Author: JJ Robinson

New exchange rate vital for long-term economic prosperity: President

President Mohamed Nasheed has said that the government’s decision to implement a managed float of the rufiya was necessary “to ensure the long term stability and prosperity of the Maldives.”

The government announced last week that it was allowing the rufiya to be exchanged for the dollar within 20 percent of the pegged rate of Rf12.85. Many businesses dealing in imported goods and several banks, including the Bank of Maldives (BML), immediately raised their rate exchange to the maximum permitted rate of Rf 15.42, exceeding the average Rf14.2 rate of the formerly institutionalised blackmarket.

Speaking during his weekly radio address, President Nasheed thanked the public and local businesses “for their patience and faith”, and predicted that the economy would show positive signs of stabilising in three months’ time.

“Changing the exchange rate mechanism [and] maintaining the value of rufiya is linked to finding a permanent solution for the constraints on our economic development,” he said, explaining that the decision would allow the government to “finance budget deficit, increase productivity, and increase export of goods and services.”

The President suggested that the financial shake-up caused by the move would not be as significant as many feared, because most importing businesses had been calculating the value of the dollar as higher than the government’s previously pegged rate.

“The government is confident of an expeditious fall in the prices of goods and services as the exchange rate stabilises,” said the President’s Office, in a statement.

A crackdown on the illegal sale of dollars on the  blackmarket the previous week – following a speech in which the President promised to “put a policeman behind every dollar” – failed to address the high demand for foreign currency particuarly among the country’s expatriate population, who had relied on blackmarket dollars for remittances.

Many of the country’s 100,000 foreign workers, particularly a large percentage of labourers from Bangladesh, are paid in Maldivian rufiya by their employers and became increasingly desperate as paranoia following the crackdown limited blackmarket exchanges.

Meanwhile protests organised by the various opposition factions this week in response to the managed the managed float attracted a surprisingly low turnout, given the potential for the government’s decision to raise the cost of living by up to 20 percent in the short-term.

While the move drew praise from the International Monetary Fund (IMF), which described it as a “bold step toward restoring external sustainability,” a number of Maldivian economists in the private sector remain convinced that the government’s effective devaluing of the currency will only temporarily ward off economic catastrophe in the face of crippling over-expenditure.

In an article for Minivan News this week, Director of Structured Finance at the Royal Bank of Scotland, Ali Imraan, observed that ‘growth’ in the domestic economy had been driven by the public sector  and “paid for by printing Maldivian rufiya and clever manoeuvres with T-Bills, which the government has used since 2009 to be able conveniently sidestep the charge of printing money. In simple terms: successive governments printed/created money to drive domestic economic growth.”

Imraan pressed for the Maldives to invest in private sector revenue growth “rather than building airports on every island”, and implement a progressive taxation system targeting high earners in the interest of income equality. He also urged the Majlis to uphold the constitutional stipulation whereby MPs – such as those with business interest in the tourism sector – removed themselves from voting on issue in which they had a vested interest, and further suggested that the government resolve the matter of stalled tourism developments “awarded to parties with no money or track record.”

“Moratoriums on lease payments or debt repayments may look innocuous enough, but they rob the country of vital growth opportunities and hence ultimately rob the people. We should not stand for it,” he said.

Imraan’s latter suggestion proved somewhat prescient when the Tourism Ministry renewed the lease for Hudhufushi in Lhaviyani Atoll, despite the resort island’s owner owing more than US$85 million in unpaid rent – most of it fines for non-payment.

The government’s decision to implement a managed float of the currency came as a least one local sales agent for international airlines operating in and out of the Maldives closed its doors to customers, blaming an inability to pay the airlines because of a lack of US dollars circulating within the economy.

A local financial expert working in the private sector, Ahmed Adheeb, had also warned that a shortage of foreign currency would reduce the prospect of foreign investment, because of the difficulty of repatriating profits to the home country.

“Dhiraagu, for instance, is probably having a lot of difficulties repatriating dividends to Cable&Wireless,” Adeeb said. “This can lead to a fall in investor confidence. When that happens, foreign investors will either try to exit or stay away. We will only see foreign investment that earns dollars, such as resorts.”

The problem would soon lead to inflation and difficulties importing essentials such as fuel and medicines, he suggested, and could potentially have a major impact if the State Trading Organisation (the country’s primary importer) found itself unable to acquire foreign currency.

Following the devaluation Adheeb warned that the impacts would be felt strongly in sectors such as construction, as dollars were already becoming scarcer as tourism wound down for off-season and Hajj pilgrims searched for dollars.

The general public would be also be impacted as the cost of commodities rose to fill the new exchange rate, while the government’s commitment to projects such as harbour construction could be delayed due to the risks of taking on even more debt.

“This will also affect business contracts, particularly [those concerning] foreign employment, and students studying overseas,” Adheeb said, predicting that “if the market does not stabilise then in three months time we will see a further devaluation. The government is taking a huge risk.”

Announcing the decision this week, Economic Development Minister Mahmoud Razee candidly stated that as a result of the artificially fixed exchange rate, “we do not really know, based on the breadth of the domestic economy, what the value of the Maldivian rufiya is right now.”

Given Nasheed’s radio address yesterday, the government has three months to find out.

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Badminton Association blocks female champion from training after losing court battle

Maldives’ female badminton champion Neela Ahmed Najeeb has alleged the Badmintion Association is refusing to allow her to train with the national team despite a court order to reinstate her membership.

The 25 year-old athlete, who holds a string of championship medals and has competed in several international competitions, was suspended from playing almost two years ago after clashing with her Indonesian coach, whom she said had attempted to make her run for four hours as punishment for missing a training session – something she was physically unable to do at the time.

“The Association unfairly and quite harshly terminated Neela without establishing adequate cause and without giving Neela the opportunity to defend herself,” Najeeb’s lawyer Mizna Shareef told Minivan News after the case was filed.

After three hearings Shareef claimed “the Badminton Association has stalled the case by appearing in court without having prepared their statements.”

The judgement, she said, would be a landmark case in encouraging more female  players to play sport at a professional level, “without fear of discrimination and unfair treatment.”

Prior to her termination, Najeeb had been selected to travel to Greece in June last year for a youth training session conducted by the International Olympic Committee (IOC), however this was scuttled by her dismissal as endorsement from the Association was required.

The Civil Court last month overturned the Association’s termination of Najeeb, ruling that it was against the Association’s own regulations, and ordered her reinstatement within seven days.

The Badminton Association gave her membership for the time she had missed, but she claimed it was now refusing to allow her to train with the national team “as there is no women’s pool.”

“I’ve been training with the guys for eight years and there’s been no other female in the national team. Now they’ve said I can’t start training because there is no women’s pool,” Najeeb said. “The Maldives International Challenge is coming up in June and I need to train in order to participate. But I have to be a man to practice.”

Najeeb said she had sought help from the Ministry of Human Resources and Sports, “but the Ministry said it was not able to help as the decision was up to the association.”

Other players were also facing situations where their athletic careers were being blocked by a lack of support from the Badminton Association, Najeeb said.

“There are players who have sponsors but are losing opportunities to compete outside the country because they are not receiving support from the association.”

A former female badminton player who played the sport for 25 years prior to suffering a ligament injury told Minivan News that the Badminton Association was obligated to provide female players a chance to play “even if there is only one of them.”

“If there are not enough female players for a pool they still have to be given a chance to play,” she claimed, adding that males and females had trained together in the Maldives for a long time.

President of the Badminton Association Ali Ameer said the association had followed the court order to the letter, “and has no further comment.”

Minister of Human Resources and Sports Hassan Latheef told Minivan News that it would be inappropriate for him to comment until he had informed himself on the case, but said he would do so.

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Hudhufushi lease renewed

The Tourism Ministry has renewed the lease for Hudhufushi in Lhaviyani Atoll despite the resort island’s owner owing more than US$85 million in unpaid rent.

According to a 2009 audit report, Hudhufushi’s leasee Abdul Rauf owed US$57.7 million in unpaid rent to the government going back to 2002, the majority of the amount accumulated fines from years of non-payment.

The lease rent owned by the Hudhufushi resort is one of the government’s largest debtors in the tourism sector, and was noted in both the tourism ministry and trade ministry’s audit reports for 2007.

Under the original 35 year lease agreement signed between Rauf and the government in 2000, the resort was to open on June 30, 2002.

Former Auditor General Ibrahim Naseem, dismissed by parliament last year days after ordering past and present government ministers to submit to an audit of their assets, had recommended repossessing the island and establishing a mechanism to take legal action against tax evasion.

His audit suggested that at least Rf117 million (US$910,000) of the amount was recoverable.

Local media this week reported that the debt had climbed to US$85 million, and that the government had renewed the lease under a new agreement stating that the amount would be paid back starting from the 11th year of the agreement.

In addition, the agreement requires two payments of US$750,000 before June 1 and December 1 of this year, local newspaper Haveeru reported, or it will be terminated.

Cofounder of local environmental NGO Bluepeace, Ali Rilwan, has meanwhile claimed that the island forms a natural bay that is home to rays and baby sharks, and was “a very important ecological site.”

“The development will cause a lot of disturbance – there was a lot of controversy even at the beginning on the process,” he said. “There were no studies before the island was awarded and it has not been subject to an environmental impact assessment.”

Rilwan suggested that in such instances the government should have provision to exchange an island for another, to allow the preservation of ecological sites such as Hudhufushi.

“There are only three islands in the Maldives that are listed as protected, at least on paper,” he said. “Hudhufushi has a mangrove area, which is a carbon sink – these are mentioned in the government’s carbon report. Half the mangroves in the Maldives have been reclaimed in the last 30-40 years.”

“Ecotourism sites such as these are rare in the Maldives and can generate an income as they make for wonderful photographs,” he said.

Minivan News contacted the tourism ministry for comment and was referred to Deputy Minister Ismail Yasir, but he was not responding at time of press.

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Maldives grapples with difficult dengue outbreak

The Maldives is battling a growing epidemic of dengue fever which is believed to have contributed to the deaths of at least five people this year.

More than 300 cases were reported in the first two months of 2011, compared with 737 cases and two fatalities reported last year. Many cases have been reported in Male’, although most of the fatalities have been islanders. One patient died during transit to Indira Gandhi Memorial Hospital (IGMH), and the more serious cases have disproportionately affected children.

Dr Ahmed Jamsheed, who until recently headed the Centre for Community Health and Disease Control (CCHDC), observed that 2011 had seen higher instances of dengue shock syndrome, where the mosquito-borne parasite causes blood pressure to drop so low that organs cannot function.

“Our initial theory was that this was a new strain of dengue,” he said. “There are four different strains, and strains one and three have been most prevalent. We took samples and sent them abroad but I had left the office by the time the results came back. I’m told out of the samples we sent a few tested positive for dengue one, which means no new strain.”

Instead of a new strain, Dr Jamsheed suggested that the growing number of dengue fatalities could be related to lapses in managing the disease, due to the high turnover of foreign doctors “particularly on the islands.”

“Usually dengue management in the Maldives is quite good, but new doctors are not very well orientated for dealing with dengue, and cases are being referred to Male’ quite late. It would be hard to say for sure at this point unless we did a case-by-case audit, to see where we’re going wrong,” he added.

IGMH Registrar Dr Fathimath Nadia noted that at least two of the fatalities this year involved children, “although these were quite complicated cases.”

Nadia said that health services had previously printed and issue a handbook on managing dengue to every incoming doctor and conducted briefings of incoming doctors, but was not sure if this was still carried out.

The CCHDC and the Maldives National Defence Force (MNDF) in February this year conducted spraying of mosquito breeding sites in Male’ and the surrounding islands, but reported difficulty obtaining access to residential and construction sites.

Minivan News also understands that a international mosquito expert brought in to exterminate breeding habitats at a resort had last month pinpointed the source of Male’s mosquito-breeding to pools of stagnant water in building sites across the city. However she was also reportedly unable to obtain the required permission to inspect the properties.

“The boom in the construction industry has created a huge number of mosquito breeding grounds,” Dr Jamsheed explained. “In Male’ when the Council gives planning permission it requires management of mosquito breeding grounds, but have so far failed to enforce it or conduct inspections. My experience in Male’ was that when our teams visited construction sites there was often nobody at the site to communicate with in Dhivehi or English.”

While the teams might be contact with the construction company responsible for the building, often those working at the site were employed under layers of subcontracting which made it difficult to place responsibility, he added.

Private and community rainwater tanks were also prime breeding grounds, he said, a particular problem on many islands.

“IGMH has a large underground water tank and we even found that full of mosquitoes,” he said. “They had not taken measures to make it airtight, although I think it’s been corrected now.”

Malaysia, which has had nearly 50,000 cases of dengue reported already this year, is currently working with France pharmaceutical company Sanofi-Aventis to develop a vaccine. The country has also launched a nationwide campaign to encourage people to destroy breeding grounds on their private property.

Early symptoms of dengue include fever, joint paint and a distinctive rash and headache, although it can be difficult to distinguish from the milder Chikungunya disease which can last for up to five days. However even healthy adults can be left immobile by dengue for several weeks while the disease runs its course.

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IMF praises managed float of rufiya, “unpredictable” and “high risk” warn local experts

The International Monetary Fund (IMF) has praised the Maldives’ decision to effectively devalue its currency, allowing the rufiya to be traded within 20 percent of the pegged rate of Rf12.85 to the dollar.

“Today’s bold step by the authorities represents an important move toward restoring external sustainability,” the IMF said in a statement. “IMF staff support this decision made by the authorities. We remain in close contact and are ready to offer any technical assistance that they may request.”

The Bank of Maldives was today trading the dollar at the maximum selling price of Rf15.42 and buying at Rf12.75 while the Bank of Ceylon was selling it at 13.80 and buying at Rf13.60.

At a press conference this afternoon, newly-appointed Finance Minister Ahmed Inaz explained that the government decided to change the fixed exchange rate to a “managed float” to shape government policy towards increasing the value of the rufiya and ultimately bring the exchange rate down to Rf10 – an oft-repeated pledge of President Mohamed Nasheed.

The worsening balance of payments deficit could not be plugged without allowing the market to set the exchange rate, Inaz continued, adding that through lowering the fiscal deficit and spurring private sector job growth “a path would open up for us to reach the lower band (Rf10.28).”

“My estimate is that it will take about three months for the market to stabilise and reach a balanced [exchange] rate,” he said.

MMA Deputy Governor Aishath Zahira acknowledged on state television last night that the fixed exchange rate in effect since July 2001 had been “artificial.”

Economic Development Minister Mahmoud Razee argued that as a result of the artificially fixed exchange rate, “we do not really know, based on the breadth of the domestic economy, what the value of the Maldivian rufiyaa is right now.”

The managed floating rate, said Razi, would allow the government to decide specific measures that would be needed to improve the exchange rate – such as the extent to which foreign exchange reserves should be increased.

State Minister for Finance Ahmed Assad told press that TGST (tourism goods and services) receipts in February had revealed that previous estimates of the amount of dollars that enter the country were well below the actual figure. The government now estimates a minimum annual income of US$2.5 billion.

Assad urged citizens to use banks to purchase and exchange dollars to avoid “becoming prey to [black market operators].”

A senior government source said the decision was made based on the government’s speculation “that people are hoarding dollars. We hope this will send a signal to the market. It also shows our commitment to a market economy.”

“High risk”

The government has struggled to cope with an exacerbating dollar shortage brought on by a high budget deficit – triggered by a spiralling public sector expenditure – in comparison with the foreign currency flowing into the country. Civil service expenditure has increased in real terms by 400 percent since 2002.

Banks subsequently demonstrated reluctance to sell dollars at the pegged rate, and high demand for travel, commodities and overseas medical treatment forced most institutions to ration their supply.

A watershed moment last week – a crackdown on the hitherto ignored blackmarket sale of dollars at rates of up to Rf14.5 – led to increasing desperation among the lower-paid of the country’s 100,000 expatriate workers, who found themselves blocked from trading currency and unable to remit money home to their families.

The government’s decision yesterday is effectively a ‘rose-tinted’ devaluation of the currency, at least in the short-term, but according to one financial expert could have unpredictable consequences once the market catches up in 4-6 weeks.

“Other countries have a maximum band of eight percent. I have not come across any countries with 20 percent. I think it’s too wide,” said Ahmed Adheeb, a local financial expert working in the private sector. “Why did the government overshoot the blackmarket rate of Rf14.5, and why did it take them two years to come to this decision?”

Adheeb predicted that the construction industry would be among the hardest-hit, “as ongoing projects will now face additional costs. In addition, smaller and medium-sized enterprises supplying resorts may find that their commission and profit is gone if their contracts are in rufiya.”

The public would also be impacted, Adheeb said, as importers passed on the rising cost of goods.

The devaluation came at the same time as the tourist season was winding down for the year, and pilgrims were searching for dollars for the upcoming Hajj. Pilgrims could be called on to make additional payments, Adheeb speculated, while Ramazan importers could face additional challenges this year.

The general public would be also be impacted as the cost of commodities rises to fill the new exchange rate, Adheeb said, while the government’s commitment to projects such as harbour construction could be delayed due to the risks of taking on even more debt.

“This will also affect business contracts, particularly [those concerning] foreign employment, and students studying overseas,” Adheeb said, predicting that “if the market does not stabilise then in three months time we will see a further devaluation. The government is taking a huge risk.”

Structural adjustments

The move will put the government on good terms with the IMF, which spent last year trying to encourage the government to make difficult political decisions for the sake of the economy, and just stopped short of calling for a devaluation of the currency on conclusion of its Article IV consultation.

The IMF, which has shown resounding disinterest in local politicking, in February 2011 criticised the government for “significant policy slippages” claiming that its failure to reduce its expenditure had undermined the country’s capacity to address its crippling budget deficit.

“On the expenditure side, there have been no net fiscal savings from public employment restructuring, public sector wages will be restored to their September 2009 levels earlier than expected, and the new Decentralisation and Disability Bills will lead to considerable spending increases,” the IMF stated. “Also, the Business Profit Tax will come on stream eighteen months later than planned.”

It did however praise the government for getting much-needed business profit tax and tourism goods and services tax legislation through parliament, signalling that this was a major step towards long-term economic maturity. The bills had faced obstacles in parliament, which includes among its MPs some of the country’s wealthiest figures in the resort industry, and who were instrumental in increasing the budgets sent to parliament by the Finance Ministry.

Opposition Dhivehi Rayyithunge Party (DRP) MP Ali Waheed this morning proposed a motion without notice condemning the government’s decision to relax the dollar exchange rate.

Waheed said that he was prompted to submit the motion out of concern for the plight of Maldivian students in foreign institutions and patients who need to fly abroad for treatment.

The DRP MP for Thoddoo also accused the government of compromising the independence of the country’s central bank by trying to influence monetary policy.

In the ensuing one-hour debate, opposition MPs argued that the immediate consequence of the new floating exchange rate would be a 20 percent rise in inflation.

DRP Leader Ahmed Thasmeen Ali explained that government revenue from import duties would increase by 20 percent but the affected businesses would pass the cost to customers.

“We are in this state because the government increased the [amount of rufiya] in circulation by printing money and taking on credit,” said Thasmeen, in a statement likely to raise political hackles among the ruling party, considering that the IMF has stated that the economic crisis in the Maldives was triggered by “expansionary fiscal policies” from 2004 – under the former administration.

This left the country especially vulnerable to the decline in tourism during the 2008-2009 recession. However the financial deficit exploded on the back of a 400 percent increase in the government’s wage bill between 2004 and 2009, with tremendous growth between 2007 and 2009.

On paper, the government increased average salaries from Rf3000 to Rf11,000 and boosted the size of the civil service from 24,000 to 32,000 people – 11 percent of the total population of the country – doubling government spending from 35 percent of GDP to 60 percent from 2004 to 2006.

While preliminary figures had pegged the 2010 fiscal deficit at 17.75 percent, “financing information points to a deficit of around 20-21 percent of GDP”, down from 29 percent in 2009, the IMF reported.

Adheeb said today that parliament, independent institutions, civil service and political appointees had continued to make salary demands on the state “but nobody is thinking about the economy.”

“Economic decisions are being politicised when the economy should be the first priority – we cannot survive without it. Only then can political stability be achieved,” he said.

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Parliament endorses Naseem as Foreign Minister and Muiz as Attorney General

Parliament has approved the appointment of Minister of Foreign Affairs Ahmed Nasheed and Attorney General Abdulla Muiz.

Muiz was approved by 74 out of the 76 members present while Naseem received 62 votes endorsing him as Foreign Minister, replacing Dr Ahmed Shaheed.

The appointments mark the end of an extensive cabinet reshuffle prompted by the short-lived resignation of Nasheed’s entire cabinet in July 2010, in a statement against what they described as the “scorched earth” politics of the opposition majority parliament.

However under the Maldivian constitution ministerial appointments are subject to parliamentary approval, and the opposition seized the opportunity to vote out seven of Nasheed’s 13-strong cabinet, and the Attorney General, during a vote in November 2010 that was boycotted by the ruling Maldivian Democratic Party (MDP). The vote came after three weeks of disruption in parliament, with some sessions terminated by Speaker Abdulla Shahid – himself an opposition Dhivehi Rayyithunge Party (DRP) MP – mere minutes after opening.

Seven ministers – Finance Minister Ali Hashim, Education Minister Dr Musthafa Luthfy, Foreign Minister Dr Ahmed Shaheed, Fisheries Minister Dr Ibrahim Didi, Home Minister Mohamed Shihab, Defence Minister Ameen Faisal and Attorney General Dr Ahmed Ali Sawad – did not receive a majority of votes from the 42 MPs in attendance during the November vote.

The government had contested that the only way ministers could be removed was through a majority vote of no-confidence, and further argued that parliamentary approval of ministers appointed by Nasheed was a “ceremonial” function.

“No consent does not amount to no-confidence,” the President’s Press Secretary Mohamed Zuhair argued at the time.

The question of whether ministers could perform their duties without parliamentary approval eventually went before the Supreme Court, which ruled in favour of the opposition. A number of Ministers, including Dr Ahmed Shaheed, resigned on the eve of the ruling.

However the opposition’s victory celebration following the December 2010 ruling was short-lived, and came to blows when Umar Naseer, the party’s dismissed Deputy Leader prior to his dismissal by the party’s disciplinary committee, and his supporters gatecrashed the venue. What had been an acrimonious war of words descended into an outright split of the party into factions loyal to either the party’s ‘honorary leader’ former President Maumoon Abdul Gayoom, and elected leader Ahmed Thasmeen Ali and Speaker Ahmed Shahid.

The MDP saw the opportunity to rush the remaining appointments through parliament while the DRP was absorbed in  internal politics; Thasmeen was accused by Naseer’s more uncompromising faction of “secret meetings” with President Nasheed.

In a vote last month, replacement Education Minister Shifa Mohamed (66 in favour) and Tourism Minister Dr Mariyam Zulfa (71 in favour) were approved by parliament. More surprising was that Home Minister Hassan Afeef and Transport Minister Adhil Saleem were both narrowly approved despite being unpopular with the opposition and claims by the party that it would impose a three-line whip to reject the two nominees. Several senior figures in the President’s Office privately acknowledged that they had held little hope for either.

The only casualty was Attorney General Dr Ahmed Ali Sawad, whom Nasheed had appointed to the post a second time after his first dismissal by parliament, and who was ousted by one vote.

That same afternoon President Nasheed appointed State Minister Ahmed Naseem as Foreign Minister and Solicitor General Abdulla Muizz as Attorney General, the subject of today’s approval, suggesting that the MDP may indeed have gained leverage in parliament at the expense of the fractured opposition.

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Nihan renews calls for Nasheed no-confidence motion as DRP factional strife intensifies

Dhivehi Rayyithunge Party (DRP) MP Ahmed Nihan renewed calls for a no-confidence motion against President Mohamed Nasheed, during a rally on Friday.

Nihan said the motion, which requires 25 signatures from MPs to be put before parliament and a two-third majority vote to be passed, was in response to an increase in problems such as gang violence and the dollar shortage.

“Galaxy Enterprises can no longer sell air tickets because of the dollar shortage, and I received at least 20 desperate calls last night from people needing medical treatment who are suddenly unable to travel to Colombo. The public is very unhappy,” Nihan said.

“I strongly believe the opposition should seriously consider this motion because the President is ignoring problems. There is inflation, and people are in a mess and getting reckless,” he said, claiming that Nasheed had been “lying to the country over the extent of the problem.”

The government, and the International Monetary Fund (IMF), have contended that a key contributor to the dollar shortage is the high spend on civil servant salaries in rufiya relative to its dollar income.

The government hopes a reform of the tax system, including a business profit tax and a tourism goods and services tax – delayed in parliament and passed only late last year – will eventually increase its income, but contests that political obstacles prevent it from reducing the size of the civil service.

Nihan acknowledged that while the civil service was “quite large”, blaming it for the dollar shortage was “just an excuse”.

“This country has survived for the last decade as a well-governed country. There was no problem getting dollars on this scale, only now due to mismanagement,” Nihan claimed.

He also acknowledged that even with 25 signatures, the no-confidence motion was unlikely to get the two-thirds majority required to oust Nasheed. It was, he claimed, an attempt “to get the President to take notice of the problems people are facing.”

The brief resignation of Nasheed’s cabinet in July 2010 was in part prompted by letters from six ruling party MPs who claimed they had been offered bribes by the opposition to vote against the party line. As the opposition parties already have a majority in parliament, this was widely interpreted as an attempt to secure a two-thirds majority to remove the President.

Nasheed promptly arrested the respective leaders of the minority opposition Jumhoree and People’s Alliance parties, businessman Gasim Ibrahim and the former President’s half brother Abdulla Yameen, and charged them with treason and bribery.

No charges stuck in court, and Nasheed was eventually pressured by the international community to release Yameen from his “protective” extrajudicial detention on the Presidential Retreat of on Aarah.

The possibility of the Dhivehi gaining a two-thirds majority is particularly unlikely given the recent fracturing of the party into factions loyal to either former President Maumoon Abdul Gayoom or the DRP’s leader Ahmed Thasmeen Ali. Gayoom had endorsed Thasmeen as his successor on his retirement from politics early last year, but cemented his disapproval of Thasmeen’s performance with an open letter faulting his leadership and particularly the party’s dismissal of Deputy leader Umar Naseer, ostentiously for conducting protests without party approval.

During a rally on Thursday, Thasmeen told the press that he could not stand aside and watch when the internal dispute has reached the point where “the people are not sure what the DRP is.”

“When a rally is announced, it’s not clear who is calling for it,” he said. “A person dismissed from the party is using the party’s logo and giving press conferences as the party’s deputy leader.”

As the factional strife has reached “the limit where we can’t remain without taking measures,” Thasmeen said he would bring the matter to the party’s council seeking a decision.

Meanwhile Riyaz Rasheed, the sole DQP MP in parliament, participated in the Gayoom faction rally for the first time, despite the recent coalition agreement between the Dhivehi Qaumee Party (DQP) and Thasmeen’s faction. The party’s existing coalition partner, Yameen’s PA, supports Gayoom.

At the Thasmeen faction rally at Immadhudheen School, speakers strongly criticised Umar Naseer for “disregarding the party’s charter.”

Leading the attack, Deputy Leader Ali Waheed argued that the opposing faction consisted of “presidential candidates who couldn’t get 3,000 votes (Umar) and leaders of parties with less than 3,000 people (Yameen),” and accused them of hijacking the DRP’s membership base.

“These people are holding rallies in DRP’s name because it has 40,000 members. Why won’t they hold a rally in their the name of their own party?”

The Gayoom faction was “obsessed with the DRP” because “when the time comes, it’s the DRP that has the ace of spades,” Waheed said.

“But what they don’t know is that we’re not playing cards,” said Waheed. “We’re playing joker. God willing, we will put down the joker and win the presidential election. When you’re playing joker, the ace of spades isn’t that important.”

Waheed argued that rallies held by Gayoom faction were “in truth Yameen Abdul Gayoom’s presidential campaign.”

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Q&A: CEO of Bank of Maldives, Peter Horton

The Bank of Maldives (BML) has appointed British national Peter Horton to the position of CEO, replacing Ganesan Subramanyam who left the country in May 2010 amidst an internal investigation concerning allegations of sexual assault. Minivan News spoke to Horton about the challenges facing the bank, its strengths and opportunities such as developing the Maldives as an offshore banking destination for nearby emerging economies such as India.

JJ Robinson: What was it about your professional background that makes you suitable for the role?

Peter Horton: The very long story is that I’ve been in banking since 1984, spending the first 15 years in the UK with Barclays (one of the UK’s four major banks). I then moved out to Africa with Barclays operating initially as a risk director for the business, at the time the most profitable part of their business. That was in Botswana.

From there I ran Barclay’s corporate turnaround teams for the whole of Africa, so I have huge experience dealing with distressed portfolios and problem lending. I lived in Nairobi (in Kenya) for three and a half years.

Afterwards I spent time building my own company in South Africa, before going back into banking in the Bahamas with a subsidiary of the Canadian Imperial Bank of Commerce, where I was in charge of corporate banking. If there is any theme in my career it is one of building strong teams and re-engineering teams and businesses internally and externally. In many ways I’m probably more equipped for this role with BML than I first realised.

JJ: What were your reasons for accepting the BML role, how did it come about, and why did you decide to come to the Maldives?

PH: At this particular stage of my career I was looking for the right step in terms of progression and development. This is my first CEO role, although not my first leadership role.

It really fulfilled a number of my requirements. Here is a business with challenges facing it, and a CEO role with some degree of autonomy, and just happens to be in the Maldives. I was happy to come here – although I have limited experience of Asia, my wife is from Indonesia.

I am very hungry to develop myself and I wanted a challenge. I also know that at my age it’s important to advance your career properly, and I never hide from challenges or taking responsibility for my actions.

The bank was looking through many channels to recruit and the role came to me through an HR consultant I was working with in the UK. He recommended it and the rest is history.

JJ: Did you hear anything about the fate of your predecessor?

PH: It’s fair to say is that Google is a very powerrful tool and I’ve seen a lot of things, some of which might be true and some might not. Obviously on arriving here it was very important to understand the history of the business. Certainly I’ve taken time to understand some of the challenges the business has had to face in the last few years.

My predecessor did go some way towards making changes in the business, and I needed to understand where it was going to. I’ve spent the first two months learning the recent and distant past.

JJ: What do you see as the key challenges BML is facing?

PH: I think many [challenges] will dovetail ino each other. We have a very public and a very high non-performing loan problem. Whereever you are in the world, that is an impediment to any bank’s performance, and it has a carrying cost. It also creates a certain mood around the business internally and externally.

The economy we are operating in creates a challenge. We like any bank in the Maldives are restricted by the size of our balance sheet and in respect of having a single borrower limit, and also crediential industry limits. Knowing that the bulk of the industry here is tourism, but also having a limit up to which we are not able to lend any more to tourism, becomes a constraint and a challenge.

I think the other challenge we face is around service. I think this business grew very rapidly, not just the loan base but in terms of customers, especially if you look at what BML was 10 years ago.

That goes some way to explaining why we have such big queues in the banking hall. When I came out for my interview I took the time to walk around Male’ several times – and go in very incognito to see the BML branch. I have to experience what the customer experiences , and I don’t think that experience is what any of us want.

So for me a challenge is to create a great customer experience. That is a challenge: serving the segments we have chosen to serve, but acknowledging some aspects in which we have to do better. Some of that is service, some of that is embracing new technology, other looking is at our processes. The customer base often grows faster than processes.

Those are the key challenges: a challenging and relatively flat economy – we haven’t even touched on the dollar shortage – a high level of non-performing loans, concentration of activity in the economy which is at odds with what any bank has to have for a balanced portfolio, and personal service issues.

JJ: What are some of the ways you are planning to address these challenges?

PH: Without sidestepping the question, I am at the point where I am formulating a bigger strategy for the bank and it is only correct that I speak to the board and engage them first.

What I can say is that every single one of those issues we can address, and we can deal with. None of the challenges I’ve outlined daunt me. What I do not want to do is to rush into inappropriate quick fixes. I want this business to be successful in a very sustainable way.

We can talk about the challenges, but also focus on the upsides of the business and start to capitalise on them better than we have been.

JJ: What are some of key areas of potential for BML?

PH: Some of this is again part of the strategy. But as to the strengths: we already have some great innovation within BML. We issue credit cards, debit cards, and have invested substantially to be a card acquirer serving domestic and resort communities. We have unparalleled reach in this country. We are in every atoll and do our best to reach clients even if we don’t have a branch near them. It might not be the best in some respects, but we are trying.

We bank more parts of the sector in this country than any other bank, and we have some outstanding talent within our business.

JJ: One of the perceptions here is that despite the resorts being a major part of the economy and certainly moving a lot of money around, they tend bank outside the country – either because of concerns relating to the stability of the Maldivian economy, dollar issues, or because they already have a head office based overseas somewhere like Singapore or Thailand. Is there an issue attracting these businesses to bank locally?

PH: Every international business is going to to an international treasury function. I’ve seen it in Africa and the Caribbean. They will move funds around as it suits them best, and it isn’t necessarily negative towards the Maldives. [A company] in Sydney might have an offshore unit in Singapore for tax reasons because that suits them better.

If we were able to provide an offshore banking alternative, it is not inconceivable that the Maldives would attract some of that global flow of cash by having a favourable tax jurisdiction here. It is certainly a big plus.

I think that’s always what you are up against in terms of flow of cash. Ways we can attract more dollar flow to stay here is  probably by lending more dollars to make it stay here. If I am lending in dollars I am making a dollar profit – that dollar profit stays here because we don’t have dividends going outside the country. If we’re able to address the balance sheet and dollar contraints we have, that to me would be a way to increase the level of dollars that stay in the country.

Merchant services is one aspect – whilst the dollars might flow out of the country, we do make a profit on it – a profit I can lend, because my profits stay here. Beyond that it is very difficult to dictate to people where their cash should and shouldn’t be, and the decsions are largely dictated by people outside the country anyway, at least for the international groups.

JJ: What were some aspects of the Bahamas’ approach in making itself a favourable tax environment for attracting offshore banking, and are they things that can be applied in the Maldives?

BH: Some of it is historic [in the Bahamas], and that can be an advantage and a disadvantage. It is a disadvantage because you get very staid in your ways and you don’t move as quickly as you should. But the advantage is that you build up in your economy local and imported people who are experts in these areas. The legal and accountancy professions are very experienced in the industry and there are lots of local staff who are qualified trust professionals.

But some of the things that are a real advantage – a colossal advantage – is the Bahamas’ geographic proximity to the US mainland. But if you look at the world’s emerging economies, which are moving West to East, our proximity to India and to a lesser extent Sri Lanka, and with direct flights to most South-East Asian cities, should be a huge advantage for us.

The majority of offshore banking centres do rely on imported people and instiutions. They are truly migratory these days. We are in a global economy now where things move overnight, so if you were able to do the things to attract people, it is very, very doable.

The other thing is having sufficient protection around the business – having a strong regulator, a strong legal system, and probably some degree of monetary protection. If a private bank is bringing dollars into the country, there needs to be some degree of certainty that the dollars can sit in the country quite safely. A lot of the things are already here, and not many things need to be done. There is certainly quite a lot of sophistication in the Monetary Authority, certainly the Maldives’ geographic location is a huge plus, and you already have a tax regime which is friendly to anybody, more or less.

It is doable, but it shouldn’t be considered easy. You also have to decide on a specialisation – if you look at the Carribbean, jurisdictions tend to specialise in one area so you have to pick what horse you’re going to ride as well.

JJ: The ongoing dollar shortage is now among the top issues everyday people in the Maldives are facing. What is your impression of the origins of the dollar shortage, how it can be addressed, and do you agree with the government that it is an internal problem, or is else a product of outside factors?

PH: I’ve only been here for seven weeks so it is difficult to say. A reality of the economy is that we are importing so very much, and we have so few dollar generating industries. In very simple terms, any downturn in the economy incur losses in the economy when turnover drops below break-even level. That is where we are as an economy – our revenue in dollar terms, in terms of the imports we require, is lagging.

We need to look at ways of keeping dollars in the country as much as possible. You touched on the fact that a number of entitites are taking money out of the country – and are free to do so without exchange control. I think we also need to look at other ways of enhancing dollar revenues through fresh or new industries – and I would include financial services among those industries.

It is also an impact of the global [economic recession], and there are only so many things the Maldives’ economy can do. I know too little of the history of the dollar shortage to know the precise causes of it, but I agree that it is a real challenge facing the whole country right now.

JJ: One of the perennial issues is that most of the banks impose a quota on the amount of dollars they exchange for rufiya every day. Obtaining those dollars seems to be an issue of personal connections at whatever bank you happen to bank at – an issue of who you know. Do you forsee a situation where there will be a free-flow of dollars in the near future? Or do you think it will get worse before it gets better?

PH: I can’t really say if it will get worse before it gets better. I don’t see it [improving] in the short-term without some form of intervention, and correction of what is a difficult day-to-day problem for us. I think it may be as good as it gets right now, and it will be something more than today’s economy that will be required to correct the issue. It is hard to say – it is not going to get much better.

JJ: How does the dollar shortage affect the banks? The government is struggling with the problem and people are quick to blame “greedy banks hoarding dollars”.

PH: As all banks do we have an assets and liabilities committee and that is a sign of a bank very actively managing its balance sheet and its liquidity. As with every bank right now, you have a number of calls on your dollars. You have dollar committments yourself – you may have intermediary credit lines, commitments on credit card settlements you have to meet. If you are issuing credit cards to people using them overseas, that is a cash cost to me. We also have committments to try and help our customers as best we can.

However the inflows of dollars we have are really only in two areas – one is acquiring credit cards, so all the dollars from tourists using credit cards come through our accounts and might not stay with us, but we do make some fee income on those [transactions], and the second area is our lending. Hopefully what we earn on our loan is more than we lend once we settle our funding cost. It is a daily job managing that liquidity. We don’t have the luxury of not being able to monitor it closely.

[The dollar shortage] is very challenging for us because we see customer needs we are unable to fulfill, whether it be the guy trying to get money for medical treatment or the trader trying to buy goods from overseas, and we just can’t provide it because we haven’t enough money. We are credentially holding sufficient dollars to cover our short, medium and long-term commitments – which we have to, and which will be our first priority always. However after fulfilling that requirement we not hoarding any dollars – we are doing our best to satisty as many people as fairly as possible.

The challenge for us is that as a bank for the masses that is a very broad spectrum of people – we try to devise systems that are even-handed and fair, but it is difficult to satisfy everybody.

JJ: What kind of impact does it have on foreign investment when you go to a bank and find a withdrawal limit on your account, or a set exchange you can do in a day?

PH: A lot of the foreign investors will almost see their investment as being in a different country [to the Maldives], because you have a domestic economy and an international economy here. The resort business, which is substantially where the international investors are coming from, has clear dollar flows, and no restrictions on funds being repatriated.

Those companies can only speak from their own personal experience, and their own personal experience is probably that they’ve never had a problem getting money out of the country when they’ve needed to, after they’ve fulfulled their obligations.

I think for those without dollar inflows, it is a challenge. Anybody doing due diligence in the country is probably going to look at that as an issue. It is less of an issue if you are in a dollar-dominated business – I’ve spoken to resort owners who have a problem paying their workers because they are trying to get cash from the bank. You could argue that’s a separate matter, but for the bulk of international investors it’s probably not an issue.

If I was coming in to invest in something that wasn’t exclusively earning dollars, then I would have a problem because any investment you make is on the basis of a dividend coming to you. If you can’t repatriate money – through a dividend or a head-office charge – then the uncertainly would make it a consideration for you. Whether it’s a deterrent depends on the potential profit and competitive advantage, and that might be big enough to mitigate those issues. But it is undoubtedly an issue for incoming investors.

JJ: The MMA has been quietly replicating a successful mobile banking system popularised in Kenya by Safaricom’s M-Pesa. What is the status of mobile banking here and what kind of impact do you think it could have?

PH: The first thing about M-Pesa is that it is a cellphone company initiative – Safaricom – as opposed to what MMA is looking at here, which is a bank-led initiative.

JJ: Didn’t Safaricom effectively become a bank?

PH: Yes, but interestingly – and I havent reasearched it enough – they are taking deposits, but are not registered as a bank. The way they get around it is by converting deposits to ‘mobile currency’ which has a 1:1 value with the local currency. They buy and sell that currency at time of deposit and withdrawal – a highly successful model.

Yes the MMA have been engaging with BML, I have reviewed some of the material, but I’ve asked MMA to share more information with me. We already have a mobile banking option as part of a suite of electronic banking options that we offer to our clients. I think the sentiments and objectives of the MMA are first-class, which is to reach the unbanked, or partially banked. We have been doing that as BML – we have branches in the atolls, and we have a dhoni going around the islands – I suppose having a floating bank really is mobile banking!

I think the whole area of using techonlogy to break down barriers is exciting and appropriate, however within that there are solutions that are not appropriate and there solutions that are appropritate.

What we have to do is be careful and not rush in because something looks wonderful but is not right. At this stage we have to tread carefully to make sure it is right for customers primarily, and commercially right for the bank. We cannot enter into things that are substantially loss-making to us, or substantially wrong for us in terms of the risks it exposes us to. Equally we wish to the serve the customers, that is something we can achieve.

I’m very mindful of the difficulties some people have banking with us right now – or in having access to banking at all. I do want to bridge that, and that is a mandate that is implicitly BML’s. Once you are a bank to the masses you are a bank to the masses for life; you can’t go backwards from that.

We are genuinely proud of that, but it is important to look at how we can do it efficiently, with good serivce, and as a cost to business. It should always be profitable – we are not here to be a charity.

JJ: How much autonomy does BML and the CEO’s position have? How far are you able to operate independently of the MMA or the government?

PH: We have a very active board, and it is a board with plenty of experience in many different directions. The relationship between the board and its sub-committees are excellent, and I don’t want autonomy that doesn’t have that. We have a very strong corporate goverance structure and I think that comes out of the previous areas of criticism of the bank, which have since been corrected. They are robust and they work.

We work with the regulator, and I haven’t seen anything that would stop us working as a commercial entitity. We are commercially focused and operate as a commercial entity. I have not sensed any politics in my time so far, in terms of the business.

We know we’re regulated and have a generally good relationship with the regulator. I’ve met with officials and they are doing their job properly and professionally. I don’t feel constrained, but neither do I feel I can run off and do crazy bad things. Which is how it should be – we are properly regulated and governed.

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Expatriate workers becoming “very desperate” in wake of blackmarket dollar crackdown

Low-wage expatriate workers in the Maldives are becoming increasingly desperate in the wake of a government crackdown on the blackmarket exchange of rufiya into US dollars.

Many of the country’s 100,000 foreign workers, particularly a large percentage of labourers from Bangladesh, are paid in Maldivian rufiya by their employers and are forced to change the money on the blackmarket at rates often several rufiya higher than the government’s pegged rate of Rf12.85, before sending the money to their families.

Banks have been reluctant to sell dollars at the pegged rate in more than token quotas for much of the last year, a symptom of the ongoing dollar shortage – even those with dollar accounts have reported difficultly withdrawing cash at the counters without appropriate connections within financial institution.

Several expatriate workers Minivan News spoke to expressed frustration that banks were refusing to exchange rufiya to dollars, only to hand over money to local residents next in the queue.

A well-known figure in the Bangadeshi community, Saiful Islam, who has been in the country for 28 years, told Minivan News that many people were becoming “very desperate.”

“They are struggling to get money remitted to relatives and parents at the other end. This is a very desperate situation for them,” he said.

“There are some people who work in resorts and who are paid in US dollars who travel to Male’ and sell them at a much higher price than the government’s [pegged rate] of Rf12.85, sometimes as high as Rf14 or Rf15. There are people who are so desperate they will buy dollars at any price because they have no other choice,” Islam said.

“Without taking this demand into consideration, I don’t think a crackdown will work. I don’t think it is unfair to abide by the rules when you are in another country, however that changes when people become desperate – look at people in Libya, do you think they will apply by the government’s rules and regulations?”

“There needs to be an outlet where they money can be changed to US dollars, even 50 percent of it. Otherwise, why are they here? They have a big family at the other end who depend on their income.”

Unable to change money legitimately and under pressure to provide for families at home, and unable to leave due to the expense of air travel, debts owed to unscrupulous recruiters or common practices such as employers holding workers’ passports until the conclusion of their contract, many workers are functionally left without options other than to risk arrest.

Bangladesh’s High Commissioner to the Maldives, Rear Admiral Abu Saeed Mohamed Abdul Awal, acknowledged the problem was one that ”all expatriates face, because all their revenue is earned in local currency, but when they go to pay remittances it must be paid in dollars.”

The crackdown, Awal said, was the government’s prerogative, “however our concern is the payment of expats in local currency. There needs to be a proper government arrangement for repatriating salary.”

“This has become a pressing problem and a serious concern, however the availability of dollars is a longstanding issue. The issue of dollar scarcity is an internal matter for the Maldives.”

The President’s Press Secretary Mohamed Zuhair told Minivan News that there was an “expatriate element” to the dollar shortage faced by the Maldives due to the high numbers of “illegally-employed workers buying dollars on the blackmarket and transferring them overseas.”

Zuhair claimed that every expatriate arriving in the Maldives came in on a contract “stating what currency he would be paid in. The onus is on the employer to pay in US dollars.”

“If [the worker] accepted a contract paid in rufiyaa, then if he wants to send dollars back to his country he will have to change it at the bank when and if that is possible, or on the blackmarket [and risk arrest]. Banks have a quota at which they sell dollars based on need and supply.”

Zuhair said the police crackdown targeting the illegal sale of dollars by both licensed and unlicensed vendors had made “considerable progress, with two arrests.”

“The government hopes [the crackdown] will stabilise the dollar market, black or otherwise, and create a scenario whereby the dollar dips so anyone hoarding dollars will release their reserves,” he said. “We have the numbers and the numbers are clear: we have enough dollars in the country.”

Meanwhile, Zuhair said, the government was seeking to replace the Governor of the Maldives Monetary Authority, Fazeel Najeeb, “who has not effected any changes to rectify this situation.”

“Najeeb is known to be affiliated with the People’s Alliance (PA) party and its leader, Abdulla Yameen, the former Minister of Trade and half brother of the former President. He is said to be a guarantor of the former regime and retains tight control of the MMA,” Zuhair alleged.

“From the government’s point-of-view the MMA needs to be much more involved in the current situation, rather than the Governor being away on study leave. It has not released a single piece of regulation to address this issue.”

Islam meanwhile pointed out that the government had long been stating it intended to reduce the number of expatriates working in the Maldives – currently a third of the total population – “but we do not see this happening in practice.”

“Every day a lot of people are still coming into the country, on tourist visas from countries such as Sri Lanka and India,” he said. “There are very few genuine tourists arriving from Bangladesh, mostly they are on work permits. Why are they being allowed in without any work being attached to the work permits?”

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