IMF and Arab statesneed to overhaul ties

The controversy between the Arab states and the World Bank over investments and return of the migrant Arab funds implies many indicators, reflecting the political differences and the media campaigns raging between the two sides.

Most observers predicted that a substantial part of the migrant Arab funds would be returned following the September 11 events in the United States, particularly in the wake of measures adopted by Washington with respect to issuing entry visas and monitoring transfers and investments in the financial institutions.

What happened was the complete opposite with migrant Arab funds recording a 25 per cent increase to reach $1,000 billion compared with $800 billion at the end of 2001.

It is true that a portion of such investments in the United States has been recovered, but it is also true that most of these funds have found their way primarily to East Asia and Europe. The Arab states, however, managed to attract a modest percentage of such migrant funds.

Therefore, a debate has raged between the Arab states and the International Monetary Fund (IMF) and the differences between the views of the two sides are huge, with the IMF discouraging businessmen from investing in these countries and its focus on the developed industrial nations.

Out of 17 major investment projects undertaken by companies with the support of the World Bank, the Arab states did not get any.

Meanwhile, the IMF has criticised the Arab states claiming their economic policies were not helpful in attracting foreign investments and migrant Arab funds. It noted in particular the policies of supporting and encouraging the private sector through privatisation policies.

In this context, the IMF said most Arab privatisation policies needed a re-evaluation as they were not introduced on a sound basis.

There is no doubt that the Arab investment environment needs to be developed. The Arab states are at the bottom of the list of countries enjoying economic freedom in the world. In addition, many suffer from instability, poor economic performance and outdated economic legislation and regulations.

At the same time, the Arab private sector needs to develop its mechanisms and enter into economic partnerships for investment in the modern economic sectors instead of remaining stuck in the conventional sectors that have reached saturation point in investment in most Arab countries.

There is no excuse for the World Bank merely citing examples of shortcomings and drawbacks since the call to adopt economic reforms is an integral part of the World Bank's duties.

However, the IMF's proposals have not seemed appropriate on many occasions as in the case of Malaysia during the East Asia economic crisis in 1997 when the Malaysian Prime Minister Mahathir Mohammad ignored the IMF's recommendations and adopted more practical and effective steps that enabled Malaysia to overcome the crisis long before other Asian countries, such as Thailand and Indonesia, affected by the crisis.

During the Cold War years, there was a lack of confidence between the IMF and developing countries, including the Arab states. This requires an overhauling of the relationship between the two sides and restoring confidence between them.

The IMF enjoys enormous resources and potential that can contribute to the development of the Arab countries and help them overcome the difficulties and shortcomings that prevent the inflow of foreign investments, and which will lead to the growth and progress of such countries and solve many of the problems experienced by their economies at the moment.

What is at stake here is not merely attracting the inflow of capital but is associated with the transfer and localisation of technology and know-how that are significant issues for continuous development in the Arab world.

Dr Mohammad Al Asoomi is a UAE economic analyst.