A powerful lobby group representing Maldivian resort owners used its influence to scuttle several pieces of regulation in 2016, including new rules proposed by the central bank to ban resorts from selling dollars.
The move was reportedly aimed at alleviating a persisting dollar shortage and tackling an entrenched black market.
The Maldives Association of Tourism Industry noted in its annual report that it asked the central bank to scrap plans to restrict resorts to only buying foreign currency after a draft regulation was shared for feedback.
“We were successful in persuading the Maldives Monetary Authority to drop the present proposed regulation on foreign currency exchange,” MATI Secretary-General Ahmed Nazeer said at the organisation’s 27th general assembly last week, outlining “key achievements” during the past year.
“If the regulation was implemented in its present form, it would not only create chaos in the industry, but it would be counter to the open economic policy of the country,” he added.
Tourism accounts for the vast majority of the country’s foreign currency receipts.
The Maldives has a de facto fixed exchange rate of MVR15.42 per dollar. But the black market rate exceeded MVR17.50 in late 2016, leaving small businesses scrambling to buy dollars to pay for imports and forcing the central bank to temporarily take over dollar sales to travellers.
Speaking to the Maldives Independent, Ali Hashim, who served as finance minister under former President Mohamed Nasheed, explained that the main source of the black market is resort businesses that sell dollars with a markup every month to raise local currency for operating costs such as wages.
While the Maldives earns enough foreign currency to meet import needs, Hashim noted that most of the income from tourism flows out of the country without entering the financial system, creating a “structural” black market due to the inability of commercial banks to meet excess demand for dollars.
If resorts are banned from selling dollars, the companies will deposit or exchange foreign currency with local banks, which would have an increased supply to meet the public’s needs, he said.
The International Monetary Fund has also said that the multi-billion dollar tourism industry “appears to be a key supplier and driver of the parallel market.”
The stable black market premium, which fluctuated between two to six percent in 2015, reflects the “oligopolistic nature of the market,” the IMF suggested, observing that there are “only a few large suppliers of foreign exchange who are able to adjust supply to the parallel foreign exchange market”.
The MMA’s information officer meanwhile said that contrary to reports, the regulation “has not yet been finalised. We are in the process of reviewing the comments received from the stakeholders.”
Asked about criticism over the central bank’s susceptibility to lobbying from a special interest group, the official said: “MMA will consider their feedback in finalising the regulation although all of the concerns may not be addressed in favour of the concerned parties but revisions will be made to achieve the objectives of the stability of the Maldivian Rufiyaa.”
The draft regulation has not been made public.
On MATI’s lobbying power, Hashim, the former finance minister, said resort owners have always “wielded considerable influence” due to the crucial importance of the tourism sector.
“But how much they dictate is up to a government. No government so far has told them, ‘no, we run the government as we see fit,'” he said.
He went on to criticise MATI’s outsized influence, saying: “Of course, we acknowledge what they have done for the nation. But let’s have an even playing field. Your sphere of influence would not spread to all areas.
“Everyone recognises that tourism is the mainstay of the economy, that if anything happens to it we all will feel it in terms of inflation, in our income, and general well-being. But it shouldn’t always be the way [MATI] wants it. The financial sector has to be changed now.”
MATI was not responding to calls for comment at the time of going to press.
According to MATI’s annual report, the organisation feared that the foreign currency regulations could be “the start of a process that can ultimately lead to more serious issues into stopping or restricting free flow of capital and repatriation of profits.”
MATI’s secretary-general told newspaper Mihaaru that resorts need to sell dollars to provide local currency for tourists to spend during visits to inhabited islands.
MATI – whose board members include Jumhooree Party leader Gasim Ibrahim and Maldives Development Alliance leader Ahmed ‘Sun’ Siyam, both of whom are prominent lawmakers – also played an important role in shaping other regulations.
On the remittance tax introduced in October for overseas money transfers by foreign workers, MATI said it ensured that hand carried cash by departing passengers will be exempt from the tax.
At MATI’s behest, the immigration department suspended the enforcement of new rules introduced in March 2016 to regulate employment agencies and prevent the influx of undocumented workers.
“Because of objections raised by MATI, this draft regulation was suspended for a period of one year,” the annual report noted, contending that the regulation “was going to cause considerable issues to our industry in recruiting expatriates.”
MATI also met with officials from the housing ministry and suggested that the tourism industry should be exempt from a new building code submitted to parliament last year. The present building code under the tourism regulation is adequate for the industry, the group insisted.
The construction bill was unanimously rejected by the parliament in November.