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 ”.