Posted by Namgay Dhendup on Mar 21, 2012 in Economy | 4 comments
Is Rupee crunch issue as simple as what the Governor said and the way our government takes up the issue?
I don’t know much on Monetary matters. But if the Rupee crunch was as simple as the Governor said, there shouldn’t have been articles titled ‘Rupee crunch to CRISIS’.
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Namgay, my own take on the matter. I share this at the risk of repeating many points that stories media carried already.
The rupee crunch is quite simply explained as too much import (consumption) and too little exports (rupee generating venture). To elaborate that a bit further.
Bhutan has USD and rupee for our use. Given this scenario in the beginning let’s try to look at it from a few points:
1. Banks and loans
Loans from banks by both the Government, businesses and private individuals allow us all to buy what we need.
Government borrows to fund development activities as share from the Government in addition to borrowings from outside the country and support from donors. So when Government builds a bridge and for instance is financed by RGOB, it borrows and then constructs. Thereafter, the borrowed money buys materials from India as flows out as rupee, decreasing our rupee stock. Since we do not produce many such materials, we land up import almost everything, meaning more drain of rupee.
Borrowings by businesses too increased over the years, resulting in imports leading to more drain on the rupee stock.
Individuals borrowing also result in imports leading to more draining of rupee stock.
Now that would have been fine just as long as we earned enough rupees too to replenish our stock but we have not been able to do that. Our rupee earnings from hydropower projects primarily go into paying off their debt.
All these drive consumption of different types of products and services up, fastening the pace of rupee outflow. Clubbed with that regulatory loopholes that help more rupee outflow outside of the formal system, leading to this shortage perennially. I do not dispute that it can be eased with recent steps taken but they are only interim measures, only temporary. Part of the austerity mode or expenditure reduction by the Government may mean stopping some works. If we must do all that we desire to, we must have atleast a decent amount of rupee inflow as a result of exports to India from Bhutan and also import substitution (like vegetable supply that the Government is talking about) at a larger expanse. These need big changes in our economy from what we have today.
All this points to say that yes, it is more serious than we would like to admit even by the long shot unless we change quickly.
So the good news is that Bhutan is not undergoing a currency crisis.
At the recent Economic Forum ( organised by the GNH Commission) the
government and economists reassured us that the currency situation is
a management issue and that the govt will be taking on monetary and
fiscal policy changes to put right the situation.
Later on, Finance Secretary in a news conference with journalists at a
BCMD seminar stated that no one can tell when the situation will
normalise and temporary bans lifted. He said that although the
government is taking steps through policy change ( including revising
taxes), as long as consumers continue to live the way we do and not
make a change in our lifestyle, there is no telling how soon the
economic situation will be stabilised.
This raises two points. How are we, as individuals and families,
making a change in our own consumption patterns to bring down imports,
for example. Is the press showing us ways in which we can individually
make a difference? The recent government led “Pedestrian day” on tues
is being touted as a top-down instruction albeit with good intention.
When will we, as citizens and residents of the many towns and
villages, be able to lead small initiatives to help with the
situation? Or are we too used to waiting for the government to take
the steps for us?
Nobel Laureate, Joseph Stiglitz, reminded us at the Economic Forum
that democracy requires public reasoning and thinking about issues
including the economy. How much public reasoning are we engaged in? It
seems we are still reliant on government, and the media in its
portrayal of the situation can perhaps do more to show us what we can
do individually, or to prompt public reasoning around such issues of
The true meaning of economic – was management of scarce resources. The meaning has become gluttonous. Our perceptions to life and living must change. We must learn to honour and be a part of the co-existence and have the right understanding to physical facilities – separating needs from greed. This would be the long term solution to all kinds of crunches. The immediate solution is improving our economic balance of the trade or better – make more exports and services to earn foreign currency including rupee which is a foreign currency and we have always taken for granted as it is ours money. Crunches are correctable situations definitely with restrictions – if we are using important Thai toilet papers, we can use some substitutions…….
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