Fiddling while Rome Burnt
Published on this blog in Feb 20, 2010
The economic woes, that grinded the world economy to a near halt and resulted in a net job loss of some 25 million jobs globally, is finally drawing to a close. The first obvious manifestations of the real difficulty that the world was getting into became started becoming when Bear Stearns and BNP Paribas; two of the world’s biggest investment banks, owed up to the scale of its difficulties in July and August 2007.
While the reasons that the world economy went into tail-spin is difficult to untangle, the reasons why the global economy is slowly emerging from the recession is clear; it is mainly the result of bold, heroic and concerted efforts by large and small economies in preventing banks from failing and introducing fiscal and monetary stimulus into the economy.
While analysts were warning of difficult times to come, the woes and troubles of the Maldivian Economy was obvious to everyone from early 2009. Yet, we remain unique in the world in that, we are perhaps the one country who attempted to deal with the problem mainly by blaming somebody for it, rather than in fact doing something about it.
U.S. and World Leaders acted in a concerted manner to combat the downturn by passing fiscal stimulus, helping the banks so that they can restart lending and by lowering interest down to effective zero rates. The incoming US administration which took office in January 2009, spend newly earned political capital and passed additional stimulus package worth 787 billion US $, the Japanese committed more than 550 billion Yen and the British rescue package was more than 20 billion pounds sterling.
On 15th November 2008, IMF Managing Director, Dominique Strauss-Kahn, called for all countries to take broad and measured steps to prevent a recession by offering fiscal stimulus packages which IMF justified by stating that “…In normal times, the Fund would indeed be recommending to many countries that they reduce their budget deficit and their public debt. But these are not normal times, and the balance of risks today is very different.” Yet here in the Maldives, controlling public debt NOW is seen to be more important than getting Maldivians back to work, helping to revive hard hit sectors like construction and getting the economy moving again.
The size of the US rescue package is due to keep the US budget in trillion dollar deficit territory for the near future and only 54% of the US budget for 2010 is due to be funded by revenue, the balance of 46% is funded by debt.
Yet, in 2009 while we witnessed a real downturn of the tourism industry with the fishery sector remaining in the doldrums and the construction industry down by 25%, there has been no organized fiscal or monetary stimulus designed to revive the local economy.
Accepting the fact that the government could not increase national fishery landings simply by passing a cabinet resolution or a well-orchestrated ministerial speech, the construction industry was ignored and public sector projects were slashed, while all other countries announced major public works projects to keep people in jobs and to keep the economy from collapsing.
Throughout the world, governments acted to prop up the banking system by helping ailing banks with public funds and government guarantees, yet here in the Maldives, the Auditor General and the Police Authorities worked to erode public confidence in the Bank of Maldives. While Central Banks throughout the world brought interest rates down to near zero to allow and encourage banks to continue lending, Maldives Monetary Authority passed new and more stringent regulations to curb lending.
US Congressional Budget Office estimated that accumulated US budget deficit for 2010 to be 9.3 trillion. The previous annual record budget deficit was 450 billion in 2008. Yet the government was bold enough to pass stimulus packages which increased the annual budget deficit of 2008 by 4 times to 1.8 trillion. Barack Obama knew exactly what he was doing, “The economy is very sick,” he said. “We have to act and act now to break the momentum of this recession” and while there was real worry about the size of the deficit, the packages were passed. UK, EU, Japan, China, India and other countries took such bold and heroic steps.
Yet here in the Maldives, with the economy in real trouble, small businesses closing down and the banks calling in their loans rather than extending them, budgetary objectives are to keep spending to a minimum, and there is no money designed to help stimulate the economy.
Granted there are many anomalies and structural problems with the economy. Foreign currency earnings has to be increased and more has to be done to retain hard earned foreign currency at home. Dependency on expatriate labor has to be reduced. Wealth has to be less concentrated. But there are bigger and more critical priorities.
Today, the world, and of course the Maldives, are slowly seeing the positive effects of such bold steps. The world economy is slowly recovering. And because our economy is also largely interwoven with the world economy, we too, shall slowly see the positive effects of this global upswing. And by Allah’s grace, if the fishery landings improve, there will be swift and considerable improvement in the economy.
Yet, the facts are obvious. None of our national institutions acted to reverse the national economic malaise. The State as a whole, politicians across the political divide, and national institutions failed the people in this time of need. Not only did we fiddle while Rome burnt, we seem to have sometimes actively worked to fuel the fire.