The government’s decision to devalue the rufiya and replace the fixed exchange rate with a managed float marks the failure of its economic policy, claims minority opposition People’s Alliance (PA) Leader Abdulla Yameen Abdul Gayoom.
Addressing supporters at the ‘Gayoom faction’ rally last night, MP Yameen, half-brother of former President Maumoon Abdul Gayoom and long-serving Trade Minister in his cabinet, argued that the only circumstance where devaluation was advisable was to make the country’s exports cheaper and more competitive.
“[But] if the country does not produce a lot of goods for export, there will be absolutely no benefit from devaluing the currency,” he said, adding that the decision to devalue was both “political” and “an admission of failure.”
Following its inability to deal with the dollar black market two years after the formation of a parallel market, “what the government did was arrange a mechanism to auction the dollars [that they believe is being hoarded].”
The decision to devalue was therefore “political” as opposed to based on sound economic reasons, he said.
Yameen added that he believed the exchange rate would never fall below the pegged rate of Rf12.85.
“Since the way to get a good price for a scarce commodity is through an auction, they had to do this out of necessity and as a last resort, because they have no other way,” argued the MP for Mulaku.
However, he continued, the changes would be to no avail unless the country’s ballooning fiscal deficit is substantially reduced as urged by the International Monetary Fund (IMF).
Yameen went on to lambast the government’s infrastructure projects as well as preparations for the upcoming South Asian Association for Regional Cooperation (SAARC) Summit to be held in Addu City as “unnecessary spending.”
Conceding that floating the rufiya could solve the black market problem, Yameen however argued that those who had dollars would hesitate to release it if they did not have confidence that the rufiya would not depreciate further.
As a consequence of devaluation, Yameen predicted, inflation would rise by 30 percent: “For a person who gets Rf1,000 [as income], the value of what he can spend is actually Rf600, because of inflation. So, for example, if a can of Nespray [powdered milk] is sold for Rf28 today, with the change in the price of the dollar, we are saying it is going to cost Rf38…the biggest burden will be borne by the poorest.”
To back his assertion, Yameen referred to GMR’s recent 50 percent hike of lease rents at the Male’ International Airport, a decision likely to lead to a corresponding increase in air fare for domestic travel.
President Mohamed Nasheed meanwhile insists that the economy would stabilise over the course of the next three months and that the managed float was necessary “to ensure long term stability and prosperity of the Maldives.”
MMA speaks
Breaking its long silence on the dollar shortage, the Maldives Monetary Authority (MMA) issued a statement Thursday estimating that allowing market forces to determine a price within the 20 percent band of fluctuation would “solve the present dollar shortage in the near future.”
“We would like to take this opportunity to inform the Maldivian people that the MMA has undertaken various different efforts to solve the foreign currency problem,” it reads, adding that the central bank was in the process of strengthening the legal framework for monetary policy.
The MMA statement reveals that the Maldives had a managed floating exchange rate between Rf8.50 and Rf11.50 from 1987 to 1994.
On April 10, 1994, the floating rate was replaced with a fixed peg, which was then increased by nine percent in April 2001.
While dollar shortages had been experienced “occasionally in the past” due to strong demand coinciding with the Hajj (pilgrimage) or school holiday season, the MMA explains, an expansionary fiscal policy since 2004 coupled with the global recession in 2009 led to the formation of the dollar black market.
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Dear Abdulla Yameen Abdul Gayoom blame this to your half-brother who handed over emphy coffers to Anni. For the first time, things are moving for better in our country. U being politician (sic) and in opposition definition will cry foul every now and then. Be a Maldivian now for a change and stop yamming.
Zeenat is partially correct.
Gayoom mismanaged and he did hand over our coffers to Anni penniless. But this is only half of the story.
Look at the figures and see for yourself what happened in the last 2 and half years to (i)domestic debt (ii) external debt (iii) budget deficit (iv) debt service ratio (v) broad money in the last 2 and half years. These data is accessible on MMA's statistics published on www.mma.gov.mv.
Also see what happened to this country's ranking in (i) Transparency International's Corruption Perception Inded (ii) World Banks Doing business index in the last 2 and half years. These are accessible on the respective websites.
Anni had the opportunity to do something about the mess Gayoom created. But instead of trying to solve our financial problems he only exacerbated a situation that was out of control by adding so many unwanted political posts and 'do good' projects.
The truth is both Gayoom & Anni mismanaged big time!
Yameen makes some valid points - but the jump from understanding the situation to blaming the current government cannot be done so easily.
So here's what we know:
The true cause of the devaluation was that there was too much MRF and not enough USD and...
It is argued that there is too much MRF because Govt spending is too high
So the question is whether the current government can be blamed for not controlling govt spending.
The current govt did TRY to curb spending - given more than 60-70% of govt spending was on civil servants (and note that political appointees taking massive salaries were only 3-4% of this itself) - but this resulted in Mr. Yameen and his company going out on the streets to lambast the government for CUTTING govt spending.
Sure MDP should have stuck to its guns and not allowed the civil servants salaries to rise back again this year (to coincide with council elections!!) but Mr. Yamin can't now go and criticize the govt for INCREASING govt spending again.
Now Mr. Yameen then talks about the deficit - but the other half of the deficit to government spending is government revenue. But Mr. Yameen and his co. effectively opposes ANY increase in taxes - corporate, income - or raise revenue through privatization.
So basically for the MDP its damned if you do...and damned if you dont
The real question that someone should now go and answer is - what exactly is this ballooning govt deficit going on. Somebody should do a thorough analysis of government spending and find this out!!
Anni is Idiot.
Can Ali Imraan do a through analysis of the situation and make policy recommendations to the government? PLEASE
According to leaned people at MMA, this is a depreciation NOT a devaluation. Why is everyone saying this is a devaluation.
Can some one explain..
We don't trust MMA and the governer. It is a failed institute and need 100% reform. We neither trust this governmet. It's economic policies have already failed. The presidents uttered all nonsense saying that the dollar rate will soon come down. We have reasons to be pessimistic in this case. The only solution I see is to bring another HONEST dictator as our leader. Maybe we can outsource our administrative work to Lee Kuan Yew of Singapore.
"Yameen went on to lambast the government’s infrastructure projects..."
So, let's see. After spending 90% of its revenue of public sector workers pay, it has 10% for everything else, including infrastructure.
Now, Yameen wants the government to stop all infrastructure work as well. Stop building/repairing harbours, roads, sanitation, electricity etc.
According to Yameen's view, the government should now INCREASE the salaries of public sector workers. Effectively, the learned scholar Yameen is advising the goverment to just spend ALL of its money on salaries. Yameen, I just have one word: Nice!
@confused - these are just terms they use to confuse us. Rf ge agu dhavvee. Regardless of what they may call this value of RF went down by over 20%. thats it.
People. my fellow country men. yameen is an irrelevant character. he's just got a big mouth. so he's shouting. but we will never vote him to president. so lets not talk about him. We know how evil yameen and his brother are. we know them in out. so instead of wasting our time lets talk about the man Anni who we elected to serve us the way we want. But he is continuing ot waste our precious resources on all the political posts and giving projects to his cronies like reeko. Does anyone know that we still have 4 people at the rank of deputy ministers who are called Male Minicipalty ge Raees ge eheetherin. There is no institution called Maly municipalty and there is no position called male municipalty ge raees. but these ppl continue to get deputy ministers salaries. one of these guys who is getting a deputy ministers salary as a deputy of 'male municipalty ge raees' is ogaru mohamed fulhu. he is a stinking rich man. who on earth are we sependign so much money on these silly politicial posts? there are so many incidents like this. but hard core MDP ppl simply cant see it for what it is. cmon guys. this is not about gayoom VS Anni or yaameenu vs anni. this is about our money. our hard earned money. we want the ppl we elected to lead us to spend our hard earned money on things that are absolutely important to us. and not on silly political posts.
Yameen wants to have his cake and eat it too. Someone needs to refresh these peoples' memories. I'm not talking about 30 years, it is during the past two years they were protesting austerity measures such as reduction in the number of govt employees. Besides we all know with the attempted salary increase of Majlis members came from an opposition dominated Parliament just a few weeks ago.
@confused- a devaluation happens when a Monetary authority decides and intervene to devalue a currency.
A depreciation happens due to a various reasons the value of the currency goes down.
So to you and me, the same damn thing.
We are now a society that is obsessed with problems, take refuge in blame and bathe in the self pity.
Irresponsible political leaders such as Yameen who have used their intellect to amass their ill gotten fortunes mascarade as econofail white knights still fail to contribute a solution to this economic problem but chooses to instill fear into the poor souls who buy their nespray for rufiya 28.
I think it is time we all now become aware that none of our leaders, including president Nasheed is able to lead this country , albeit any best intentions , and rise up to getting all these top political clowns and hanchos to stop playing kasauti with the public!
@Ahmed Adeebulla
Agree with you and you raise some very good points. This government is clearly wasting a lot of resources. Anni, like Gayyoom, seem to be turning a blind eye to a lot of things happening around him. In more ways that one, Anni is turning into a Gayyoom. I never thought I'd say this, but things are turning that way.
Look at the political stunt of creating "Addu City"! It's no more than a stunt. Recent articles on this site have pointed out the state of health care in this "City" and are in a worse state that 40 years ago.
Anni has been doing a lot of stunts. A lot of empty promises have been made. The transparency of this government is like mud. So clear!
Funnily enough, I'm feeling like joining the "Zaeem" faction. Now that's something I'd never have thought of doing. I have no love for "Zaeem", but I feel that his lot have the best chance of actually pointing out the fraud that Anni is committing...
What did Yamin and Co. do when people were queuing up to get Dollars from MMA and the banks on 26th July 2001? Did the then Governor of MMA, this Yamin man's half brother, bring a whole lot of Dollars to the country or what? MMA DEVALUED the Rufiyaa vis a vis USD!!!! What is this Yamin man talking now from his posterior....??? In addition to being the Trade Minister, this Yamin man was also the advisor to Gayoom on economic affairs!!!!Look who is talking now???
Adeebulla is spot on. This is not about gayoom VS Anni or yaameenu vs anni. We know the mess Gayoom left us in. so we voted anni with the hope of doing something good to change our lives for the better. But instead of doing that he's spending our resources on doing nothing hard core activits of his party. giving them high paying govt jobs and huge projects.
So as ahmed bin addu says we the ordinary folks need to do something about this. we need to stand up to change our lives. Two and half years with Anni has shown that he is not interested in doing the things that we voted him to do. the painful truth is that there is nobody in the entire political spectrum in maldives who is sincere. they are all in it for short term financial gain for themselves.