Friday, June 11, 2010

Strengthening the private sector

With our major political transformations or reforms, many things did change in our country's institutions and governance. I've talked about them even earlier in various posts. One of the significant ones is the formation of the Civil Service Commission under the Civil Service Act. Deputy ministers and sate ministers became political posts overnight. Unfortunately (I would say), there were many in such posts who got promoted to those posts over time, and these people are educated, professionals with technical knowledge in their fields. This group also includes some cabinet ministers as well. So, with the change in government, a bunch of seasoned-educated people suddenly got unemployed. All their life, they had worked in the government sector, so it was very much of a shock for them; losing their jobs, and having to stay home. Our system was not prepared for this; as we do not have a vibrant private sector, or research instituties, or civil society organizations.

I am talking about talented people who contributed a lot to our country, and who had sacrificed a lot, and worked dedicately to the development of our society. They are still at the prime of their career, as far as the age is concerned.

Some of them chose to start thier work of coming back to power, and became politically active in political parties. Some chose to get seats in the parliament. Some have left the country with their families, simply having a peaceful time abroad. Some are still staying home, still trying to digest the reality, and wondering what else to do with their life. They were ministers, state ministers, or deputy ministers. So their next job definitely has to be still ministership or state ministership, eh?

Ok, here I come to the main point, at last. Can we only contribute to our country through a job in the government, (or to be precise, a job in the state or public sector)? Well, I guess many have this illusion, that a job is not a job if it's not in the public sector. Our country has got many talented, well-trained, intellingent group of people who are unemployed, and if they can be utilised in the private sector we would be adding up to our productivity, and at the same time saving a lot of foreign currency outflow through expatriate workers.

Looking at the current government, there are some officials in politicals posts, who can be better utilised in the private sector, who used to be in the private sector and earning a decent income. It seems that some political posts have been allocated as 'gifts' or 'recognition' in their political efforts inside the party. Which cannot be avoided in a multi-party democratic system, however much we say it is totally wrong. But, we can still urge the President to at least consider people's technical know-how before allocating them to various posts. Further, get rid of people who cannot perform.

My message to all: jobs in the private sector are also noble jobs, and we can contribute equally, or even better in the private sector.

Wednesday, June 9, 2010

Do we Maldivians want economic development?

In an earlier post, I talked about the importance of developing the private sector in our country. We need to urgently focus our attention on this for many reasons; one, our fiscal expenditure and deficit is already extremely high, and unsustainable; two, in order to achieve economic growth we need investments in the private sector. We are already very heavily reliant on the tourism sector, and so in order to diversify our economy we need to increase investments in other sectors.

It's disheartening that our focus has shifted more on politics, rather than reforming our economy, and improving productivity in the country. There are many important issues and obstacles for economic growth in our country, and we need to talk about it, address them as soon as we can. Maybe most of the politicians do not understand fully the real consequences, and dangers of economic hardships. When the public comes out, and demonstrates on the road due to economic harships, even the military or police may not be able to stop them. My point is, it's time we all debated about improving our economy, increasing incomes, and achieving economic development. The Parliament must be now debating bills and passing legislation in order to bring about economic reforms and increasing government revenue, reducing government expenditure, and developing the private sector. The government needs to formulate a reform bill and present to the parliament, ways to reduce government expenditure, especially, a detailed plan to reduce government employees and wage bill. Such a plan should have details of compensation packages for those who get unemployed in the short run. It also needs to include plans to developing the private sector, and job creation. The point is, any austerity plan put forward by the government needs to be transparent, and so the parliament and the public endorse it.

The Parliamentarians need to believe that our fiscal deficit was above 20 percent of GDP last year, and the state wage bill is extremely high and unsustainable.

Talking about developing the private sector, there are many talented businessmen as parliamentarians. I'm sure the country would be able to get a better contribution from them, if they were concentrating full time on their private businesses.

The media needs to focus more and divert the public's attention more on the economic issues, instead of wasting resources and time on useless and unproductive battles between DRP and MDP.

Some times I just wonder, do we really want economic development?

Thursday, June 3, 2010

What a crisis world...

The recent events in the world financial markets are worth reflecting on, as we have been seeing times of extreme riskiness. On May 6th, the S&P500 fell from 1165 to 1065 within one day. The following day it was again back at 1135. Since then, the commodity markets, equity markets, and the currency markets are in high volatility, and investors have become very risk averse.

For the last two years (almost), we have been hearing about economic crisis, financial crisis, banking crisis, current-account crisis; it has become a crisis world. Looking at past crises, we saw the ‘Black Monday’ in 1987 when the Dow Jones plummeted almost 508 points and the S&P 500 declined by 20.4 percent within one day. In 1997, there was the East Asian financial crisis, when currencies of Thailand, Malaysia and Indonesia depreciated significantly within weeks. In 1999 we had the Argentine economic crisis. In 2007, we started hearing about the signs of a major financial crisis, the one we are still experiencing today.

When USA was almost on the verge of economic recovery, the debt problem of Greece led to a sudden panic in the markets, and Euro has fallen to 1.21 against the US Dollar.

Whenever there is an economic or a financial crisis, many people lose their jobs and income, banks fail, and companies go bankrupt, and so crises are definitely bad for societies. I wonder why we get so much of these crises, in the first place.

Well, we all know how the financial crisis started in USA; with the banks lending excessively to the Americans at low interest rates for home ownership. Most of these mortgage loans were made to the ‘sub-prime’ market, a group of people who had the lowest possibility and capability of repaying the loan. These banks and financial institutions then sold these debt to other institutions, and in this way, new financial products were innovated. Bright minds working in fund management firms came up with ideas like the ‘Credit Default Swaps’ (CDS), which are still another form of financial product, that acts as an insurance to those banks that hold mortgage debt. Trading in equity markets have become too much sophisticated, and mostly has become just numbers in computer systems.

In order to address some of the problems of this sophisticated system, on 24th May, Germany has banned naked short-selling of certain sovereign debt instruments and shares of selected German banks. Although some investors are unhappy about this, I guess, the current crisis originated from actions of many investors trying to make gains in the very short run through short-selling of shares and other financial products.

The whole objective of a financial system is intermediation of finance from savers to investments. We buy shares in order to have ownership of a certain company, and when the firm makes a profit, we get a dividend from it. The company gets the benefit of obtaining finance for its needed investments. Whenever we deviate from this basic fundamental objective, and when financial system is dominated by just hypothetical numbers in electronic devices, we will always be prone to crises.

Talking about sovereign debt problems, the one Greece is facing right now, is again a major reason for an economic crisis. Most of the analysts may be talking about the US economic recovery, what they dont talk about is the US debt problem. As at end 2009, the US debt stood at 83 percent of GDP. Hence, in order to prevent yet another crisis, it has to address its debt problem soon in order to avoid America turning into Greece.