Protestants stall Korean Islamic bonds
By Christian Oliver Available at: http://blogs.ft.com/beyond-brics/2011/03/01/protestants-stall-south-korean-sukuk/
South Korean congregationSouth Korea’s Buddhists must be relishing the irony of it. They have long resented the president, Lee Myung-bak, a devout Christian, for packing his government with church-going friends. But it is now a “turbulent priest” from the country’s most-attended church who is derailing a key plank of Mr Lee’s financial reforms.
David Yonggi Cho, pastor of the Yoido Full Gospel Church, says Mr Lee’s government could be imperilling national security by reviving a bill to improve the tax climate for Islamic bond issuance. Mr Cho has retreated from remarks asking for the president to resign but is still getting mightily worked up about interest-free Islamic debt before Korea’s biggest congregations.
After being thwarted by similar sermons by radical pastors last year arguing Islamic bonds would finance terrorism, the government had hoped to resume legislation on tax breaks for sukuk early this year. But now the bill appears to be on ice again, with the government fearing any opposition from Christians before a series of by-elections in April. Protestants only make up about 18 per cent of the population but they are highly vocal and politically influential.
The government simply wants to give similar tax breaks to Islamic debt as those currently enjoyed by conventional bonds. Parliament’s tax sub-committee approved the idea without much ado as it makes commercial sense for Korea, which has deep commercial connections across the Middle East. Big Korean civil engineering companies are coming to dominate the Gulf market for infrastructure, refineries and power plants and want the ability to raise money more readily with Islamic bonds.
But that’s not how the Christians see it. One member of the parliamentary finance committee said he was inundated by objections from church-goers across the country, who feared that South Korea was going to become a hub of terror financing. Against such dogged foes, it is unclear whether the furore will die down after April.
The annoyance for Mr Lee is that he was looking to the Middle East to define two of South Korea’s intimately connected new “growth engines”: Islamic financing and nuclear power stations. Now both schemes are in choppy water.
Early last year, Seoul won a landmark $20bn contract to build atomic power stations in Abu Dhabi (absolutely the sort of mega project where sukuk could come in handy). This was meant to open the gates for Korea to become the reactor supplier of choice across the developing world. But that hasn’t happened. There is a lot of scepticism about whether Korea really can build four reactors so cheaply. Traditional atomic stalwarts France and Japan are profiting from the doubts about Korea, the nuclear industry’s plucky upstart.
Islamic debt was also symbolic. It was meant to show that Korea’s fusty financial markets were willing to experiment with new instruments, particularly because Islamic financing has been booming internationally.
At the moment, however, South Korea is more preoccupied with capital controls than financial expansion. It is also taking a fearful look at its interests in the Middle East, being swept by a tide of uprisings.
For a while at least, there is no reason why Mr Lee would try to preach a new lesson to his Christian supporters.