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Pakistan, the IMF and Islam

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    Pakistan, the IMF and Islam

    Pakistan, the IMF and Islam

    One of Musharraf’s rewards for helping the US in her war on Islam and Muslims has been a financial boost by way of removal of sanctions and restrictions on IMF (International Monetary Fund) loan injections for Pakistan. The sanctions committed the US (the largest shareholder in the IMF) to blocking loans to Pakistan, or abstaining from the voting. The ending of sanctions, which included bans on foreign assistance, arms sales, government credits and US support for multilateral financial assistance, should open the door to more foreign aid.

    The IMF approved a $135m cash injection into Pakistan, and IMF chiefs announced they had cleared the final tranche of a $596m loan; they praised the country's adherence to a fund-agreed economic programme. Furthermore the World Bank has praised Pakistan's military-led government for making what it calls a clear break from the past and rescuing the economy from bankruptcy.

    But the ending of US sanctions has received a mixed reaction in Islamabad, with some government sources calling it a “half measure”. Even by the standards of the region, Pakistan is a poor country, which has been starved of foreign investment. Its $60bn economy has a growth rate of 2.6%, well below the average in the region.

    Senior Pakistani Government officials are stressing that they could do with more financial assistance to help the country's economy. President Musharraf’s principal secretary, Tariq Aziz, said: “This is a process … and we hope it will not end here. To exhibit confidence and trust between the two countries, it’s better that we keep on negotiating and ultimately all the sanctions should be lifted.”

    Pakistan’s dependency on the IMF is not unique; many other countries are in a similar dependent cycle. Recently the IMF authorized $121 Million in disbursements to Yemen and she has many other debtors on her list.

    In return for the loans the IMF gets to have a big say in the running of the economy, asking the government to take measures such as raise taxes, raise interest rates, devalue the currency and so on, and countries like Pakistan always heed the advice to stay in line for new loans. In contrast countries like the US ignore IMF advice.

    The IMF despatches a team of what Joseph Stiglitz, former World Bank chief economist, famously scorned as "second rate economists from first rate universities" to measure performance. In the year 2000 the IMF produced a report on the US economy that commended the "sound monetary and fiscal measures" that have contributed to the US economy, with high employment, low inflation and budget surpluses. The IMF staff do not bother to note that this record was created by ignoring previous IMF warnings that the US was growing too fast, that unemployment was too low and that prices would spiral out of control. Had the IMF's previous advice been followed, the US expansion would have been cut off, and much of the world would likely be mired in a continuing recession. (Dawn 24/09/2000).

    As for developing countries, they are more adherent to the IMF policies. They often receive an economic prescription including the following:

    (1) Monetary austerity: Tighten up the money supply to raise internal interest rates to whatever heights needed to stabilise the value of the local currency.

    (2) Fiscal austerity: Increase tax collections and reduce government spending dramatically.

    (3) Privatisation: Sell off public enterprises to the private sector.

    (4) Financial liberalisation: Remove restrictions on the inflow and outflow of international capital as well as restrictions on what foreign businesses and banks are allowed to buy, own, and operate. Only when governments sign this “structural adjustment agreement” does the IMF agree to:

    (5) Lend enough IMF money to prevent default on international loans that are about to come due and otherwise would be un-payable.

    (6) A restructuring of the country's debt among private international lenders that includes a pledge of new loans.

    A variation of this has been seen in Pakistan. In step with the US political demands in relation to Pakistan’s co-operation for bombing Afghanistan, the IMF conveniently approved a loan "without any problems", clearly showing the US dominance over the IMF and her control over economic strategies in accordance with American interests. At the time, Mr Aninat, the IMF’s deputy managing director urged Pakistan to stick to 2001-2 budget targets, stressing the importance of spending cuts and a rise in fuel tax in helping the country to balance its books.

    The Consequence of obeying the IMF

    Observers and critics alike have found the consequences of obeying the IMF to include the following effects:

    Cash-flow aside, the tight monetary policy and skyrocketing interest rates not only stop productive investment in its tracks, stampeding savings into short-run financial investment instead of long-term productive investment, it also keeps many businesses from getting the kind of month to month loans needed to continue even ordinary operations. This leads to unemployment and drops in production and, therefore, income.

    Raising taxes and reducing government spending-further depresses aggregate demand, also leading to reductions in output and increases in unemployment. If any of the government spending eliminated was actually improving people's lives, then reductions in those programs eliminates those benefits.

    Furthermore the privatisation of public utilities, transport, and banks always leads to redundancies. Whether productivity and efficiency is improved in the long run depends on how poorly the public enterprises were managed in the first place, and if private operation proves to be an improvement. In its crusade to privatise, the IMF routinely lumps efficient public enterprises together with “white elephants” that provide poor service to the public while paying bloated salaries to relatives and political supporters of ruling political parties. The IMF never considers the possibility that the private replacement might be even worse, but irrespective of whether the long run effects of privatisation are positive or negative, in the short run it adds to unemployment, depresses demand, and aggravates the pressures of recession.

    From the above it is clear that IMF policy is not designed to help the ordinary people in troubled economies. Rather it is intended to help international creditors in the short run, and increase returns on global capital in the long run. The creditors demand to be repaid by their third world borrowers on schedule with high returns in dollars. The higher the value of the local currency of their borrowers, the better their chances of getting repaid, since profits in that currency must be turned into dollars to repay them. In addition, the larger the surplus of exports over imports since increase chances of repayment since that is one source of dollars to repay them. The only other source of dollars is new international loans, but these increase risk and the creditors also dislike restrictions on international capital outflows as they are anxious to get their money back. So in short anything that boosts exports and lowers imports is in the interest of international creditors.

    The way the IMF increases the value of the local currency includes high interest rates, as it attracts international capital in the short run, which increases demand for local currency and boosts its value. Preserving the value of local currencies is talked of as if it were a major boon to the troubled economies, but in fact the deflationary monetary and fiscal policies used to stabilise the currency and reduce imports bring a halt to productive investment, growth, and development, and throw the local economy into a recession or worse, with dramatic drops in production, income, and employment.

    Meanwhile higher tax rates lead to lower levels of production, which means lower incomes, lower demand for imports, larger trade surpluses, and therefore an increase in the value of the local currency. Expanding the trade surplus and propping up the local currency are essential to every component of IMF stabilisation policy as they are the only way local debtors can pay their international creditors quickly. The disastrous effects on the local economy are irrelevant to those who impose the policy, because protecting the local currency and expanding the trade surplus are necessary to ensure repayment to the international creditors.

    The usurious banking system

    The IMF’s oppression is further augmented by the banking system itself which it is a part of, where the printing of non-redeemable paper money and usury (interest) puts debtor countries such as Pakistan in the control of superpowers.

    The following simple model illustrates the workings of the paper money and usurious banking system: Imagine that there are 100 coins in circulation in a model economy. This is the money supply, all of it created by the state. Now the first and only bank opens for business. The bank takes total deposits of 20 coins and issues 20 receipts of 1 each in return. A few months go by and the people begin to trust the banker's paper receipts of 1 unit each. They begin to use those receipts in payment for goods and services among one another. Now the banker advertises his service as a moneylender. More clients come to his office and borrow 200 in total. The banker lends money for two years at 30% interest per year. However, he doesn't lend coins, rather he prints and lends some more paper receipts instead. Two years later, the loan of 200 is to be repaid in the amount of 338.

    At the beginning of the loan period, 100 coins and 220 of receipts were in existence. That's 320 of 'money' in total. So where will the extra 18 come from to repay the loan?

    The extra 18 can only come from the state if it issues more coins, or from the bank if it creates more paper money. In the modern world, it is the banks that tend to create most of the required extra money supply. They do this by lending it into existence. In Malaysia during June 1997 the total amount of state money (i.e. notes and coins) in existence was approximately RM19 billion, yet the total amount of money separately available in demand deposit accounts exceeded RM43 billion to give a total “M1” money supply of RM62 billion. These figures, Bank Negara's own, clearly show the extent of money manufacture by banks in the modern world. It also explains why it is that if everyone went to withdraw their money from their bank in cash on the same day, then the banking system would collapse.

    This means that society is in ever increasing debt to the bankers. Yesterday's debt can only be repaid by taking out more debt today. This is why total debt (public plus private) as a proportion of GDP has increased in every developed country over the last 30 years.

    The Third World countries owe dollars, but they can't manufacture dollars in the way that the US banking system or the US government can. So they try to earn enough dollars to repay their debts by exporting their produce, and because there are not enough dollars in existence to repay everyone's debt, the Third World has no choice but to go ever deeper into debt to the banks of the First World. It is a sick and sophisticated trap. Indeed this is a new form of colonialism.

    Today the bankers create un-repayable debts and foreclose on businesses, making themselves rich and leaving others poor and oppressed, like in Pakistan, Indonesia and in many other Muslim countries.

    Even prominent non-Muslims realised the banks power, the US President Thomas Jefferson wrote in a letter: “And I sincerely believe with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” [Thomas Jefferson in a letter to John Taylor 28 May 1816, Writings (1984) New York: Literary Classics of the United States.]

    Also the English Chancellor Reginald McKenna wrote, “I am afraid that the ordinary citizen would not like to be told that the banks, or the Bank of England, can create and destroy money. The amount of money in existence varies only with the action of the banks in increasing and decreasing deposits and bank purchases. Every loan, overdraft or bank purchase creates a deposit and every repayment of a loan, overdraft or bank sale destroys a deposit.” [Post-war Banking Policy (1928) Heineman, by Reginald McKenna, Chancellor of the Exchequer of Great Britain, later Chairman of Midland Bank.]

    The Islamic alternative

    This system of loans from the IMF and the usurious credit system contradict the Law of Allah (Subhanahu Wa ta’ala). These institutions and systems are the tools of the US and the Kafir West to control the lands and their people.

    Allah (Subhanahu Wa ta’ala) says (to the nearest meaning): “And never will Allah grant to the disbelievers a way over the believers” [TMQ An-Nisa: 141].

    With regards to usury, this is prohibited in Islam, as proven by many evidences from the Qur’an and Sunnah. Allah (Subhanahu Wa ta’ala) says in Surah Al-Baqarah (to the nearest meaning): “Those who eat Riba (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaytan leading him to insanity. That is because they say: “Trading is only like Riba (usury)”, whereas Allah has permitted trading and forbidden Riba (usury). So whoever receives an admonition from his Lord and stops eating Riba (usury) shall not be punished for the past; his case is for Allah (to judge); but whoever returns (to Riba), such are the dwellers of the Fire - they will abide therein” [TMQ Al-Baqarah: 275].

    This system also contradicts the Shari’ah of Allah (Subhanahu Wa ta’ala) by relying on a system of currency which does not rely on gold and silver as a cover for the currency, and tying the local currency to another currency such as the US dollar, whose supply is determined by the US.

    As for the correct way of determining currency, the Shari’ah has obliged the Islamic State to have either gold only, or gold and silver, as the basis of its currency. This is what is known as the gold standard. Islam has linked many Shari’ah rules with gold and silver; such as the prohibition of their hoarding; “Those who hoard up gold and silver, and spend not in the Way of Allah; announce to them a painful torment.” [TMQ At-Taubah: 34].

    Islam has also obliged the Zakah, by considering gold and silver as two currencies, and prices for sales, and wages for efforts. Just as Islam has obliged the Diyyah (blood money) with gold and silver, Islam has also determined gold and silver to define the limit for theft: “There is no cutting except for a quarter of a Dinar.” Also that: “The Prophet (Sallallahu Alaihi Wasallam) cut the hand of the thief who stole a shield, whose value was three Dirham.”

    The whole world used to recognise the gold standard until the First World War. It had a great effect in stabilising the world currency system. After the Second World War this system was disrupted because some warring nations were putting restrictions on the import and export of gold, until 1971 when the US stopped using the gold standard and the link between gold and the dollar was cut. Gold then became a commodity subject for trading. The US did this to make the dollar the basis of currency in the world, so that she could control the international financial markets and dominate them. Since that time the dollar has become an instrument of colonisation in the hands of the US, and the reason for the changes in the exchange rate, and the difficulty in the movement of currencies and goods.

    Indeed the loans from the IMF and the usurious banking system that it forms a part have brought much misery on countries such as Pakistan. Defaulting on the loans and changing the economic system is the only way to be free of the shackles of Western economic imperialism.

    However, defaulting the loans would present Muslim countries such as Pakistan with a new set of challenges such as trade embargoes and sanctions. In an economy like Pakistan’s, which has high exports (of textiles and other commodities), this type of economic orientation would have to be replaced with a new economy of self-sufficiency. Nevertheless the resources of many of the Muslim countries are sufficient to meet the basic needs of the people and the current military situation of Pakistan and some other Muslim countries will allow them to defend against immediate attacks from neighbouring countries without relying on outside support. So given time and effort under a sincere leadership to Islam, the economy of Pakistan or any other Muslim country could be converted to something more productive and useful for the Muslims and Islam.

    At the moment though, it is clear that the Muslim rulers are not bold enough to think about these matters, let alone attempt to implement them, because they have tied their future with the Kuffar and accepted to be their agents. So, they have given them power over the resources of the Muslims, to plunder and loot, and we have thus become like the orphan at the table of the wicked and miserly. We have nothing O Muslims, except the Khilafah, which will look after our interests and defend our resources and protect us from US voracity and from its greed, which has no end.

    The Messenger of Allah (Sallallahu Alaihi Wasallam) said:

    "The Imam is a shield behind whom the Muslims fight and by whom they protect themselves"

    Asim Khan

    Source: Khilafah Magazine December 2001 Edition