Search

 

Cablegate: Maldives On the Brink of Bankruptcy

VZCZCXRO1573
PP RUEHBI RUEHCI
DE RUEHLM #0805/01 2251107
ZNR UUUUU ZZH
P 131107Z AUG 09
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC PRIORITY 0393
INFO RUEHKA/AMEMBASSY DHAKA PRIORITY 1843
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 8863
RUEHKT/AMEMBASSY KATHMANDU PRIORITY 7102
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 3236
RUEHKP/AMCONSUL KARACHI PRIORITY 2510
RUEHCG/AMCONSUL CHENNAI PRIORITY 9447
RUEHBI/AMCONSUL MUMBAI PRIORITY 6748
RUEHCI/AMCONSUL KOLKATA PRIORITY 0403
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 COLOMBO 000805

SIPDIS

DEPARTMENT FOR SCA/INSB, AND EEB/IFD/OIA
DEPARTMENT PASS TO TREASURY

E.O. 12958: N/A
TAGS: EFIN EAID EINV PREL MV
SUBJECT: MALDIVES ON THE BRINK OF BANKRUPTCY

1. (SBU) Severe balance of payments imbalances, crushing government
debt, and a decline in revenue have brought the economy of Maldives
to the brink of collapse. In meetings with the Charge, Maldivian
Foreign Minister Ahmed Shaheed, Vice President Mohamed Waheed, and
former opposition Quamee party leader and former Attorney-General
Hassan Saeed highlighted the economic turmoil the country has been
experiencing over the last year. Foreign Minister Shaheed said that
an IMF team would be arriving in Male the week of August 10 to
conduct an assessment and determine how much money would be needed to
stabilize the economy. The Foreign Minister expressed concern about
the loan, noting that the government had no experience dealing with
the IMF. He was unsure how the Cabinet would react to a loan.
According to Hassan Saeed, the Central Bank had USD 67 million, or
ten days, of foreign reserves. Vice President Waheed described the
monetary situation as (begin quote) desperate (end quote).

Maldives: The Long Decline
--------------------------

2. (SBU) There have been signs for last year that the financial
situation in Maldives was worsening. Opposition leader Saeed told
PolOff that the IMF called the country's economy the most precarious
of any in the world. Press reported that, in an attempt to control
spending, President Nasheed asked cabinet ministers in June to
institute a 20 percent pay cut and also to stop renting private
properties for government offices. A long-term foreign currency
shortage has gotten more severe; government officials attribute the
cause to the large budget deficit left by the previous
administration. The private sector is also feeling the effects of
the crisis; an attorney active in civil society told the PolOff that
there is a USD 100 limit on daily withdrawals from banks, limiting
Maldivians' local access to foreign currency.

3. The new administration came to power in November 2008 when
President Gayoom was voted out of office after a rule of 30 years.
Gayoom's administration spent freely on projects intended to foster
growth and development. Projects worth USD 117 million were awarded
to contractors in 2008 alone, but only USD 10.2 million of the money
owed has been paid to date. The current 2009 budget deficit is at
USD 109 million. Total debt has reached USD 445 million, or almost
60 percent of GDP, making it one of the world's most debt-laden
countries.

New Government Unable to Stop Downward Economic Spiral
--------------------------------------------- ---------

4. (SBU) While the Nasheed administration had no control over the
spending of the previous government, it did little to improve
Maldives' financial situation when it first came to power.
Government salaries and employee rolls were increased throughout the
administration, resulting in additional payments of USD 78 million.
Rather than tighten spending or increase revenue, the government
borrowed USD 187.5 million from the Central Bank, the equivalent of
printing money, increasing inflationary pressure.

4. (SBU) The poor condition of the government's finances was
exacerbated by the economic crisis. The IMF predicted a 4.5 percent
decline in GDP. According to Vice President Waheed, there has been a
10-12 percent decline in tourist booking rates and fisheries' catches
have been low. Construction, the third major source of government
revenue, is also down.

5. (SBU) There have been some sources of relief for the government.
In December 2008 India pledged over USD 100 million in aid through
interest-free loans. It was the largest amount of aid given by India
to the Maldives in the last 40 years. The government is hoping to
begin increasing revenue by doubling the lease period for resorts
from 25 to 50 years, which officials hope will generate USD 93
million. New taxes aimed at increasing revenue have been
implemented. However, both the change in lease periods and new taxes
will take time to generate revenue. The government also hopes to
increase the amount of money it receives from tourist resorts.
Currently, for a hotel room that ranges from USD 200 to USD 500 a
night, the government only earns USD 8 in revenue.

Comment
-------

6. (SBU) Many of the economic problems that Maldives is facing are a
result of poor financial decision-making on the part of the previous
administration. It took the current administration several months to

COLOMBO 00000805 002 OF 002


understand the severity of the crisis. Once it did, officials
requested aid from the IMF. The government has been assiduous in
implementing IMF recommendations like the 20 percent reduction in
public sector wages.

7. (SBU) Maldives has been a consistent ally of the United States and
has been forward leaning in supporting USG initiatives. We should do
what we can to support the new, democratically elected government in
improving the country's fiscal situation and strengthening the
economy.

MOORE

© Scoop Media

 
 
 
World Headlines

 

Euro-Med Monitor: Updated Report On The Israeli Massacres During The Military Attack On The Gaza Strip

Geneva – The Israeli forces has killed and maimed many Palestinians in deliberate targeting of unprotected homes with families inside in inhumane military operations, Euro-Mediterranean Human Rights Monitor said. Since the beginning of the current ... More>>

IPPPR: The Independent Panel Calls For Urgent Reform Of Pandemic Prevention And Response Systems

Expert independent panel calls for urgent reform of pandemic prevention and response systems The Independent Panel for Pandemic Preparedness and Response is today calling on the global community to end the COVID-19 pandemic and adopt a series of bold and ... More>>

NGO Coalition On Human Rights: Call For A Stop To Police Brutality In Fiji

A viral video has circulated online showing two police officers utilising disproportionate and excessive force in detaining the suspect, an individual half their size. In the video it shows the man’s head being pressed down on the ground, his arms being ... More>>


Focus On: UN SDGs

ILO Voices: A Future With Hope, Free From Bonded Labour

By Padma Kumari Tamata Formerly in bonded labour, Padma Kumari Tamata is now a farmer, and grows and sells her own vegetables in the Kanchanpur district of Nepal. My name is Padma and I come from Vashi, a small hamlet in Nepal’s far-west Kanchanpur district. ... More>>

UN: Economic Recovery Under Threat Amid Surging COVID Cases And Lagging Vaccination In Poorer Countries

New York, 11 May — While the global growth outlook has improved, led by robust rebound in China and the United States, surging COVID-19 infections and inadequate vaccination progress in many countries threaten a broad-based recovery of the world ... More>>

Study: Cut Methane Emissions To Avert Global Temperature Rise

6 May 2021 Methane emissions caused by human activity can be reduced by up to 45 per cent this decade, thus helping to keep global temperature rise to 1.5 degrees Celsius in line with the Paris Agreement on climate change, according to a UN-backed ... More>>