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Escaping the Debt Trap

Economy

, by ARSHAD SHAIKH

ARSHAD SHAIKH presents the natural corollary of interest-based economy, portrays a situation in which the poor are getting poorer and the rich richer and concludes how Islam saves human beings from the debt trap.

It is estimated that one third of deaths – some 18 million people a year or 50,000 a day – are due to poverty-related causes. Every year nearly 11 million children die before their fifth birthday. In 2001, 1.1 billion people had consumption levels below $1 a day and 2.7 billion lived on less than $2 a day. 800 million people go to bed hungry every day. Contrast this with the fact that for the year 2005 8.7 million people globally held more than US$1 million in financial-asset wealth. Also note that the number of millionaires grew faster than the number of people in the world the same year. Many such numbing statistics can be provided to prove how the rich get richer and the poor poorer.
The various reasons citied for poverty include unequal distribution of natural resources, overpopulation and historical factors like imperialism and colonialism. Some say the lack of democracy and free trade with the lack of education, infrastructure, health care and education make more and more people poor.
While the above causes of poverty cannot be denied, it is important to probe a little deeper and try to get at the root cause of this global menace. It is the bounden duty of every government to help its needy citizens. This is achieved by providing subsidies on goods and services and through various poverty alleviation and aid distribution programmes. But how can a government be expected to be generous if its coffers are empty and it is heavily in debt? Let us look at the national debt of just two countries. The US with a $ 13.22 trillion (1 trillion is a 1000 billion or 100,000 crore) economy has a government or public debt of nearly $ 9 trillion, almost 64 % of its GDP. India with a booming economy of nearly $ 1 trillion has a public debt of almost 60% of its GDP. This high debt level forces the Indian government to spend 29.3% of its revenue on debt-interest payment.
But how did we land in this debt-trap that is draining all our resources? As a taxpayer, you must know why the Government is taking your hard earned money from you and to whom is all that money going?
For the purpose of understanding, as an oversimplification, suppose you want to spend more money this month than your income. This situation is called a “budget deficit”. So you borrow. The amount you borrowed (and now owe) is called your debt. You have to pay interest on your debt. If next month you don't have enough money to cover your spending (another deficit), you must borrow some more, and you'll still have to pay the interest on loan. If you have a deficit every month, you keep borrowing and your debt grows. Soon the interest payment on your loan is bigger than any other item in your budget. Eventually, all you can do is pay the interest payment, and you don't have any money left over for anything else.
Government debt can be categorised as internal debt, owed to lenders within the country, and external debt, owed to foreign lenders like the World Bank and IMF. Governments usually borrow by issuing securities such as government bonds and bills, which entail interest payments that governments find increasingly difficult to service with increased non-developmental expenditure and dwindling revenues. Is there a way out of this debt trap or is it a fait accompli of the existing economic system that we all have to endure? Islam has its own socio-politico-economic system besides a mechanism for governance and social welfare. It addresses every aspect of human life and gives guiding principles and specific laws and regulations to achieve peace, progress and prosperity.
Some of the salient features of Islamic economy are:
· Each person to cater for his subsistence by his own labour;
· The final owner of all is Allah, man is a temporary custodian of material resources and will be accountable both in this world and the Hereafter on how well he carried out his responsibility of spending the resources at his disposal according to the Will of the Creator;
· Right to private property and means of production is permissible but subject to regulation;
· Wealth accumulation is permissible through work and inheritance, but wasteful expenditure (israf) is not allowed
· Charity and mutual support is highly encouraged and multiple reward promised in the Hereafter;
· Rights of the poor and needy are institutionalised in the system of Zakat as a compulsory levy of 2.5% on wealth and 5 to 10 % on agricultural produce to be distributed to specified categories in society when annual wealth exceeds a minimum level called nisab;
· Prices must be just and can be formed based on competitive market mechanism;
· Monopolisation and hoarding to be combated and eliminated;
· Monetary policy to ensure that there are sufficient funds to boost the economy and at the same time ensure that there is no inflation. This can be achieved by abandoning the existing fiat currency and going back to the gold standard.
· Fiscal policy to ensure a balanced budget whereby income and revenues will match public expenditure.
· State to provide basic infrastructure facilities and a just legal system that manages a level playing field for all economic players.
Islam strictly prohibits interest or usury. In an interest based transaction the settlement of interest between the creditor and the debtor is always on unequal terms. The dice is always loaded in favour of the creditor. He always gets his fixed amount of interest which he terms his profit. The debtor however is completely exposed to the whims of market conditions, his own ability to manage labour capital and technology, etc. to produce and sell. He bears all business risks and is still not sure whether his business will return any fixed profits.
Thus the only way to come out of debt trap is to promote an interest-free economy.
Interest is never in anyone's interest



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