Fiscal Discipline - Ali Hashim's predicament

A finance minister is perhaps the last person to win a popularity contest during a recession. When Alistair Darling proposed his budget it was derided by media as a "fantasy Budget". A writer on the Economist dubbed the budget as “a dishonest piece of pre-election politicking”. Meanwhile, in our small make-believe microcosm of the UK, our finance chief Ali Hashim is faced with a similar predicament. His only consolation is that there are no malicious financial journalists to deride him in his country. The few so-called professional journalists in the country have long given up on any interest to graze in their country’s arid financial landscape - thanks to the greener pastures offered by a highly polarized political landscape.

Ali Hashim’s eye-watering Rf 12.6 billion budget didn’t come as a surprise to me. Big budget numbers have become very much the norm for us. Over the last few years our government has in fact been the biggest spender in the world in relation to the size of the economy. The highest spending governments like that of Cuba, by comparison, have government expenditures at around 80 percent of their GDP.

Is Ali Hashim to be blamed? It appears that he has largely done what he could - trying to trim current and capital expenditures which were largely vestiges of the previous regime. It is the structural problems in the public sector, the disproportionately large civil service, low budget revenues and inadequate tax receipts that engendered the tradition of “fantasy budgets”, in the Maldives. The budget, particularly the revenue projection, as described by G.A Member Jabir, is a “fantasy”. This fantasy, quite ironically is spawned by nothing but the greed and the insatiable demands of powerful political figures in the parliament and government. These are the people that have, for political expediency, shut their eyes to the financial black hole this country is headed to. The Finance Ministers, at least the last three of them, were left with no option but to curry favour to their demands. And much to the amusement of their political masters, each one of these finance ministers soon morphed into someone akin to a Paris-Hilton-inspired wastrel, armed with a credit card.

Another question that begs to be asked is why President Nasheed’s government is unable to break this tradition of “fantasy budgets”? The simple answer to this complicated question is that while most of the powerful figures within the government view any spending cuts as something tantamount to political masochism, the opposition MP’s are crying foul over the budget not “adequately addressing” the concerns of their electorate. Amidst the on-going political bickering and skullduggery ahead of the parliamentary elections, both the Government and opposition MPs seem to be united in humming the tune of spend, baby, spend!

I am no expert in public finance. But I don’t think it takes anything more than commonsense to figure out that if you keep on spending money you don’t have, you are invariably on a path to bankruptcy. Incidentally, a fellow blogger has highlighted some facts and raised interesting questions on the cost of our political reforms. Fiscal restraint and broadening the revenue base remain the only short-run macroeconomic policy variables that are available to Finance Minister Hashim. And given the desperate times, draconian measures are needed to address his Herculean task. A man entrusted with the task to introduce fiscal discipline to a country that has been so much used to there’s-no-tomorrow spending sprees would not be a popular man. The stakes are indeed high for Ali Hashim. The efficacy of his fiscal reforms and his very own survival now hinge on his ability to say no to the pig-headed men and women warming the all too important seats of the government, Majlis and the judiciary. The indications are that Ali Hashim has the nerves to flex his muscles to enforce fiscal discipline. The premature graying, after all, isn’t the only thing that Ali Hashim and Alistair Darling have in common. ;-)

The question of ‘rich pickings’ in the Maldives

Last week the Economist ran an interesting online debate. The question was on whether the time has come to tax the rich more.

Perhaps owing to a somewhat idiosyncratic resentment towards what the Economist terms “undeserving rich”, like many other thousands of followers of this debate, my immediate knee-jerk reaction, given the dire state of economic conditions and public finances throughout the world, was to be inclined towards Professor Piketty’s arguments that was in favour of taxing the rich more. But as the debate progressed, I found my dogmatic conviction waning in no time. And by the end of the debate I was confused, to say the least.

Arguments on income disparity have been one of the most frequently used populist political tools throughout the world. And the Maldives certainly is no exception. During the political upheaval of the last four years, the phenomenon was particularly widespread. On the one hand Gayoom and his supporters espoused arguments attributing the country’s relatively high per capita income to the government’s policies. At the same time they were quick to vehemently brush aside any criticism by the then opposition MDP, on issues such as the high incidence of poverty and skewed income distribution, as an inevitable price the country had to pay for economic growth and entrepreneurial dynamism.

Much of the criticism during this period was buttressed on the findings of the first VPA of 1998 which put a staggering 45 percent of the population below the poverty line (based on a poverty line of Rf 15 per person per day). However, by the second VPA of 2004, the figure was down to 19 percent. The Gini coefficient – a measure of inequality in income distribution expressed as a ratio between 0-1, with lower values indicating more equal distribution – in the meantime, improved from 0.39 to 0.33 in Male and 0.40 to 0.36 in the atolls during the same period. Contrary to popular belief, this makes our Gini coefficient comparable even to developed countries like the UK and the US.

It has been four years since the second VPA was published. Gayoom’s extravagance and the populist backlash catapulted Mohamed Nasheed to the highest office in the country late last year. It is a little too early to say how President Nasheed’s government’s policies are going to shape, over the long term, the stubbornly perverse affairs of the malefactors of the great resort-wealth and the multifaceted dynamics of the question of inequality. However, with stories like that of the alleged failure of the government to safeguard the interests of 23,000 individual shareholders of MTDC rife, the early indications are that establishing dominion over the all-powerful, party-hopping robber barons are easier said than done.

400 percent increase in pay??!!

The biggest economies in the world - US, Japan and Europe are in their first simultaneous recession since World War II. In spite of the trillions of dollars Governments around the world have pumped in to prevent their economies from going belly-up, the challenges seem increasingly intractable.

Perhaps oblivious to what is happening in the outside world, for many in this tiny Indian Ocean state of Maldives, their country seems to be totally insulated from the world’s problems. So insulated are we that even the bearers of the beacon of justice in this country found it a very a propitious and fitting moment to demand a whopping 400 percent increase in their pay. Their willful myopia and make-believe state of opulence seem to be completely draping the grim realities of their economy which is literally on the ventilator. I am clueless as to what fuels these frivolous demands. Ignorance? Greed?

Let me quote a story a good friend of mine told me sometime ago about the state of affairs of our small country. With their bellies full, he says, most of the lions, albeit halfheartedly, were forced to retreat into their dens last year. A few more, still, are on the prowl. The hyenas are now going on a rampage over what is left of the carcass. The vultures, waiting for their turn to scrape the bones of what is left of the little meat on the carcass, are ominously circling in the sky. The men and women wielding the sticks to shoo away the beasts have long become nonchalant and blithely shielded their eyes from the events unfolding in front of them.

When is this madness going to stop? I don’t enjoy crying wolf. But what I know for sure is that somebody’s got to do something to tame these wild animals and perhaps put some sense into the thick skulls of the men and women warming the all too important seats of the government, Majlis and the judiciary, if we are to stay afloat. Finance Minister, sir. Ahem, ahem! ;-)

Launching my humble ‘Artwork’ Blog

Announcing the awakening of the shy, unassuming and mediocre student of J. Swampillai dormant in me for over 17 long years! I’ve launched my artwork blog on http://canvasknaim.blogspot.com . Over the next few days I’ll be making more posts.

Water shortages, ‘four-gear gifilis’, ‘futtaru’ garbage dumps and ‘transshipment ports’

Waking up to the first cock-a-doodle-doo only to stand in the early morning sun for hours on end in order to fill a 5 litre container with clean drinking water is becoming almost an annual ritual towards the end of every North-east monsoon for Shameema and hundreds of mothers like her, eking out their existences in their small villages. Shameema is not from a war-torn Afghan village but from Maldives where per capita income is almost ten times that of Afghanistan. Her island of Mulhadhoo, registered home of 350 people, located in the northern Ihavandhippolhu of Maldives is one of 60 odd islands to which her Government is contemplating on supplying reverse-osmosis drinking water on board small boats, after a prolonged dry spell.

Like most Maldivians living outside Male, Shameema and the rest of the eighty odd residents of the Mulhadhoo store their rainwater harvested from their corrugated iron roofs in polyethylene kalhuhan tanks; dispose their waste onto a dump on the seaward futtaru side of the island; and defecate into holes dug, as-and-when-nature-calls, on public beaches or ‘four-gear’ gifili latrines.

Meanwhile an army of Maldivians, mostly men anointed by their mighty political parties and financed by deep-pocketed bigwig resort-owners are preparing for their ritual once-in-every-five-years onslaught on islands like Shameema’s Mulhadhoo. This year an unprecedented 465 of them, sipping Italian Lavazza espressos in trendy cafés in Male or savoring the taste of an exotic vilaathu-sherbet in one of Maldives’ top-class luxury resorts, are meticulously planning their onslaught. Their arsenal will comprise of, among other things, an ostentatious display of verbose rhetoric on democracy, human rights, accountability and several other clichéd but little understood terms. There will also be a fool’s paradise of desalination plants that would, so they say, ensure a copious supply fresh water to all the households; diesel generators that would keep the fans and air conditioners running in houses with corrugated iron roofing sheets exposed to 12 hours of merciless equatorial sun to create an ambience that could perhaps be the envy of people living high up on the Swiss Alps. And there will also be an abundance of brand new 6 cylinder Yanmar engines that would propel fishing vessels out to the vast expanse of the Indian Ocean to enable diminutive weather-beaten fishermen to catch a glimpse of the mythical ‘minikaaraajjey gaskara’.

Shameema is no stranger to the chicanery of the Machiavellian planners. She knows that in a few weeks time she would be unable to stretch a leg without poking either a ‘rayyithunge khadhim’ or one of their lackeys. And though Shameema portrays an outward sense of nonchalance, she has a secret little reason to celebrate as well: the ephemeral treasures that come along with the politicians. The last time she was very lucky to grab a handful of those notes adorned with pictures of ‘medhuziyaaraiy’. But she remains unimpressed and nonchalant. And so are the majority of the people of Ihavandhippolhu and the rest of Maldives, for their taste for fantasy desalination plants, diesel generators bridges and flats have been cloyed by countless empty promises on phantom projects like the USD 300 million transshipment port that the previous government decided to ‘build’ in Ihavandhippolhu in the run up to the last parliamentary election.

I recently asked a good friend who I consider to be perhaps my small country’s version of Jeffrey Sachs, if he has anything to say about our politicians and Shameemas. His answer is simple. “Don’t put the blame only on the politicians. For as long as we have 142 islands with populations of less than a thousand people, there is no end to the stories of ‘empty-kalhuhan’, ‘four-gear gifilis’, ‘futtaru’ garbage dumps --- and the ‘transshipment ports’ are only a phenomenon deployed, not perhaps to camouflage trickery or finesse evil but to keep hope alive in an otherwise squalid and desolate environment”. As someone who as a child only accidentally escaped from the world of ‘fenthaangi/four-gear gifili’ induced Ascariasis,; and after thirty years, is still morbidly terrified of those horrid parasites that, ahem, creep out of the rectum after a spoonful or two of that slimy abhorrent stuff called ‘antipa?’, I can’t find any reason to disagree with him.

Our Special friendship with India: beyond the mirch-masala of Bollywood?

India has always been our special friend. In Foreign Minister Dr. Shaheed’s words, “our primary strategic interests lie with India. And there is nothing that can change this plain fact”. India, despite the current economic chill, isn’t too far away from making its behemoth economy a global economic powerhouse.

We have with India strong military cooperation; bilateral trade, albeit, heavily skewed in favour of India; assistance in human resource development; and of course there is India’s unwavering relief and rescue, come the tidal surges of the south-west monsoon.

With a retired Lieutenant General as our government’s envoy in India, the relationship that was fostered under Gayoom, particularly in the aftermath of ‘Operation Cactus’ was largely centered around ‘defense and military cooperation’ which left us with, among other things, white elephants like INS Tillanchang. I, of course, don’t downplay the significance of IGMH, MITE, the recent USD 100 million budget support loan and the innumerable times India had lent a helping hand to us.

While we were deeply engrossed in Bollywood’s copious outflow of never-ending sultry mirch-masalas and India’s military toys, another small country Mauritius, located off the coast of Africa in the Indian Ocean signed a double taxation avoidance treaty with our mighty neighbour in 1983. Under the treaty no resident of Mauritius were to be taxed in India on capital gains made on the sale of shares of Indian companies by investors resident in Mauritius. The treaty did not have any affect until 1992 when India opened the country for foreign financial investors. During the same year Mauritius tactically allowed foreigners to register companies in the country for overseas investments. Foreign investors eager to reap the benefits of the Indian economy’s boom quickly routed their investments through Mauritius as this exempted them from capital gains tax completely. According some estimates nearly 40% of the $45-50 billion FDI inflows into India between 1991-2006 came through the tiny African state of Mauritius.

Luxembourg and Liechtenstein, two microstates in the heart of Europe, perhaps offer some interesting clues on the type of synergies that we could develop with India. Luxembourg and Liechtenstein with populations of around half a million and 40 thousand respectively, are among the richest nations in the world – thanks to their highly successful banking and financial sectors.

Nasheed’s government appears to be working towards steering the course of our special relationship with India to gear it more towards commercial ties. With key figures within MDP’s top brass who are known for their India-centric policies at the steering wheel, the day we could become to our behemoth neighbour what Liechtenstein is to Europe is perhaps not far way.

Thank you President Nasheed

Not one iota of harm and no hardship whatsoever to anyone’s job or prospects for career advancement will be caused on account of any criticism or dissatisfaction with the government. This is the unequivocal statement President Nasheed has for anyone who is dubious of his commitment to free speech and democracy. The statement couldn’t have come at a more opportune moment. Of late, I have noticed that a growing number of bloggers are becoming increasingly apprehensive of the Government’s stance on what my good friend Hilath calls “the noble principles of democracy and free speech”.

Carbon Neutrality: Can A.S.I Moosa beat Pope Benedict XVI?

If there’s any single quality in President Nasheed that differentiates him from the rest of us ordinary folks, it has to be his intrepid and almost uncanny ability to dream big even in the direst circumstances. In relative terms his ambitions to construct 10,000 housing units, build up a reserve of USD 800 million and keeping a market determined rufiyaa exchange rate at Rf 10 for a dollar at the end of his five year term, would rival even the most audacious hopes and dreams of Barack Obama - the name that has already become the epitome of dreams, hopes and ambitions for hundreds of millions of people throughout the world. And our President Nasheed is far from being done with setting goals and ambitious targets. On the environmental front he has a new dream – the target to make Maldives a carbon neutral country within the next 10 years! He has given this seemingly insurmountable challenge to A.S. Moosa (Sappé).

I did a bit of googling on the idea of carbon neutrality and to my utter surprise the task President has assigned to Sappe is in fact far more challenging than I initially thought. To succeed in his assignment, A.S.I Moosa would have to tussle, for the next ten years, with none other than Pope Benedict XVI. Almost a year and a half before President Nasheed set the carbon-neutral goal for our small country, the Vatican announced its plan to become the first carbon neutral state in the world through its climate forest in Hungary. Four other nations - Iceland, New Zealand, Norway and Costa Rica, have the same plan.

Carbon neutrality refers to achieving net zero carbon emissions by “balancing a measured amount of carbon released with an equivalent amount sequestered or offset”. Whether this is a feat A.S.I Moosa could possibly perform for our small, acutely resource constrained island nation that the UNDP has identified in its Oil Price Vulnerability Index (OPVI) as the most vulnerable country in the World to oil prices hikes, remains to be seen.

We are yet to know how A.S.I Moosa plans to go about to confront his daunting task. I don’t have any background knowledge to say anything about the issue from an environmental angle. But one thing I know for sure is that a lot of Maldivians are convinced that we need to do something to reduce our precarious dependence on imported fossil fuels. When oil prices hit USD 147 in July last year, I, for one, thought doomsday wasn’t too far away for our small country. With the unprecedented oil price hikes of 2007-2008, we were clearly caught off-guard as no developments plan in the country had factored in oil at the prices prevalent in the world market during that time. We were saved from an oil-price induced bankruptcy only by the dampened demand for oil brought about by the global financial meltdown.

Most Maldivians would presumably agree that despite the presence of high levels of sunlight and vast expanses of ocean which are potential sources of alternative solar and tidal energy for the country, our government under Gayoom did little to tap into these sources of power. This might very well be the approach A.S.I Moosa would take in his bid to beat the Holy See in the race to become the World’s first carbon neutral country.

Development plans and ‘the art of doing nothing’

It’s been a while since I started maintaining a small personal archive of documents covering key economic areas of the Maldives. One thing I’ve noticed while doing this is that both the sheer number of documents and the depth and breadth of their coverage are quite astounding, to say the least. In fact, I don’t think I’ll be way off-beam to presume that there are probably few other microstates that could come anywhere close to where we are in terms of the sheer number and depth and breadth of coverage of our development plans.

The sad story, though, is that there is no single institution or agency in the Maldives that’s doing anything to keep track of these plans and documents. After having invested many hours to collect such documents, I’m convinced that, with perhaps a few possible exceptions, there is certainly a very comprehensive plan to cover every possible area of socioeconomic management and development in the Maldives – thanks to the umpteen number of TAs we received from our development partners in the last two decades or so. Surprisingly, the existence or whereabouts of these documents, stacked somewhere in the dark silverfish infested shelves of some of government building, collecting dust and spawning termite colonies, are known to few. And more surprising to me is the fact that a large number of these documents and development plans are applicable with only minor alterations even to today’s situation. Today, I skimmed through some of the documents in my small archive. Among the documents I have, I found the following to be particularly interesting.

1. Seventh National Development Plan, Ministry of Planning and National Development, 2006-2010
2. Strategic Economic Plan, Ministry of Planning and National Development, 2005
3. Third Tourism Master Plan, Ministry of Tourism and Civil Aviation, 2007-2011
4. Development of a Framework for Financial Sector Restructuring (ADB-MAL-TA2265)

The Strategic Economic Plan, 2005, developed by the International Trade Institute of Singapore tops my list. A country of our size and stage of development doesn’t need to look beyond this document for development plans. Every development plan that we would need at least for the next two decades or so is elaborated in this document in a very clear cluster based approach.

I have no clue as to why we didn’t we implement these plans. A good friend of mine once shared his explanation on this --- while the silverfishes and termites were busy quite literally building their empires in our development plans, we were busy pretending to be teaching ‘the art of doing nothing’ to foreigners. Unfortunately, we never taught any art to anyone but instead we did quite successfully master ‘the art of doing nothing’.

Stimulating what?

An anonymous commentator on this blog scoffed at MMA’s Governor for advocating “deliberate shrinking of the economy by cutting investments and expenses”. Not too long ago our Majlis, seemingly eager to emulate the economic remedy of the US president Obama, considered a ‘stimulus package’ for our economy. I couldn’t help being a little curious as to what it is that we are talking about “stimulating”?

My good friend and former boss Jaleel, with all his characteristic pugnacity, outlined some interesting issues in his interview to Hirigaa. I’ve tried to add my two cents worth to the issues Jaleel talked about.

1. Lack of natural resources and borrowing - contrary to President Nasheed’s position on the country’s resources, Jaleel acknowledged the dearth of our resources and derided our debt-fueled development philosophy that hinges on the assumption that both the Government and the corporate sector could continue indefinitely with their borrow-your-way-to-prosperity approach.

2. Reigning in government spending – without fiscal discipline and bringing in the much needed public sector reforms, the donor community and institutional sources of concessional finance are unlikely to consider the Maldives seriously. Jaleel also debunked the myth about the much hyped ‘stimulus package’. I can only see reason to agree with him. Our government spending is almost equal to our GDP – thanks to Gayoom’s 30 year legacy. This makes us the highest spending government in the world in relation to the size of the economy – even the highest spending governments like that of Cuba have government expenditures at around 80 percent of their GDP. I am yet to learn about how any increased government spending in Maldives could, as the majlis and my anonymous friend says, ‘stimulate’ the country’s economy. On the contrary, owing to the heavily import-oriented nature of our economy characterized by a high degree of openness, any increased spending in rufiyaa will cause pressure on the rufiyaa/USD exchange rate which is already gasping for its final breath.

3. Decentralization and regional development – Jaleel found the government’s proposal to develop 7 regions to be beyond the capacity and means of the economy. Instead, he opined for a more workable approach of developing 2 regions. He raised an interesting issue about how we could possibly duplicate the USD60 million breakwater around Male, for all our islands. Diseconomies of scale? How about this - Dhuvaafaru, has been developed for 3,000 inhabitants of Kandholhudhoo, at a cost of over Rf390 million and Th. Vilufushi, another island destroyed by tsunami has been developed at whopping cost of Rf 340million for 2,000 or so people. Only two islands developed only for 5,000 people have set us over four-fifths of a billion rufiyaa behind.

4. Front-loading economic reforms – This is perhaps the most important issue Jaleel raised. Over the last few years, we have done an outstandingly good job in the area of legislative and political reforms and human rights. Perhaps there is no other country that made the kind of strides we made in this area in such a short span of time. But on the economic reform side things look dreadfully bleak. We are still too preoccupied with unwarranted political bickering and skullduggery to realize that we are pussyfooting on the much needed economic reforms. On the FDI issue, we are approaching an increasingly moribund world economy, armed only with the anachronistic Law 25/79, to bring in investments into an economy on the brink of bankruptcy. On the trade side, our LDC privileges are fast eroding. Awareness on economic issues? Talk about “TRIPS”, “TRIMs”, “GSP Plus” and other similar issues – I’m certain that most of these terms and issues would be alien even to the most erudite among us, but I bet at least a tenth of our fifth graders would know even the etymology of the word ‘filibustering’. It is little wonder that with only eleven years left for the ‘Vision 2020’ objective of making Maldives a “hub of free trade in the region”, the vision still remains an elusive dream.

Just a day’s headlines

Headlines of the day for Thursday, February 19, 2009 in the Republic of Maldives.

1. 38 year old pedophile that made 35 under-aged boys victims of acts of pedophilia and child pornography is arrested
2. Infant suffocated to death and buried on Omadhoo beach – mother, grandmother and stepfather confess to suffocating and killing the new born
3. Police arrests 8 foreigners engaged in acts of prostitution
4. A Sri Lankan woman and 3 men arrested on charges of prostitution
5. Chinese man held in Maldives’ jail for 15 years without sentence – Ministry of Home Affairs claims to have worked to deport him for 15 years
6. Former President Gayoom criticizes Government’s Islamic scholars

These few headlines momentarily stripped me of whatever little sense of pride I have in me for my country. But then I don’t know why I’m feeling this way. After all, these aren’t anything new. They have always been an inextricable part of life of all human societies that ever existed ever since the scavenging biped walked out of Africa. But I still find it so difficult to fathom how these scabrous incidents that are so wantonly bereft of all standards of decency, have proliferated in its current scale and magnitude to become almost a part of everyday life in this sleepy island nation of less than a third of a million people that we Maldivians so often and so proudly declare to be “100percent Muslims”.

Raajjetherey Meehunge Hatharu kulhandhu Madhu?

Racial supremacism, or Malé-Supremacism to be more precise, is very much alive. Have a look at this exchange on Dr.Waheed’s blog.

Maldives - 115 on the Corruption Index!

We have always been dodgy and fraudulent at times. But I had absolutely no idea this could be so bad. Its so bad that after seeing this I inadvertently searched for fake moustaches. Guess whose country had just been given an ignominious 115 out of 180 by Transparency International on the 2008 Corruption Perception Index. Things were bad enough in 2007 when we were ranked 84. But 115 this year – that’s way below countries like Mali, Djibouti and Rwanda!

Meanwhile, even on the IFC/World Bank’s Doing Business Index we slid one notch to 69th place in 2008.

I don’t see anyone in our media talking about this. Maybe we found this to be so utterly shameful that we as a nation collectively decided to repudiate the issue. President Nasheed, in the meantime, is keeping himself busy with plans to open more banks in the Maldives and is working hard to attract investments into the country. His State Minister for Economic Development working with the newly created Invest Maldives has announced plans to embark upon an ambitious programme to attract FDI. I don’t see a country ranked at 115 by Transparency International making much headway with attracting FDI from legitimate bona fide businesses. A good reason why Singapore, ranked No.2 worldwide as the city with the best investment potential for 14 consecutive years, is able to achieve its enviable track record in FDI partly because of its rankings (world No 1 on the Ease of Doing Business and No 5 on the Corruption Perception Index) on indices such as these. I don’t see how clever marketing alone can simply beguile investors into pumping money into a country. Unless I’m missing something, to me it appears that there are quite a lot of housekeeping matters and things we need to fix before we try to market our country as an investment destination. If we don’t attend to these necessary preconditions for attracting investment, we are only putting our cart before the horse.

The storm ahead

The economic woes of the country – a looming budget crisis, an impending tourism downturn, dwindling reserves, a seemingly overdue devaluation, – doesn’t deter our president. He has instead set ambitions targets for his country - building up a reserve of USD 800 million and keeping a market determined rufiyaa exchange rate at Rf 10 at the end of his five year term. Meanwhile the President’s office has announced plans to open more banks in the Maldives as a means to remedy the dollar crisis. The President himself believes “the registration of 3 new banks will immediately relieve the dollar crisis”.

The leading economists in the country, on the other hand, appear be towing a totally different line. Central Bank Governor Fazeel Najeeb claims to have “heard from media” that this country has a hard currency crisis; thinks devaluation isn’t going to help the economy; and is on a quest to find out what happens to “70 percent of the hard currency inflows into the country”, – about which he is absolutely clueless. And he goes on to offer his good, albeit impractical, counsel to the Government to “reduce expenditure and increase revenue”.

Abdulla Yamin, Gayoom’s trade minister for almost 15 years, takes the opportunity to lambast President Nasheed’s government for its alleged “lack of an economic plan” and talks of something Miadhu reports as President’s “ignorance of economical matters”. Ex-Governor of MMA and former Finance Minister Jihad doesn’t appear to be too enthusiastic to offer his wisdom. Instead, he seizes a media opportunity to talk about his impeccable track record on T-bills and abstinence from MMA borrowing .

Amidst all this hodge-podge of wisdom and economic doctrines from the pundits, I am confused. So, utterly baffled. I’m sure I’m not alone. Thousands of other average men and women must be trying to make sense out of this.

President’s rather ambitious plan on reserves and exchange rate might not be all that outlandish. But I, as an average Maldivian, is yet to find any clue as to how the president hopes to achieve this. What I know for sure, though, is that if the president doesn’t have a solid plan to do this, it would be rather foolhardy of him to make a pledge as audacious as this. The only strategy he has talked about so far - licensing 3 new banks - doesn’t seem to be all that promising. Every Ali, Ibrahim and Ahmed in this country is well aware of the two necessary, albeit not sufficient, conditions that could help alleviate the pressure on the rufiyaa - either the greenback will have to fall substantially in the international market or large inflow of hard currency will have to come into our reserves.

The possibility of a sudden fall in the greenback, in spite of the grim US economic outlook, seems very remote. Why? Contrary to popular belief G-8 is intervening, for geopolitical reasons, to set dollar values. Why are they doing this? Firstly, a large number of them have large outstanding exposures to dollar related assets. Secondly, at a time when economies are going moribund one after the other, higher oil prices are the last thing they would want to see. As oil is priced by OPEC in dollars, letting the dollar appreciate makes oil cheaper. Despite the unprecedented supply cuts by OPEC, oil is still hovering around $ 40. So, the chances of a sustained decline in the value of greenback in the international market, adequate to relieve the pressure on rufiyaa, are virtually nonexistent.

With economies literally going belly-up throughout the world, the second eventuality i.e. realizing a large inflow of hard currency looks equally grim. The USD 300million that the president confirmed to the media as had been received from India earlier, is yet to physically flow into the treasury. And even if it eventually does, it’s not going to solve our problem. If we continue with our current policy of pumping in our meager stock of hard currency, to maintain a grossly overvalued value of rufiyaa, the reserves will drain out in no time.

Governor Najeeb, of course, is right about the 12.85 dollar peg serving us well in the past. But what he didn’t say was why the peg was so effective. That was because the dollar was literally on the ventilator for almost five years. And, what saved us last year was nothing but the unprecedented advance lease rentals Government collected from the resort leases which increased our reserves to $300million – this had little do with either Governor Jihad’s ingenuity or the peg working miracles for us while we slept. So, the big question is what now? Are we going to wait and hope our good old ‘peg’ will work miracles for us again while the country runs out of funds to import even the very basic staple food?

The answer to this question is indescribably painful - not just for the politicians but more so for the common man. But we can’t go on draping a grim reality with complex economic jargon. So, let’s face the naked truth: rufiyaa is grossly overvalued. It will take nothing short of a miracle to save rufiyaa. A devaluation looks inevitable now. The mother of all storms is building up right ahead. So, let’s just brace ourselves for the tough times ahead. It’s going to be painful. Very painful, indeed.

Laws for the working class

Ammatey has always been a hero. But today he is languishing in jail for gulping down the last dregs of what he thought was a James Bond's Vesper martini left by a tourist, at the resort where he used to work as a waiter. His crime? Alcohol consumption! His friend Khaleel’s story isn’t any different. He is banished to a remote island in the north for taking home half a bag of cement from the government school in his island where he used worked as a Sarudhaaru. The deepening smile lines on his weather-beaten thirty-something face, the painful calluses on his hands and the growing cataract in his eye – all bear testament to the hardships he has endured over the last 8 months. His crime? Yes, you got it right – corruption!

Both men are penalized for legitimate reasons. Alcohol is Haram - proscribed in this 100 percent Muslim country. And so is corruption. But what Ammatey, Khaleel and several hundred other Maldivians like them have for long tried to figure out is why the law in their country applies only to their type – the working class and the rank and file. It is no secret that many high ranking people in the echelons of power wouldn't let go of any opportunity to instantly gulp down anything that even remotely resembles alcohol. And our country is also yet to see any high ranking official involved in any substantive corruption case brought to justice, in spite of the numerous hush-hush allegations against former ministers, CEOs of State owned enterprises and some high ranking officials of the current government. Instead, as Dr. Waheed says, we only “left the corrupt scot-free and gave them promotions ”.

Our best minds - barking up the wrong tree?

What are more than 2,500 of the World’s finest brains – top policy makers, academics and CEOs, doing in the Swiss ski-resort of Davos for five days? Soul-searching and deal making – that’s what they are doing. They are there to discuss a problem of biblical proportions. What began with the US sub-prime crisis morphed into something that the world has never seen since the Wall Street crash of 1929. The world’s finest brains - the likes of Joseph Stiglitz, George Soros and Rupert Murdoch, are still unable to fully fathom the depths of the recession the world is headed into.

The biggest economies in the world - US, Japan and Europe are in their first simultaneous recession since World War II. In spite of the trillions of dollars Governments around the world have pledged to pump into their economies to prevent more colossal failures like that of Lehman Bros and Bear Sterns, the problems seem more insurmountable with each passing day.

How about us Maldivians? Are we insulated from the Worlds problems? There is no reason for me, as an average Maldivian, to believe that the situation at home is any better, if not worse. With our gross reserves at less than 2 months of imports the rufiyaa is literally on the ventilator, silently praying for the USD 100 million life support pledged by the Indians to arrive before that final fatal beep.

While the world’s finest men and women are giving their best shot at helping the world’s economy recuperate to health, our best brains - our crème de la crème - seem to be embroiled in something this average Maldivian saw as a petty budget squabble between two agencies within the Maldives’ judiciary! God help this country!

Maldives is World Number ONE!

Maldives is ranked World number ONE on a list of 181 countries, ranked by the World Bank/IFC in terms of ease of "paying taxes" (ahem, looks like the folks at World Bank forgot that we in Maldives hardly pay any taxes).

On the overall "Ease of Doing Business" we slid one notch to 69th place – making us still the most ‘business friendly’ country in South Asia. It is, however, disheartening to see that our performance in some of the most important indicators for business friendliness is still way below that of a number of developing countries – Maldives is ranked (177) in registering property; (145) in getting credit; (70) in protecting investors; (90) in enforcing contracts; (121) in trading across borders; and (123) for closing a business. Among our major trading partners, Singapore topped the list at World number 1 for a fourth consecutive year. Malaysia was ranked number 20, UAE 46, India 122, and Sri Lanka 102.

Default, insolvency and bankruptcy - Maldives style?

‘Default’, ‘insolvency’, ‘bankruptcy’ – these words may sound familiar to you. But if you are to ask your Majlis member or a policy maker in the present or the previous government, chances are not many people would even bother to raise an eyebrow. Proof? It’s on BML’s audit report and Finance Ministry’s website – the delinquent borrowers of BML and the list of willful defaulters of Treasury loans. Among them are former ministers, members of our parliament, senior members of former and current government and a lot of other ‘honourable’ people in this country. We gave them millions as ‘loans’ – sorry, ‘gifts’ --- a loan, by definition, is something you have to pay back.

If I understand correctly, ‘default’ is a debt that a debtor is required to pay but has not paid and “insolvency” generally means that the debtor is unable to pay the debt. Although there are variations in the way insolvency and bankruptcy are treated in different countries, usually in most countries, following a petition for insolvency or bankruptcy, a court makes a ‘bankruptcy order’ or a ‘winding-up order’. The assets of the debtor are then seized and auctioned off and in the case of commercial entities bankruptcy proceedings are begun. Doing this is invariably linked to the very survival of the banking system.

If my childhood memory serves me right Itha Naseer, Finance Minister Ali Hashim’s late father D.I.K, Bangi Adam Fulhu, Onoda Zahir and several others were among the many ill-fated Maldivian businessmen whose assets were seized and forced into liquidation to settle off their debts. A few years ago, on a tour of northern and central atolls, I met a number of small borrowers of BML who were forced into liquidation by the bank. Back then, I saw it as perfectly normal as BML was only doing what all banks are supposed to do. But today, I’m utterly saddened to know that those fishermen and smalltime backyard farmers, desperately trying to eke out a living under very difficult circumstances, were forced into liquidation only to feed the insatiable credit appetite of 12 of our oligarchs – at a whopping direct cost of over a third of our GDP!

I’m not advocating for liquidating Fonaddoo, Sultans of the Seas or Villa Group for their non-performing BML loans; and I’m not campaigning for locking up Adam Zahir, Umar Zahir and others for their willful defaults of Treasury loans. I know that our legal system, fraught with problems, is inadequately equipped to deal with financial crime and I also know that the new government is still in the reconciliation mode. But, to me, that’s not an excuse to give a free reign to these unscrupulous people. If we are to extirpate this crookedness from our financial sector and if our banking industry and the economy are to survive, timely punitive action on ‘default’ is imperative. Inability to do so is tantamount to a free bequest of whatever little resources still remaining with the 99 percent of the people, to the obscenely rich less than 1 percent.

The country that doesnt feel the pain of the financial meltdown

Ali and his new girlfriend just returned from a holiday in Malaysia. A few months before he left Male he spent his entire savings of Rf 10,000 to get the 'nice number plate' that he had wanted for over two years. Recession? Economic virtues? Well, Ali doesn't need to worry too much. He financed his Malaysia trip from a pay-if-you-can loan from his friend and the expenses of his two children, aged 12 and 9 from his previous marriage, whose expenses for the last five years have been taken care of by their grandfather, a Sarudhaaru at a government school are his last worry - at least for the time being.

Azoo, a twenty something job-hopping graduate who normally earns about Rf 8000, continues to shop, shop, and shop until she drops dead. It’s been six months since she quit her last job. But her insatiable appetite for her favourite DKNY fragrances, L'Oreal cosmetics and that occasional Jimmy Choo shoe continues unabated. Credit card debt? Well, that's not her worry. Her father regularly pays off – along with a good doze of scolding - the mountains of debt she accumulates on her credit card from advance rentals he collects from the two room apartment rented at their house.

Half way around the world, perhaps unbeknownst to both Ali and Azoo, the governments of US, UK and other industrialized countries and the corporate giants that seemed virtually infallible until recently, are struggling with their finances as the financial crisis gets deeper and murkier. For them there is still no turn around in sight. Consumers in those countries whose pockets are hundreds of times deeper than our Alis and Azoos are tightening their belts like they never did in the last thirty years. They are ditching their iPhones, flat-panel HD TVs and their gas-guzzling SUVs.

Ali and Azoo are among a growing group of hundreds of epicurean youth who live a Paris Hilton inspired live-in-the-moment life. I of course don't blame them for their spend-thrift mentality. Consumption is something so deeply embedded in us; it is so much hard-wired in our psyche now. What I sometimes have difficulty in understanding, though, is why our people continue to spend like as if there is no tomorrow while people in most parts of the industrialized world are bracing for the unhappy days with the homespun virtues of increased cost-cutting and parsimony. I'm sure if they had a choice, most people in the industrialized world too would continue to spend like our Alis and Azoos do. Choice – that's what differentiates our there's-no-tomorrow spendthrifts. Unlike the people from the industrialized world who are compelled to become financially independent by the time they reach their twenties, most of us have created the opportunity for us to continue to leech on our families or someone close to us, well beyond our thirtieth or even fortieth birthday. While the people in the industrialized countries literally feel the pain of the global financial meltdown, we continue our there's-no-tomorrow lifestyle; either blithely ignorant of what's happening in the outside world or willfully passing our pain to those unsuspecting victims around us who are inured to pain.

Yes, the healthcare for over-65s did get my knickers into a twist!

My good friend, someone very well-versed in economic and financial matters, in an anonymous comment to a post on this blog said “this will get your knickers into more of a twist”. Fortunately, I don’t wear knickers literally, but this news item in fact did, as the Brits would say, get my knickers into a twist. My friend who posted the comment was referring to the new health insurance plan of Maldives for the over-65s.

Where in the world do you get a health insurance plan that is not ‘means tested’, has no exclusion of ailments such as dental cover, and assumes the public to be “honest”, when filling out the forms because the prospective recipients of cover are “law-abiding and honest”? An insurance professional I talked to says that he is yet to hear about any country that is foolhardy enough to provide such coverage free of charge. The bit of googling I did to find anything comparable to this was also entirely abortive.

Don’t get me wrong. I’m all for President Nasheed’s initiative to provide a relief to the large number of people who are out on our streets literally begging for their life-saving prescription drugs. Providing health cover and a safety-net for our elderly folks is long overdue in this country. I have absolutely no doubt about that.

The health insurance cover, I understand, would be provided in addition to the Rf2,000 monthly retirement income that the government plans to give to our over 65s. With 13,000 people eligible today, this universal retirement pension scheme alone would cost our taxpayers a whopping Rf 300million annually. And in 20 years time this will spiral out of control to Rf900 million annually. As the health insurance scheme is not means tested and relies on the ‘honesty’ of those seeking the cover, I have no way of commenting on the cost of this scheme. But as an average man observing developments in my country, I can’t help being wary of how well the health insurance scheme and the pension plan were studied for their long-term fiscal sustainability. And in a country where almost three out of four people are below 35 years of age, I certainly wouldn’t be surprised to find a vast majority of people skeptical on such a wholesale free transfer of resources from the current working population to the retired.

Is something still very wrong?

The calls for freedom, rights and democracy that resonated throughout the country still linger on in my ears. The calls were not in vain. The elusive freedom that we sought for years did finally come to this country. And so did democracy and a lot of our fundamental rights. We have a democratically elected president in office. The government machinery and the institutions, albeit slowly, are being forced to wakeup to the new realities. And today, we are probably one of the freest people among the developing countries.

One thing that struck me over the last week or so is that in practicing our new found freedoms and rights, our people seem to be going a little overboard, a little too early. While people from Maduvvaree , Maaivadhoo, vashafaru , Madaveli , Fiyori and a whole lot of other islands were exercising their ‘freedoms’ in their islands, presumably in an attempt to vent out their pent-up frustrations over lack of public infrastructure, two of our state ministers State Minister Shafeeg and State Minister Shahid had to change gear to riot control mode in Male. Just two week ago our new housing Minister Aslam had a taste of public outrage when he visited his native island Faresmadhoda.

As an average Maldivian who has for so long yearned for freedom, rights and democracy, I can’t help asking where our new found democracy and freedoms are taking us. I don’t know any more than the Yahuya Average of this country does about freedom and democracy but I think these virtues are by no means an end in themselves, but a means to an end; and that end, I presume, is the collective happiness and well-being of the society. And I have serious doubts on whether we are heading towards this end. Just as when the country, for the first time in the living memory of 80 percent of its people, gave the power to individual people to influence the political direction of this country through the virtue of democracy, there seem to be quite a lot of things not quite alright. After all it has only been less than 60 days since President Nasheed assumed office. Any reasonable person in this country would agree that it would be grossly unfair to blame Nasheed’s government for the things done and not done before the new government took over the reins of power. So, the big question is why the protests? And why are they happening in so many places?

My contention is that there must be something very wrong for all these protests to precipitate so prematurely in so many places. The only possible responses that I can think of are we were either barking up the wrong tree, or we put the cart before the horse.