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.


37 thoughts on “New exchange rate vital for long-term economic prosperity: President”

  1. I don't like profiting unfairly from my countrymen. I shall keep my prices to a fair 12.90Rf per US$. I hope that Nasheed finds the strength to terminate money-draining institutions such as the parliament and the JSC.

  2. i think getting Ali Imraan's perspective on this makes this article very credible. THank you.

  3. anni is doing the best he can. we are not equipped to know how to rule.. power & izzaitherikan is what our leaders can best emulate out of western manuals.barely la

    alas but alas, we may never hav to try any more. our moment is next

  4. Redundant "Money-drains" include:-

    - The Human Rights Commission of the Maldives.

    - The Police Integrity Commission.

    - State Regional Utilities Companies.

    - State Marketing Company.

    - The entire local governance system.

    - The Military budget.

    The above list is not exhaustive. Yet I would like to note that doing away with the Parliament altogether would be counter-productive. Reform of the parliament might be difficult in the near-term as well. However, those institutions under direct executive control can be shut down given the government's sincerity in implementing austerity measures. Civil service wages have effectively been reduced with the devaluation in the Maldivian Rufiyaa.

    The only real long-term solution following drastic reduction in State expenditure would be increasing national dollar receipts through the fostering of healthy industry and economic diversification. The simple supply and demand explanation for the current dollar crisis given by Ibrahim Athif Shakoor in Haveeru is one of the most endearing arguments put forward by a Maldivian economist so far.

  5. "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..."

    Genius! It has taken a "Director" of a bailed out British bank, which is now owned by the British tax payer, to point out the obvious to us poor Maldivians!

    Nice work!

  6. Ali Imraan is a director? what films has he made so far? Is Imraan trying to compete with C-Xan?

  7. There are several things which need to be done for long-term economic prosperity, some of the most vital IMO being-

    1)Implementation of a progressive income tax regime (Richest citizens pay the most, poorest pay the least).
    2)A capital gains tax targeted at Rents collected by landowners especially in Male. This should be high enough to deter people to live off just by rent alone.
    3)T-GST should be higher, 10% at least.
    4)Eliminate import duties for everything except cigarettes and motor cars.
    5)Legislation which requires MPs from abstaining to vote on bills relating to their personal/business interests (eg. Gasim cannot vote on a tourism related bill) and their benefits decided by an independent commission.
    6)Set a minimum wage at MRF 4,000 regardless of nationality.
    7)Build the damn bridges from Gulhifalhu to Hulhumale (private of course).
    8)Govt apartments in Hulhumale and Villingili (easing the exorbitant rents people pay).
    9)Float the damned Rufiya
    10)Invite 2 or 3 foreign hospitals to build a teaching hospital/medical college, at least 1 will take up the offer considering the no. of Maldivians who go abroad for treatment.
    11)Invite a foreign party to build a proper world class port in Gulhi or Thilafushi
    120 Leave GMR alone, what we do to them will determine any future foreign investment.

    Then welcome to Anedhivehiraage.

  8. I forgot one point, the below book should be required reading for anyone running for public office-

    'An Inquiry into the Nature and Causes of the Wealth of Nations'
    Adam Smith,1776

  9. I think the most credible and proffesional opinion maker is the guy our young economist, Adeeb. I remember he gave so many early warning of this situation in even 2009, in tv shows and interviews. And his fight against the budget of 2011 and he stated that if this budget is implemented the dollar value will be fluctuated as already the 12.85 has become an artificial rate.

    He voiced against with us on the Priviledge bill of MP's and raised his concerns of the budget deficit and the wage bill, and there is no use of increasing the salaries as value will go down with the fluctuation of dollar.

    Even now he describes the step has to be taken but not in this form and not without any cut down of budget expenditures and etc. Flow of ruffiya is too much and now the dollar earners are so happy and public is bearing all the cost. This is the reality...

    We are with him and lets see how things will go, I am glad that Adeeb is voicing out his opinion, challenging the imf and challenging the government and every one of them is turning out on his opinions, I hope more proffesionals will stay back for the country in these hard times and give out thier analysis and opinions like he does..

  10. Robinson - you are writing about the same President who came to power promising he would not raise exchange rate and will reduce political appointees; who said in early 2009 that he would solve the foreign currency problem in a few days time; later said that the foreign currency issue will be solved in a few weeks once Sri Lanka started accepting Rufiya; the guy who said that his policy of placing a cop behind every dollar will solve the foreign currency problem and reduce exchange rate..

  11. This is why I say the Policy office of president office the Ibu (who knows nothing) and Shauna ( career builder ) is just learning while country is failing because of lack of competence of the policy makers..

  12. @Rinzy:
    Let me just get this straight. I think, talking about promises out of context doesn't make any sense. Recently, we learnt that, between early 2000s till 2007, government used about 30-40 million US$ per year. All of a sudden, in 2008, Government used a whooping US$ 114 million! Its about 300%! Plus Thasmeenu has taken US$1040 million loan from BML. I don't content that taking loans is a crime. Rather not paying a "cent" even after 27 months have elapsed since court ruling requiring Thasmeenu's company to pay all the money (They are all denominated in US$)!
    We have a system where the opposition is hell-bent to skyrocket government's expenditures. That is why they rejected the proposal to introduce provisions and combine and consider "smaller" islands as part of more populous islands nearby.

    Now there are 5 councilors for even islands with a population of 150. These are unsustainable levels of expenditure.

    I quite agree with Adheebe (the economist), in his saying about the real cause of these problems. If you keep increasing salaries and creating commissions for everything imaginable and keep going towards a welfare state then, forget about exchange rate. Dollar would be traded at MRF50 per US$1 sooner rather than later.

    What our country needs is fiscal discipline and less fear from those who are in MMA and other positions.

    All of us fear Parliament! Unless you are " from the corrupt, by the curropt and for the corrupt" you have no political future! You have no way to contribute to your country in an independent commission, no matter how educated, experienced and honest you are!

    We can talk about all of these forever. But who is gonna solve the problems? there is no political will with the opposition who control parliament.

    So stop blaming the government. Government's hands are tied. And the reason why we are suffering is that we, the mad people gave the majority to the crazy, dicatorial people! And we are paying the price. So, no need to whine about government. Promise to yourself, never to give any chance to dictatorial people!

  13. The problem is not Aminath Shauna or Karankaage Ibu. The problem is the blatant abuse of all the safeguards placed on the system of governance. The failure of the Majlis to make the government accountable to the electorate. The insincerity of the MDP-led administration. The poor social and educational development which inherently makes the popular vote a flawed system in our backwater country.

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

    The words 'economic prosperity' does not mean better than what Nasheed started with. It only means better than the mess Nasheed led us into.

    If not for the new exchange rate, our economy would have crashed in the very near future. I think the new rate does not stop the economy from crashing. It only buys time.

    Why is the new exchange rate such that our currency got devalued? The President needs to explain this. But i guess he would not. How can he admit that it is the stupid policy and decisions made by the government that has led to this?

    What has resulted due the exchange rate being revised is: The rich will get richer and the poor will get poorer.

  15. Dear President Nasheed,
    Has any of your advisers told you that food prices are at a record high level internationally? If not, just swallow your pride and take this from us - the average men on the street! Food has increased over 30percent internationally. Add to that the 20percent Rf devaluation that you inadvertently did last week. And add to that another double digit figure for inflation. Sir, we are headed straight towards the ugliest one yet...the mother of all shocks!

  16. another important point of help could be to legislate to employ >80% local workers in resorts so that local economy will benefit. its a lie to say that resorts need 50% expat workers to function. this 50% ratio was enacted when tourism was yet in Male' atoll area.
    Now tourism zone has reached the whole length of the country. Also resorts need to pay staff in dollars because guests pay in dollars! the only thing resorts seems to buy from local economy is fish from fishermen and even the fishermen will not reject dollars if they give.

  17. 'An Inquiry into the Nature and Causes of the Wealth of Nations'?

    Wasn't this book written by Ali Imraan when he was still a receptionist at RBS?

  18. We need a better source of govt revenue to reduce the deficit. The current system of taxation (import duties) has more than a few flaws. Two main problems being It taxes everyone, rich or poor equally, and it allows fraud through forged invoices; therefore lost potential revenue for the govt.

    Import duties need to be scrapped and a Value Added Tax (VAT) needs to be introduced. The rate of taxation is decided by the govt, highest for non essentials and lowest for basic food stuff. The importers need to declare a selling price based on which they pay the govt a % as VAT. They are then legally obliged to display and sell at that price+VAT. This system gives no leeway for under stating the value of imports and the market forces ensure that they don't bleed the consumers dry.

    More than 60% of revenue of some European countries come from VAT.

  19. If things are as bad as Gbagbo says, Ali Imraan needs to do more work to help save our nation from economic disaster. More articles from Ali Imraan on what needs to be done in the form of a recipe. we dont need long articles Imraan. Please ask your friends in London what we can do and help save your beloved country.

  20. All these quotes in three articles, police after every dollar, IMF support of exchange move and this article has quotes from Adeeb. I think this is signs of identifying him as a target and now his defamation strategies will be in the process. Like record a phone call and leak or etc Like how lawyer and mp nasheed was defamed with "I need some cash" phone call to tarnish the credibility. Sad to situation where our country is in.. ?? Be careful Adeeb and do not give in to them, keep telling the truth and real status of our economy.. Our prayers are with you, you are doing a great job for this nation..

  21. This article, nor the previous one provides any context to the real problem. In short, writing article after article about macro-instability will get us no where.

    When are people going to talk about widening the narrow and the weak economic base, mainly distorted by over investment in tourism. How can the economy grow if
    a) Banks just wont lend money for anything else
    b) all dollars are going out to finance tourist resorts.

    If tourism is so successful as Maldivains boast to foreigners, why aren't there no dollars and majority lives on less than a dollar a day.

    In terms of tourism, its time to define what 'success' means.

    How many times have you heard about 'increasing tourist arrival data' and 'the 7 star plus resort'.

    We seem to prefer building 'blond islands', while the people go hungry..

    Overall sectoral reform (with cutting down tourism) is the answer.

  22. @peasant: cant agree with you until Ali Imraan OKs your suggestions. It's impossible to make sense of economic ideas from so many nobodies. We need qualified, Western-experienced people like Ali Imraan to tell us what we should do.

  23. Who is Ali Imran? Is he a ghost director in RBC? can anyone give me a link to his profile in RBC as the director level positions will be published. I could not find any reference..

    Ghost Ali Imrn if you are out there and if you are really the Direstor of Structured Finance of RBC please prove and show yourself.

  24. Maldivian state needs tightening of belts in order to avoid bankruptcy. only balance payments will strengthen the value of Rufiyaa. Reduce budget deficit. do not form a corporation every other day. do not appoint state ministers and deputy ministers on daily basis. Don't dump state's resources on projects which are economically viable to score political points. Introduce tax system immediately.

  25. How about give Maldives to Britain or America for the next 50 years, just like the way Hong Kong was given to British by China. Atleast at the end of 50 years when they leave, we will find a fully developed,democratic and sustained Maldived with no crap in the society. And yeah dont worry about the religion, those who want to keep it will still have it. There is no true Islam in Maldives anyway even at present. The society is full of antisocial behaviourers and criminals which shouldn't exist if Maldives had true muslim believers.

  26. Chamber Adeeb is an economist?? He holds a Business Administration Degree from Srilanka. And when ever he is requested by TV's to give an interview and he immediately calls the prominent real economists in the country and secretly digs inside out of the economy and repeats like a parrot!! Recently he gave an interview and didn't know the difference between capital and recurrent expenditure! He has never worked in the government. He is almost the same character as Mavota Shareef! Same Google economist!! He hates the current government on a personal level than a professional level! He is worst than Mavota as Movota has the guts to stand up in a politcal party to defend his policies! This country ruined by roonu edhuru like Adeeb.

  27. Imraan is better than Adeeb because Imraan is Director at RBS in London. Adeeb is Treasurer of Maldives Chamber of Commerce (group of kammathee fihaara). Not even a contest. Imraan wins.

    Imraan please save our economy!

  28. @RUSH

    Please bring out those prominent real economists to give their analysis, why are they hiding, we are glad that Adeeb is making an effort, from what we heard everything he says is becoming true. He explained perfectly the recurrent and capital expenditure on TV panel discussions regarding mp's privileges bill. As I mentioned the defamation has started.. Adeeb is not working in the government because he is capable of practicing what he studied in the private sector at the heart of the economy. While most educated are depending on jobs from gov either political or independent institutions for a fat salary from our deficit budget.. Shame...Shame

  29. @Adheeb - Dhiraagu has significant US$ inflows and you would be wise to do more research rather than throwing off worthless comments on our ability to pay US$ dividends. Your comments clearly demonstrate you do not know what you are talking about and your opinion of little relevance.

  30. Adheeb, are we going to see you debate Imraan Ali on a primary school stage or maybe MCSE? I dont think Imraan will get vacation to come to Maldives because he has a very busy and important job at RBS.

    Unlike Imraan you work at Chamber which is part-time job so it will be easier for you to go to UK for debate.

    So if we can host this debate at the Royal College of Art in London or the London School of Economics.

    Thank you.

  31. This guy has Made some international Headlines.:

    Now I can say this Adeeb guy has a good track record than Ali Imran (on the internet)

  32. Now David Blake, our legal tender is ruffiya and I dont know how dhiraagu can collect dollars from our local companies but I got to knows you blood suckers has made it compulsory for resorts to pay you in dollars now the real issues are coming up. This is unfair and as Adeeb stated the foreign companies will not have confidence now as ruffiya is not something they can convert now to repatriate.. Now we are getting to know how government companies are collecting dollars then how do you stop dollarisation with things like this???

  33. All economists shud discuss on public forums. It wud b better than listening to MPs giving their opinion on everything. nb: I support Adheeb's views so far.


Comments are closed.