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.