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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.

 

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Comments

  1. What a baseless, truthless and useless comment is that from the OL? You are comtemplating of a ghost that might never appear. If the constitution does not restrict the sale, why should you do so? If you do not want the government to sell the reserved money, what else do you want? Do you not want the government to solve the problem? Do you want the problem to worsen by not doing anything? Common OL, do not try to find edge of an egg. We think you are a better leader than you appear now. Thin of solutions, not problems.

  2. Dear OL,

    I disagree with you that the government has been and will be reckless in dealing with our foreign exchange reserve. There is no legal leeway for the government to be reckless while dealing with the foreign exchange reserve, because our constitution requires the government to maintain foreign exchange reserve value equivalent to 12 months import of essential commodities.

    Therefore, I find it perfectly okay for the government to sell off some dollars from our reserve fund to address the financial crisis as long as it doesn’t contravene the constitutional provision.

    In addition, it doesn’t make sense to have our own money in the bank fetching just 2% interest while we borrow from the SBI paying 10% – ridiculous to say the least.

    Therefore, your apprehension that the government might ‘recklessly deplete’ our foreign exchange reserve is perfunctory and unfounded.

  3. Dear OL,

    I disagree with you that the government has been and will be reckless in dealing with our foreign exchange reserve. There is no legal leeway for the government to be reckless while dealing with the foreign exchange reserve, because our constitution requires the government to maintain foreign exchange reserve value equivalent to 12 months import of essential commodities.

    Therefore, I find it perfectly okay for the government to sell off some dollars from our reserve fund to address the financial crisis as long as it doesn’t contravene the constitutional provision.

    In addition, it doesn’t make any sense to have our own money in the bank fetching just 2% interest while we borrow from the SBI paying 10% – ridiculous to say the least.

    Therefore, your apprehension that the government might ‘recklessly deplete’ our foreign exchange reserve is perfunctory and unfounded.

  4. Let me direct you to Colm Lanigan’s article again.

    “Bhutan has an overall balance of payments surplus……… Bhutan’s overall balance of payments with countries other than India was approximately Nu 5 billion for fiscal year 2011, and it has been positive for the several years. This overwhelms the negative balance with India, and this overall surplus has allowed Bhutan to build reserves to almost $1 billion before the recent purchase of rupees. They are called “reserves” for a purpose. They exist to provide a “cushion” for periods when adjustment is necessary. These reserves have grown at almost 15% per year over the last 20 years.”

    When you restrict govt’s authority to use these funds to pay off loans, the interest continues to increase daily. By the time, procedures you want in place are complete we may end up paying a few million extra.

    Is this what you want?

  5. this OL just a crap…. he just want to show his face debating nonsense in parliament, just to show to people that he is concerned of the situation of the country.

    But, i would rather say it in other way, your face and intention is known by everyone, at least the educated lot and of course far and corner people are not concerned of this issue at all……………..so keep barking..

  6. I see truth in what OL has mentioned. We know we have no option other than selling foreign currency reserve.But all the required procedure need to be followed otherwise in future, there might come a ruling government who will sell the all the foreign currency reserve putting country into bankruptcy.And here it is OL responsibility to oppose when govt have made a mistake.For their mistake, we citizen have to bear the consequence and now govt is coming up with abrupt solution like increasing the tax, freezing loan. Proper research should be carried out before coming up with such intervention specially in GNH Country like ours.

  7. Rational-Man says:

    With parliamentary elections round the corner OL is digging graveyard for his party’s yet another bitter downfall.

    He wants a manual-type of constitution for Bhutan. If OL’s party comes to power, what power will his government have? He will be following the provisions of the constitution strictly, word by word, and will let our people to sink deeper into poverty. His government will be like a robot or machines – if it is within the provisions of the constitution it will be considered, if not nothing to be done. In which, why do we need ministers, secretaries, DGs, directors, division chiefs, etc in the system.

    Opps, politics is a dirty business if it is to function that way. There is no convergence in the thoughts and actions of our leaders even during the times of emergency situation. Positions with no work on a daily basis seems to be disrupting the society and it is a waste on the part of the state.

  8. what is Bhutan govt trying to do???

  9. I pray that OL do not take the government to the court once again. Please do not repeat the vehicle tax kind of story just for the sake of constitution.
    In such times as this please cooperate with the government. Let us not dig into our laws and constitution. Let us instead learn to constitutionalize. I think you know that the more than 2 century old constitution of USA for example has gone through this process and is still evolving. The point is we need to begin constitutionalization and let the good prevail.

  10. I support OL. May be selling foreign reserved money is only solution left for govt., but that needs to be done according to constitution. Resolving rupee crises is important, and need to be solved urgently, but that doesn’t mean law can be broken.

  11. I think OL is right to the perspective of procedure. Well established procedure will take to peaceful development of our Nation. The morality and the good intention in our Leaders are dying and it will die, but good procedure will make its way through it. All those who make comment to OL, I find them just Anti-Notion and not a guanine educated. Claming to be as educated needs some respect in oneself in making any arguments.
    we understand that OL is politician, but it is not right to judge on his position rather that the content that he wrote. What matters to public is not Person but their action and intellectual long term vision of the peaceful nation.

  12. I strongly suggest that our OL take up some Economics lessons so as to understand the essence of country’s economy. He needs also some counselling lessons so as to coexist peacefully in the society. If the government acts, he wants the government not to, and if the government does not act, he wants the government to act. What kind of government does he want? Procedure! What procedure? Without procedure, nothing takes place. How will RMA sell the foregin exchange reserve without any procedure? Does OL mean that everything has to be done with his concensus? If the government brings this issue in the parliament, OL will be th first one to reject under so many baseless arguments. Think before you act.

  13. I think OL is right. Why enact a law or constitution if we don’t follow its course.

    If such practices continues, in future it will have very bad repercussion even worse than the rupee crunch. Pls. let us follow the procedure and debate so that we come out with productive solution.

    I don’t think selling foreign reserve is a sustainable solution.

    I cant believe that PM and Vice PM who were once considered to be most experienced and capable leaders has put this country into nightmares.

  14. Tobgay wrote:” If the constitution does not restrict the sale, why should you do so? If you do not want the government to sell the reserved money, what else do you want? Do you not want the government to solve the problem? Do you want the problem to worsen by not doing anything? “

    I see lot of a substance in these thought –provoking questions from Tobgay! This “food for thought” material merits to examined by each of the Bhutanese citizens in their own individual way and weigh them in the present context vis-à-vis the greater national growth standpoints.

  15. As OL suggested, don’t sell the reserve…just pay the interest…more interests…more interestsssss..etc

  16. dear OL,

    i think you should really take a deep breath and take a good look at the course you are taking. at this rate, Druk Phuensum does not have to campaign at all.

    the question is, what have you done but complain and whine for the last 4 yrs? you took the govt. to court and now because of the verdict people can’t import cars, furnitures, etc because it has to go through parliament and that is still two months away- is this your idea of helping us business people? you are to blame.

    you have proven to the people of bhutan that you have no leadership qualities and you will overlook the interest of the people and country for your own political agenda.

  17. newcomer says:

    Defoz, …….And, OL ultimately laughs to his full heart when the nation sinks under the weight of his stupid procedures leaning destructive opposition.

    How will the nation grow if he keeps shooting his oppositional bullets at every good intended policies of the government in the name of this process, that procedure etc?

    Is he here into taking revenge on the Bhutanese people?

    First the tax policy was shot down; now, he is in the process of again unleashing his other bullet towards the government so that with this reserved dollars selling hullabaloo, the government will be pushed deeper in the corner into solving the Rupee crisis.

    If so, the Bhutanese public would further suffer.

    Is this what the opposition is all about? Zero cooperation kind of an opposition mentality even at such national critical times like this.

    I think the government should ignore him and go ahead with solving this INR standoff.

    I am sure the Bhutanese public in the present context would definitely back the government in whatever decision they take for the greater common good.

  18. Minjur Dorji says:

    All the people writing in this particular topic is from one table and seems 1 head. You might be among that acceptable lot, who can accept any decisions made by Govt.

    Selling Reserves might be a solution for time being but have you ever realized that this is just a temporary solution for a permanent problem. What is your Govt. doing to solve some existing problems and ever lasting ones. You may brief us to consume less but what will you do yourself.

    Advice us something that you can and you will do by yourself. So that we can follow you.

    JYT is a good leader, no doubt about it but some Ministers really need to be kicked off. Having them around JYT may even dirt the quality and greatness he has.

    To all those comments from DPT, guys think twice and talk. Have some respect to OL man. Your comments only define you.

  19. Defoz,
    Today your govt. sells reserves, tomorrow they may sell the bordering towns and time may come when they may sell you.
    Remember selling reserves is never an alternative for any economy.

    And you do not seem glad when Govt. is paying interest, then why borrow. We are pampered so much by the donors that we agree with all conditions set when availing some huge loans from them.
    Govt. need to stop asking loans and grants and do some productive things by themselves and educate people like us to, how to go about. Not by selling reserves and informing the public at last hour.

    And we shall definitely wait for the coming election.

  20. Concerned Bhutanese,
    You don’t really sound like a concerned Bhutanese.
    If you are then give us solutions for the crisis, not by advising OL to take Economics Lesson.
    You are not an advisor to advice some people like OL.
    You may need to advice your DPT.

    hahaha

  21. Dear OL,
    Do you have any economic adviser? If not, you need to have one. This is not a recent problem and this problem is not made by the present government? This is just a prominent economic feature of a developing country. It would have happened ieven if you were in heading the government. Do not panic yourself and do not make the public to get panic. There is always a solution.

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