As the U.S. and Western markets plummet and the U.S. dollar continues its free fall, sovereign wealth funds (SWF) gobble up prime financial institutions, industries and real estate in the U.S. and the West. Given concerns regarding the political influence of such wealth, the U.S. Treasury, together with Abu Dhabi and Singapore, on March 20 signed an “Agreement on Principles for Sovereign Wealth Fund Investment.”
“SWF investment decisions should be based solely on commercial grounds, rather than to advance, directly or indirectly, the geopolitical goals of the controlling government,” according to the joint statement and accompanying policy principles. Feebly attempting to enforce this standard, it declared: “SWFs should make this statement formally as part of their basic investment management policies.”
Meanwhile, the International Monetary Fund (IMF) Board of Directors on March 21 endorsed an SWF work agenda to develop — in coordination with them and the Organization for Economic Cooperation and Development (OECD) –“a set of voluntary best practices.”
The pretense surrounding most international agreements matches the deceitful promotion of Middle Eastern SWF investments and Islamic banking as “ethical and socially responsible.”
In fact, “Islamic banking defies the separation between economics and religion,” according to USC King Faisal professor of Islamic Thought Timur Kuran.
Globally, SWFs now hold some $2 to $3 trillion and are expected to reach $6 to $10 trillion “within five years.” Incredibly, IMF Monetary and Capital Markets director Jaime Caruana expects the planned “best practices” to “cover issues of public governance, transparency, and accountability principles” and “help ease concerns about SWFs in recipient countries and contribute to an open global monetary and financial system.”
High oil prices are responsible for the enormous growth of most SWFs, including those in the Middle East. According to a new the Asian Banker research group, ”the world’s 100 largest Islamic banks have outpaced conventional banks with an annual asset growth rate of 26.7 per cent… nearly $350 billion… in assets.”
In addition to huge political and economic influence such wealth carries, and in contrast with IMF wishful thinking, Middle Eastern SWFs also seek to impose the strangulating governance and eventual bondage of Islamic laws — not “ethics” or “social responsibility” as they advertise.
Middle East sovereign funds include bans on trade with Israel, despite U.S. laws prohibiting such boycotts and World Trade Organization (WTO) regulations requiring all member nations to allow free trade with each other. Yet, Middle East wealth so dazzles Western governments, including the U.S, that they readily ignore the Islamic nations’ illegal boycott. While these funds for now only target Israeli products, ultimately Western industries and economies will also endure dire effects.
The U.K. Trade and Investment (UKTI) website openly notes, “Saudi Arabia imposes no foreign exchange controls and no other restrictions on the repatriation of profits or capital by foreign investors,” except a strict ban “against transactions with Israel.”
The growing U.S. and European financial crisis gives Islamic banking and shari’a finance proponents increasing leverage over Western markets and economics. In reality, their acquisitions of ever-larger stakes in U.S. and Western strategic financial and other assets, amounts to economic warfare against the West.
They lure U.S. and Western investors into high-rate sukuk or al-ijara Islamic bonds, which they claim are “alternative” Islamic finance instruments that supposedly avoid usury, but use Western structured finance tools-"some of the most complex ever created.”
Shari’a instruments transform liquid, traceable cash flows from interest-bearing debt into illiquid assets. They resemble “portfolio insurance” that caused the 1987 crash, and the mortgage-backed bonds behind the 1994 bond-market bust that eviscerated $1 trillion in value — then some 10% of the U.S. bond market. Those collapses damaged many huge pension funds, municipalities and institutional investors, and killed off several hedge funds.
Shari’a economics’ dubious ethical and financial values nevertheless continue attracting Western bankers and academics. In a March 5, 2008 missive to international business leaders, for example, Caux Round Table (CRT) global executive director Stephen B. Young even suggests that Islam Hadhari (“civilizational Islam” based on shari’a law, as promoted by the Muslim Brotherhood) can resolve America’s conflicts with the “Muslim ummah” (nation).
Young believes “Islamic Banking would … bring modern forms of private sector led economic development into Muslims societies,” ushering them into the “industrial and post-industrial revolutions,” by constructively blending “rational economic considerations with Qur’anic piety.” Yet he relies on a 2006 script by Malaysia’s Prime Minister Dato’ Seri Abdullah bin Haji Ahmad Badawi.
But “Islamic economics is an invented tradition,” writes USC’s Timur Kuran. “Neither classical nor medieval Islamic civilization featured modern style, much less Islamic banks.”
Far from developing Islamic and economies, shari’a law has overall retarded them. “To one degree or another, most of today’s 56 predominantly Muslim countries are economically underdeveloped,” Kuran writes.
Islamic finance deliberately promotes fundamentalism and anti-Western behavior throughout the Muslim world, rather than suppressing it, he argues. Neither have shari’a finance proponents in the West considered its economic effects — promotion of gender discrimination, replacement of secular law and schools with Islamic law and schools, and its institutional suppression of scientific investigation.
In December 2007, Bourse Dubai, the world’s first and largest Islamic equity exchange, bought 20% of NASDAQ, the biggest U.S. electronic stock market, and “rebranded” it as part of Dubai’s company. The Bourse also got NASDAQ’s 28% of the London Stock Exchange (LSE). In addition, Qatar acquired a 24% LSE stake, giving the two Gulf nations control over nearly 52% of the London exchange. On March 15, Iran, which now dominates the leading 100 Islamic banks — followed by Saudi Arabia, Malaysia and the UAE –announced plans to list $90 billion energy holding company on Dubai International Financial Exchange, (DIFX), which is wholly owned by Bourse Dubai.
To counter the Shari’a financing takeover of America, the FTSE CSAG Terror-Free Index Series and Conflict Securities Advisory Group, yesterday launched a new index that screens out some 600 companies doing business with Iran, Sudan, Syria and North Korea. The U.S. government designates these states as sponsors of terrorism. However, the major Shari’a finance institutions are in Saudi Arabia, the UAE and other Gulf states — all funders of radical Islamist and terrorist groups worldwide, and none designated by the U.S. or screened by the new index.
The one who pays the piper calls the tune, goes the saying. Considering the strategic purchases of Middle Eastern sovereign wealth funds and the traps built into shari’a financing, the U.S. and the West may soon be dancing to an unfamiliar — and strategically damaging — Islamic tune.
Alyssa A. Lappen also contributed to this article. Ms. Lappen, Senior Fellow at the ACD, is a former editor for Forbes, Corporate Finance, Working Woman and Institutional Investor, and writes for many print and online journals, including Human Events, Revue Politique, Midstream, FrontPageMagazine and American Thinker.
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