x Abu Dhabi, UAEFriday 28 July 2017

A step towards clearing prison debtor backlog

This week's decree freeing debtors from jail, under tough conditions, is more evidence of a sound new policy on problem debt.

You don’t have to be one of the 6,830 Emiratis jailed for bad debts to welcome Wednesday’s presidential decree under which those people will be set free.

Along with the draft bankruptcy law proposed this month, the Dh2 billion decree moves the UAE towards ending debtors’ prison and building a rational, practical system for managing problem debt across the whole society.

This newspaper has long argued that jailing people who can’t pay their bills makes little sense. Prisoners obviously cannot earn money to repay their creditors. Worse, prison for debt is a criminal penalty for what is a non-criminal act unless it involves fraud.

On the other hand, people should not borrow more than they can repay. Simply paying off these debtors’ bills would only have encouraged more such behaviour, a classic example of what economists call “moral hazard”. So it is sensible that this week’s decree is far from being a “get out of jail free” card: those affected will have to take a 25 per cent pay cut and avoid new debt until they have repaid the original sum.

This measure, although welcome, leaves other debt-related problems still to be solved. We don’t know how many non-Emiratis have also been languishing in the UAE’s jails for debt; they too would be more useful outside earning a living rather than behind bars.

The problem here is that for expatriates it can be easier to escape the country than to repay bills. A way to prevent that will have to be found before these people can also be released. A further complication is that these debtors, unlike most Emiratis, may not have jobs in the country.

Emiratis in jail for debts exceeding Dh1 million were not covered by this week’s measure, either.
Then there are future cases. The draft bankruptcy law promises some much-needed reforms but is still many months from final approval. (The law governing bounced cheques, meanwhile, also awaits attention.)

In all civil debt matters for both companies and individuals, emphasis should be placed, as it is in the draft law, on settling debts and not on punishing those who, while acting honestly, have been unwise or unlucky. Only where there is deliberate fraud should there be prosecution.

The draft bankruptcy law and this week’s decree show clearly that this principle is rapidly becoming the focus of policy on problem debt. It’s a change that all should welcome.