Musharraf rolls back Riba

By Malladi Rama Rao

These days Maulana Tariq Usmani has virtually shut the doors on the outside world. He seldom meets any one who comes to see him at his Islamabad house. True, there are not many visitors to his house. Who would like to see a person who is out of favour with the powers that be, however renowned scholar he may be?

The Maulana is known for his knowledge of the Shariat. His specialisation is Islamic finance which shuns Riba (interest). For close to two decades, Tariq Usmani sat on the Shariat Appellate Bench of Pakistan's Supreme Court and delivered many a land mark judgement like the direction to Pakistan Government to 'Islamise' the economy by the end of June 2002. Full credit goes to him for the setting up of Pakistan's first Islamic bank. The Al Mizan Bank early this month. Largely because of his efforts again, Pakistan 's apex bank, the State Bank of Pakistan (SBP) has setup a Shariah Board and decided to encourage the financial sector to open new Islamic Banks and windows.

Yet, on June 11, the Musharraf government sacked Maulana Osmani. The charge was he had financial interest in holding that 'all interest based banking is un-Islamic. Allowing him to sit on the Shariat Appellate Bench was violation of the well-known principle that 'no person can be judge in his own case', said an official spokesman.

That the learned Maulana held advisory positions in over a dozen institutions engaged in Islamic banking and finance is not a state secret. He, for instance, heads the Shariah Board set up by Citi Islamic Investment Bank, Bahrain, Abu Dhabi Islamic Bank, Abu Dhabi, Amana Investments Limited, Sri Lanka, Saudi American Bank, Jeddah and HSBC (Global Islamic Finance), London.

And on June 12, that is a a day later, the military government's motives became clear, Tricky Mushy rolled back his Islamic finance plank. ''Any attempt to switch over to the interest-free mode'', his lawyer Raza Kazim told the Supreme Court, ''would result in anarchy in the country''. Appearing before the Shariat Appellate Bench, he said the Riba judgement was based on erroneous interpretations of Holy Quran.

''The Federal government has found that transformation of entire financial system is not practicable. If it is attempted there is a high degree of risk and likelihood of a permanent damage to the already fragile economy of the country'', Raza Karim declared. As if as a concession to the Islamists, the advocate told the judges that the Musharraf government was committed to allowing the Riba-free banking as a 'parallel banking' system in the country.

The 'Riba-free' judgement was delivered in December 1999. That is when the Tricky Mushy's junta was ain its honeymoon phase. Given the public 'mood' in favour of the military coup, he could have got away by rejecting the judgement. He did not. In fact, he went along with the directive. He had set up a number of task forces to prepare the new financial road map in an apparent bid to win over the Islamists. Well, he needed a constituency. And the vocal religious groups offered him one. Made for eachn other!

There are 53 predominantly Muslim countries. In all these countries, except Iran and Sudan, law did not prohibit interest based banking. Under the Iranian system, principal amount of all types of deposits is guaranteed. Reward, bonus or prize can be given to Qard-e-Hasna (savings and current) deposit holders. Sale and purchase of debt instruments and discounting of bills is allowed. The government pays interest on its borrowings. Interest is allowed on inter-company loans. Sudan's banking system too is not totally interest free.

Among the 'developed' Islamic countries, Malaysia introduced Islamic banking way back in 1983 as a parallel to the conventional system. Yet, even now its share is a forgettable seven percent. Back bone of the backing system anywhere, though unrecognised and unsolicited is small depositors. Risk aversion is their hallmark. Nor will they be prepared to forego fixed returns. In the case of Pakistan, the small depositors account for 60 per cent of total deposits of Rs (Pak) 1,276 billion.

Like in the case of U-turn on the Afghan policy and the Kashmir policy, the trigger for the roll back of 'Riba free raj' was provided by 9/11. Says the Economic Survey 2001-2002 (released by Finance Minister Shaukat Aziz on June 13), ''The events of September 11 have caused serious difficulties to Pakistan. Its exports, imports, industrial production, tax revenue, foreign investments and privatisation programme are badly affected.. Yet another epoch- making development of the outgoing fiscal year relates to the events of December 13 (attack on Indian parliament) leading to the unprecedented massing of troops by India on Pakistan's borders. An over-run in defence spending has seriously underminded Pakistan's efforts towards further fiscal consolidation. Heightened tensions with India have also dampened investors' sentiment and have adversely affected the pace of economic turnaround''.

So, Musharraf has found enough justification to jettison yet another plank of his. His commitment to anything Islamic is just tactical, operational requirement. Nothing more, nothing else. He has no compunction to take refuge under Islamists and patriotism. Nor does he have any hesitation to tell a lie, to twist a fact, to mislead his interlocutors whether the question is about his links with Osama or with the 'Army of Islam' let loose in Jammu and Kashmir.

Since the focus of this article is limited to 'Musharraf, the bad accountant' let us examine the Economic Survey and the third quarter report of the State Bank of Pakistan (SBP) released on June 12 to find out the ground reality. Also useful in this context is the affidavit SBP and the Finance Ministry had filed before the Shariat Appellate bench of the Supreme Court.

In his broadcast to the nation, announcing the April end referendum, the General Sahib spent unusually long minutes on economy for a 'self-pat'. ''We have indeed revived the economy and taken it out from a failed state situation'', he declared and then elaborated thus : ''First of all, what have we achieved? During these two and half years, what we have achieved was neither attempted by any previous government neither was it planned by them, nor did they have any strategy or any achievement on ground. First of all I would take the macro economic indicators and explain them to you. The most important factor in this connection is fiscal deficit. We have managed to bring it down form 7 per cent to 5.2 per cent. This is very significant because it means that the gap between our expenditure and our income has been greatly reduced..''

Well, one can discern the 'my predecessor is bad' syndrome bureaucracy suffers from. That is understandable since the General Sahib is product of the system. And it is beside the point.

Read what the Economic Survey says on the fiscal deficit: ''Fiscal balance is another weak area that continues to be a source of concern. Failures in enhancing tax revenues consistent with the growing expenditure requirements exacerbated fiscal imbalances... The events of Sepetmber 11 and December 13 and their subsequent developments seriously undermined government's effort to further reduce fiscal deficit. While the former is responsible for revenue slippages, the latter, leading to the military stand-off caused slippages on the expenditure side. Accordingly, the fiscal deficit for the outgoing fiscal year is provisionally estimated at 5.7 per cent of GDP.

While on fiscal defict, the SBHP review was more clinical. It said ''During the thrid quarter the federal government revenues remained under stress as the Central Board of Revenue (CBR) tax collections were 4.8 per cent short of the thrice revised July-March target. Net collections witnessed a .5 percent decline over the same period last year. Looking ahead, the target for collections remains challenging, as the CBR has to collect over Rs 48 billion per month on the average to meet the set target of Rs 413.3 billion''.

Pakistan's public debt has grown by an average rate of 18 per cent per annum in the 1980s and 1990s. As a per centage of the GDP, debt was 55.9 per cent in 1980, increased to 92 per cent in 1990 and crossed 100 per cent by mid-2000. As the Economic Survey rightly pointed out , by any standard Pakistan's public debt became unsustainable and the growing debt servicing liability made fiscal adjustment more difficult. Fiscal consolidation efforts over the last two years brought down the rupee debt by an impressive five per cent in rupee from Rs 1.7 trillion to Rs 1.6 trillion.

As The News Columnist Majid Qazi remarked two months back, the self appointed Chief Executive had a chance to strengthen Pakistan's economy as he had all the powers concentrated in his person. But he missed the opportunity. He squandered it and in fact, added substantially to the Pak debt burden and made the World Bank remark, ''Pakistan is a heavily indebted country''. What helped him, however, to overcome the 'default danger' was the 'amazing and incredible' decision taken by the Paris Club on December 12, 2001. Remarked The Dawn editorially: what had seemed inevitable almost since Pakistan came under the nuclear- related sanctions in May 1998 and then the democracy- related sanctions in October, 1999 has at last been postponed for at least 30-years. Pakistan no more faces the ignominy of an imminent default''.

Whatever may be his bravado on the garrison grounds and the political field, the General Sahib has no alternative vo re-live the title 'Roll-back Mohajir'' on the Riba issue. The Supreme Court's order on Riba calls for: a) serious efforts by the Federal Government to relieve the nation from the burden of foreign debt as soon as possible and to renegotiate the existing loans, and b) serious efforts to structure the future borrowings, if necessary on the basis of Islamic modes of financing.

At least for once the General was honest in his submission to the apex court thus: ''The GOP is not in a position to ask other creditors to renegotiate is external debts on suggested terms because of either Pakistan's rather weak position or the policy framework of external lenders, which Pakistan has to follow... It is not possible to unilaterally take measures to structure future borrowings on the basis of suggested modes of financing... Implementation of the said directives is not practical or feasible and if implemented will pose high degree of risk to the economic stability and security of Pakistan.''

Islamic states' reservations on democracy

By B L Kak

More than three-quarters of 145 non-Muslim nations around the world are now democracies. Alas, most countries with an Islamic majority continue to defy the trend of democracy. This information is contained in a survey report of Freedom House in New York. In the Islamic world, the survey found 11 democratic countries, or only 23 per cent of the 47 nations that are predominantly Muslim.

Since the early 1970s, when the third major historical wave of democratisation began, the Islamic world, and, in particular, its Arab core, have seen little evidence of improvements in political openness, respect for human rights and transparency. The survey has noted: ''In countries where there is an Islamic majority, there is just one free country, Mali, while 18 are rated partly free and 28 are not free''.

Among the most democratic Muslim countries after Mali are Bangladesh, Indonesia, Jordan, Kuwait, Turkey and Morocco. New York's Freedom House surveys major areas like the right to form political parties representing a wide range of views and the right to seek elected office, the protection of religious, ethnic, linguistic, gender and economic rights, and the protection of freedom of press, belief and association. The rankings and by Freedom House, however, cannot reflect all political trends in a given country, where the realities of daily life may be more complicated or even at some variance with the place the nation is assigned.

''Islam is a religion of peace and moderation. If it does not appear to be so today, this is not due to the teachings of Islam but to interpretations made by those who are apparently learned in Islam to suit their patrons or their own vested interest''. These words have come from Prime Minister of Malaysia, Mr Mahathir Bin Mohammad. His finding: Islam differs from Judaism and Christianity, because it has no system of priests. Muslim believe that Hebrew and Christian priests changed the original religions. They do not want priests to change Islam. Finding number two: Over the centuries those learned in Islam, the ulema, gained such authority over the Muslim laity that many of them tended to use their considerable influence to gain power for themselves.

Mr Mahathir Bin Mohammad's finding number three: Today, political ulemmas are knowledgeable only in those parts of the teachings of Islam which support their political views. Many misinterpret and distort Islam to legitimise their political creed. These political ulemas reject knowledge that is not specifically religious for fear that people with such knowledge might challenge their authority. The Premier of Malaysia cannot be faulted for his yet another finding : Every time an attempt is made to bring Muslim countries to the development levels of non-Muslim countries, Muslim groups emerge demanding a 'return to Islam'.

These groups, he has rightly pronounced, are usually violent and often declare 'holy wars' against Muslim Governments that are trying to develop their countries. In Malaysia, Mr Mahathir's Government is labelled secular and un-Islamic by the Opposition Pan Malaysia Islamic Party. Mr Mahathir has a specific message for Islamic radicals and jihadis: ''Islam abhors wars of aggression and the killing of innocent people. Defensive wars are permitted, but should the enemy sue for peace, Muslims must respond positively... If today Islam is perceived to be a religion of backward, violent and irrational people, it is not because of Islam itself as a faith and way of life. It is because Muslims have deviated from the fundamentals of Islam and abused its teachings to justify their personal greed and ambitions''.

Is it an obvious reference to Osama bin Laden and his supporters as well ? The situation is quite different in Indonesia, the world's populous Muslim nation. There are many in Indonesia who say they feel more sympathy toward Osama bin Laden than towards the United States. Still, given Indonesia's history, it is striking that a boarding school- one of the thousands that specialise in Islamic curriculum and are known as pesantren- would breed such a politicised interpretation of Islam.

The Premier of Malaysia has also gone on record as saying:''Islam has promoted the acquisition of knowledge and skills. But the ulemas later interpreted learning to mean religion only. Bereft of non-religious knowledge, the great Islamic civilisation declined and faded away''.

In India's neighbourhood, Gen Parvez Musharraf, too, is of the firm view that Islam is a religion of peace. Yet, he does use his religion for political purposes. As Pakistan moves towards the elections under the fourth military regime, it is becoming clearer that Pakistanis, by and large, have certainly not learnt anything from their history. Pakistan suffered the most terrible tragedy in its history during a military Government headed by Gen. Yahya Khan, But have Pakistanis learnt anything from the debacle of 1971?

Various political parties and leaders in Pakistan have begun to prepare themselves for the battle of the ballot. There is evidence to suggest that Gen Musharraf and his camp want to pursue the philosophy to trim the big for cutting them to size and inflate the smaller for becoming tie-breakers. Finally, they will be played against each other in a hung Parliament to ensure transfer of power at Gen Musharraf's terms only. The same strategy in 1970, it may be recalled, resulted in a mandate divided along provincial lines.

Today, the national parties in Pakistan have been weakend, the national leaders are being marginalised, and a ''dumpy leadership'' with no roots is being promoted. The question for Gen Musharraf, according to Pakistan-watchers, is whether her will once again play Track III of the old script or break the past tradition of dispensing a military dominated democracy, whether a system will be tailor-made for an individual or for the nation, whether he shall follow a policy of exclusion or practise principles of inclusion, and whether he trusts the Pak electorate to elect their rulers or the ego of a few retired persons sitting in posh offices of Islamabad will stand taller and heavier than the collective wisdom of 140 million people.

If a write-up, appearing in Dawn recently, is any guide, the Musharraf Government is currently empowering a new generation of so-called politicians, some by taking under its wings and the others by targetting. It says : ''The favourites are the opportunists and corrupt of the condemned Government who were easily persuaded to change loyalties and the targeted ones, the jihadi and religious parties, were in the democratic process on the fringe but now are being pushed to play centre-stage role as Government's main Opposition''. What will this political engineering yield?