Thursday, May 26, 2011

An OIC head of the IMF

Over the weekend, I wrote my newsletter about the search for a new IMF head and focused on a suggestion I saw from a Bloomberg reporter, William Pesek, for Zeti Akhtar Aziz as a candidate (she is currently the governor of the Malaysian central bank, Bank Negara, and Chairwoman of the International Islamic Liquidity Management Corporation). I thought she was a good choice except for the void it would create in the Islamic finance industry if she were to depart from her current positions.

Rushdi Siddiqui, the global head of Islamic finance and GCC countries at ThomsonReuters, will offer his own suggestion (Mohamed El-Erian) in an opinion piece in Gulf News this weekend and his candidate is someone I think is eminently qualified for the post, although he is currently comfortably employed elsewhere (like Zeti, he happens to be a Muslim).

This week, I reported in The Islamic Globe that the International Finance Corporation (an organization affiliated with the World Bank) is planning another sukuk once they assemble enough Shari'ah-compliance assets to fill a sukuk. They did not say how large they expected the sukuk to be (their last one in 2009 was $500 million), however, they did indicate they planned on issuing one "every few years".

With the growing involvement by the World Bank in Islamic finance, perhaps it is time for the IMF to become more involved as well. While the Fund does not do as much direct lending as the World Bank, it is focused on the macro policies that can either encourage, be neutral to or discourage Islamic finance. It is not necessary for the head of the IMF to be a Muslim to work with countries trying to put conventional and Islamic financial systems on equal footings, putting someone with a familiarity and comfort level with the industry would send a signal that the rapid growth of Islamic finance is not being overlooked.

The benefit to IMF member countries of a greater involvement with Islamic finance would not be limited to Muslim-majority countries. Non-Muslim countries like the UK, France, Japan, Russia and China are all at various stages of creating conditions for Islamic financial institutions to be able to compete on a level playing field. Further, the changes that most countries have to make to enable Islamic finance are well within the scope of the IMF's mandate. Whoever the candidate, it would be an important signal of change in the IMF if the next head of the IMF came from an OIC country with a vibrant Islamic finance market or from a background in Islamic finance, whether or not that individual is Muslim.
Newsletter
William Pesek, a reporter for Bloomberg wrote an opinion piece with a list of potential Asian candidates who he thinks should be considered for the recently vacated position running the International Monetary Fund. One name on his list should be familiar to anyone with interest in the Islamic finance industry, Zeti Akhtar Aziz, the governor of Bank Negara Malaysia, the country's central bank. This is what he had to say about her qualifications for the position.

"She is as internationally respected a central banker as any these days. The Bank Negara Malaysia governor played a key role in turning Kuala Lumpur into the global hub of the $1 trillion Islamic finance industry. Zeti also was part of the team that bet against the IMF and won. In the late 1990s, it seemed inevitable that Malaysia would join Thailand, Indonesia and South Korea in accepting multibillion-dollar IMF bailouts and stringent conditions like raising interest rates and cutting spending. Malaysia said no and Zeti helped it weather the turbulence. And then she watched the United States, in the height of hypocrisy, do all the things it told Asian officials not to do. Zeti would bring a different perspective to the IMF, one much-needed."

I think that he makes a good point on installing someone at the IMF who brings her diverse experience from the financial crises in 1998 as well as her role in adapting as things changed to ensure that the Malaysian Islamic finance industry developed as successfully as it has over the past decade in Malaysia. That being said, I think for the Islamic finance industry, it is better if she remains just a candidate for the top job at the IMF.

It will highlight the growth in Malaysia's Islamic finance industry without depriving the industry of one of its best spokespeople. In addition to her role as governor of BNM, she is chairwoman of the new International Islamic Liquidity Management Corporation, which is developing short-term liquidity management tools for the Islamic finance industry, something which will be beneficial. It would not be the end of the effort should she leave her current posts for the IMF, but she is one of the most recognizable central bank governors among the countries with large Islamic finance presences.

It is good to see the growth of Islamic finance recognized even tangentially, but it would probably be a net negative to have someone as involved with the Islamic finance industry as much as Ms. Zeti is depart to run the IMF. And anyway, old habits die hard, so the next IMF head will most likely come from within Europe, just has it always has.

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