This article first appeared in Forum, The Edge Malaysia Weekly on November 23, 2020 - November 29, 2020

“You can’t cross the sea merely by standing and staring at the water.” — ­Rabindranath Tagore, Indian Poet Laureate (1861-1941)

Life-changing events can and do sometimes shake us to our core. Quite like the metamorphosis process where a pupa breaks through its once protective cocoon and turns into a beautiful butterfly, they are painful yet fulfilling.

These changes and challenges must be seen as what they truly are: opportunities to remake ourselves and our society; to evolve our economy and generate whole new epochs of growth and prosperity.

We are now presented with yet another one of these monumental moments — handled well, this seemingly unconquerable pandemic and its accompanying turbulence will reshape virtually every aspect of our lives, from how and where we live, to how we work, to how we invest in individuals and infrastructure, and how we shape our cities and regions.

But we must call into question long-held beliefs about the nature of the system we live in, reinvent our economy and reform our society. Managed well, the present period of “new normal” and “creative destruction” can be among the most fertile, in terms of innovation, invention and energetic risk-taking in our nation’s history.

The 2021 Budget proposal of RM322.5 billion is the largest in Malaysian history. It could well cripple the generations to come that have to pay for it. But for right now, it is a fit-for-purpose proposal that intends to meet the immediate needs of the country and encourage recovery, growth and investment. Interestingly, it did not propose any new taxes nor were any existing taxes increased.

Responses to the budget proposal are still streaming in even as I write. In fairness, the proposal attempts to address the immediate needs of the most vulnerable, through continuation of targeted stimulus measures. But critics are even saying that this is a case of too little, too late. The plight of the lowest strata of our economic class is dire and requires unconventional thinking to rebalance the growing wealth and income inequality. These critics may be right, and they are insisting that the government muster the political will to do more. Enter the debt jubilee.

For the uninitiated, a debt jubilee occurs when a bank or large organisation cancels debt and clears it from the public record. This slate-cleaning, balance-restoring step recognises the fundamental truth that when debts grow too large to be paid without reducing debtors to poverty, the way to hold society together and restore balance is simply to cancel the bad debts. Interestingly this time, the call for targeted debt forgiveness is championed by a deputy minister in the government no less!

PPBM Youth chief Wan Ahmad Fayhsal courted celebrity and controversy when he recently called on banks to implement a targeted debt jubilee, which will see the clearance of debts, particularly for those in the B40 group. “We are in trying times and banks have been making large profits for years, so a debt jubilee will be ideal,” he said, “but we understand that not everyone will require debt forgiveness, so it should be targeted and done gradually.”

Wan Ahmad Fayhsal’s call for banks to forego interest payments and debts is controversial to say the least. Sacrilegious, say people in the financial sector, but before you judge his proposal absurd and half-witted, let’s take a walk through history.

Studies by Prof Michael Hudson, distinguished professor of economics at the University of Missouri, have discovered that from the beginning of recorded history in the Near East, it was normal for new rulers to proclaim a debt amnesty upon taking the throne.

In times of economic strife, under Mosaic Law, the ancient kings would blow the yobel, a wind instrument made of a ram’s horn, to signal debt forgiveness for their people to start anew. They would do this every 50 years, hence the jubilee (after the yobel).

We now understand that these rulers were not being idealistic and kind in forgiving debts. They were in fact, being very practical. If the economic imbalance was not reset, there was a danger their kingdom could fall. The debtors would fall into bondage (and debt prisons) and the kings would have lost their labour force and much of their army!

Many debtors would have run away too, much like what happened as recently as 2008, when the Greeks emigrated in the thousands to more prosperous parts of Europe during their country’s sovereign debt crisis. We know, of course, that Germany and the more prosperous nations in Europe came to their rescue between 2008 and 2017.

But history also tells us that prosperous Germany too was a beneficiary of a debt jubilee. After its disastrous loss in World War ll, the burden of war debts and reparations bankrupted Germany and caused untold hardship to the population. Their cities lay in ruins, their once-famous plants and industries bombed out, and starvation was rife.

However, the economy slowly strengthened and began to rebound after the victorious Allied powers granted them a debt jubilee in 1948 when a new currency, the deutsche mark, was introduced to replace the pre-war reichsmark. Through that change, 90% of all government and private debt was wiped out. Germany emerged an almost debt-free country, with low costs of production that jump-started its modern economy. The debt jubilee created what we now call the German Economic Miracle.

The parallels to the current moment cannot be discounted. Our B40 and much of the M40 have debts that leave little income available for consumer spending. Many are in despair. Our present struggling economy — let’s call a spade a spade — presents a great opportunity to write down the mortgages and consumer debts that burden these low and middle-income families.

The debts in deepest arrears in Malaysia and most likely to default are credit card debt, vehicle loans, housing loans and general consumer debts that the banks eagerly hawked during better times. These were after all, the more profitable products in their portfolio. But these forms of easy credit have a downside: they reduce the funding available for the small and medium enterprises that create “real” goods and services, thus shrinking the “real” economy. A write-down of these non-commercial debts in a targeted manner would be pragmatic, not simply a show of moral sympathy for the less affluent.

Some economists and most bankers will warn of a creditor collapse and ruinous costs to the government. The approach of “if it ain’t broke, don’t fix it” is not helping.

Well, I beg to differ. I believe our financial system is strong and flexible enough to absorb the cost of foregoing these debts. Collectively our banks made north of RM30 billion in more prosperous times. And for private lenders, only bad loans need be wiped out. Much of what would be written-off are accruals, late charges and penalties on loans gone bad.

Until now, the basic ethics we adhered to was that all debts must be repaid. But it is time to recognise that many debts now cannot be paid — through no real fault of the debtors in the face of today’s Covid-19-induced economic disaster. This coronavirus outbreak can serve as a mind-expansion exercise, making hitherto unthinkable solutions thinkable. Debts that can’t be paid won’t be. A debt jubilee may just be the best way out.

To sum up, I am reminded of the words of Christine Lagarde when she was managing director of the International Monetary Fund, “The goal of the financial sector must be not only to maximise the wealth of its shareholders … but to enrich society by supporting economic activity and creating value and jobs — to ultimately improve the well-being of people.”

A debt jubilee, I posit, does just that.

Zakie Shariff is a director of Universiti Malaysia Pahang

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