In the middle of the rupee crisis in 2012, a report by BCCI raised a pertinent point of where would the rupee come from if the bulk of the convertible currency grants and soft loans for developmental works was retained as convertible currency by RMA.
On hindsight the then rupee crisis would not have got as big if there was better reserve management.
It is simple common sense that dollar grants will ultimately lead to rupee imports so it makes no sense to retain the dollar and just print more Ngultrum ultimately putting pressure on a limited rupee reserve through imports.
The RMA and the government’s new reserve policy of selling dollars in small trances is a common sense move especially when they have set a minimum reserve limit of USD 757 bn and INR 10 bn below which no currency will be sold.
Ultimately one has to accept the ground reality of Bhutan’s economy that we export less and import more.
For such an economy it is sheer folly to try and build a large dollar reserve by indiscriminately locking up every dollar (in a low yield RMA reserve) that comes into the country without converting them into rupee and instead taking rupee loans from foreign banks at much higher interest rates.
A lot in economics has to do with the perception of stability and confidence in the market. The RMA at the time had to ultimately sell around USD 436 mn in around 18 months and that too after a lot of pain.
Now compared to this, the RMA in discussion with this government sold USD 197 mn in around 26 months. This is after allowing imports of vehicles, alcohol and furniture and implementing a much bigger five year plan and multiple hydro project activities. Most importantly it is also after allowing access to rupee and re-establishing the Ngultrum and Rupee parity.
However, nobody can rest easy as the only long term solution is enhancing Bhutan’s economic activity to reduce imports and increase exports.
Common sense is not so common.