LETTER | Covid-19 has brought the world’s economies to crossroads. Even before the pandemic, we have seen increasing levels of disparity as a result of the limited recovery from the 2008 global financial crisis.

Procrastination in coming up with ideas that would have remedied problems from the 2008 recovery model, which saw money sent to and concentrated in the hands of the financial institutions with no evidence of a “trickle-down”, has come to a collision with the pandemic.

Austerity-driven neoliberal policies have failed. We now need to look for new and workable solutions to clean up the economic fallout that we are facing and to prepare ourselves for the post-pandemic scenario.

In Malaysia, we are currently witnessing alarming levels of job losses and slowdown in economic activities. According to Socso, to date, close to 90,000 people have been reported to have lost their jobs in 2020.

The series of movement control orders (MCOs) which we are still enduring, while necessary, have accelerated the strain on the economy. A report by Unicef and UNFPA on the economic conditions of low-income families in Kuala Lumpur shows that while there has been an improvement in July, median household income is still 10 percent lower than last year and unemployment remains high.

Many people have turned to seek employment in the gig economy and grey sectors, but with the slowdown in consumer spending, excess supplies have fast saturated demands.

Of concern is the question of household debt in Malaysia, which is among the highest in Asia. How will people service their debt and loans when they are not able to raise income? How will banks and lenders stay afloat if people are not servicing their debts?

A number of policy solutions has been tried out so far. Among other things, the federal government and Bank Negara Malaysia (BNM), in conjunction with the implementation of the MCO, announced a six-month loan and financing moratorium from March until September, to allow borrowers to delay their repayments with the banks.

The Bantuan Prihatin Nasional (BPN) programme was rolled out to help qualified B40 and M40 households through cash transfers from the government.

Today, as we approach the tabling of the Budget 2021, we are seeing calls from across the Malaysian society for the moratorium to be extended.

The question is, can this be a long-term solution? The moratorium delays the repayment obligation of the borrower and is couched on the projection of a swift recovery from the economic downturn that has been caused by the pandemic.

It might also prolong the loan duration for the borrower, but the idea is that this is fine, as it is believed that a recovery in the job market will be seen as soon as Covid subsides.

We believe that measures that the government has taken thus have been helpful and should be continued. The moratorium has allowed people with debt a breathing space as they negotiate their way through the storm.

BPN has helped recipient households cover their needs for basic necessities. However, the future cannot be wagered on a recovery based on the belief that pre-pandemic economy will return. Therefore, we propose a policy idea which we feel would be more workable in the long-term.

The idea is a household debt cancellation, or a household debt jubilee, an idea which has been around for millennia. 

The economist Michael Hudson in his 2018 book …and Forgive Them Their Debts shows that debt cancellation proclamations were practised in ancient Mesopotamian societies from Sumer to Babylonia to Assyria.

It also found its way to Mosaic law (from where the idea of the “Jubilee Year”, which marked the year when debts were annulled, has been derived). During those times, debt forgiveness was a regular occurrence upon the installation of new rulers.

Politically, this offering of the “clean slate” to debtors worked in favour of the new ruler, as it elevated his popularity. 

However, more broadly, the practice also had a social purpose, in that it allowed for the new ruler to keep the powers of creditors in check and keep as many citizens as possible free from debt servitude, thus restoring balance in the economy.

We are not proposing an ancient solution to a modern problem. Debt cancellation is a policy which has been increasingly explored in recent times across different contexts. 

What history can teach us is that such an idea should not surprise us. Back then, as Hudson has argued, “debt cancellations were not radical.” Why should it be seen as such now?

Perhaps the most notable mobilisation towards such a solution in recent times was Bernie Sanders’ Democratic primary campaign in the US when he made the cancellation of student debt a cornerstone of his movement.

A previously famous example, as cited by Hudson, was Germany’s post-WWII currency reform in 1948, which kickstarted the Wirtschaftswunder (Economic Miracle) of the German economy.

As with any other contexts, Malaysia can be exposed to social unrest brought about as a result of the inability of people to fulfil their debt obligations.

A household debt cancellation, even if it is a partial one, can help us avoid such a scenario. It could also open up the possibility for society to chart a different course for the economy.

For a start, non-mortgage debts such as PTPTN and other loans from government agencies, if forgiven, could address the anxiety which many are feeling as a result of being squeezed by the current situation.

In addition, similar to the BPN model, the government can set up a mechanism through which debt relief assistance can be dispensed to Malaysian citizens to help with mortgage loans.

A potential objection to this modern debt jubilee idea would be on the question of fairness. Is this not rewarding people who are not fulfilling their responsibility to pay what they owe? Isn’t this unfair to those who work hard to pay back their debt?

For one thing, as alluded to in the previous paragraph, we are facing a collective moral dilemma. When there are many of us who are not able to pay back our debts, society faces the possibility of a disrupted peace.

The moral thing to do is to seek out ways to maintain stability. Keeping in mind the devastation that the pandemic has brought upon us, the question is, is it prudent for us to expect impossible-to-be-paid debts to be paid?

Nonetheless, the objection remains. What’s in it for those who are debt-free? Perhaps the debt relief assistance can be based on the premise that it is dispensed to all.

Steve Keen, a key proponent of the modern debt jubilee, has argued that, for people who do not require the assistance, the government can either provide cash or make it possible for them to treat it as a voucher to purchase corporate shares.

What about the banks? We think that a debt cancellation can help stimulate the economy. A clean slate would mean an increase in discretionary spending in the future, as it would free up money which would otherwise have to be used by people to service old debts.

In addition, credits will still be a feature of the economy, and banks will continue to play a role in helping people obtain their needs and want.

Of course, this cannot be done in a vacuum. The principal question is how will the government finance such measures? One way to proceed is to reimagine the role of the government in the economy and the function of money.

For example, from the perspective of modern monetary theory (MMT), the government is assumed to have full control over the country’s fiat currency. If we accept this view, it is also possible to think about the possibility of having the government creating and spending money as necessary.

The government is not the mirror image of the household, where spending capacity is fully dependent on income raised. If inflation is the worry, some MMT scholars have proposed that taxation can be used to control it and to regulate the behaviour of big corporations and financial institutions.

In any case, in the runup to the Budget 2021, we are currently seeing calls for increased government spending and for less emphasis to be put on fiscal deficit. While it should not be the only solution, debt cancellation can be the most straightforward means to ensure the wellbeing of the people in the long run.

KHAIRIL IZAMIN AHMAD is an assistant professor at the School of Politics, History and International Relations, University of Nottingham Malaysia.

JENNY GRYZELIUS is the dean of Tun Abdul Razak School of Government, Universiti Tun Abdul Razak.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.