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Bahrain unrest may impact region, finance hub

Bahrain unrest may impact region, finance hub

Financial hub faces risks, but no outflows seen yet; Compared with neighbours, Bahrain has less cash to deploy; Protests unlikely to draw support across sectarian lines.

February 16, 2011 3:43 by



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The financial industry accounts for 25 percent of Bahrain’s GDP and is an important provider of jobs. Assets of Bahraini banks more than tripled between 2002 and 2008 to $252 billion, but have since fallen to $217 billion as of October 2010.

The key will be the degree of outflows, if any. With a currency pegged to the dollar, Bahrain’s $3.77 billion in foreign exchange and gold reserves could be quickly depleted.

Bahrain’s stability is important for neighbouring Saudi Arabia, a key supporter of Bahrain’s royal family and where key oilfields are home to an oppressed and occasionally restive Shi’ite minority. Bahrain also hosts a major U.S. naval base.

The Shi’ites have long complained of government neglect and discrimination, well before uprisings in Tunisia and Egypt emboldened activists across the region. Discontent has been expressed in on-and-off unrest since the mid-1990s.

With little oil of its own, Bahrain has little spare cash to throw at social problems. But it said last week it would spend an extra $417 million on social items, including food subsidies.

Protesters want the removal of the prime minister, Sheikh Khalifa bin Salman al-Khalifa, who has governed since British rule ended in 1971. For now, they have not sought change at the very top — his nephew King Hamad bin Isa al-Khalifa has ultimate control over the kingdom.

King Hamad announced last week he would give 1,000 dinars ($2,650) to each local family, and the government has indicated that it may free minors arrested under a security crackdown last year ahead of parliamentary elections.

“That hasn’t seemed to really calm the situation,” said Richter at Renaissance.



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