Tag: dollar shortage

Air tickets rise in price as rufiya falls

Several air ticket agencies in Male’ have raised the price of tickets in response to the government’s decision to authorise the trade of dollars at up to Rf15.42.

Haveeru reported that Villa Travels, the local agent for Malaysia Airlines and Indian Airlines, had increased its dollar exchange rate to Rf15.42, increasing the cost of a Male-Trivandrum ticket by Rf740.16 (US$60).

Galaxy Enterprises, which sells Sri Lankan Airlines tickets, last week announced it was suspending sale of tickets because of the dollar shortage.

Mac Air Services, the agent for budget airline Mihin Lanka, told Haveeru that ticket prices would remain unchanged as they had not been based on the official exchange rate of Rf12.85.

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IMF praises managed float of rufiya, “unpredictable” and “high risk” warn local experts

The International Monetary Fund (IMF) has praised the Maldives’ decision to effectively devalue its currency, allowing the rufiya to be traded within 20 percent of the pegged rate of Rf12.85 to the dollar.

“Today’s bold step by the authorities represents an important move toward restoring external sustainability,” the IMF said in a statement. “IMF staff support this decision made by the authorities. We remain in close contact and are ready to offer any technical assistance that they may request.”

The Bank of Maldives was today trading the dollar at the maximum selling price of Rf15.42 and buying at Rf12.75 while the Bank of Ceylon was selling it at 13.80 and buying at Rf13.60.

At a press conference this afternoon, newly-appointed Finance Minister Ahmed Inaz explained that the government decided to change the fixed exchange rate to a “managed float” to shape government policy towards increasing the value of the rufiya and ultimately bring the exchange rate down to Rf10 – an oft-repeated pledge of President Mohamed Nasheed.

The worsening balance of payments deficit could not be plugged without allowing the market to set the exchange rate, Inaz continued, adding that through lowering the fiscal deficit and spurring private sector job growth “a path would open up for us to reach the lower band (Rf10.28).”

“My estimate is that it will take about three months for the market to stabilise and reach a balanced [exchange] rate,” he said.

MMA Deputy Governor Aishath Zahira acknowledged on state television last night that the fixed exchange rate in effect since July 2001 had been “artificial.”

Economic Development Minister Mahmoud Razee argued 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 rufiyaa is right now.”

The managed floating rate, said Razi, would allow the government to decide specific measures that would be needed to improve the exchange rate – such as the extent to which foreign exchange reserves should be increased.

State Minister for Finance Ahmed Assad told press that TGST (tourism goods and services) receipts in February had revealed that previous estimates of the amount of dollars that enter the country were well below the actual figure. The government now estimates a minimum annual income of US$2.5 billion.

Assad urged citizens to use banks to purchase and exchange dollars to avoid “becoming prey to [black market operators].”

A senior government source said the decision was made based on the government’s speculation “that people are hoarding dollars. We hope this will send a signal to the market. It also shows our commitment to a market economy.”

“High risk”

The government has struggled to cope with an exacerbating dollar shortage brought on by a high budget deficit – triggered by a spiralling public sector expenditure – in comparison with the foreign currency flowing into the country. Civil service expenditure has increased in real terms by 400 percent since 2002.

Banks subsequently demonstrated reluctance to sell dollars at the pegged rate, and high demand for travel, commodities and overseas medical treatment forced most institutions to ration their supply.

A watershed moment last week – a crackdown on the hitherto ignored blackmarket sale of dollars at rates of up to Rf14.5 – led to increasing desperation among the lower-paid of the country’s 100,000 expatriate workers, who found themselves blocked from trading currency and unable to remit money home to their families.

The government’s decision yesterday is effectively a ‘rose-tinted’ devaluation of the currency, at least in the short-term, but according to one financial expert could have unpredictable consequences once the market catches up in 4-6 weeks.

“Other countries have a maximum band of eight percent. I have not come across any countries with 20 percent. I think it’s too wide,” said Ahmed Adheeb, a local financial expert working in the private sector. “Why did the government overshoot the blackmarket rate of Rf14.5, and why did it take them two years to come to this decision?”

Adheeb predicted that the construction industry would be among the hardest-hit, “as ongoing projects will now face additional costs. In addition, smaller and medium-sized enterprises supplying resorts may find that their commission and profit is gone if their contracts are in rufiya.”

The public would also be impacted, Adheeb said, as importers passed on the rising cost of goods.

The devaluation came at the same time as the tourist season was winding down for the year, and pilgrims were searching for dollars for the upcoming Hajj. Pilgrims could be called on to make additional payments, Adheeb speculated, while Ramazan importers could face additional challenges this year.

The general public would be also be impacted as the cost of commodities rises to fill the new exchange rate, Adheeb said, 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.”

Structural adjustments

The move will put the government on good terms with the IMF, which spent last year trying to encourage the government to make difficult political decisions for the sake of the economy, and just stopped short of calling for a devaluation of the currency on conclusion of its Article IV consultation.

The IMF, which has shown resounding disinterest in local politicking, in February 2011 criticised the government for “significant policy slippages” claiming that its failure to reduce its expenditure had undermined the country’s capacity to address its crippling budget deficit.

“On the expenditure side, there have been no net fiscal savings from public employment restructuring, public sector wages will be restored to their September 2009 levels earlier than expected, and the new Decentralisation and Disability Bills will lead to considerable spending increases,” the IMF stated. “Also, the Business Profit Tax will come on stream eighteen months later than planned.”

It did however praise the government for getting much-needed business profit tax and tourism goods and services tax legislation through parliament, signalling that this was a major step towards long-term economic maturity. The bills had faced obstacles in parliament, which includes among its MPs some of the country’s wealthiest figures in the resort industry, and who were instrumental in increasing the budgets sent to parliament by the Finance Ministry.

Opposition Dhivehi Rayyithunge Party (DRP) MP Ali Waheed this morning proposed a motion without notice condemning the government’s decision to relax the dollar exchange rate.

Waheed said that he was prompted to submit the motion out of concern for the plight of Maldivian students in foreign institutions and patients who need to fly abroad for treatment.

The DRP MP for Thoddoo also accused the government of compromising the independence of the country’s central bank by trying to influence monetary policy.

In the ensuing one-hour debate, opposition MPs argued that the immediate consequence of the new floating exchange rate would be a 20 percent rise in inflation.

DRP Leader Ahmed Thasmeen Ali explained that government revenue from import duties would increase by 20 percent but the affected businesses would pass the cost to customers.

“We are in this state because the government increased the [amount of rufiya] in circulation by printing money and taking on credit,” said Thasmeen, in a statement likely to raise political hackles among the ruling party, considering that the IMF has stated that the economic crisis in the Maldives was triggered by “expansionary fiscal policies” from 2004 – under the former administration.

This left the country especially vulnerable to the decline in tourism during the 2008-2009 recession. However the financial deficit exploded on the back of a 400 percent increase in the government’s wage bill between 2004 and 2009, with tremendous growth between 2007 and 2009.

On paper, the government increased average salaries from Rf3000 to Rf11,000 and boosted the size of the civil service from 24,000 to 32,000 people – 11 percent of the total population of the country – doubling government spending from 35 percent of GDP to 60 percent from 2004 to 2006.

While preliminary figures had pegged the 2010 fiscal deficit at 17.75 percent, “financing information points to a deficit of around 20-21 percent of GDP”, down from 29 percent in 2009, the IMF reported.

Adheeb said today that parliament, independent institutions, civil service and political appointees had continued to make salary demands on the state “but nobody is thinking about the economy.”

“Economic decisions are being politicised when the economy should be the first priority – we cannot survive without it. Only then can political stability be achieved,” he said.

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President relaxes exchange rate crackdown

The government has relaxed a blackmarket crackdown on the illegal exchange of dollars into rufiya, announcing today that the currency could be traded at a rate within 20 percent of the pegged 12.85 to the dollar.

The announcement effectively defangs the police crackdown by allowing trade of the rufiya up to Rf15.42, at a time when the supply of dollars sits below demand and banks are refusing to exchange the local currency.

Haveeru reported that President Nasheed had sent a letter to MMA Governor Fazeel Najeeb requesting he announce the new exchange rate. The government has criticised Najeeb for not addressing the dollar shortage and for lack of response to requests for advice and assistance, and has requested the MDP parliamentary group to press for his dismissal.

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Nihan renews calls for Nasheed no-confidence motion as DRP factional strife intensifies

Dhivehi Rayyithunge Party (DRP) MP Ahmed Nihan renewed calls for a no-confidence motion against President Mohamed Nasheed, during a rally on Friday.

Nihan said the motion, which requires 25 signatures from MPs to be put before parliament and a two-third majority vote to be passed, was in response to an increase in problems such as gang violence and the dollar shortage.

“Galaxy Enterprises can no longer sell air tickets because of the dollar shortage, and I received at least 20 desperate calls last night from people needing medical treatment who are suddenly unable to travel to Colombo. The public is very unhappy,” Nihan said.

“I strongly believe the opposition should seriously consider this motion because the President is ignoring problems. There is inflation, and people are in a mess and getting reckless,” he said, claiming that Nasheed had been “lying to the country over the extent of the problem.”

The government, and the International Monetary Fund (IMF), have contended that a key contributor to the dollar shortage is the high spend on civil servant salaries in rufiya relative to its dollar income.

The government hopes a reform of the tax system, including a business profit tax and a tourism goods and services tax – delayed in parliament and passed only late last year – will eventually increase its income, but contests that political obstacles prevent it from reducing the size of the civil service.

Nihan acknowledged that while the civil service was “quite large”, blaming it for the dollar shortage was “just an excuse”.

“This country has survived for the last decade as a well-governed country. There was no problem getting dollars on this scale, only now due to mismanagement,” Nihan claimed.

He also acknowledged that even with 25 signatures, the no-confidence motion was unlikely to get the two-thirds majority required to oust Nasheed. It was, he claimed, an attempt “to get the President to take notice of the problems people are facing.”

The brief resignation of Nasheed’s cabinet in July 2010 was in part prompted by letters from six ruling party MPs who claimed they had been offered bribes by the opposition to vote against the party line. As the opposition parties already have a majority in parliament, this was widely interpreted as an attempt to secure a two-thirds majority to remove the President.

Nasheed promptly arrested the respective leaders of the minority opposition Jumhoree and People’s Alliance parties, businessman Gasim Ibrahim and the former President’s half brother Abdulla Yameen, and charged them with treason and bribery.

No charges stuck in court, and Nasheed was eventually pressured by the international community to release Yameen from his “protective” extrajudicial detention on the Presidential Retreat of on Aarah.

The possibility of the Dhivehi gaining a two-thirds majority is particularly unlikely given the recent fracturing of the party into factions loyal to either former President Maumoon Abdul Gayoom or the DRP’s leader Ahmed Thasmeen Ali. Gayoom had endorsed Thasmeen as his successor on his retirement from politics early last year, but cemented his disapproval of Thasmeen’s performance with an open letter faulting his leadership and particularly the party’s dismissal of Deputy leader Umar Naseer, ostentiously for conducting protests without party approval.

During a rally on Thursday, Thasmeen told the press that he could not stand aside and watch when the internal dispute has reached the point where “the people are not sure what the DRP is.”

“When a rally is announced, it’s not clear who is calling for it,” he said. “A person dismissed from the party is using the party’s logo and giving press conferences as the party’s deputy leader.”

As the factional strife has reached “the limit where we can’t remain without taking measures,” Thasmeen said he would bring the matter to the party’s council seeking a decision.

Meanwhile Riyaz Rasheed, the sole DQP MP in parliament, participated in the Gayoom faction rally for the first time, despite the recent coalition agreement between the Dhivehi Qaumee Party (DQP) and Thasmeen’s faction. The party’s existing coalition partner, Yameen’s PA, supports Gayoom.

At the Thasmeen faction rally at Immadhudheen School, speakers strongly criticised Umar Naseer for “disregarding the party’s charter.”

Leading the attack, Deputy Leader Ali Waheed argued that the opposing faction consisted of “presidential candidates who couldn’t get 3,000 votes (Umar) and leaders of parties with less than 3,000 people (Yameen),” and accused them of hijacking the DRP’s membership base.

“These people are holding rallies in DRP’s name because it has 40,000 members. Why won’t they hold a rally in their the name of their own party?”

The Gayoom faction was “obsessed with the DRP” because “when the time comes, it’s the DRP that has the ace of spades,” Waheed said.

“But what they don’t know is that we’re not playing cards,” said Waheed. “We’re playing joker. God willing, we will put down the joker and win the presidential election. When you’re playing joker, the ace of spades isn’t that important.”

Waheed argued that rallies held by Gayoom faction were “in truth Yameen Abdul Gayoom’s presidential campaign.”

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Dollar shortage threatens to ground local airline sales

Sales agents for some international airlines operating in and out of the Maldives have said that a lack of US dollars circulating within the economy is causing concerns, and in some cases, temporary cessation of their day-to-day operations.

Galaxy Enterprises, which operates as a general sales agent for Sri Lankan Airlines in the country has said that it has temporarily stopped selling airline tickets in the country. The group have forwarded potential customers to the Sri Lankan Airlines official website to process booking requests.

The announcement comes as financial institutions like the Bank of Maldives concede that the high level of imported goods bought into the economy are not being matched by US dollar generating industries inside the Maldives. The bank has said that the disparity had created a “lag” in terms of supply and demand for the currency.

The situation this week led to police – with the assistance of the Madives Monetary Authority (MMA) – trying to crackdown on sales of the country’s US currency beyond the pegged rate of Rf12.75 per dollar at black market rates as high as Rf16.

In the statement issued by Galaxy Enterprises and printed in newspaper Haveeru today, the group said it had been forced to suspend sales of Sri Lankan Airlines flights as it was not receiving sufficient US dollars through the banks to pay the airlines after selling tickets to its customers in rufiyaa. The group said that it will resume selling Sri Lankan Airlines tickets once the dollar shortage was perceived to have “eased”.

Galaxy Enterprises is not alone in witnessing operational difficulties as a result of the state of the nation’s finances.

Tyronne Soza, Maldives Country Manager for Mack Air Services Maldives, which represents the local interests of multinational aviation group John Keells Airlines, said that dollar supply was a major concern for its operations, although it continues to sell tickets.

“We are having some issues with obtaining and paying in dollars right now. As we are part of the John Keells group we have been able to manage the situation though,” Soza said. “It’s illegal to charge customers in dollars and obviously we accept rufiya, but it is difficult.”

John Keells serves as a holding company for aviation groups link Jet Airways and Sri Lanka-based Mihin Lanka.

Not all operators have shared these currency concerns though, with senior management for one of the world’s highest profile airlines, which works through Universal Enterprises in the country, claiming it was “business as usual” despite reports of dollar concerns amidst some competitors.

Last week, Peter Horton, the recently appointed CEO of Bank of Maldives told Minivan News that he believed the country desperately needed new ways of creating a US dollar income to try and overcome the crisis.

“A reality of the economy is that we are importing so very much, and we have so few dollar generating industries. In very simple terms, any downturn in the economy incur losses in the economy when turnover drops below break-even level. That is where we are as an economy – our revenue in dollar terms, in terms of the imports we require, is lagging,” the CEO, a British national, claimed.

“We need to look at ways of keeping dollars in the country as much as possible. [A] number of entitites are taking money out of the country – and are free to do so without exchange control. I think we also need to look at other ways of enhancing dollar revenues through fresh or new industries – and I would include financial services among those industries.”

Horton added that the issue had been compounded by economic uncertainty within international financial markets during the last few years, representing a massive national challenge that needed to be overcome.

However, police attempts to crack down on potential black market dollar sales are claimed by some low-wage expatriate workers to have exacerbated difficulties faced in trying to transfer and provide funds abroad.

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 are forced to change the money on the blackmarket at rates often higher than the government’s pegged rate of Rf12.85, before sending the money to their families.

The set dollar rate in the Maldives is Rf12.75, however during the dollar shortage it has increased to 13, 14, 15 and sometimes even as high as 16 on the black market.

However, banks routinely refuse to change rufiya into dollars, and experts have claimed that the crackdown will do little to address the demand for foreign currency or the budget deficit, which has led to the pegged rate not reflecting the value of the rufiya.

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Police ask banks to track people trading large amounts of dollars

The police have met with the senior officials of local and international banks based in Male’ to track persons who are found to buying dollars continuously, in a crackdown on the trading of dollars in the Maldives.

There are people who take advantage of dollars provided by the banks for persons who require travel abroad for medical purposes, said police.

“Police asked the banks to identify those who take advantage of the dollars that are supposed to be provided to people who need the money for medical purposes, and to share this information with us,” police said.

Police said they also discussed with banks about how to resolve the issue and what measures would be more effective.

“Police discussed the upgrading on banks’ policies to monitor staff suspected of trading dollars illegally,’’ said Superintendent of Police Mohamed Jinah.

Police would identify those buying dollars and collect information the information according to monetary laws, Jinah said.

He also said that Maldives Monetary Authority (MMA) was cooperating with police in its special operation to control the black market for dollars.

The special operation began this week after President Mohamed Nasheed during a Maldivian Democratic Party (MDP) rally said that he would “put a police officer behind evey dollar” in the country if necessary.

Nasheed said that there were adequate amount of dollars in the country and that there should be no reason the country was suffering a dollar shortage.

After the police operation started, police have been checking suspicious people and places where illegal dollar transactions are likely to happen.

The set dollar rate in the Maldives is Rf12.75, however during the dollar shortage it has increased to 13, 14, 15 and sometimes even as high as 16 on the black market. However banks routinely refuse to change rufiya into dollars, and experts have claimed that the crackdown will do little to address the demand for foreign currency or the budget deficit, which has led to the pegged rate not reflecting the value of the rufiya.

In 2009 June, to ease the dollar shortage, the cabinet decided to give letters of credit facility to importers of basic food items and other necessary commodities to the Maldives.

The President’s Office then formed a committee consisting of senior officials of the Ministry of Finance and Treasury and the Ministry of Economic Development, to review applications for receiving letters of credit, and give the letters of credit in a priority order.

”The government believes that this measure will ease the problem of the dollar shortage,” the President’s Office said at the time. ”The increased number of expatriate workers in the Maldives has contributed to the problem of dollar shortage in the Maldives. It is estimated that every month more than US$2 million is sent out from the Maldives by the expatriate workers. The cabinet members noted that reducing the number of expatriate workers was also an important measure to be taken.”

In December 2009, Spokesman of MMA Ibrahim NaseerNaseer told the local media that the deficit in foreign exchange is a result of MMA printing a large amount of Maldivian rufiyaa to make up to government spending which was more than the government income.

In August 2009, MMA Governor Fazeel Najeeb told the press that the cause of the dollar shortage was that rufiya notes had been printed in large amounts, exceeding the amounts of dollars in the country and dollars coming in to the country, and had been injected into circulation.

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Blackmarket dollar crackdown won’t address demand, warn businesses, financial experts

Police today launched a crackdown on the blackmarket trading of dollars after President Mohamed Nasheed last night declared he would “put a policeman behind every dollar”.

The Maldives has been suffering a crippling dollar shortage for over a year, with most banks in the country sporadically refusing to trade dollars at the official pegged rate of Rf12.85.

Maldivians travelling outside the country and expatriate workers seeking to export their remittances are forced to rely on the unofficial black market, which trades dollars at up to Rf14. Panicked text messages appealing for dollars are circulated whenever emergency medical treatment is required overseas.

Until now authorities have turned a blind eye to the practice, as even many sizeable local businesses have been forced to obtain dollars from unofficial avenues.

Launching the operation, police accused the Maldives Monetary Authority (MMA) of failing to address the problem of foreign currency dealers violating their licenses.

“It has been noticed that the MMA has yet failed to take action, despite the exchange of US dollars in violation of policies, in order to regulate the exchange of US dollars,” police said in a statement.

“Information received as of now reveals that the receipt and reports that should be sent to MMA have not been sent, according to the policies of the MMA in effect. We have also received information that unlicensed dealers are exchanging US dollars against the policies devised by the MMA,” police said.

The first arrest was made today, after a man was arrested in a shop on the tourist strip of Chandhanee Magu for exchanging dollars at higher than the pegged rate.

“The shop was not licensed to carry out transactions related to foreign currency exchange,” Sub-Inspector Ahmed Shiyam told newspaper Haveeru.

The government has levelled blame at MMA Governor Fazeel Najeeb, and called for parliament to dismiss him for failing to respond to the President’s requests for counsel.

A letter from the President requesting Fazeel’s dismissal was read out in parliament today and the matter was sent to the Public Accounts Committee, which will make a recommendation to the floor. Debate on the subject today included proposed limits on carrying foreign currency out of the country.

Earlier this month following initial calls for Fazeel’s dismissal, leader of the opposition-allied People’s Alliance (PA) Abdulla Yameen appeared on Villa TV to defend the MMA governor, insisting that the dollar shortage was not reasonable grounds to dismiss Najeeb.

“The MMA is not responsible for solving the problem of the decreasing amount of dollars coming into Maldives,” he said. “The MMA has to maintain the value of dollars and rufiya… if there is a dollar shortage, what the MMA can do is use their open market operations to borrow from commercial banks and attempt to maintain the value of the dollar.”

If these efforts were unsuccessful, said Yameen, also former Trade Minister and former Chairman of the State Trading Organisation, the only other option would be to “officially devalue the rufiya.”

However, he added, the impact of such a move on the economy had to be carefully considered, or the rufiya would have to be devalued again after six months and the positive effects would be “nominal”.

“From what we can see now, [devaluation] will not be a solution for our structural problems,” he said. “Our biggest structural problem is that our fiscal policy is still recklessly expansionary, it is very much a spending policy without any control. Government expenses are very high and they are not trying to control it.”

Although the Maldives received a high amount of dollars as tourism revenue, “not all these transactions take place in the Maldives.”

“A lot of tour operators for example sell tour packages in Europe and send to the country only what has to be paid to the resort,” he explained.

The other major problem is investor confidence: “If the Maldivian economy is collapsing like this and the dollar shortage is reaching this level, private Maldivian investors will not want to keep their money in the Maldives. They don’t know when, under some law or regulation, the government will give them an IOU and take their money from the bank saying ‘in two years we’ll pay you back in dollars what we’re taking, but now we don’t have cash for foodstuff’ and convert it at the 12.85 rate after a decision by the cabinet – no investor or businessmen will have a guarantee that this won’t happen.”

MMA had not been able to solve the disparity between the rufiya and the dollars because devaluing the rufiya would only lead to spiraling inflation, he said.

An internal problem

Local economists and businesses badly affected by the dollar shortage, such as importers, dispute that the problem is either political or can be solved in such a manner.

A representative for a Dubai-based company supplying resorts in the Maldives explained to Minivan News that while he was required to pay suppliers in dollars and euros, “the resorts try their best to pay in rufiya. Their revenue is acquired in dollars, so they can [sell the dollars] on the open market and pocket the difference.”

“It’s a huge issue for the entire country and makes it very difficult for anyone to import. We’re lucky in that we have a parent company to which we can transfer revenue and which pays centrally,” he said, adding that not all companies operating in the sector were as fortunate.

“We keep a local rufiya account which we use for pay customs payments and incidentals, otherwise the only way to exchange is on the grey market. There you’re looking at Rf14 to the dollar,” he said.

He speculated that the crackdown on the unofficial market could be positive, “as the resorts would lose the incentive to trade dollars into rufiya and any forex coming into the country would stay here.

“But the flip side is that you still can’t change money – it’s an incredible situation when you can’t go into a bank with your Rf12,850 and change it into US$1000. Imagine what would happen in the UK if you walked into RBS (Royal Bank of Scotland) and asked them to change £1000 pounds into dollars and they refused to do it.

“A crackdown on the black market also need laws guaranteeing dollar supplies for banks, with liquidity provided by the government,” he suggested.

“What bothers me is that there’s plenty of dollars coming into the country, but the people in control of the economy seem to be hiding it away.”

A local financial expert working in the private sector, Ahmed Adheeb, told Minivan News that while the crackdown would enforce existing monetary law, “the problem from the point of view of an economist is that the dollar flow is there but the exchange rate is not at the market rate. There have been a lot of dollar fluctuations since it was pegged.”

Adheeb emphasised that building confidence in the rufiya was now “more important than anything else”, and an internal problem innately linked to the country’s high budget deficit.

“We are producing a lot of rufiya to finance the deficit. If the inflow is greater but the exchange rate is not adjusted, that becomes a problem,” he said.

“The government is pumping more rufiya into the economy to finance the deficit than it is earning in dollars. The confidence in the rufiya is not there, and there is no incentive for people to keep their savings in rufiya.”

Adheeb predicted that while the crackdown would limit exchanges on the black market, “there will still be huge demand for dollars.”

“When the black market suffers shortages, we may find ourselves in a situation where we can’t find dollars at all. Even now if I am individual it is difficult to find dollars, because the banks are not supplying. The total solution is for banks to supply to demand.”

The banks, Adheeb said, had significant dollar reserves but found the rate of exchange unacceptable.

A pegged rate had been instrumental in building investor confidence in the tourism sector, Adheeb noted, however it had led to an internal problem that had left the currency vulnerable to global fluctuations in the dollar caused by events such as the Gulf Wars, 2008 recession, rising oil prices, “and now reconstruction in the wake of the Japanese tsunami”.

“If I have savings in dollars, why would I exchange if the rufiya is so volatile?” he asked. “At the same time why is the government raising oil prices? Because of international price increases.”

Foreign investors in the country were already concerned, he noted, 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. 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.

“There is no reason why this should be politicised – it is a national issue, like a tsunami. We need to get together and solve this. I believe the economic outlook for the Maldives is good – the tourism sector is continuing to grow. We can manage this, it should not be a major problem.”

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BML stops issuing Visa Debit cards in rufiya

The Bank of Maldives will cease issuing Visa Debit cards in rufiya from today.

Earlier the bank announced that the Visa Debit cards restriction to dollar accounts would only apply to foreigners in the country, but has now extended this to Maldivian citizens.

“The cards already issued can be used in other countries until the expiry date. After that when renewing or making a new card, Visa Debit will be issued only if the primary account is a dollar account. For rufiyaa accounts Amex Debit Card will be issued which can only be used locally,” Card Centre Head Mohamed Shareef told Haveeru.

The move effectively prevents both locals and foreign nationals from using cards to spend and withdraw rufiya overseas in foreign currency. Many foreign professionals working in the islands, such as doctors and teachers, have complained that this prevents them from sending money home without travelling to Male’.

According to the bank, US$400 per day can be drawn from Visa Debit Cards issued for rufiyaa accounts at foreign point-of-sale machines, and US$200 per day from overseas ATMs.

Shareef told Haveeru that the changes were introduced in agreement with Visa after discussions about the foreign currency status in Maldives.

“The card is issued under conditions. If services are not provided, it is against the agreement with Visa,” he told the newspaper.

The thriving black market for dollars in the Maldives, now somewhat institutionalised, currently ranges from Rf13.2 to Rf15 to the dollar depending on the size of the transaction. The pegged rate is Rf12.85.

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BML to block foreign account holders from using debit cards overseas

Expatriates holding local accounts with the Bank of Maldives (BML) will be prevented from spending money overseas using their debit cards, as the dollar shortage worsens.

A statement from the BML, written in Dhivehi, stated that from November 1 foreigners with debit cards will be unable to conduct transactions of any amount from either the ATMs of other banks or point-of-sale machines in shops.

At the same time, the overseas spending limit for Maldivians has risen from US$200 a day to US$600.

The move, blamed by BML on the worsening dollar crisis, will particularly impact the many foreign teachers and other professionals such as doctors working in the country who bank locally, particularly those based outside Male’ who need to send money home.

One such doctor explains on his personal blog that it is common practice for foreign doctors to transfer money home by opening a BML account at a branch in the atoll capital, and then give an international visa debit card to relatives in his/her home country.

“Now no one has any idea about how to send money to their country without visiting Male’,” he writes. “If you keep the money with you, there is no guarantee that you will not be robbed of it.”

“The gynecologist of our hospital was robbed after he got his salary three months back. The next day, someone opened the house with a [spare] key and cut open the suitcase where he kept his money.”

In August an Indian pediatrician working at Kudahuvadhoo Hospital in Dhaal Atoll was stabbed in his home by a group of masked men.

The attack occurred on 10 minutes after the doctor arrived home from the hospital, when the group forced in his door. The doctor was stabbed in the arm and leg when he was unable to give the men any money.

Moreover, after October 15, BML will only allow foreigners to transact overseas from a US dollar account.

“Debit card for rufiya accounts can only be issued to foreigners for ‘local’ use at the the Bank of Maldives ATMs and POS terminals,” the announcement reads.

Several foreign commodity importers based in the Maldives also warned that their businesses were under threat after local banks began refusing to trade freely in rufiya.

“Our overseas suppliers have to be paid in dollars, and local buyers pay us in rufiya. Our bank has now stopped allowing us to transfer this into our US dollar account,” the manager of one enterprise told Minivan News recently. “How are you meant to run a business in this place? Surely they can’t go on like this?”

Press Secretary for the President Mohamed Zuhair told Minivan News that the end of the off-peak tourist season had combined with “a concurrence of other factors” to exacerbate the foreign currency crisis.

“There are currently two groups of people who need dollars – the first is the group of pilgrims about to go on the Hajj – the whole exercise usually costs US$30 million. Unfortunately it’s also the school holidays, and many teachers going on holiday will also need the money. That’s why there’s going to be shortages,” he said.

He acknowledged that the dollar situation was affecting investor confidence and making the Maldives a less appealing destination in which to conduct business.

“Foreigners can bank with foreign banks such as the State Bank of India,” he noted. “We also have a commitment from [Indian infrastructure giant] GMR that they will pay their first down payment on Male’ International Airport by the end of November – it was initially the end of December. Income from the donor conference should also reach US$90 million by the end of the year,” he said.

“It’s just unfortunate that the Hajj is slightly ahead of these debts. [Investor] confidence is a big problem, and the government is talking to the Maldives Monetary Authority. But there are no quick fixes.”

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