Arab bankers complain mini-war is bad for business

NICOSIA — Arab economists and bankers are complaining that current tension with Israel is hurting the economy.

They said that the Israeli-Palestinian mini-war is draining resources as well as diverting attention away from efforts to increase regional trade and cooperation. They said the conflict comes as the Arabs are struggling to keep up with Western successes in globalization.

The warnings of an Arab economic slowdown were voiced during a meeting of Arab bankers in Beirut over the weekend.

"The Israeli- Arab conflict, which is undergoing a new explosive period as illustrated by Israeli aggression and threats, weighs on the Arab economy and sets up obstacles to its growth," said Joseph Tarabay, vice president of the Association of Arab Banks. "Our Arab region, despite its strategic importance, continues to suffer from slow growth, swelling population, weak consumption and a heavy bureaucracy."

The bankers said that earlier this year the Arab world acknowledged the need for economic integration to compete with markets in Europe, Asia and the United States. They pointed to efforts by Lebanon to increase cooperation with Syria and Jordan as well as Egypt's drive to expand trade and investment.

The focus on the Arab-Israeli conflict, the bankers said, threatens to reverse this trend and focus on national priorities and military growth. The casualties will be Arab efforts to make gains in education, government reform and technology.

"Arab banks need to regroup, raise their capital and better exploit the resources of their countries for common, beneficial action," said Lebanon Central Bank governor Riad Salame.

Economists warned that despite the rising price of oil, Arab economies are far less developed than in the West or East Asia. They said Arab countries still don't encourage foreign investment or privatization.

On Monday, the Islamic Development Bank said it would loan $282 million to Muslim countries, including Lebanon. Lebanon will receive $16.4 million for development of the south. Other beneficiaries will be the Palestinian Authority, Sudan, Turkey and Yemen.

One scenario they envisioned was a growing gap between the oil economies in the Gulf and the rest of the Middle East. This, the economists said, would return the region to the tension of the mid-1970s when Gulf countries were targets of terrorism.

For his part, Mahmoud Abdul Aziz, an executive at the Association of Arab Banks, warned that the regional banking sector would be overwhelmed by competition from the West. This, he said, would torpedo the prospect of regional growth.

"We suffer from slow growth, a smaller share of international investment, the slowness of the privatization process and the narrowness of the capital markets," Abdul Aziz said. "But the actions of Arab banks, the main motor of growth, are handicapped by new risks associated with new banking technologies which renders competition very arduous and lowers profit margins."