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Bahrain Pre-Election Violence Threatens Kingdom's Push to Revive Economy

Bahrain’s parliamentary elections this week take place amid tensions between its majority Shiite Muslims and the ruling Sunni elite as the Persian Gulf country struggles to recover from the global financial crisis.

The election campaign has been marred by demonstrations, tire-burnings and clashes between security forces and mostly Shiite youths hurling stones and Molotov cocktails. While no one has been killed, several hundred people have been detained during the protests, which began in mid-August after authorities arrested 23 opposition activists.

“If we continue on the same path, we will have a broken economy and political system,” said Ebrahim Sharif, a former banker who is one of 146 candidates competing in the Oct. 23 vote. “The government has been successful so far in breaking street protests. They can’t do that for a long time.”

The troubles come after economic growth slowed and government revenue fell during the world recession. Moody’s Investors Service lowered Bahrain’s sovereign credit ratings on Aug. 23 to A3, its seventh-highest investment grade and the lowest rating among the six member states of the Gulf Co- operation Council. The report highlighted “domestic political tensions” and “elevated regional geopolitical risk.”

“The economy is dependent on foreign investment,” said John Sfakianakis, chief economist with Banque Saudi Fransi in Riyadh. “The political climate and the political conditions in Bahrain will impact the way the world views Bahrain. It will have an impact on foreign direct investment and the way you do business.”

‘Marginalization’

Shiite Muslims, who make up between 60 percent and 70 percent of Bahraini citizens, say they are disenfranchised by the government and its Sunni supporters, and are unable to secure adequate housing or public-sector jobs.

“The people have a legitimate demand in this country,” said Nabeel Rajab, president of the Bahrain Center for Human Rights. “There is a marginalization of Shiites.”

Bahrain, home to the U.S. Fifth Fleet, is holding its third general election since constitutional changes were implemented in 2001. About 318,000 Bahraini citizens are registered to vote; more than half the kingdom’s population of about 1 million are expatriates.

Shiite parties currently hold 17 of the 40 seats in the legislature, which can only pass laws with the assent of the 40- seat upper chamber. That body’s members are chosen by the king. Sheikh Hamad bin Isa Al Khalifa reinstated the parliament when he came to power in 1999 after an earlier body was dissolved in 1975.

Sharing Decisions

“The idea behind the election is to make people start sharing in the political process and sharing decisions,” said Minister of Justice and Islamic Affairs Sheikh Khalid bin Ali al Khalifa, in an Oct. 13 interview in Manama, the capital. “Our system is based on inclusivity.”

Opposition politicians disagree on whether elections will help resolve tensions. Shiite parties boycotted the assembly from 2002 to 2006, saying the parliament was unrepresentative and had little effective power. Large opposition parties such as the Haq Movement, several of whose leaders were arrested in August, continue to reject the poll.

Bahrain established a reputation starting in the 1970s as a center for offshore banking. Its financial industry still contributes 25 percent of gross domestic product, according to the central bank.

The industry has faced competition in the past decade from rival centers such as Doha, Abu Dhabi and Dubai, and Moody’s said it expects this competition to grow. Banks have also been affected by the financial crisis: The central bank last year took two Saudi-owned wholesale banks under administration after they defaulted on loans.

Falling Oil Production

Bahrain’s crude oil production, once the country’s main revenue earner, peaked in 1970. Domestic oil output dropped 0.5 percent in 2009 to 66.5 million barrels for the year, the central bank says. That’s about the same amount as neighboring Saudi Arabia, the world’s largest producer, pumped last year in an average week.

Economic growth slowed to 3.1 percent in 2009 from 6.3 percent the previous year and 8.4 percent in 2007, the central bank says. The International Monetary Fund forecasts growth of 4 percent this year. Government revenue fell to 1.7 billion dinars ($4.5 billion) in 2009 from 2.7 billion dinars the previous year.

The country’s Economic Development Board has set out a 20- year economic plan to provide job training for poorer Bahrainis and double annual household income in that period. It estimates this figure was about 15,500 dinars last year but hasn’t produced data on how wealth is distributed across the island.

Benefitting the People

“Development has to benefit the people,” Kamal Ahmed, chief operating officer of the EDB, said in an interview. “The aim is to improve the standard of living for Bahrainis and to shift from an economy that relies on oil to a productive one.”

Only a 15-minute drive from Manama’s financial district are the first of the Shiite “villages,” slum neighborhoods of breezeblock housing covered with anti-government graffiti.

Sharif, 53, who entered politics in 2002 after 22 years in banking, is campaigning on an anti-corruption ticket. “The economy is like a runaway train,” said the former vice- president of Taib Bank. “We will hit a brick wall.”

To contact the reporter on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net.

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net.

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