The rupee crisis is a combination of three other crises affecting the Bhutanese economy.
They are namely, the trade crisis, the financial management crisis and also the individual lifestyle crisis.
The rupee crisis being an individual lifestyle crisis can be best summed up in the saying, ‘Bhutan is a poor country with rich people’. At the macro-economic level Bhutan is a least developed country dependant on 40% to 50% for our needs from foreign grants and donors.
However, the lifestyle of many Bhutanese would lead any undiscerning tourist to conclude that Bhutan is a rich country. This is because our streets are jam packed with the latest foreign cars and SUV’s, archery compound bows costing up to Nu 100,000 is a common item, silk ghos and kiras costing the sky are a norm and we have to have the latest gadgets etc.
Many young and new professionals who earn a limited salary take financially suicidal decisions like sacrificing around 40 to 50% of their monthly pay in car loans. This is all the more incredible in a small town like Thimphu when everything is within a walking distance.
Financial planning and saving for a rainy day is non-existent in most Bhutanese families. Tomorrow, if free health care and free education is withdrawn by the government than many families including middle class families will be in trouble.
Ultimately a nation’s economy is the reflection of its household budget. Like the national budget Bhutanese household budgets are riddled with debts and also unnecessary expenditure.
Bhutan as an Asian country has many Asian values like respect for elders, strong culture and etc, save for one, which is a habit of saving.
It would be cruel to say that Bhutanese people should become like the Indians, Chinese etc in their finances. Instead our ancestors are the best examples in how to be economical, self reliant and not wasteful.
The rupee crisis is also a trade crisis. Bhutan is becoming a nation of shopkeepers with under 30,000 business licenses. In short we produce, manufacture and export virtually nothing.
Apart from a handful of credible industries many of our business houses are more interested in commissions than real industries.
A snapshot of Bhutan’s real economy is subsistence farming, subsistence shops and subsistence salaries. In the long term if the government can solve the trade crisis then the rupee crisis will be a non issue.
From the government’s side it is high time for aggressive economic nationalism. An obvious example is the hydropower projects where Bhutanese contractors, Bhutanese suppliers and Bhutanese employees should be given preference over the Indian contractors. The projects may cost a bit more, there may be some delays and even technical glitches but the long term benefit will be worth the short term awkwardness.
Bhutan sits in between the world’s two largest markets of India and China and so our trade and industrialization strategy should be aimed at catering to these high growth markets.
The private sector should also learn to be focused and specialize instead of one business house getting into everything from small time quarries to selling doma. De-monopolization, transparency and level playing field is also important as private sector growth should not be mistaken for the creation of family run oligarchies. The need of the hour is new and innovative ideas.
Last but not the least the rupee crisis is also the result of a financial management crisis. A BCCI study has shown our consumption and rupee deficit is directly related to government expenditure. For example each time there is a pay hike the sale of cars and also housing loan applications go up. The start of hydro-projects is linked to a dramatic decline in rupee reserves.
All of this should be factored into the planning of government expenditure so that our budget and fiscal policies can go beyond only balancing the capital and current expenditures.
There is however a reluctance by the RMA and the finance ministry to accept responsibility in the age old tradition of buck passing. The RMA governor in his initial telecasts especially at the RMA conference blamed high government expenditure as the cause for the crisis but then for reasons unknown in subsequent telecasts the tune changed to blame private consumption and the private sector. Also, hiding the fact that there is a crisis and then blaming the media for blowing the issue out of proportion is not financial management by any standards.
On the government’s part Bhutan saw record deficits only from 2009 onwards while if RMA knew that rupee crisis was a long standing issue why was there no attempt to create a rupee reserve.
In the end the rupee crisis was in the making for a long period through the combination of the above three crises creating the perfect financial storm.