Debt enslavement still exists in society, says Mahathir

Veeramalla Anjaiah, The Jakarta Post, Kuala Lumpur

Debt enslavement has not been totally eliminated from our society yet, said Malaysian Prime Minister Mahathir Mohamad.

"Countries, which are unable to pay their foreign debts, are actually being made debt slaves of the rich countries whose government or banks had lent them (the funds)," said Mahathir, while launching the Islamic Financial Services Board (IFSB) on Sunday in the Malaysian capital.

He said if Islamic banking was practiced in international financial lending, the enslavement of borrowing countries would not happen.

Islamic banking was enjoined because of oppressive practices that were prevalent in former times when debtors who could not return the money they owed were made debt slaves of the lender, Mahathir said.

While commenting on the process of globalization and liberalization, the doctor turned politician said Malaysia wanted to trade more, open up markets, enjoy a higher income and increase welfare as globalization was supposed to deliver.

Stability in international financial markets is a must for enjoying the benefits from globalization and liberalization, he said.

"We need an international financial system that is fair and rewards hard work rather than speculative activities that take advantage of the weak and the ill-informed," he said.

Mahathir lashed out at speculators by saying "speculation is really not business. It is a kind of gambling."

Under the Islamic banking system, financial transactions need to be supported by genuine trade or business-related activities, he said. That is why there is no room for investments in non- traded activities, such as currency speculation, derivatives and other unproductive financial manipulations, he said.

"The basic tenets of Islamic banking prescribe a financial system that rewards productivity," said Mahathir.

Islam prohibits the concept of usury. The lender has to share the risks that the borrower is exposed to, although the real cost of management, which should be variable and not predetermined, is not within the definition of usury.

The other prohibition is excessive profits, or profiteering, through unprincipled manipulation of prices or supplies.

Mahathir also said the option to use the Islamic financial system had to be voluntary and open so as not to cause turmoil and economic regression, which Islam does not want to promote.

He also witnessed the signing ceremony of the articles of the agreement by the founding members of the IFSB, including Bank Indonesia Governor Sjahril Sabirin.

Malaysia's central bank governor, Zeti Akhtar Aziz, who is also the chairwoman of the IFSB Steering committee, hailed the inauguration of the new board in her welcoming address as a new milestone in the history of the Islamic financial system.

Prior to the IFSB, the Islamic Development Bank and the Accounting and Auditing Organization for Islamic Financial Institutions were established in 1975 and 1990 respectively to strengthen the Islamic financial sector.

IFSB will serve as an association of central banks, monetary authorities and other institutions entrusted to develop and promulgate internationally accepted prudential regulatory standards and best practices.

After two years of an extensive consultative process, Indonesia, Saudi Arabia, Bahrain, Iran, Kuwait, Lebanon, Malaysia, Pakistan, Sudan, United Arab Emirates, the Islamic Development Bank, the Accounting and Auditing Organization for Islamic Financial Institutes and the International Monetary Fund have succeeded in setting up the IFSB.