Too Much, Too Soon

Ex­posed to the global com­mu­nity only re­cently, Bhutan is al­ready fac­ing a se­vere trade im­bal­ance and a loom­ing cur­rency cri­sis.

Southasia - - Contents - By Kinza Mujeeb Kinza Mujeeb is a free­lance jour­nal­ist. She fre­quently writes on the me­dia.

The tiny land­locked coun­try of Bhutan, placed be­tween two gi­ant neigh­bors, has re­mark­ably man­aged to keep its unique cul­tural and re­li­gious iden­tity alive. How­ever, the in­fil­tra­tion of mass me­dia in 1999 led to many dras­tic changes in the world’s hap­pi­est place. The Bhutanese peo­ple, ex­pe­ri­enc­ing a late in­ter­ac­tion with the rest of the world, be­gan en­joy­ing the lux­u­ries, equip­ments, ideas and fash­ion that they had deprived them­selves of over the years. This led to an im­me­di­ate rise in their con­sump­tion pat­tern, in­creas­ing the amount of var­i­ous kinds of im­ports, at an ac­cel­er­ated pace. The lo­cals now pos­sess nu­mer­ous gad­gets, equip­ment, ac­ces­sories and lux­ury items as their coun­ter­parts from de­vel­oped coun­tries. A su­per­fi­cial ob­ser­va­tion of their ex­trav­a­gant life­style may mis­lead many into list­ing Bhutan amongst one of the de­vel­oped coun­tries of the world. In re­al­ity how­ever, the coun­try is de­pen­dent upon 40-50% of for­eign aid for sur­vival.

The re­cent ru­pee cri­sis has been tight­en­ing its grip upon the econ­omy of Bhutan. Since Bhutan hardly

pro­duces any of the lux­ury ma­te­ri­als men­tioned above, the coun­try is heav­ily de­pen­dent upon for­eign coun­tries, mainly In­dia, for such sup­plies. This has se­verely drained their ru­pee stock. As Bhutan does not have enough money to im­port prod­ucts from In­dia, they rely for the same on the grants and loans re­ceived from In­dia. Even though the debt keeps on in­creas­ing, the Bhutanese gov­ern­ment has as­sured its peo­ple that the hy­dropower projects, which are ex­pected to pro­duce 10,000 MW of elec­tric­ity by 2020, would gen­er­ate enough rev­enue to clear the In­dian debt. How­ever, ac­cord­ing to a re­cent study con­ducted by the Depart­ment of En­ergy, Bhutan may be able to pro­duce only 6664 MW of elec­tric­ity by 2020.

Be­fore the ru­pee cri­sis, ci­ti­zens were spend­ing os­ten­ta­tiously and buy­ing ex­pen­sive prod­ucts. The in­ter­est rate of loans to ac­quire cars ranged from 10-12%. This has re­sulted in the in­flux of im­ported cars in­clud­ing SUVs even in places where ev­ery­thing is avail­able within walk­ing dis­tance. Amidst ex­trav­a­gant spend­ing with low rates of in­ter­est, when it comes to pro­vid­ing loans for the pro­duc­tion of agri­cul­tural prod­ucts, the in­ter­est rates either soar up or are largely un­avail­able.

A BCCI study re­veals that the gov­ern­ment also ac­cu­mu­lated dol­lars re­ceived in the form of grants, and in­stead used ru­pees, which con­se­quently con­trib­uted to­wards bring­ing Bhutan’s econ­omy al­most to a halt.

Con­sid­er­ing the sever­ity of the ru­pee cri­sis and its po­ten­tial reper­cus­sions, the Bhutanese Gov­ern­ment must take im­me­di­ate mea­sures to for­mu­late long term plans on a macro­scopic level.

An in­stant check on the trade bal- ance is needed, as it is cur­rently tipped heav­ily to­wards im­ports. The gov­ern­ment needs to en­sure that the coun­try makes more profit through ex­port­ing, by cut­ting down its ex­pen­di­tures on lux­ury items. N.K. Arora, CEO, Druk Pun­jab Na­tional Bank, stressed on the ur­gent need to es­tab­lish im­port sub­sti­tu­tion in­dus­tries, min­i­mize Bhutan’s im­port de­pen­dency, and cre­ate ex­port in­cen­tives, which will stim­u­late the pro­duc­tion and ex­port of lo­cal prod­ucts.

Bhutan has re­cently been toy­ing with glob­al­iza­tion of which in­dus­tri­al­iza­tion is a pre­dictable by-prod­uct. How­ever, it would be un­wise for the gov­ern­ment to ig­nore 69% of its farm­ing pop­u­la­tion, since Bhutan is pri­mar­ily an agri­cul­tural so­ci­ety. By sub­si­diz­ing farm­ers and en­cour­ag­ing them to grow rice and dairy prod­ucts, Bhutan may be able to save on agri­cul­tural im­ports. For ex­am­ple, the lo­cal pro­duc­tion of milk in Tashigang can re­place pro­cessed and pack­aged milk, ‘Tazaa’ cur­rently im­ported from In­dia.

Bhutan is known for its breath­tak­ing views that can rapidly re­ju­ve­nate its tourist in­dus­try. It of­fers a kalei­do­scope of cap­ti­vat­ing myths, rit­u­als and tra­di­tions. Re­al­iz­ing the level to which it can boost the econ­omy, the gov­ern­ment is al­ready work­ing to­wards strength­en­ing its tourism sec­tor. The Bhutanese gov­ern­ment is tar­get­ing a ‘high value’, yet a low vol­ume of tourists. On an av­er­age, the gov­ern­ment charges each tourist $250 per day, which in­cludes guides, rooms, boards and trans­porta­tion. By care­fully curb­ing the in­flux of tourist, the Bhutanese gov­ern­ments has si­mul­ta­ne­ously en­sured not only high value trav­el­ers but also lim­ited in­di­vid­u­als, who con­se­quently are less likely to con­tam­i­nate their well-pre­served cul­tural her­itage. Ac­cord­ing to the an­nual re­port of the Tourism Coun­cil in Bhutan (TCB) (2011), Bhutan is an­tic­i­pat­ing the ar­rival of a to­tal of 100,000 tourists in 2012.

In or­der to tackle the ru­pee crunch, In­dian Am­bas­sador, Pra­van K Varma, guar­an­teed ab­so­lute sup­port to Bhutan. The In­dian Fi­nance Min­is­ter even al­lot­ted INR 26bn in his bud­get pro­posal, to be of­fered as aid to Bhutan. More­over, the gov­ern­ment also re­quested the In­dian gov­ern­ment to in­crease their loan limit from Nu 3 bil­lion to Nu 6 bil­lion, which would lower the in­ter­est rate from 10% to 5%. On the other hand, many ex­perts are sug­gest­ing that it is rather un­rea­son­able for the gov­ern­ment to keep on ac­cept­ing more loans and aids, when one of the core prob­lems of the ru­pee crunch lies in the fact that they al­ready owe huge amounts of debts.

The gov­ern­ment must set hard cur­rency re­serves, as it is much more sta­ble and re­li­able. Those can be ex­changed with the In­dian ru­pee when the In­dian ru­pee de­pre­ci­ates. Ad­di­tion­ally, the gov­ern­ment must pro­mote the in­flow of re­mit­tances by non-res­i­dent Bhutanese, prefer­ably through the use of at­trac­tive ex­change rates.

It is not con­sid­ered oblig­a­tory to meet the tar­get set by the Mil­len­nium De­vel­op­ment Goals by 2015. How­ever, since it has be­come a global mea­sure of a coun­try’s progress, it there­fore has the po­ten­tial to either make or break a na­tion’s rep­u­ta­tion in­ter­na­tion­ally. Fail­ure to achieve its tar­gets would give Bhutan the rep­u­ta­tion of an in­com­pe­tent coun­try.

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