Welcome to my private journal generally on Brunei issues. Any opinions expressed are in my personal capacity. All rights to the articles are reserved.

Saturday, December 20, 2008

Brunei: A Safe Haven

[This article is from Oxford Business Group (OBG) which reported about Brunei dated 19th December 2008.]


19 Dec 2008 - At a time when a majority of asset classes and countries look vulnerable to yet unforeseen financial shocks, the Sultanate of Brunei Darussalam provides plenty of compelling reasons for foreign investors looking for a safe financial haven.

While not immune to the global economic slowdown and falling oil prices - its main export commodity - the Sultanate appears to have very little exposure to toxic financial instruments and enjoys a stable financial sector.

Even before the global financial crisis began, the banks and local authorities were mindful of improving the quality of banking assets and promoting a culture of responsible borrowing and saving. The level of new Non Performing Loans (NPLs) is therefore quite low by regional standards.

As of 2006 a new Banking Order ensured that the local banks were well capitalised, with minimum capital requirements raised to BN dollar 100m. The local banks thus entered the global financial crisis in much better shape than many regional peers.

Yet, it is the macroeconomic story that is a source of confidence. The ongoing financial crisis tends to hit the countries with high debt-to-GDP ratios and significant external financing needs. These are usually countries which have balance of payments problems, with high currency account deficits. The case in point is Pakistan which was on the verge of financial meltdown due to the lack of external financing.

Brunei Darussalam is fortunate to have none of the difficulties experienced by highly leveraged countries with external imbalances. It has traditionally been an exporter rather than an importer of financial capital and has been running high current account surpluses, which were saved in strategic reserve funds.

Its debt-to-GDP is one of the lowest in the region and its consolidated fiscal position provides plenty of room for expansionary government spending policy. The existence of clearly formulated government spending plans is a bonus at a time when most countries are forced to improvise their fiscal stimulus.

In monetary policy, too, Brunei Darussalam looks like a better bet than most countries in the region. Brunei dollar's hard peg to the Singapore dollar does raise concern in some quarters, but in relative terms the Singapore dollar is less vulnerable given Singapore's large foreign currency reserves and well managed monetary policy.

As a place to store liquidity, Brunei Darussalam is therefore one of the safest locations in the region, which gives it an opportunity to establish itself as a financial offshore centre. However, that goal will also require attractive returns on capital, which in its turn requires healthy economic activity.

For now at least the focus is on the central government to inject new momentum into the slowing economy. The challenge is that the public investment has to come at a time of low oil prices and therefore lower government revenues.

The authorities are expected to be very cautious in prioritising their investment to preserve some of their strategic reserves against further external shocks. However, the fall in oil and gas prices might come as a blessing in disguise if the government is able to finance new projects in non-oil and gas sectors.

Even in hydrocarbons downstream space, there could be signs of new developments. When the oil prices were very high, the main issue was that the opportunity cost of using domestic oil and gas to develop new downstream sectors was quite high. That was the main sticking point in rolling out such high profile projects as the Brunei Methanol Company.

The correction in oil prices thus indirectly favours diversification, which has long been Brunei's top strategic economic goal. But as some industry players point out, the key issue is financing. Although the logic of diversification has become far more compelling, banks are reluctant to lend to corporations and financial institutions in a downturn, no matter how safe and liquid they are.

This is particularly true in so-called risky sectors such as small and medium enterprises which lack good quality collateral to raise the necessary financing. It therefore falls on the government and the public sector to play the role of financial intermediaries to get the economy back on solid footing.

Despite the challenges, the economic slowdown in Brunei Darussalam is expected to be much milder. The country may even come out of the crisis ahead of its regional peers with the strong comparative advantage of being perceived both politically and financially stable by foreign investors - a rare asset in these troubled times.


Friday, December 19, 2008

Brunei and the Clinton Foundation

The Voice of America reported about the donations that former US President Bill Clinton received for his foundation on 18 December 2008. This was part of the deal to avoid conflict of interests that he had to make so that his wife, Senator Hillary Clinton can become the next Secretary of State. The news report run as follows:


Foreign States Among Major Donors to Clinton Foundation

18 December 2008. The foundation run by former U.S. President Bill Clinton has received donations from several foreign governments that his wife, Senator Hillary Clinton, might have to negotiate with as secretary of state.

President-elect Barack Obama has nominated Senator Clinton to the top diplomatic post and requested the list of donors to her husband's charitable organization to avoid conflicts of interest.

Some of the biggest donors on the list, released Thursday, are the Australian government and Saudi Arabia, which both gave between $10 million and $25 million. Norway donated up to $10 million, while Kuwait, Qatar, Oman and Brunei each gave up to $5 million.

The charity's list of donors also includes the controversial Blackwater security firm, which provides protection for U.S. diplomats in Iraq. U.S. prosecutors have charged five Blackwater security guards with unlawfully killing 14 Iraqi civilians in Baghdad last year. As secretary of state, Senator Clinton may have the final say on whether the State Department will renew its contract with Blackwater.

One of the leading private donors on the list is Amar Singh, an Indian politician. Singh met with Senator Clinton in September while on a trip to Washington to lobby for a controversial agreement for India to obtain civilian nuclear technology from the United States.

The William J. Clinton foundation funds his presidential library and humanitarian projects around the world, including initiatives to prevent HIV/AIDS, to fight climate change and to promote education. The foundation says it has received over 200,000 donations, 90 percent of which were for $250 or less.


Friday, December 12, 2008

Kampung Ayer offers watery window on Islam

John Henderson wrote for the Dallas Morning News (12th December 2008) as follows (including the spelling error of Bensar instead of Bandar):-

BENSAR SERI BEGAWAN, Brunei – It's sunset in Brunei, and schoolchildren are jumping from their front porches into water that engulfs their floating city. Their laughter and splashing are the only sounds I hear, other than the slow puttering of our motor boat as it negotiates around houses, walkways and schools, all balancing over the water on wooden stilts.

They call this place Kampung Ayer. It's better known as the Venice of the East. This conglomeration of water villages is home to more than 17,000 people, all viewing the Brunei River as their front and back yards, main drag and supermarket.

I viewed it as one whale of a boat ride, filled with wildlife, sun-flecked views and insight into a peaceful Islamic culture few Westerners ever see. I come to Brunei to see life in a stable Islamic kingdom, where the streets are clean, the jungles are alive, and the people are happy.

In Brunei, where Shell discovered oil in 1921, there is petrol in every pot. The shell flag flies next to the Brunei flag. It's where housing complexes have roofs in Shell's red and yellow colors. But the sultan of Brunei, worth an estimated $22 billion, is trying to diversify the economy and is putting an emphasis on tourism.

That's a challenge in today's warring world, but tourism is up 7 percent from a year ago.

"We're struggling to understand the people who practice Islam at the same time they're trying to understand us," says Justin Friedman, who just finished a two-year stint in Brunei as the American embassy's deputy chief of mission. "Brunei offers a window into the mainstream of the people who practice Islam."

Mr. Friedman is sitting at one of the many sidewalk cafes dotting this sparkling capital. Bensar Seri Begawan is squeaky clean in more ways than one. You can eat off the hot streets, but you can't wash it down with a beer. The sultan banned alcohol in 1991.

Instead, we sip fruit juice made from durian, Southeast Asia's pungent fruit. About 300 yards away, Omar Ali Saifuddien Mosque's gold-plated dome glistens in the sun. Women stroll the quiet main street in full head scarves and stylish robes.

Mr. Friedman is Jewish, and even his world travels as a diplomat didn't prepare him for the homes that welcomed him in Brunei.

"People here are very tolerant of all forms of religion," he says. "You'll find they're sincere about religion and practicing faith as it is important to many, many Americans."

Brunei made for a terrific side trip for my trekking adventure to the Malaysian side of Borneo. Shaped like two hanging Christmas ornaments, Brunei occupies a space not much larger than Rhode Island on a corner of Borneo's northwest coast. The population of 375,000 has free medical care, free education and a strong welfare system. Poverty is low. So is crime. Restaurants of Indian, Malay and Chinese cuisines, specializing in Brunei's luscious prawns, are thriving.

Bruneians thank the benevolent Sultan Hassanal Bolkiah, whose family has ruled this land since the 14th century, the world's longest hereditary monarchy. But the real hero is Shell, which not only has enriched the people but also the land.

"Oil money keeps it up," says Ignatius Stephen, a veteran journalist for Brunei's Borneo Bulletin. "Brunei should've disappeared a long time ago."

Oil is the main industry, not forestry. On an island where 60 percent of the forests has been logged, my bus ride north from Malaysia went past lush, unspoiled jungles. No crude roads led to swaths of bare land as I saw in a flight across the island.

For a Borneo jungle adventure, Brunei's Ulu Temburong National Park may top them all. It's 77 square miles of forest, lined with trails and topped by one of the world's longest canopy walks high in the trees. A two-day trip with an overnight stay in a jungle village runs about $200.

Brunei's uniqueness, however, lies in its water villages. At the capital's busy but amazingly clean port, I meet Markim Bin Haji, my boatman for the water tour. He takes my girlfriend and me out of the city where we pass the 24-carat gold minarets of the sultan's $400 million palace, with its 110-car garage and 257 bathrooms.

Soon we float past thick jungle where a Chinese egret flies overhead. A venomous, yellow-ringed cat snake stares at us from a tree. Nearby, a 4-foot-long monitor lizard rests in the shade. A big-nosed proboscis monkey looks our way with curiosity.

As we cruise, Haji tells us about the freshwater crocodiles. "Keep your hands in the boat," he says.

There is no danger back in the water villages where the only thing separating them from normal suburbs is deep water and no chain restaurants. We pass a fire station, a gas station, a hospital. The maze of catwalks makes Kampung Ayer look more like science fiction than modern Islam.

Mr. Stephen says locals worry about the water pollution and a recent trend for water villagers to move to dry land. I contemplated that as we ended our day at the luxurious Empire Hotel. I sat at a table overlooking the South China Sea, sipped my Coconut and Mango Bomb and thought the world has more serious problems than Brunei. If only the world would look.