New socio-economic system needed to optimize human well-being
Mr. Chapra, in your opinion, what should be the principal objective of the II Astana Economic Forum? The principle objective should be the development and well being of the people of Kazakhstan and the world community as a whole. For this purpose it is important to use the resources of the country in a way that will benefit all the people of the country - not just the rich but also the poor. If the goal of a government is to improve the living conditions of the poor, then it will get greater loyalty and support from the people. This will lead to socio-economic stability and accelerated development in the country. The most important thing for the country at present is to come out of the crisis which has started from America and affected all the countries around the world. The prevailing crisis is the most severe of all the crises experienced over the last four decades. The goal of resolving the present crisis and minimizing the frequency and severity of such crises in the future requires reform of the financial system. Reform of the system necessities that we first try to determine the primary cause of this crisis. It is generally agreed that the primary cause was excessive and imprudent lending due to inadequate market discipline, lack of transparency, fraud, as well as failure of the supervisory authorities. What significance has this economic forum for the transition countries? Can you give your comments on Kazakhstan Government's anti-recessionary measures? The forum is a very important event for the transition countries, which are experiencing negative consequences of the crisis. A transition economy is an economy which is transforming from a centrally planned economy to a free market economy. These countries are trying to introduce structural changes in their economies to adapt to market-style fundamentals. The forum should be able to provide some guidelines to such economies - guidelines that would help improve the living conditions of all people in these countries, including those in Kazakhstan. The anti-recessionary plan of Kazakh government looks very impressive, particularly because of its adoption of certain urgent measures to enable the country to counter the crisis, stabilize the financial system, and help the banks affected by the crisis to come out of it. Since there is a great deal of inequality of incomes and unemployment around the globe, it is important to support and promote small businesses. This is because large industries are generally capital intensive and do not provide as much employment as small businesses can do. Promotion of small and micro enterprises has the potential of providing more jobs and helping improve the condition of low income and poor families. Recently Kazakh Parliament ratified a law on Islamic finance. And on the eve on this Forum President Nursultan Nazarbayev has reiterated a call for the creation of a Eurasian Union? How can you comment on this important event. In reply to the last part of your question I wish to say that the President?s proposal to establish a Eurosian Union is very good. Even through it is necessary to have an international currency, it is more realistic to start with regional currencies. The Euro already exists. If this is complemented by Eurosian and other currencies, there will come a time when all these regional currencies could lead to the formation of an international currency. With regard the first part of your question, I feel confident to say that the Islamic finance system, which introduces greater discipline into the financial system by introducing profit and loss-sharing and also links credit expansion to the growth of the real economy, is capable of minimizing the severity and frequency of financial crises. These are other salient features of the Islamic financial system: first, it is oriented towards justice which is the hallmark of Islamic teachings. To realize greater justice it emphasizes profit and loss sharing by its principle: ?No risk, no gain?. In addition, it requires that there should be an equitable allocation of credit. It also links the financial sector to the real sector by laying down certain conditions; firstly, debt should not be created through direct lending and borrowing but rather through the sale and purchase of real goods and services; secondly, the seller must own and possess the assets being sold or leased; thirdly, the transaction must be a genuine trade transaction with the full intention of giving and taking delivery; fourthly, the debt cannot be sold, the risk of default associated with it must be borne by the lender himself to motivate him to be more careful in lending; and lastly, there should be full transparency so that there is no possibility of fraud. What are the main ideas and recommendations you will propagate during the summit? Can anything be done to minimize the frequency and severity of such crises in the future? My suggestions for reform of the international financial systems are as follows: raise the share of equity and lower that of debt in total financing; allow credit primarily for promoting development of the real sector and not for speculation or gambling; require banks to hold debt until maturity to motivate them to ensure careful underwriting ? if, however, debt is to be sold, there must be full transparency along with the right of recourse; finally, all financial institutions must be regulated. As I said during the forum, the most important thing is the unequivocal emphasis of Islam on justice. Justice requires that the needs of all people in the country should be satisfied. These needs are not merely material like food, clothing, education, medical benefits and other such things, but also spiritual. Without spiritual uplift a society starts facing problems as we see in Europe and America. There is growing rate of divorce and families are disintegrating. Consequently the children are not able to get the love and affection of both parents. They are thus not able to get proper upbringing. The future of a society becomes bleak when the future generation suffers and is of a lower quality than the previous generation. Therefore, we must concentrate not only on material things but also on proper upbringing and spiritual uplift at the same time Moreover, the humanitarian goal of achieving the well being of all members of the world community cannot be attained by concentrating primarily on the material constituents of well-being and making maximization of wealth as the main objective of economics. It is also necessary to raise the spiritual content of well being and reduce all the symptoms of anomie, like family disintegration, conflict and tensions, crime, alcoholism, drug addiction, and mental illness, all indicating lack of inner happiness and contentment in the life of individuals. This is exactly what Islamic Economics is trying to do. The secularist market system as well as central planning have both failed to lead mankind to such an overall well-being. It is, therefore, necessary to lay down the contours of a new socio-economic social system which could help optimize human well-being. Thank you for the interview. Dr. M. Umer Chapra is Research Advisor at the Islamic Research and Training Institute (IRTI) of the Islamic Development Bank (IDB), Jeddah. Prior to this position, he was Senior Economic Advisor at the Saudi Arabian Monetary Agency (SAMA), Riyadh. This involved him actively in different phases of Saudi Arabia's hectic pace of economic development. As a token of the appreciation of his services he was awarded the Saudi nationality by King Khalid in 1983 at the request of the then Minister of Finance, Shaikh Muhammad Aba al-Khail. He has also taught as Assistant and Associate Professor of Economics at the University of Wisconsin (Platteville), as Associate Professor of Economics at the University of Kentucky, Lexington, as Senior Economist and Associate Editor of the Pakistan Development Review at the Pakistan Institute of Development Economics, and as Reader (Associate Professor) at the Central Institute of Islamic Research (Pakistan). He is well-known for his seminal contributions to Islamic Economics and Finance over the last three decades. He is respected for his balanced views and scholarly approach. Some of his books have been translated into a number of languages, including Arabic, Bangla, French, German, Indonesian, Japanese, Malay, Persian, Polish, Spanish, Turkish and Urdu.