Really important business

Doing business in Bhutan is already difficult. But it’s getting even more difficult.

Each year, the World Bank publishes a “Doing Business” report in which they rank countries according to the “ease of doing business” in those countries. Here’s how our country has fared in their report over the last few years.

In 2008, Bhutan was ranked 119 out of the 178 countries that the project studied.

In 2009, we fell to 124 out of 181 countries.

In 2010, we were placed at 126 out of 186 countries.

In 2011, we plummeted to 146 out of 183 countries

And in 2012, we improved slightly to 142 out of the 183 countries that were studied.

Our overall ease of doing business ranking fell from 119 to 142 during the period 2008 to 2012. Not good.

But it will get worse. Bhutan’s ranking is probably set to fall again.

Why? Because it’s getting harder to do business in Bhutan.

Why? Because the series of policy measures introduced by the government in light of the rupee crunch all make it much more difficult to do business in Bhutan.

Banks, for instance, cannot lend money. That means that businesses now do not have access to credit.

Informal trade across our borders have come to a standstill. And that has affected hundreds of small time business across the length and breadth of our country.

Import of a range of goods have been suddenly banned. That threatens the investments of a range of businesses.

And most recently, vegetable vendors will no longer be allowed to import vegetables; only FCB will. That means that dozens of vegetable vendors will soon lose their jobs to a government-owned company.

So Bhutan’s ranking in the next Doing Business report will probably take a beating.

Obviously, the ranking, in and by itself, doesn’t matter. What does matter is that it really could be getting really more difficult to do business in Bhutan. And doing business – good business, and lots of it – is what we desperately need to overcome the current rupee crunch.

What also matters is that potential investors refer to the Doing Business reports. And investment – foreign and domestic – is what we desperately need to strengthen our economy, and ensure that we do not face another rupee crunch in the future.

More essential stuff

In my previous post I had proposed that, “the government is getting ready to sell even more foreign currency from our reserves.”

What if I am correct? What if the government is, indeed, preparing to sell foreign currency to alleviate the rupee crunch? If so, what is the procedure?

Last year, four months ago, the government sold US$ 200 million of our foreign currency reserves. At that time, US$ 200 million worked out to Nu 10.3 billion, which in turn worked out to 14% of our GDP. That was, and is, a lot of money. But no one questioned the process. All that was reported on the process was: The government on Thursday night struck a deal to sell USD 200M to address the country’s dire Indian rupee (INR) position…”

We will be required to dip into our foreign currency reserves occasionally. So we should think about the process. Who, by law, for example, can approve the use of our foreign currency reserves?

According to Article 14 Section 3 of the Constitution, “Public money shall not be drawn from the Consolidated Fund except through appropriation in accordance with the law.” In other words, the government cannot spend money unless that expenditure has been approved by the parliament.

But the Constitution is silent about the procedure for spending money from the foreign currency reserves. Instead, Section 115 of the Royal Monetary Act says that, “The Authority may purchase, sell or deal in– foreign exchange …”

Does ‘foreign exchange’ here include foreign exchange from our reserves? If so, should RMA have the complete authority to sell our foreign exchange? If not, what should be the procedure?

The government’s annual budget is debated and approved in the National Assembly. It is then submitted to the National Council for review. After that, it is submitted to His Majesty the King for Royal Assent.

The government’s budget for 2011-12 is about Nu 38 billion. That is not even four times the amount of foreign currency reserves that was sold last year (US$ 200 million fetched Rs 10.3 billion). The process to approve the government’s budget is vigorous. And rightfully so. But the process to approve use of our foreign currency reserves seems to be nonexistent. At best it is vague.

It is essential that the government and the parliament consider this matter urgently. Otherwise, we could end up recklessly depleting our foreign currency reserves.

Stop the bleeding

During their interview with BBS TV last week, Lyonpo Yeshey Zimba and Lyonpo Wangdi Norbu went to great lengths to inform us that the so-called rupee crunch wasn’t a crisis. They told us that the situation was normal; that they’d been aware of it for a long time; and that they were in full control of it. They told us that we should not be worried, that we should not panic. And they warned us that any talk about a crisis “could be deliberate attempts to discredit the government.”

I’m not one to worry needlessly. But I’m not reckless either. So I try to piece things together, and when they don’t add up, I get worried. I get scared.

On the one hand we have the government telling us that everything is okay. But their assurances are followed by reports, only a few days later, that RMA’s short-term rupee borrowings have already hit Rs 9.7 billion.

Just four months ago, RMA’s rupee borrowings had peaked at Rs 11 billion (3 billion from GOI credit line, and 8 billion from an overdraft facility maintained with the State Bank of India). The government, at that time, sold US$ 200 million for Rs 10.3 billion and liquidated the Rs 8 billion SBI overdraft credit. So RMA would have been left with a loan of Rs 3 billion (GOI credit) and cash reserves of Rs 2.3 billion.

Now, four months later, RMA’s short-term rupee borrowings have already climbed to Rs 9.7 billion. Of that amount, Rs 3 billion is the earlier credit from GOI. So that means, rupee borrowings have increased by Rs 6.7 billion in four months. Add to that the Rs 2.3 billion that was left over after clearing the SBI overdraft credit, and we get Rs 9 billion. That figure should equal the rupee deficit during the last four months. And that deficit seems to be growing. So I’m scared.

Our combined imports exceed our exports. That’s why we have a rupee crunch. But the rate at which the deficit seems to be growing is alarming. It was a record Rs 8 billion last year (that’s why the government sold US$ 200 million). And now, within a span of barely four months, the economy has been hit with a deficit of Rs 9 billion.

Our economy is bleeding. But the government does not seem to know it or does not care to admit it. They have not yet identified the problem. Instead, they blame the private sector, and seem to think that the rupee crunch will be solved mainly after GOI extends their credit line from Rs 3 billion to 10 billion.

Loans will not solve our problem. They’re good only for temporary respite. Eventually, loans will make matters worse.

Yes, we must curtail private consumption. But that has been the focus of  RMA’s many measures. And that doesn’t seem to have helped.

What we must do – and what I’ve said over and over again – is curtail government expenditure. The government’s expenditure has grown dramatically since 2008. And unless the government reins in their excesses, the rupee crunch will continue. In fact, it will get worse.

Eventually we must work hard to correct and improve our balance of payments. We must import less. And we must export more. There’s a whole lot we can and must do: agriculture, construction, education, tourism, ICT, hydropower, mining, manufacturing and even lottery, all of them represent big opportunities. But all of them will take time.

For now, we must stop the bleeding. And most of it takes place by way of government consumption. So the government must stop all unnecessary spending, especially excessive recurrent expenditure. The government must go into austerity mode.

Here’s what the government has spent and is spending.

 

Thank you

A couple of late meetings prevented me from watching TV last night. So I watched BBS TV’s rebroadcast this morning. In particular, I watched Lyonpo Yeshey Zimba, the officiating prime minister, and Lyonpo Wangdi Norbu, the finance minister, talk about the current economic situation.

I thank the government for going on national TV to explain the ongoing currency situation to the public at large. The two ministers are our most experienced financial experts. The two of them have served as finance ministers for a combined total of 14 years, and as finance secretaries for more than 10 years. So they are very qualified to speak on the rupee crunch, and to allay the public’s growing fears on the state of our economy.

I also thank the prime minister, who is in New York attending to other pressing matters, for deputing the officiating prime minister and the finance minister to address the nation on his behalf. The fact that the government has eventually addressed the nation at a time when our people’s confidence has been shaken is welcome and appreciated.

So, on behalf of the people, and without getting into the specifics of what was said on TV, I offer a sincere thank you to the government.

Rupee statement

Some friends have suggested that I should use my YouTube account to incorporate a bit more audio-visual in this blog. I agree.

Here is the statement I recently made on BBS TV urging the government to inform the people about the rupee situation. I’m happy to report that, according to BBS, the acting prime minister and finance minister will appear on TV tomorrow, Tuesday, 3 April.

I’ve posted the English transcript of my statement after the video.

 

Our economy is in a crisis.

Just last year, the government was forced to sell US$ 200 million from the country’s foreign currency reserves to clear a huge rupee deficit. But today, barely five months on, we are faced with another rupee deficit, one that seems to be spiraling out of control.

The Royal Monetary Authority has taken several measures to address the rupee crisis. But their measures are ad-hoc crisis measures, not long-term policies. As such, they have not been able to control the growing deficit. And as such, the general public has become increasingly worried.

The rupee deficit has affected everyone. Businesses, especially small-time traders, are suffering as they do not have timely access to Indian rupees. Similarly, our ordinary citizens are suffering – they no longer have ready access to rupees, and as such, cannot buy basic essentials or travel to India easily for medical treatment, education or pilgrimage.

Our economy is in a crisis. And we, the people, are concerned – we are confused; we are anxious; and we are losing confidence in our own economy. Yet our government has remained completely silent. The prime minister and elected government have still not addressed the people to explain what is happening to our economy.

The government must clear all doubts and reassure the people that they are in control of the situation. Otherwise our people will become even more confused; even more anxious; and may even start to panic.

As the leader of the opposition party, it is my responsibility to demand that the government address the people, and provide us with clear and definite answers.

Therefore, and on behalf of the people:

I call on the government to give a full account on the nature and extent of the rupee crisis.

I call on the government to explain, in clear terms, their plans, strategies and policies to resolve this crisis.

And I call on them to tell us, the people, exactly when we expect our economy to recover from this crisis.

 

 

Water and food security

Fields of gold

Students and teachers of Thimphu’s schools came together in Changangkha to commemorate World Water Day on 22 March. The celebrations included a wide array of well-thought-out presentations and entertaining performances highlighting the importance of water.

I was given the opportunity to talk to the students. So I told them a story, one that is relevant to this year’s World Water Day theme: “water and food security”. But one that is also relevant to the current rupee crisis.

Here’s a quick summary of my story:

Nob Gyeltshen is 77 years old. He hails from Dorithasa, a small village in the southern extreme of Haa, slightly above the Samtse border. Dorithasa is not connected by farm road. So it still takes at least two days to get there.

As a child, he, like all the other children in his village had two main responsibilities. One, he had to collect water for his household every morning. And two, he had to look after his family’s cattle during the day.

Every morning, little Nob Gyeltshen would get up at the crack of dawn, and rush to the water source, which was located about half an hour away. That water source was a small pool, a puddle in fact, and Nob Gyeltshen and his friends had to race there to arrive ahead of the cows. If a couple of thirsty cows beat them, there would be no water left, and the children would have to trek for another half an hour to the next water source.

Nob Gyeltshen could carry three bamboo flasks of water. Each flask measured about 3 feet long and was 6 inches wide. They weighed heavy on the little boy, but on most days, he would have to travel several times to the water source.

Water was, indeed, a scarce commodity in his village. And so was food. Nob Gyeltshen grew up eating pancakes made from buckwheat or millet. When he got lucky he would get to eat maize grits or enjoy roasted maize kernels. And when he got very lucky, he’d get to feast on rice. Rice was precious, because Dorithasa, and all its neighboring villages, did not have any paddy fields.

When Nob Gyeltshen turned 17, he joined the army. That’s how he left Dorithasa. And that’s how, at an early age, he got to visit Paro and Thimphu, Punakha and Wangdiphodrang. Wherever he went, the young soldier saw paddy fields. Every valley seemed to be endowed with endless fields of well-manicured terraces, capable of supplying any amount of rice that the people could have ever desired.

Wherever he went, Nob Gyeltshen collected paddy seeds. And he sent them to his home in Dorithasa. But none of them grew successfully, till he sent 10 dres of paddy from Bjena in Wangdiphodrang. Only 2 of the 10 dres made it to his village (the rest having been consumed by the couriers!) but that was enough. The paddy from Bjena took root, grew easily and yielded a surprisingly generous harvest.

When he heard the good news, Nob Gyeltshen sent his entire savings – about Nu 150 – to build paddy fields and to construct a simple irrigation channel to his village. Suddenly the entire village was growing paddy. And before long, they were producing more of it than what they could consume. When, several years later, Nob Gyeltshen returned to his village for the first time since joining the army, he saw that the entire Dorithasa community was growing more than enough rice for themselves, and that the extra rice was being bartered for other essential provisions.

He also saw that the little children did not have to travel long distances, very early in the mornings, to collect water. The irrigation channel provided an easy and constant supply of drinking water.

 

Bhutanese food

Eating out

A couple of friends and I went out for lunch the other day. We ate at Cousins, a new restaurant that specializes in authentic Bhutanese food. You’ll find the restaurant on the first floor of the new building opposite the BNB.

The food at Cousins is good. We had ribs (with dried red chillies and spring onions in a hot garlic sauce),chopped dried beef (in a chilli and cheese sauce), kewa-datsi, dal, rice and, for desert, fresh apples in cream.

The food, like I said earlier, was good. And it was mainly traditional Bhutanese fare.

But in fact, there was very little that was really Bhutanese on the table; almost all the ingredients had been imported. Pork, beef, green chillies, cheese, onions, garlic, cooking oil, salt, potatoes, apples, cream, rice – they’d all been imported; they’d all come from India. As far as I could tell, the only ingredients which had been produced locally were the dried red chillies and the spring onions.

But it wasn’t just the ingredients that had been imported. The plates, bowls, cutlery, shakers, napkins and table cloth all came from outside, as did the wooden tables and chairs. And the building itself was built by Indian workers using mostly imported material.

Cousins is not alone. All restaurants, throughout the country, rely, almost completely, on imported ingredients. And almost all restaurants, throughout the country, are housed in buildings that have been built using mainly foreign material and foreign workers. But it’s not just restaurants. The story is repeated throughout our country, in every school, every hospital, every monastery, and in almost every home.

We don’t grow our own food. We don’t build our own houses. And, besides hydropower, we don’t produce much else. So it’s no wonder that we depend so heavily on imports. It’s no wonder that have such a huge trade deficit. And it’s no wonder that we’re facing such serious currency crisis.

 

Crunch time

A severe rupee shortage threatens to cause an economic crisis. But the government is in denial. As recently as last week, the finance minister blamed the media for blowing up the issue.

On the other hand, the RMA governor has declared that, “we have no money.” And he has already stopped issuing rupees to commercial banks. He has also warned that we can no longer sell our foreign reserves to buy rupees.

The RMA has had to borrow rupees to allow for the import fuel and other essential items. But traders are already complaining that they cannot do business. And industrialists worry that they won’t be able to import raw material.

Ordinary people are also being affected by the rupee crunch. Mr Vinod Kumar, for example, sent me this self-explanatory email, which I’m reproducing here with his permission.

Sir,

I am a teacher working in Rangjung HSS. I am an Indian working in this kingdom for the last 7 years. I am sending this mail to draw your kind attention to a serious issue that we are facing. This month when we (expatriate teachers) went to the BOB Trashigang to send money to India, BOB officials told us that sending money to India is not as easy as before. They told us that the RMA has put some restrictions to send money to India. They told us that we need to register first and after 7 days if it is approved by RMA, then we can send money. We are here leaving our family behind to support this country and make a good future for us. If we are not able to send our hard earned money to our beloved ones, it is a disheartening thing. On them other hand, BNB so far did not get this type of circular from RMA. So please look in to the matter and if sir could make the money transfer of the civil servant as before we will be grateful to you sir.

Thanking you

Radio gaga

A52JF

Tourists visit Bhutan for many reasons. Most do so to catch a glimpse of the last Shangri la, that is, to experience our unique culture and enjoy our pristine environment.

But many tourists visit our country for specialized purposes, and because those purposes can be fulfilled here more so than in any other country in the world. For instance, tourists visit us to do the arduous Snowman Trek, ride the treacherous Drangmechhu, or complete the grueling Tour of the Dragon. Enthusiasts pay to look for rare butterflies, catch a glimpse of stunning birds, or soak in the beauty of the blue poppy. And experts visit us to enjoy our stunning textiles, wonder at our intricate thangkas, or photograph our breathtaking dzongs.

Some have come all the way here simply to meditate. And, given the opportunity, many visitors would willingly blow up their life savings to fish the legendary mahseer, scale our virgin peaks, or safari in Manas.

Yes, we’ve been endowed with more than our fair share of unique tourism products. And most of us think we know all of them. We don’t.

Yesterday, for example, I met Iain Haywood and learnt about another special reason why tourists are willing to pay big money to visit our country. Mr Haywood, from England, is a ham radio operator and is on a DX-pedition to Bhutan. That means that he’s here primarily to operate his amateur radio. And for that he’s arrived with, and already set up, his aerial and other equipment to receive and transmit radio signals.

So why does Mr Haywood find our country so interesting? Because there are very few amateur radio operators in Bhutan. And because, as such, ham radio operators all over the world would jump at the opportunity to hook up with a radio signal originating from Bhutan.

That’s why Mr Haywood, who’s been licensed by BICMA to use the call sign A52JF, has not left his hotel room in Olathang, Paro, since he checked in two days ago. But by the time I met him yesterday, he was already enjoying a “pile up”, a position of privilege in which ham radio operators rush to connect with him. And by that time, he had already logged about 400 “conversations”, or data exchanges, with operators from Europe, Asia and Africa. His goal: 2,000 conversations in five days followed by a two-day trip to Punakha! His dream: to return to Bhutan to do a “summits on the air”, that is to operate his ham radio from our high peaks.

Other ham radio enthusiasts have also visited Bhutan. And they, like Mr Haywood, used the services of Yeshey Dorji, Bhutan’s national operator, to organize their special tours.

I’m surprised at the amount of trouble amateur radio operators will go to advance their hobby. But I’m glad that that interest translates to tourism and, more importantly, goodwill for Bhutan.

Today, incidentally, is World Radio Day.

Rupee questions

Powerful

Last Tuesday, during question hour, I asked the Prime Minister to explain the rupee crisis: what has caused it, what the government is doing about it, and when we can expect it to be over. I directed the question to the PM as I had assumed that our head of government would be the most concerned and, as such, would be happy to reassure the nation that he has contained the crisis, and that the rupee deficit will not spiral out of control.

Too bad then, that the PM made the Finance Minister answer on his behalf. Too bad also, that I had to remind the Finance Minister that his response did not satisfactorily answer my question. And too bad, that several MPs felt compelled to snap at me that it’s easy to raise questions, but difficult to come up with solutions.

Notwithstanding the fact that it is the government’s responsibility is to identify and address problems of national significance, and notwithstanding the fact that ruling party MPs should show more confidence in their government, I offered my services to help address the growing rupee crisis.

The government has not contacted me. Nor have they given me a written response to my question. I had asked an “unstarred” question. So they are required to provide a written answer.

Now some of you, our readers, have asked for my views. Naturally, I’ll be very happy to share them, especially since we must generate more discussion on this important issue. But first, by way on introduction, here’s what I wrote about the rupee deficit in February 2009. Here’s what I wrote six months later. And here’s what I wrote last month.

I’ll post my thoughts sometime next week, after we conclude this session of the Parliament. In the meantime, please share your views here: what, in your opinion, has caused the rupee crisis, and how, do you think, we can get ourselves out of this predicament?