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
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
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!
34 comments:
The so called expert journalist can't nearly make enough sense in analysing the situation as you've done - brilliantly.
And you're right... we need tougher , and real, leaders who will usher us through and avoid the black hole we're heading towards... although I fear the train has gathered too much speed - avoiding a train wreck might be too much to hope for...
Yet... I guess we're at the point where the glass HAS to be half full... the other option is not an option!
Fiscal discipline and Ali Hashim? This must be the biggest joke after Anni’s alifushi speech. Tell me what Hashim is doing to introduce fiscal discipline? Anni’s government has created over 400 high paying political appointees when the economy is hitting rock bottom. And this country is really going to become bankrupt. Ali Hashim didn’t bother to raise an eye brow. Have you heard Ali Hashim even giving a statement on TV? His only function is not to appear in front of majlis members when he is called to answer a question. Come on! He has a role to educate the general public about the health of the economy; about the status of the public finances of the country; about the financial burdens on the future generations of this country because of actions taken now. Dhiyana has got guts. She confronted Anni when he acted unconstitutionally. Ali Hashim doesn’t have the balls to do anything. So for you to believe the nonsense you have written you have to be in either one or all three of the following categories.
1.Ali Hashim’s sweet little boy trying desperately to score a point for boss
2.Someone trying to get a political favour from Ali Hashim
3.An educated idiot (from your style of writing I can see that you are either very well-read or educated :-D (thats a compliment! ok) But unfortunately you made your self look like an idiot. So I suggest that you use your talent to wirte something useful).
it would be healthy for the country if the government would cut back public spending and reduce the cost of governance along with the privatisation and the joint-ventures. these are normal structural adjustment programmes suggested by IMF and other financial bodies. but the problem is the cutting back is not happening. instead we see more spending. the increase of political appointments, trips, costs on houses and people and trips. we need some tough love here!!
Aindhy, as you have very rightly said the train is going at top speed towards a disaster of unprecedented proportions. But then again as a good friend of mine recently told me this country is in need of hope like never before. So I guess you are right. There’s no other option for the glass but to be half-full, always.
@ Anon 10:01 – Yes, there are perhaps other things that Ali Hashim could have done. A finance minister is a gatekeeper and not a cheerleader. I believe Ali Hashim is rising to the occasion. But having said that, I agree that you have a valid point but I believe the personal attack on me is totally unwarranted. If you are interested to talk about this in a civilized manner, I suggest that you come out of your anonymity :-)
@ Midhfa. Yes, very true. Most of the technocrats in the govt would agree that we are clearly living beyond our means. So we don’t have a choice but to reduce spending. But when the technocrats join the political ranks they also start dancing to the tune of spend, baby, spend. Maybe you and I might also be the same if we are to ever see things from their vantage point :-)
you said "most of the technocrats in the govt would agree that we are clearly living beyond our means". What does that mean? Arent you agreeing that Ali Hashim is not doing his job to cut down spending and to put this country back on the right financial track?
hey, you got pissed off too easily. What I said wasnt meant to be a personal attack. That was my advice to you. And you didnt even say thank you for the compliment I gave you.
Maldivian journalists and the media in general don't have what it takes to grill a president or a cabinet minister, especially when it comes to politics. This can be clearly seen in the TVM debate.
But in sports, they do ask right questions most of the time. I think over time, the journalists will improve too.
The poor state of the economy is not something that happened overnight immediately when MDP assumed the Government.
The economy has always been in a wobbly state. Had it not been for the current global down turn, few would talk about it.
Real question for the last 30 years has been the vulnerability and fragility of the economic base. That should be addressed and we are not hearing any ideas from DRP or MDP or DQP or RP or any other P.
It is of-course easier to criticize. But critics who does not propose alternatives would always remain critics.
Someone mentioned the Structural Adjustment Program of IMF/WB. Putting stupid jargons aside, Maldives seemed to have blindly followed such policy to nowhere.
We hear about the economic potential of Maldives, the location advantages, the performance of tourism.. But how come ordinary folks get chased out of all the banks if they don't own a resort.
Why is the Banking sector a closed and a private affair of a few for all these years. So we have already lived in credit crunch and survived anyhow.
So I don't think Maldives economy would get comparatively worse.
If there is a lesson to be drawn from past, whatever budget is proposed is ok. We will tinker along based on past experience.
Talking of structural adjustment, it might be viewed that we are undergoing shock therapy and Anni is going to emulate Thatcherism. Maybe we can call it Annism?
Anon 9:59- yes, the economy has always been in a wobbly state. But I don’t think your overconfidence and complacency is going to help. Gayoom’s time is over. We were blaming him for the excessive spending and not doing enough to take advantage of the potential that you mentioned. That is the location advantages and the performance of tourism. So, now that the govt is in the hands of people who have been elected by the public to do the things that gayoom failed to do. I agree with u. I don’t want to be among the people who only criticize. Bu then again if things are not going in the right direction we should point it out. As someone has pointed out earlier Anni’s government has created over 400 high paying political appointees when the economy is hitting rock bottom. That’s not acceptable. That is something govt could have avoided.
Talking about the banking sector most maldivians think that in other countries if you go to a bank with a project the bank will simply finance them. Yes, that happened in some countries. And America is paying a bitter price for doing that. Bank are going to be careful not to do that now. Banks cannot lend without adequate collaterals and other safeguards. They have to know that their customers are credit worthy. These are the basics of banking. The moment u violate that u are bound to be in trouble.
To 9.24
Your views is that 'Banks cannot lend without adequate collaterals and other safeguards'
True. But unfortunately that whole idea was used as a policy excuse to crowd out those who don't belong to resort owners club. Simply put, if you want the bank to listen to you, get a resort or die. That has been the lending policy of banks as a consequence of the cosy relationship the previous gov had with resort owners.
Not only non-resort business were deprived of finance in-spite of massive appetite for investment.
No new new banks or lending institutions were allowed despite high rates of interest (except for the Leasing Company -with its political connections)
The most profitable business are banks such as SBI, who sure knew how to maintain their power.
Hi, anonymous 7:31 (I’m anony 9:24 above) – this is funny. I don’t see how any prudent banker who adheres to proper banking KYC rules can lend to without adequate collaterals and other safeguards. I honestly don’t know what you mean by “policy excuse to crowd out those who don't belong to resort owners club”. The truth is for the most part the resorts are the continually profitable and sustainable businesses in the Maldives. You will say fisheries and construction. Yes, they are profitable and banks have done lending to those two sectors. But the issue even if a fishery is that it is so seasonal. Do you by any chance know that MFLC is struggling with the fishing dhonis they have leased? That explains why a prudent banker doesn’t consider fisheries to be a sure-fire sector. Whether you accept it or not the only economic sector any serious international banker can lend to is the tourism sector in the country. So, for the local banks to lend to you, you have to have a resort. By doing that the banks are only following the golden rule of banking.
And then you talk about non-resort business being “deprived of finance in-spite of massive appetite for investment”. A desire of a wish is not demand. Then the other issue you talk about is also a very tricky one. High rates are prevalent in Maldives because banks cannot mobilize adequate deposits in Maldives. The savings rate for us is extremely low. And when cannot mobilize deposits locally, they have to dip into their overseas credit lines. The moment they do that the cost of funds increase. Let me ask you one thing. Have you bothered to check the lending rates in Srilanka? Their’s is a much bigger economy and the banks there mobilize more deposits. And in spite of that the cost of funds are so high. Now you cant compare lending rates in Maldives with that of a country like Japan or US. That’s like comparing bluefin tuna and mushimas.
Then you talk about “the cosy relationship the previous gov had with resort owners”. Who is the government? Thasmeen? Moho? Gasim? Jabir? Khadeeja Hassan? Sun Travel Shiyam? Ceyprea Saeed? Sunland Shabeer? Yes, a cozy relationship was developed by these people with the banks. If you call them government, then you can say the government did have a cozy relationship with the banks.
@anon 3:22 – Ok, thank you. But, did I solicit compliments from anyone? BTW I’m not pissed off with you. But I have no intention of getting myself embroiled in a debate with a ghost. You are invisible, I’m not. :-)
8.43 - you views are groundbreaking..... heheh. I can't believe someone said the following..
''So, for the local banks to lend to you, you have to have a resort. By doing that the banks are only following the golden rule of banking ''
So much for our Golden rule Banking.. isnt it time someone follows a bit of SILVER rules too, to actually help the non-resort business.
On comparison to Sri Lanka on interest rates, let me remind Sri Lanka was under going a war till last week.
A better comparison could be Sierra Leon in Africa.
ok so what is your SILVER rule? lend to every wannabe businessman who thinks he has an out of this world business plan? I'm telling you lending is going to me more onerous than it has ever been before.
And yes, you are right about the Sierra Leone case. If Sierra Leone stopped their war today they would have better prospects than Maldives. What do we have, bro? resorts. only resorts. And that too during the last few years of Gayoom he gave away too many. so the market is going to be diluted now.
Dear anon @ 8:55,
I agree with your idea of 'Banks cannot lend without adequate collateral and other safeguards'. But I say this principle does not always stand to be true. When Professor Mohamed Yunus first advocated and started and his micro-credit project called 'grameen', very few took it seriously. Howevr, against all odds he had proven to the world that 'banks can lend to the poor (destitute people) on commercial basis'. Grameen Bank has helped millions of destitute people in Bangladesh to climb out of poverty. These poor people have nothing to offer as a collateral, except their 'Naashigandu'. But still Grameen reports that their repayment rate is above 90%. Amazing, huh? Grameen's model of micro credit has been replicated around the world including most developed countries and the poorest countries as well.
We are not talking about destitute people in Maldives. It's small businesses that we are talking about. If private sector banks do not find it profitable to lend to the small businesses, and 'starting entrepreneurs', then government has a responsibility to make sure that these groups of people also have access to funds to start up or expand their businesses.
Markets do fail, for various reasons. That's why we need the government to intervene and maintain 'access and equality' in the markets.
Resorts has already started to become a curse, rather than a cure for Maldives.
Banks only lend to resorts. Only resort owners get to buy Parliament seats and become MPs. Only resort owners and their families become Ministers.
But the resort owner is often fully owned and in the pocket of a foreigner such as a rich Singaporean Often the so called Maldivan owner is unaware of how the business is run.
Believe me, resorts are a curse and a major cause of economic misdirection of the Maldives in terms of resources, bank finance, politics, moral decadence and culture.
Lets not get drunk on resorts.
Yusuf,
Thanks for your comment. The point that both anon 8:55 and you are making is very relevant. But I’m not too sure if you could take the example of micro credit to prove your point on conventional banking. From the little I have read on Prof Yunus work and micro-credit in Bangladesh, I understand that micro-credit is a unique and distinct product. So, when you take examples from micro-credit to prove that borrowers in Maldives would also honour their financial obligations, thats a bit like talking about using a common cough syrup to cure tuberculosis. Yes, the borrowers under micro-credit schemes honour their repayment obligations. In fact empirical evidence shows that most poor people, if they are given credit, hardly fail to honour their obligations. They do that mostly because of peer pressure and shame associated with non-payment debt in their traditional societies. Our people are very different. The biggest businesses and the most ‘honourable people’ in the society are the most delinquent borrowers. So there is no shame associated with non-performance on loan repayments.
You have a good point on market failure and the need for governments to intervene. When markets fail governments have to intervene. But I’m not too sure government should start lending schemes outside the banking system under the pretext of market failure. The experience we had with the “Atoll funds” setup some years ago with participation from UNDP, Govt and the Community, is not very promising from a banking point of view. The poor management and monitoring and the moral hazard factor as a result of Govt involvement was clearly setting bad precedents in the banking sector, particularly to the BML’s outer atoll operations. Don’t get me wrong. I’m not defending the not-so-desirable way sometimes BML conducts its banking operations in the outer atolls. But I believe banking business should be left to the banks. I’m sure there would be many who would disagree with me on this. I remember having heated arguments over the continuation of the atoll funds with people like my friend Zahid, the current Vice Chairman of the Human Rights Commission few years ago.
Thanks, for your feedback Naimbe'. I guess we need more research on the subject and find a way to adapt the micro-credit model to the Maldivian society. By suggesting government intervention, I'm not implying that the government should start their own lending schemes. There are many ways government can do such a thing through banks. May be they can lend funds on long-term basis to the commercial banks with very low or no interest. Commercial banks in turn can use these funds for micro-credit programs or to lend to small businesses. Anyway, if we are to discuss on this topic, i don't think this is the appropriate place or way, and this doesn't have any relevence to the original article :))
btw, I found this piece of news very ineresting;
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Naimbe, you have been rather quiet during these politically turbulent times :-)
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