Rise in blackmarket exchange rate no setback for currency stability aims, claims Economic Development Minister

Two months after the government announced plans for greater economic stability by devaluing its currency against the US dollar, the Maldives’ Economic Development Minister has said increases in black market exchange rates are no setback to the country’s long-term financial aims.

Amidst local media reports that the value of the Maldivian rufiyaa – capped until April this year at Rf12.85 against the US dollar – was trading at Rf16.5 on the black market, Minister Mahmood Razee said that authorities would likely wait for an allotted three month-period to pass before considering any additional financial support measures.

Despite this approach, the Maldives National Chamber of Commerce and Industry (MNCCI) has claimed that local enterprise is not being supported by financial institutions like banks in terms its needs – particularly for importers reliant on foreign currency to bring in goods to the market.

However, sticking to earlier estimates that the managed float of the rufiyaa within 20 percent of the 12.85 exchange would require about three months to begin to bring stability, Razee claimed that it remained too early to say if additional support measures were needed from the government to bridge the dollar supply.

“I don’t see the black-market exchange rate as a setback as it is low [tourism] season right now, meaning we are earning fewer dollars,” he said. “Now it has been a couple of months since we changed the dollar rate. When [the currency float] was announced in April we said it will take around three months to see if the rate will stabilize. We do not know yet whether there is just a dip in [dollar] supply or something else.”

When addressing potential changes already bought about to the exchange rate since the dollar float was introduced, Razee said he believed it remained too early to speculate on what longer term impacts had taken place in regards to the availability of dollars.

The Economic Development Minister added that if there were no signs of stabilisation by next month, then he expected the Ministry of Finance to begin looking at additional measures to try and bring some market stability to the economy.

“I’m not privy to the exact information on what these measures could be right now,” he said. “What we have been doing is working with national authorities in markets like India to see what means of assistance there might be.”

The rufiyaa has sat at the maximum limit of Rf15.42 following the government’s managed float of the rufiyaa within a 20 percent band.

Treasurer of the Maldives National Chamber of Commerce and Industry (MNCCI), Ahmed Adheeb Abdul Gafoor, told Minivan News that he believed that the managed currency float had served only to exacerbate the difficulties facing local businesses that were being given little choice other than to rely on black market exchange rates.

“The banks are not providing dollars to businesses, especially for importer and traders who are the backbone of the economy and vital to distributing goods,” he claimed. “With Ramazan ahead, we have been told that the State Trading Organisation (STO) will be providing 27 goods and commodities at stable prices, but we will have to see if this is possible.”

Adheeb claimed that in the immediate term, banks had simply not been providing additional credit lines for businesses requiring foreign currency exchanges, a demand he said that was having to be satisfied through additional financial channels.

“The solution I believe is that banks will have to provide,” he said. “Credit card payments are being settled in rifuyaa, yet many importers are not being satisfied when it comes to their own needs.”

Speaking as a private citizen Adheeb said that more changes were needed in how banks dealt with business as well as how government were looking to encourage sustainable foreign finance.

“We have seen no encouraging signs [from the float] and I don’t think this is a good policy at this time,” he said.

The MNCCI treasurer said that he believed that alongside government talk of minimum wages, it would be wise to discuss maximum wages in certain cases to try and balance national; budget more effectively.

“I don’t understand why this is a policy not being discussed,” he added.

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28 thoughts on “Rise in blackmarket exchange rate no setback for currency stability aims, claims Economic Development Minister”

  1. OMG. Just require greater capital retention by forcing all capital and foreign exchange to be kept in the country for the period of a month instead of all transactions occurring between banks not based in the Maldives.

    This alone would allow for there to be more Foriegn currency on the country, stabilizing banks and making them more competitive. Unless the MNCCI is willing to support this move they should just be quiet. And executive needs to stop being scared of implementing REAL measures!

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  2. "However, sticking to earlier estimates that the managed float of the rufiyaa within 20 percent of the 12.85 exchange ..."

    Why mislead people, Neil?
    The Rufiyaa was NOT flaoted within 20 percent. It was floated within 40 percent.

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  3. "The rufiyaa has sat at the maximum limit of Rf15.42 following the government’s managed float of the rufiyaa within a 20 percent band."

    Misleading again, Neil?
    The Rufiyaa was floated within a 40 percent band.
    Its 12.85 plus or minus 20 percent of 12.85. So the band width is 40 percent.

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  4. @Salim Waheed

    "Just require greater capital retention by forcing all capital and foreign exchange to be kept in the country for the period of a month instead of all transactions occurring between banks not based in the Maldives."

    This is total nonsense. Even if you actually managed to pass such legislation, there'll be very little benefit to either the banks or the country. Here's why:

    Almost all foreign currency earners need to use that currency to pay most of their bills in a foreign currency. That means, for example, a tourist resort earning USD will immediately need those USD to pay their creditors. Whatever is left, will not be kept sitting in bank accounts! That's just not how businesses operate.

    Apart from maintaining a certain amount of cash liquidity, the rest gets poured into investments and not left in bank accounts that earn a pitiful amount of interest.

    If you do not understand this, then get some lessons on business and finance!

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  5. It will not work. Let Hon. Razi take another one month for him to know it did not work. Why did Mr. President think he is the best person in everything. trail and error system of governing is very costly for the country. The dollar problem wasn't debated discussed with the business community. Hon. Razi can ask his partner Le_Cute Majid how much was he buying dollars last two months? Ask MNCCI what there members are saying. Instead of wanting to know the fact I am sorry ti say Hon. Razi also dancing to Mr. President tune and we will not be surprise he will join the next Dance session of Mr. President sung by Mariya and Moosa.

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  6. Rooster-

    "within 20 percent of the 12.85"

    A percentage is the amount in each hundred of a number, the number here is 12.85.

    Within 20% is correct.

    The people misleading you are opposition sponsored prophets of doom, who are on TV every evening with a new prophecy....

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  7. Confused,

    I believe he means having regulations that require companies and resorts to maintain a minimum amount of capital/foreign exchange in the local banking system - which would definitely help alleviate this shortage. This is already done in several other countries.

    Rooster,

    I think you're mistaken. It's a band of 20%, meaning it could be 20% more or 20% less than the value.

    It's like in Science or statistics, when we say an error margin of say, 5%, we mean a 5% deviation (positive or negative) from a mean value. Definitely not 10%.

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  8. The executive knows what its doing okk.

    You wanna hold a grudge- I'll show you a grudge. Ready be to swallow it whole ingeythoa...meheh. Can you handle being hunted to the ends of the earth by elementals?. Or would rather believe i knew even then .

    The dollar, pound, euro ponzi scheme will soon exit the building.

    nylon_kaboom

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  9. @ peasant

    "A percentage is the amount in each hundred of a number, the number here is 12.85. Within 20% is correct."

    Please, dear peasant, will you show me your calculations so that I will know how you arrived at this conclusion?

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  10. @ yaamyn

    "I think you’re mistaken. It’s a band of 20%, meaning it could be 20% more or 20% less than the value."

    Yaamyn, if the BAND is 20 percent, it cannot be 20 % more or 20 % less.
    20 percent plus and 20 percent minus will make the BAND 40 percent. Go figure.

    "It’s like in Science or statistics, when we say an error margin of say, 5%, we mean a 5% deviation (positive or negative) from a mean value. Definitely not 10%."

    You are mixing the two here.
    If we say an error margin is 5 percent, normally it means the BAND is 5 percent.
    But if we say an error margin of plus or minus 5 percent, it means the BAND is 10 percent.

    The US dollar was "floated" at a rate between Rufiyaas 10.28 and 15.42.
    This has a BAND of 40 percent.
    Ask anyone who knows a bit of maths.

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  11. Rooster,

    Sorry, you are right. BW is 40% and 0.5BW is 20%.

    Whats is the difference between std & variance?

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  12. Previous 'yaamyn' at 15th Jun 2011 3:49pm is a troll. *sigh*

    I admire this guy's tenacity though. Not many people are fortunate enough to have as much free time on their hands, or as little outdoors life.

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  13. @Rocket-

    Here are my calculations as requested..

    (12.85/100)x20 = 2.57 (this is 20% of 12.85)

    Therefore

    12.85-2.57 = 10.28 (the lower limit)

    and...

    12.85+2.57 = 15.42 (the upper limit)

    It is incorrect to say the band is 40% between 10.28 and 15.42 because

    (10.28/100)x40 = 4.11

    and...

    10.28+4.11 = 14.39

    Therefore if it was indeed a 40% band as you describe it would be between 10.28 and 14.39

    or...

    if you calculate 40% of 15.42 (which is 6.16)and deduct it from 15.42 (you get 9.25)and the band should have been between 9.25 and 15.42, incorrect again....

    These are not just semantics..... what is being stated here is a 20% "band"; that is 12.85 is the center of the band, with a range of 20% above or below it.

    I hope it's clear.

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  14. * apologies, my comment Wed, 15th Jun 2011 7:01 was addressed to Rooster not Rocket

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  15. @ yaamyn

    "Previous ‘yaamyn’ at 15th Jun 2011 3:49pm is a troll. *sigh*"

    At least the troll knows better maths than the real Yaamyn (I mean, Yaamyn the blogger 🙂 )

    But yaamyn, you really should give up your explanations of your 'troll.' We all know who John is. Don't we, peasant?

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  16. @ peasant

    "apologies, my comment Wed, 15th Jun 2011 7:01 was addressed to Rooster not Rocket"

    And here I am wonderwing how you could forget that it was me, Rooster and not Rocket who asked you to give the calculation. 🙂

    But peasant, yours is the most hilarious bit of math I have seen in ages.
    No wonder you think I am misled by "opposition sponsored prophets of doom."
    And thank God you are not our finance minister.
    Thank God also that you are not my accountant.

    To the real issue ...
    Your calculation upto the point you got the figures
    10.28 ( as the lower limit)
    and…
    15.42 ( as the upper limit)
    of 12.85
    is correct.

    The rest is what, I would like to call, an attempt by the ruling party sponsored peasant of doom to mislead and confuse people who do not know 2+2 = 4.
    There will be very few who knows this that would be misled by your figures.

    Back to the point ...
    So...
    Plot your 12.85 on the horizontal axis of a piece of graph paper.
    20 percent to the left of 12.85 is 10.28
    20 percent to the right of 12.85 is 15.42
    Now, please tell me how the width between 10.28 and 15.42 is not 40 percent.

    What you have done is you have calculated 40 percent of 10.28 (I don't know for what) and muddied the calculation.

    Its a simple calculation and I don't know why you should make such a complex mistake on it.
    But i am gald that you have at least tried to exercise your brain.

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  17. Dear Jeff Salim,

    "Unless the MNCCI is willing to support this move they should just be quiet."

    Shows your values towards democracy and civil society. You dont know anything about Maldives including Dhivehi, and it is shame you and your family is enjoying the luxury while ordinary citizens are suffering.

    But yet you think you know everything including finance and economy..

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  18. Rooster,

    I don't know who is a troll or blogger, does it really matter? Sure, it's a concern for him but, this isn't about Yaamin.

    The troll agreed with you, so of course he is right.

    Maybe you or the troll can tell us how you arrived at your conclusion? And perhaps refute what I have shown earlier.

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  19. @Rooster-

    What I was saying is you need a single point of parity (12.85) which you seem to agree, with your graph.

    The reason why this can't be expressed as a 40% band is because-

    If hypothetically the value of Rufiya was 10.28 and increases to 15.42 the next day......would you describe it as a 40% increase?

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  20. @ peasant

    " If hypothetically the value of Rufiya was 10.28 and increases to 15.42 the next day……would you describe it as a 40% increase?"

    Peasant, no one is talking of a 40 percent increase.
    This is where you are wrong.

    I am talking of a 40 percent BAND in which Rufiyaa was floated.
    This is different from a 40 percent increase.

    I will try to explain in a different way.
    You seem to agree that the range of this band is between 10.28 and 15.42.
    Now, 40 percent of 12.85 is 5.14.
    The differene between 10.28 and 15.42 is also 5.14.
    So the band width is 40 percent; 12.85 sits in the middle of this band width.
    I hope this time its clear.

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  21. @ peasant and rooster, enough you two... your are missing the point here. you cares about 20% or 40% or 'within' or 'band', the fact of the matter is lower allowable rate is 10.28 and the higher allowable rate is 15.42. But this is not working, not working yet...put your intelligent minds on something useful.......

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  22. This is very true by an economist and especially by the minister of finance!

    But it is questionable if the reality can be swallowed!

    The system of lord and vassal has never left us ever!

    The reality is cost of living is going up. But the pay-cheque never realises it!

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  23. @ mohamed

    I was trying to tell peasant that it is really a 40 percent band with which the Rufiyaa was floated. He does not understand that it is 40 percent and thinks that I am saying this because the "opposition sponsored prophets of doom" are saying so.

    I agree with you.
    Its not working.
    But then, what do you expect?

    The title of this article says: "Rise in blackmarket exchange rate no setback for currency stability aims, claims Economic Development Minister."
    I am tempted to say 'what else do you expect him to say?'
    Is the Economic minster going to tell us that its not working?
    I do not expect suck a thing from MDP.

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  24. I agree with what Adheeb says the only outcome of the managed float is increase in price of consumer products. I also agree that government need to discuss the issue with all stakeholders to find a solution!

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