Faith, money and nuclear power plants

Controversy over Islamic finance strains Lee’s relationship with Christian leaders

By Kim Tong-hyung

Throughout a presidential experience that swung wildly between highs and lows, Lee Myung-bak has managed to anger every religious group but the Christians.

However, Lee’s carefully-managed bond with church leaders now appears to be cracking and the unlikely culprit is Korea’s $20 billion deal to build and operate nuclear reactors in the United Arab Emirates (UAE).

Lee had apparently hoped the landmark plant project, signed in late 2009, would be remembered as one of the majestic moments of his presidency along with the country’s hosting of the Group of 20 meetings in Seoul last year.

But lawmakers and civic groups have questioned whether the deal is really the trophy achievement government officials make it out to be as the construction of the plants depends on Korea shouldering a significant financial burden in loans.

To jolt money injection, policymakers are desperate to tap into the demand for Islamic financial products and have been pushing for changes to Korea’s tax system to pave the way for Islamic bond sales here.

After months of circular debate, the attempts to enable ``sukuk’’ transactions appear to be in jeopardy as legislators are unwilling to budge under the watch of conservative Christian organizations, who have started to vent their anger toward the President.

The conflict scaled a new peak Thursday when David Yonggi Cho, pastor and founder of the Yoido Full Gospel Church, known to have the world’s largest congregation with more than 1 million members, threatened to campaign for Lee’s resignation should he keep going with talks on sukuks.

In a special service held at Yonsei University, Cho also vowed to put his ``life on the line’’ to fight Lee and his government and prevent ``Islamic underground capital’’ from touching Korean shores, according to the church.

Cho’s comments back the efforts by Christian groups, like the Council of Presbyterian Churches in Korea and Christian Council of Korea, which have been going all-out to influence the political debate over Islamic finance. They claim that allowing Islamic finance to develop here will increase the concerns over Islamic charities funneling contributions to terrorist activities from zakat, a tax paid by wealth Muslims for the poor.

Critics say that the groups’ hard-line stance reflects a mainstream Christian community that seems to be in danger of lapsing into fundamentalism. The more vehement church leaders have declared Strategy and Finance Minister Yoon Jeung-hyun as an ``enemy to Christianity’’ and threatened to campaign against Grand National Party (GNP) Chairman Ahn Sang-soo in the next elections over his backing of the sukuk bill.

In failing to keep his Christian beliefs largely to himself, President Lee has struggled to find political support from Buddhist groups, which have been criticizing the government constantly over environmental and civic liberty issues.

And now with Christian conservatives kicking him in the teeth in what was supposed to be his brightest moment, Lee is finding it difficult to promote his brand of economic pragmatism while putting God on his side at the same time.

“Although tax regulations on sukuk differ from country to country, it’s obvious that economies around the world are competing to secure investments from Islamic finance, which is moving closer toward going mainstream. Connecting sukuk with terrorist activities is just ludicrous,” said an official from a local securities firm who preferred not to be named.

The contract with the UAE is basically a project-financing arrangement with Korea lending at least $10 billion for the four atomic power stations to be built by the Korea Electric Power Corp. and contractors.

That is a huge amount of money, even for the state-run Export-Import Bank of Korea (KEXIM), which is already committed to lend $9.4 billion to Korean companies involved in energy and other infrastructure works in the Middle East this year.

Sukuk, which are similar to bonds, are trust certificates that are compliant to Islamic principles and jurisprudence called Shariah.

Enabling sukuk activity poses a tricky challenge to non-Islamic nations as Shariah prohibits the earning and payment of interest, which are essential to conventional bond transactions.

Instead of generating interest, sukuks are asset-based and tend to be used with a ljara structure, where the lease rental income provides a profit for holders, or a Musharaka structure, where profit is distributed by share.

The existing tax system would put sukuk investors at a disadvantage, according to officials from the Finance Ministry, as the laws would charge the rent and profit more heavily than it would have been if the same amount of returns had been classified as interest. The government plans to equalize the treatment of sukuks and conventional bonds include reductions on income and corporate taxes for sukuk investors.

Lawmakers had put off their decision on the proposal over the past two years and the chances for a conclusion at the current National Assembly session look unlikely, as neither the ruling GNP nor the opposition Democratic Party look willing to ruffle Christian feathers.