The writer argues that most of the blame for the currency crisis may be laid at the door of the govt. and the RMA
The Rupee Crisis: The events that have unfolded during the last few months and the ongoing situation have put immense pressure on the economy, as well as on the parity of the Ngultrum with the Rupee. And the subsequent actions of the government and the RMA have not helped matters.
If the prevailing state of affair is allowed to continue, Bhutan may really have a crisis at hand. A few years ago, we used to boast that the Ngultrum was one of the strongest currencies in the world, as it was guaranteed and backed by a huge reserve. Well, the truth has finally dawned and a wakeup alarm (not a call) has been sounded that will forever be etched in our minds.
Bhutan cannot afford to be complacent and continue on the development path thus travelled. Bhutan, being a small landlocked country with limited resources, needs to develop a proactive development dynamism grounded on realities.
The primarily focused development approach, based on an overly dependence on grant assistance from abroad, hydropower and tourism, and an economy that meets its requirement of goods and services mainly from imports needs a major re-think.
The need of the hour is a more balanced development strategy that encompasses a wide spectrum of economic activities, instead of focusing on a select few. But to make this urgently required paradigm shift, we must ensure that Bhutan does not attempt to re-invent the wheel, wasting limited resources that our country can ill afford. Nor implement ad hoc policies, without detailed analysis, making matters only worse.
It is strange that the more we define the uniqueness of nationalities, cultures and its traits, the more similar we are as humans. Thus abound so many examples and events in the world that Bhutan can pick and choose a path that best suits us, with minor adjustments, without valuable resources being used up. Another aspect riding in our favour is that Bhutan, being a small country with a likewise population, the complexities of management and implementing new strategies are more manageable, and results more predictable.
The ongoing Rupee crunch will only deepen if urgent steps are not implemented to mitigate the situation. Getting more soft term loans and assistance from outside is not the answer. It will only compound the problem further in the long run. The only way that this ailment can be eliminated or controlled is to first identify the cause of the disease and then treat it.
It is therefore imperative that we acknowledge and accept that the present crisis is the consequence or the creation brought about by the policies of the government, the RMA, and the unique relationship between Bhutan and India. It is rather sad and highly irresponsible when the government and RMA absolve themselves of being the cause of the present problem. Let us be very clear about the genesis of the present situation.
There are two ways of managing the economy, namely, a) fiscal policy, which constitutes taxes and government expenditure, leading to increases or decreases in the supply and demand of goods and services, including imports and exports, primarily managed and administered by the government; and b) monetary policy, which controls money supply, credit expansion and the management of foreign reserves under the jurisdiction of RMA.
Of course, there also exist externalities and the absorptive capacity of the country that impacts the economy, which are also largely under the control and management of the government. The government and the RMA have correctly pointed out that the present crisis was caused by the high (uncontrolled??) growth of consumption (the government and RMA blames only the private consumption, though research may suggest it is government consumption – of the 75,000 non- nationals employed in the construction sector, only about 4800 are used by private construction - 400 houses x 12 construction workers, while the balance 70,200 are used in the government/hydropower constructions), fuelled by excessive credit expansion in the country without matching growth in the economy, including savings.
As pointed out, the management of these economic fundamentals falls under the control of the government and the RMA. Therefore, how can the government and the RMA blame the private sector, the people and the commercial banks for the high growth in consumption/demand and credit expansion? The growth, whether big or small, is nothing but the direct consequence of the fiscal and monetary policies of the government and the RMA. People will consume as long as the goods and services are affordable and readily available in the market. And banks will continue to lend money, as long as they have adequate liquidity, there is a demand for viable loans, which generate substantial profit for them.
Look at the increasing magnitude of imports and the profits of the banks, which clearly demonstrate the affordability, availability, profitability and viability on the provisions of goods and services, including loans. B y highlighting the above reasons for the present crisis, both the government and the RMA have admitted that they have failed in their mandated responsibilities in managing the economy efficiently. The government and the RMA must instead own up to the present crisis and initiate required policy steps to combat the worsening economic situation. They must therefore become proactive agents, as well as being responsive and constructive reactionary agents in the efforts to overcome the present economic setback.
Having said that, in the end, we, the Bhutanese people, as a nation, are all to be blamed for this mess - period. And therefore we must take up the collective responsibility to ride over this small bump on the path to development. Actually it is a blessing in disguise. We are now all made aware of the problem. And therefore we can fix the problem before it becomes unmanageable. Bhutan is surely a much-blessed nation. Over the years, our country has become stronger and a better place to live in, due to the many blessings in disguise.ny blessings in disguise.
To be continued
Contributed by T Gyaltshen, Thimphu
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