spending. The banks will continue to have problems with non-subprime assets including commercial real estate and consumer loans including credit card debt.
Islamic banking and Islamic finance have gathered pace in recent years. What is your evaluation of Islamic banking and Shariah-compliant financing?
Islamic finance has already made great strides. In previous years, there was a demand for Islamic products on the basis of faith rather than practicality. Now, Islamic products have become competitive because of their merits with non-Islamic products. The global crisis offers a great opportunity for the further development of Islamic finance and products.
You also served as a caretaker prime minister of Pakistan for a brief period in 1993. During your tenure you took a number of measures to bolster the country’s economy, including devaluation of the currency, cutting farm subsidies and hiking wheat prices, electricity and gasoline. What impact did these policies have on Pakistan’s economy?
These measures had an important impact in stabilizing the economy in Pakistan. They also created a framework for a strategy of stable economic growth.
You had also antagonized politicians for having outstanding loans obtained from state banks on easy terms. How effective was this policy?
Extremely effective. I established rules that no person could stand for election if they had defaulted on loans they had taken from the state banks. As a result, most politicians repaid their loans. That greatly enhanced my ability to take unpopular measures such as increasing electricity prices because there was a public perception that I was even-handed in my treatment of rich a poor.
Political differences have bedeviled India-Pakistan relations for quite some time. Do you think peace is necessary between the two neighbors in order to stimulate trade and economic activities?
Peace and friendly relations would be helpful to both, especially Pakistan.
Law and order problems have affected Pakistan’s economy very badly in recent years. The rupee is down; the stock market is down and there seem to be no signs to encourage GDP growth. What do you think the government should do to bolster its economy?
At no time has there been a greater need for united approach to issues of security and economic policy. My own recommendation would be for all political parties to come together in a national government of unity to execute a national agenda behind which all Pakistanis can stand united.
