Public Accounts Committee summon decision makers over dollar rate revamp

The parliamentary Public Accounts Committee has today summoned members of government and the Maldives Monetary Authority (MMA) to present the research behind a recent decision to amend the set US dollar exchange rate of Rf12.85 to within 20 percent of the figure.

Ahmed Nazim, MP for the People’s Alliance (PA) party and a member of the Majlis’ Public Finance Committee, has said it is scheduled to meet with members of the government and the MMA at 4.15pm this afternoon in order to get an insight into the research and statistical information that led to them taking the decision.

Nazim claimed that under its mandate, the Public Finance Committee was not in a position to call for any amendments to the president’s decision to amend the exchange rates, which have reportedly led to banks charging Rf15.42 a dollar to customers – a rate thought to have exceeded prices offered on the formerly institutionalised blackmarket.

The new exchange rates bought into effect as last week were claimed by President Mohamed Nasheed to ensure “longer term prosperity” in the Maldives.  The decision was praised from the International Money Fund (IMF) as being a “bold step” towards providing more sustainable finances.

Such praise came as the country’s Economic Development Minister, Mahmoud Razee, argued that the artificially fixed Rf12.85 exchange rate on the dollar has meant there was little certainty of the exact value of the Maldivian currency in the present market.

However, this so-called dollar float has also led to derision and protests from different factions representing the main opposition Dhivehi Rayyithunge Party (DRP) as well as criticisms from some private sector economists that the measures still fail to address the high levels of state expenditure that threaten to shatter any attempts to balance national finances.

Despite the committee itself not being able to propose any amendments to the national interest rate, Nazim said the meeting was needed to ensure the reasons for taking the decision to amend interest rates were just.

“We have been following this [exchange rate] decision and we knew what the situation was.  The committee just want to make sure the correct legal steps were followed,” he said.  “We just have to make sure that they have done good analysis and are aware of the fiscal impact of their decisions in the long term.”

Nazim added that relevant authorities had already responded to the committee ahead of a deadline set for midday yesterday (April 17) to supply data related to the exchange rate decision.

In an article for Minivan News last 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.”

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 other countries.

“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.

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