Europe Economy

Investors Wary as Bahrain Seeks National Consensus

A special military court in Bahrain yesterday convicted 21 - mostly Shiite - activists on charges of conspiring to overthrow the government during the unrest seen in the kingdom during February and March of this year. The court sentenced eight of these activists to life in prison and the others to terms of up to 15 years.

Bahrain skyline

A government statement said the defendants had brought the country “to the brink of total anarchy” and that the sentencing terms were sending a message that “law and order will be preserved” in Bahrain.

This news comes out ahead of the highly anticipated National Dialogue that is set to begin in Bahrain on July 1 and is designed to bring groups in Bahrain together to chart a path forward in the Kingdom.

Meantime as the first half of the year winds down, all eyes in the financial community are focused on the second half of the year and whether or not Bahrain can recoup some of the losses it suffered since the unrest. In an interview with CNBC, Rasheed Al-Maraj, Bahrain’s Central Bank Governor, commented on some of these concerns.

$10 billion of a $20 billion bailout by the Gulf Cooperation Council was allocated to Bahrain in March, and Al-Maraj said, "I think this is a reflection of the commitment of the GCC to the stability and security of Bahrain. This is a strong statement from the GCC countries and I think this will definitely have a positive impact on the overall economic activities in Bahrain…we take this as a commitment to support Bahrain politically and financially."

Investors and locals are concerned over capital flight from Bahrain and the safety of international investments in the Kingdom. When asked if he could reassure investors on some of these issues Al-Maraj said that the kingdom had not experienced major declines in deposit levels at retail banks.

"As far as the wholesale market, which is primarily the international banks that use Bahrain as a booking center, we are not very much concerned about the volatility or the fluctuation from month to month, because we know that most of these institutions do not have direct operations or exposure to the Bahrain economy. So changes in their balance sheets mainly reflect their bookings first of all of assets of different regions and this can change from time to time either on the upside or the downside,” Al-Maraj said.

The IMF recently lowered its 2011 growth forecast for Bahrain from 4.5 percent in 2011 in Bahrain to 3.1 percent

“I think there's no reason really to doubt the forecast because we initially started the year with a much higher forecast of around 5 percent. Now we are reviewing our figure based on the recent events, but I don't have any problem with this figure,” Al-Maraj noted.