Figures from the country’s central bank show that of the country’s 306 licensed money changers, 95 are resorts while 211 are private.
The present system allows resorts to exchange unlimited amounts of currency, weakening the flow of dollars into the official banking system and allowing resorts to manipulate the market, the source claimed.
“Small resorts are operating like private banks, trading in rufiya and using cheques to do so in any amount of money, with no oversight from the banks or the MMA,” he said.
As a consequence, the government’s recent decision to float the rufiya within 20 percent of the pegged rate of Rf12.85 was unlikely to stabilise the currency until the underlying demand for dollars was addressed.
“The black market rate for the dollar was Rf14-15 before [the government’s decision to devalue the currency]. The reasoning is that now the official rate is Rf15.42, there shouldn’t be a black market. The fact that the black market rate is now Rf16.5 suggests this is not a problem with the economic fundamentals, but a problem of people manipulating the market.”
The source suggested that even if the market was given free reign and the rufiya reached Rf20 to the dollar, “resorts would still have the power to set the parallel market at Rf22.”
The source revealed that during its recent visit to the Maldives, the International Monetary Fund (IMF) had recommended that resort money-changing licenses be limited to changing cash, making it physically impractical to manipulate the market with large sums of money.
The theory, the source explained, was to force resorts to use the local banking system for foreign exchange and increase the flow of dollars through the official economy.
Most resorts presently charge customers in dollars (mostly via credit cards). With most large resorts banking overseas in financial hubs such as Singapore, beyond a fee taken by a local credit card operator such as Cyprea or the Bank of Maldives, very little of this passes through the Maldivian economy – approximately US$13 for every US$100 spent in the country.
“No other country allows another currency to divide the market,” the source said, noting that resorts earned 80 percent of the country’s foreign exchange.
“The taxis at Colombo airport are not permitted by law to accept US dollars, but here every corner shop does. There is a need for exchange control – our monetary regulation is from the 1980s and fits on a single piece of paper. You can see the problem.”
The MMA recently announced the enforcement of legal tender – rufiya – which will require a foreign currency transaction at the point-of-sale. Were resorts restricted to exchanging money by the physical limits of cash, they would be effectively be obligated to feed dollars into the local banking system, thus increasing the availability of foreign currency and greatly reducing the dollar shortage, the source suggested.
The Seychelles encountered similar problems with its exchange rate in late 2008, the source said, providing an IMF document showing that the country’s official exchange rate of 8 rupees to the dollar in late 2008 competing against a black market exchange rate of almost 14.
Following the Seychelles’ decision to float its currency, the rupee shot up to almost 18 to the dollar, but plunged to 10 a year later before eventually settling at 12.
Were foreign exchange controls passed in parliament and enacted, the Maldives could expect the dollar situation to stabilise “in less than a month”, the source predicted.
“This is why ministers are claiming the rufiya can potentially reach Rf10 – although if that stimulates excessive imports it is not necessarily a good thing.”
Reaction
Local economist in a private consultancy Ahmed Adheeb said the Maldives’ economic situation was as much a problem of over-expenditure and high budget deficit.
“Successive IMF reports have raised real problems with the country’s expenditure,” Adheeb said. “You cannot just blame the resorts for manipulating the market.”
Low confidence in both the rufiya and the local banking system was a major concern, he explained, and forcing businesses into it could have wider ramifications.
“We have to build confidence in the financial system, otherwise we will just see black market banks emerge. Businesses need to be confident that their accounts will be protected and confidential, and that this will not be abused for political reasons,” he said.
“For instance, nowhere does a country’s Auditor General state a bank client’s name and debts in [publicly available] audit reports.”
The limited number of cross-currency transactions in local banks showed there was no confidence in the country’s financial system, Adheeb said, as businesses that banked in rufiya could not be confident of receiving dollars when required.
“The Finance Minister needs to provide reassurance that our banks are protected and regulated, and give confidence to businesses that bank confidentiality will be respected. In a small society like this, we have to listen to the entrepreneurs.”
Secretary General of the Maldives Association of Tourism Industry (MATI), ‘Sim’ Mohamed Ibrahim, said all resorts needed a foreign exchange license, and questioned the practicality of both enforcement and restricting these trades to cash: “Even small resorts trade in high volumes,” he said.
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We must make some restrictions, whether they are the powerful resort owners or not. We have to stop the credit card transactions go through MMA before we do anything else. Force the resorts to deal in local currency whether it is difficult or not.
MMA says those businesses (mainly resorts), who are giving trading licenses are manipulating forex. Did MMA expect the resorts to do charity?
Similarly the MFDA has also found out that the food outlets that they have licensed are unclean. Some even have goats.
What next. The Health Ministry discovers that the doctors do not have qualifications? Or the medicines sold are fake?
All are similar cases of powerful regulators unashamedly complicity - (a crime in which the regulator is aware of its occurrence and has the ability to prevent the crime, but fails to do so)
This is regulatory complicity big-time.
Even with the 1980's one page regulation, the MMA has enough powers to enforce use of Maldivian Rufiyaa as the only legal tender in Maldives. All it is required for someone with guts to enforce it.
If there is enough foreign currency via the black market, to fulfill the requirements of the business community isn't it obvious that the problem lies somewhere else?
There is no other country that I am aware of (I may be wrong), where hotel bills are charged in any other currency except their own, except Maldives.
Why are MMA sources just saying this and not taking action??
Adheeb is in the pay of Gasim..
Adheeb as a economist should know better that regulating and strengthening and building confidence in the banking system is the obligation of MMA not the finance minister. We really need to get politics out of our debates.
If dollar shortage is due to the failure of enforcement of existing MMAs regulations, parliament should investigate the issue to see if MMA acted complicity or if there is any 'ihumaalu'.
Also traders need to be compensated for the losses due to dollar shortage.
Resorts in the Maldives have been doing that even before the government’s recent decision to float the Rufiya within 20 percent of the pegged rate of Rf12.85.
What is mind boggling is that even small kids know this, but different advisers were saying different things?
Too much money chasing too few Rufiyaa, and too many Rufiyaa in circulation and all short of simple economic theories in the grade 8 text books without studying or researching the Maldives situation.
Foreign investments are encouraged in the Maldives to create employments, get foreign currency and increase revenues tothe state. Today one has to question these. How many Maldivian are employed in the Tourism industry? What’s the percent Foreign Currency getting into Treasury from tourism sector?
The Government must immediately draft a bill and send to Majlis tha allow to create foreign currency to State by retaining certain percent of foreign currencies here in the Maldives bank for certain period of time. . All the foreign currency they generate can be send out of country as they are selling the Maldives, of course with lots of pollution and destroying corals, vegetation, fishing grounds our ancestors have preserved for centuries.
And also enforce the regulation on employment of foreign workers in tourism industry. Marriage of MATI and Tourism industry, and living in one room create conflict of interest too.
Welcome to the socialist republic of Maldives. Mr. Inaz was under pay of gasim as he was teaching in villa college. Inaz and Naseer have moles in mma who want to politicize this whole issue. Reality is the band has backfired and until the ruffiya supply is not controlled this will never stop. With this huge spending of government expenditure what do u expect to solve anything? Adeeb keep on telling the public the reality and how Inaz is trying to cover up the mess of this government by blaming and breaking the entrepreneurs of this country..
These guys like champa and universal should be the main focus . If the government can get a hold of them, the dollar crisis can stabalize .
Resorts in the Maldives have been doing that even much before the government’s recent decision to float the Rufiya within 20 percent of the pegged rate of Rf12.85.
What is mind boggling is that even small kids know this, but different advisers were saying different things? Too much Rufiyaa chasing too few dollars, and too many Rufiyaa in circulation and all short of simple economic theories in the grade 8 economic text books without studying or researching the Maldives situation. Many missions of dollars are solidifying into concrete structures and for reclamation of dead capitals in the Maldives.
Foreign investments are encouraged in the Maldives to create employments, get foreign currency and increase revenues to state. Today one has to question these.
How many Maldivian are employed in the Tourism industry? What’s the percent Foreign Currency getting into Treasury from tourism sector?
The Government must immediately draft a bill and send to Majlis that would allow to create foreign currency to State that would retain here in the Maldives bank for certain period of time. . All the foreign currency they generate can not be send out of country. They are selling the Maldives, of course with lots of pollution and destroying corals, vegetation, fishing grounds what our ancestors have preserved for centuries.
It is also imperative to enforce the regulation on employment of foreign workers in tourism industry. Marriage of MATI and Tourism industry, and living in one room also create conflict of interest too for some people.
Our outflow must be controlled in order to stabilize the dollar rate, confidence is also important factor but it is not the only factor to consider. Rufiyya is our money and it must be enforced properly, MMA should be independent to exercise its power, from political and business influence. Our country shows a classic example of small group effect and they have been controlling and is still controlling our economy and politics very effectively. This must addressed this soon to cure our economic problem and eventually this will effect the business also. At the end there will be no gain for the business as there are shortsighted.
From the article, the government's decision to devalue and peg at 15.42 - "The reasoning is that now the official rate is Rf15.42, there shouldn’t be a black market." By now, it should be obvious to everyone the government's reasoning is flawed, and possibly not very well thought out.
Pegging the currency will not end the black market. As long as the currency is pegged there will be a black market.
Even now, the government is taking the wrong measures with the intention of funnelling all the foreign currency to the local banks. The measures government is suggesting are not only extremely difficult to enforce, it doesn't give the right incentives for the companies earning foreign currencies to keep their money in local banks.
As local the local economist Adheeb is saying, why would any company want to keep their foreign earnings in the local banks here when the transaction charges are high and when they are not sure whether banks will release sensitive information to practically anyone in a police uniform?.
99% our consumption is through imports and 99% incomes (from tourism and tuna exports) are both in United States Dollars.
So floating rate is absolutely the foolish thing to do. you float when you have trading in multiple currencies and most efficient way to arrive at a equilibrium is through floating exchange rate mechanism.
In our case this isn't necessary, cause our income and expenditures are ultimately in USD. Pegged regime is the best way for Maldives. And even better is to change our currency to USD (it doesn't make sense economically to have our own currency, just waste of paper and unnecessary transactions)
The problem with exchange rate is over supply of Rufiyaa against the incomes. This naturally creates a direct increase in demand for USD ( cause all our purchases are imported in USD)
Imagine, we created all the institution and bigger government and all that in a time when our economy is actually earning less USD. How do we pay for this, by printing more money.
Why waste time on finding an equilibrium price, where you need to do is adjust the rate to reflect over supply of money and peg it at that rate and only increase your money supply by your income levels.
DONT try to live beyond your means, you will go BANKRUPT Miserably!!!
@uza
MMA was only made independent from the Government and not from big business (who are the real politicians). Ironically the independence of MMA (by law), has made it less independent and more biased towards big businesses.
we always have this type of dollar shortages. and always it was the market forces that settle the problem. earlier it was like this:
after a heavy surge of dollar out flow the banks act on the shortage by cutting on LCs and TTs. Importers including large construction firms cut down on imports not to bare additional finance cost. Resorts pay their bills through banks on a monthly basis. Some business men having goods with high margins turn to resort owners with some extra finance cost for dollars. to get the black market established it's imperative that these business men come back again next month in time for resorts to settle their bills ( im sure that you all know resorts earn only in foriegn currencies thus they pay bills through banks if they don't earn some extra money on it. to pay through banks they must have to deposit dollars in the bank )
But this time it's different, . after the usual three month cut down on imports businesses tun to survival mode and look for resorts instead of banks to buy dollars.In other words the black market. now it's an established market with middle men, offices, administrators and agents not to mention huge profits and very high demand.
So whats different this time around? answer is that there is no day to day dollar cash flow from the airport doing the balancing act when imports come down to about 50% as usual. now the game is going to level two. at level two resort owners have enough rufiya reserves to pay bills for the next six months. belive me, black market is here to stay this time..
our options are:
1) tax the resort owner enough to fund about 30% of importbill
2) take airport back from gmr
3) send all these fancy items like youghert , cheese, sauces, vegetables and so on back to fantasy store just like in the 90s and become poor at will..
Adheeb is not an economist. Simply a guy paid by one businessman, like a parrot repeating the same thing.
Ahamma the parrot ( The Young man who have MBA in International Business, who researches the whole economy and business environment) words are more predictable and worthy than the finance minister and President himself. If he is paid his words would not be predictable. He is the most strong voice than any opposition in this country. It is a shame that all efforts of the corrupt and incapable elements of this government is targeted to defame him, simply because are not capable to debate him in an academical or technical level and president also watches his live cast and figure out the mistakes inaz and lintel group suggests him. I am proud of you Adheeb, keep telling the reality of the situation to the people no matter what the costs are.
Hahaha yeah the lintel group has failed our president so much, Inaz under pay from directly from lintel hehe bunch of ego boosters who has put an electric escalator in the shop and with so much electricity they are subsidized by director rado zahir in stelco hehe and major big mouth who was bowing for gasim in first round is back trying to gain hehe. Bunch of failiures who could not run ministries when everything was given. Sad that Naseer also being trapped in this circus.
layali on Sat, 18th Jun 2011 2:34 AM
wrote:
.
our options are:
1) tax the resort owner enough to fund about 30% of importbill
2) take airport back from gmr
3) send all these fancy items like youghert , cheese, sauces, vegetables and so on back to fantasy store just like in the 90s and become poor at will..
.
No, these are no options but wrong ideas. Instead, roll up your sleeves, work, invent, be creative and pay fair taxes instead. Only this will ensure long term success.
.
1 – if you tax resort owners more, their “loss” will find it´s way speedily into higher resort prices. They will charge tourists even more then now.
Unfortunately you cannot raise prices forever and the Maldives resorts are already amongst the most expensive hotels.
2 – Locals have proven to be incompetent in running an international airport. And there are no government funds available to make necessary imrovements.
Don´t pretend that Maldives (or a few greedy tycoons) is in position to pay for runway repairs, new runways if necessary and other higher standard improvements
You are not!
.
Have you ever reflected about the following not so unimportant fact?
Maldives has a huge OUTflow of dollars because of the remittances foreign workers are sending home to feed their families. Not only the tens of thousands of Bangladeshi doing hard work which Maldivians are obviously not willing to do for whatever reasons.
This brings the MMA to print MRF in abundance for local consumption in numbers FAR above any rise in local productivity.
Actually productivity and resulting growth provide the measures for money printing.
There are also many Indian teachers, docs, who must all be paid for their hard work in US$ since the Mrf. Is NOT convertible and not accepted outside the borders. By now there is no reliable way pf measuring the value of a MRF vs other convertible currencies.
.
Are you aware that contrary to Maldives, for ex. Sri Lanka receives approx. a very COOL US$ 4 billion/year in remittances from their citizens working abroad, many of them women?
While Maldivians bring people into the country to work for them?
http://remittancesgateway.org/index.php/press-clippings/flows-information/903-sri-lankas-worker-remittances-rise-by-236
These ways have a price, my friend, actually one that your country cannot afford. You do live beyond your means.
This will finally lead to much more “beggar thy neighbour” politics (and will costs your little freedom!)or even to bankruptcy – just like in Greece.
Food for thought?
@Izaj
Let's be clear on something here. If I'm the representative of a trade body that pays me, then I'd naturally fight on every corner for them. This is exactly what Mr Adheeb does.
I'm well prepared to reason with him on economic grounds. But the sad truth is, I've not so far heard anything worth reasoning about from him. He waves his hand and comes up with totally unrelated arguments to somehow keep the interests of his sponsors.
His most famous remark was about the Maldives losing its "international competitiveness". I've talked about that one before and I would love to hear about where our "international competitivness" lie in any sphere! I can only count a few areas where we stand out globally and those aren't things we should be proud of, for example, divorce rates and the most congested and unhealthy city in the world.
There's not a single resort owner or businessman in this country who will give up an iota of what they take for granted now. They have been exploiting us for over three decades and will fight on all fronts to stop a single "loa laari" from escaping their tightly clenched fists for the benefit of our poor society. I bet you're a real proud of Adheeb the realist.
Another great analysis by Mr.Adheeb..i feel that hes the only independant uncorrupt economist in the whole of maldives...i just love it how these Brain washed MDP yellow fever mosquitoes cant stand him..hehehe LOL
there is a limit you can take and push the resorts. if we screw the tourism sector up, there is nothing else we can do.
working is clearly not a great option for the young maldivians...
@ Ahmed Bin Addu Bin Suvadheeb, from what I know Adheeb is an independent consultant and he is earning from work he does especially international consulting. He is a board member in MNCCI and no board member is paid in MNCCI. This is the lack of information because you are not talking from little information you have.
International competition is from the Tourism sector. You are taking this nation's tourism for granted. Do you think tourists has no similar options? and how about the skilled foriegn labor such as accountants and ceo's and etc dont they have any other option? why are ppl not keeping money because the competitive banks in other countries offer more competitive rates and better confidentiality and etc.
You are a socialist who will not know what is a business and how it is competitive. The people who work hard and who have build their businesses are hard working. example is the business men in male are people from islands who progressed with hard work.
If you expect to get money without working then sorry my friend that is socialism. Social elements like you are nothing but a virus to the community. so work hard and earn more..
Interesting..how people point at each other and blame each others. Let's look at things in perspective. Adeeb is a well paid business graduate from SriLanka and now from the famous politically controlled ( then and now) chambers of commerce. Inaz is an economic graduate of Singapore and holds a masters in economics from UK and due the circumstance Anni placed him as the finance minister and Majlis gave him 68 votes! Naseer is also a graduate of economics from Australia and Masters in economics from US. He now a state minister at finance. Both these young economist have studied economics for their graduate studies unlike Adeeb and worked in the government for years since they completed their schools ranging from finance, MMA to trade ministry. while Adeeb has NEVER worked in a professional policy making area and doesn't have clue of he speaks. He often contradicts himselfs. Any High school econimics student would know that.
@Reiki You are trying to attack Adeeb because he studied in Sri Lanka and Inaz studied from Singapore and Naseer from U.S? And to comment on policies do people have to work in government? How people like Inaz will know how an industry operates to formulate a policy?? And what is the worth of the education when the policies contradicts the basic economics and business principles?? Just being quiet and letting President do what ever he wants and telling him what the Lintel Group says is like some one who sells education and soul. Lets wait and see the result, who is contradicting who??
@fatumath
I think u missed my point completely. My point was that we have lost an important dollar cash inflow ( airport gets revenue in dollars and pays bill in rufiya, meaning banks get dollars on daily, monthly and annual basis) . Though it was coughing and panting before FOREX market never went into a permanent black market like this. This is not about good and bad resort owners. This is about profit earned on finance and it is legitimate. If the government wants dollars be pegged to certain value they MUST supply enough dollars in to the market (how they earn may be by taxing or even keeping a bucket airport) If you think bangladeshis are taking away all your dollars, it didn't start in 2009. And if you don't think we are having a dollar shortage for financing all the baby food imported for feeding babies born after 2008 i think it's reasonable to study where have lost any foreign currency revenue ( u know it does matter when GMR pays after six months)
I am very much aware of the following points when i wrote my comment:
a) First of all the fact that everyone point their fingers at resort owners when they have no dollars is proof itself that the only people who do any productive work in this country are investors , employees and managements of resorts.( means all others are parasites including many people who comment here - u see !! the tooth pick which Ali is using right now was paid in dollars though he never earned a dollar in his life)
b) We don't have greedy tycoons who steal away all your dollars. In the three decades of tourism establishment in maldives resort owners worked hard and have invested every penny they have earned including borrowed dollars from abroad. ( if you can't see that i have no further comment about that)
c) I haven't forgotten all the awards male' International Airport won in the past and how it was developed as sate asset to keep maldives competitive as a destination.(im talking about the addition charges GMR is comparing to Sydney airport)
by the way I bumped into a black ugly bucket in the terminal yesterday - no i was lying its called propaganda, GMR is fine..
Experts found more dollars going out from country because there are more Foreign workers?? I really can not find the core reason bcoz of below Example.
- A resort with 50 Maldivian worker. Paying monthly in MRF. So USD not going out from country. Cool.
- Where these MRF are exchaged? At bank? Of course not.
- Sell USD to some of the importers in black.
By other hand, the present situation is
- A resort with 50 foreign workers. Paying monthly in USD.
- Did this resort sell any USD to bank? Of course not.
- Sell USD to some of the importers in black.
Where the difference is sensed?
Keep the books away, experts! Watch the market, talk to people, analyze and then make laws..... not by assumptions. (Its still funny that MMA enforcing the act dt 1.Mar.1987 NOW, which is still not followed widely bcoz practically not convenient.)
The people who watch black market understand well that this country has enough dollars. But MMA doesn't.