Western governments, international institutions scaring off potential investors, claims MMA governor

Maldives Monetary Authority (MMA) Governor Dr Azeema Adam has accused Western governments and international institutions of discouraging potential investors.

“Western governments and international institutions not only keep on issuing public statements and reports on the Maldives, they would go whatever length it takes to portray the Maldives as not-so-sunny side of life to the potential investors,” Adam claimed in a speech delivered at the Berlin Economic Forum on November 9 – made public on Thursday (November 20).

The MMA governor’s criticism of the West has been echoed by President Abdulla Yameen and his cabinet who have this month accused the European Union of imposing trade restrictions on the Maldives following its refusal to “abandon” Islamic principles.

The central bank’s governor praised the Special Economic Zones (SEZs) Act introduced in August, which would “create new frontiers in developing the economy through diversification.”

However, Adam suggested that the standard SEZ model adopted in other countries might not work in the Maldives due to the lack of “cheap and abundant labour”.

“We have the opportunity now to learn from the experiences of other countries and develop SEZs customised for the Maldives,” she said.

“Yet, international institutions, and some of the larger advanced economies have raised alarms about creating SEZs in the Maldives and once again are advising us not to take such initiatives.”

“This is on the perceived belief that SEZs in small developing countries will create opportunities for a dark economy to emerge.”

While the statements in question concerning SEZs are unclear, the opposition Maldivian Democratic Party had contended that that the law would pave the way for money laundering and other criminal enterprises and authorise the president to “openly sell off the country” without parliamentary oversight.

Former President Mohamed Nasheed had dubbed the legislation the ‘Artur Brothers bill’, referring to an infamous pair of Armenians linked with money laundering and drug trafficking who made headlines last year after they were photographed with cabinet ministers.

The opposition leader has also dismissed SEZs and the proposed ‘mega-projects’ as “castles in the air.”

“External interventions”

Adam meanwhile acknowledged “large fiscal deficits with high recurrent spending”, “high levels of debt”, “low international reserves while maintaining a pegged exchange rate” and “weak institutions” as problems facing the Maldives.

Moreover, the country has “deep political polarisation,” which she contended was “fuelled, and at times created, by external interventions in local politics.”

Adam argued that prescriptions from international financial institutions to address macroeconomic issues – such as reducing the civil service, cutting subsidies, and raising tourism taxes – were drawn from “models developed for economies far advanced and different than the Maldives.”

The policy prescriptions “often have no relationship with local conditions,” Adam said.

She explained that the 350,000 population of the Maldives was dispersed in nearly 200 islands, only two of which have a population in excess of 10,000.

However, the government was “politically and legally” obliged to provide basic services to small island communities, which demand harbours, quay ways, healthcare, water and sanitation, and secondary education.

Closing down a school or health centre in an island would result in riots, Adam claimed, and MPs would submit no-confidence motions against ministers if a harbour construction project was scrapped.

“External policy prescriptions fail to recognise that newly established democracies would not have the necessary political strength to take tough measures to curb public expenditure that might impact the provision of basic services,” she observed.

Headlines of riots, instability and protests would scare tourists, she continued, and if “the tourism sector collapses, government revenue would collapse”.

Investment was therefore essential for economically and politically vulnerable countries to develop infrastructure, create jobs, “and in realising the dividends of democracy”.

“Therefore, what the larger countries and international institutions could do is, instead of coming up with draconian policy prescriptions and always raising alarm about our countries to potential investors, help to create opportunities for the small states to achieve sustainable development,” she said.

“Instead of condemning every little policy innovation, encourage home-grown and authentically local solutions to meet local needs. All we ask is give us a fair chance to develop our countries.”

The Maldives had defied conventional wisdom in developing a “sustainable, genuinely home-grown, authentic, and truly Maldivian” tourism industry despite a team of experts from UNDP in the late 1960s advising that it would not be viable, Adam said.

While the UNDP recommended development of a boatbuilding industry, Adam said the government instead took steps that “might have been seen as unconventional and indeed unorthodox,” such as the one-island one-resort concept, banning fishing and coral mining, and strict requirements to preserve natural vegetation.

Despite the success of the tourism industry with 1.1 million visitors last year, Adam suggested that a creative approach with a new model or a redesigned product was needed to attract more investment and create jobs for locals.

The government’s decision to introduce SEZs was “an unprecedented and a bold policy measure,” she said, which would “encourage more creativity in the tourism and other industries in the country.”

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