Why Muizzu shifts foreign minister, regulates ‘tourism dollar’ flow before India visit

Ahead of his maiden state visit to India from October 6-10, Maldivian President Mohamed Muizzu has been flexing his political muscle nearer home without using or wasting words. This will be his second visit in five months, after participating in Prime Minister Narendra Modi’s 3.0 swearing-in ceremony in June. Indications are that the Maldivian side, which comprises a huge official delegation and also a separate business team, is now counting on New Delhi to help ease the fiscal pressure on the nation, hence economic recovery, too.

Muizzu’s visit this time is marked by two important developments on the domestic front. One is the mini-cabinet reshuffle he undertook on return from the US, where he addressed the UNGA and a Princeton University audience, and met with counterparts from a few countries, including Pakistan and Bangladesh, in the South Asian neighbourhood. The other pertains to the central bank, namely, the Maldives Monetary Authority (MMA), ordering mainstay tourism industry to make a graded deposit of a maximum $500 per tourist, to check against future dollar shortages for the government and the common man, alike.

 India-friendly?

In the cabinet reshuffle, Muizzu shifted foreign minister Moosa Zameer to finance, health minister Abdulla Khaleel to foreign office, and appointed Abdulla Nazim, minister in the President’s Office, as the new health minister. Nazim incidentally had held the same portfolio under the Yameen regime, 2018-23. An official statement also said that finance minister Mohamed Shafeeq had resigned but did not assign any reason.

Local media reaction to the reshuffle was muted. Even days later, the customary claims and speculation on the reason for Shafeeq’s resignation of Zameer’s shift were conspicuous by their absence. However, the social media claimed that Shafeeq was cornered in the cabinet over the state of the nation’s finances, which is becoming increasingly pathetic – and he put in his papers.

Suffice to point out that for paying salaries, the government ended up borrowing MVR 800 m from the joint sector Bank of Maldives Ltd (BML). In previous months, the government was known to have transferred funds from profit-making state-owned enterprises (SOE) to those without a bank balance, for paying salaries and meeting minimal day-to-day expenses.

As the wag asks, ‘How do they intend paying salaries in the coming months, not that it is the only expense or expenditure of the government?’ Yet, a section of the social media did ask if it was fair to blame the finance minister for the collective failure of the government, that too, a legacy issue — unless there was something more to it than meeting the eye.

Questions also remain about the cause for Zameer being moved from foreign affairs to finance. Weeks earlier, social media had claimed that some influential people in the President’s Office were feeling ‘uncomfortable’ with Zameer, as foreign minister, ‘getting close’ to India. Others say that Muizzu possibly wanted to utilise Zameer’s familiarity with India and the Indian processes — obtained as foreign minister for 10 months — where such familiarity was needed the most in the coming months, namely than finance ministry.

Given that the economy as different from development cooperation will be the main focus of discussion during the Delhi visit, Zameer as finance minister may be on the President’s delegation. So will be the new foreign minister Khaaleel, who hardly gets a week to understand the workings of his new responsibility. How it all could direct and/or influence the Delhi talks, one way or the other remains to be seen.

 Dollar deposit

Reports indicate that the masses have no great interest in the cabinet reshuffle. They have reportedly welcomed the central bank’s order against 100-per cent repatriation of foreign currency. In the first 24 hours after the MMA’s decisions, grey market dollar rate came down from MVR 18.90 to MVR 18.70. This was after the dollar hovering around a high MVR 17-plus to the dollar during the twin polls.  The official dollar rate stands at MVR 15.20.

However, the industry is upset, and the Maldives Association of Tourism Industry (MATI) has contested suggestions that stake-holders were consulted. The MATI has since commenced talks with tourism minister Ibrahim Faisal but real bargain will have to involve the MMA. For the Opposition Maldivian Democratic Party (MDP), party chairman and former economic affairs minister Fayyaz Ismail extended what could be dubbed a ‘qualified welcome’ for the MMA move, but wanted the central bank to re-negotiate a middle-path with stake-holders.

Ismail recalled how the predecessor Solih government of the MDP had planned such a move to shore up dollars, but had to give up implementation temporarily in the Covid era, and could not revive it later as economic revival took the front seat. Other political parties, including those headed by Muizzu’s politico-electoral allies with business interests in the tourism sector, like Gasim Ibrahim (Jumhooree Party) and ‘Sun’ Ahmed Siyam (Maldives Development Alliance, MMA), have not reacted in public. Of the two, Siyam had declared his decision to contest the next presidential poll, a few weeks back.

 Incentivising investments

Unlike in other countries, the dollar-crisis in Maldives was built into the tourism economy, when four decades back the government incentivised investments, both by locals and foreigners. They were given the freedom to repatriate hundred per cent of their earnings in dollars or other foreign currencies, without having to share anything with the host-government. Throughout this phase, the government’s welfare and development commitments were only increasing, as education, healthcare and a host of other social sector spending contributed to deficit-budgeting on the one hand and unsustainable borrowings from within and outside the country.

As is known, the total governmental borrowing at the advent of multi-party democracy in 2008 stood at $ 17-b, it went up to $ 28 b in 2013, $ 45 b in 2013 and $ 113 b in 2023. Covid was blamed for the disproportionately high figure last year. Again, Debt-GDP ratio stood at 40 per cent pre-democratisation, 50 per cent in 2018 and 113 per cent in 2023. Through the past years, the IMF, World Bank and multiple credit-rating agencies have been warning against increasingly unsustainable international debt and consequent inability to service them, not to mention repayment of the principal.

Muizzu’s ‘adventurism’ in the matter, if that is the term, has to be viewed in context. Over the years, tourism industry sharks have come to control the nation’s politics. They sulk and shudder when their profits drop, not owing to poor business but due to tax measures and the like nearer home. Some attribute President Nasheed’s early exit in 2012 to his introducing taxes, hiking tariffs, and also slicing government staff numbers and salaries.

It was a twin-edged sword that hurt the rich and the super-rich on the one side through taxes and tariff hikes on the one hand, and the poor, too, through job and salary-cuts. Post-presidential poll last year, there were suggestions that incumbent Solih had to go also because he had hiked GST and TGST (tourism GST) months earlier, against the industry’s claims that they needed more time for post-Covid recovery.

 Right way to do

Not all Maldivians face dollar-shortage, but most Maldivians and Maldives as a nation have been doing it year-on-year and snowballing into what it is today.  In the neighbourhood nations like India (1989-90) and Sri Lanka (2022) faced a major forex crisis only once in their long politico-economic career.  India also came out of it with its fiscal and political reputation intact. But the facts, circumstances and correctives were different and mostly home-grown.

Muizzu’s way of tackling the issue may be the right way to go about dollar-crisis buthe results will be known only over the medium and long terms. In the immediate future, the nation looks elsewhere for succour, and India is the only one that goes beyond development funding (which alone China, for instance, does) to help South Asian nations with fiscal support as a part of its ‘Neighbourhood First’ policy. The alternative under the circumstance is for Maldives to approach the IMF for a bail-out package, but it comes with the kind of conditionalities that made the otherwise popular President Ranil Wickremesinghe in neighbouring Sri Lanka unpopular, as the recent presidential poll results showed.

Muizzu’s upcoming India visit needs to be viewed in this context. Reports during External Affairs Minister (EAM) S Jaishankar’s maiden Maldives visit under the Muizzu dispensation in August had indicated that the nation might be in need of $ 250 m in cash-assistance of some form. Indian media reports/analyses claim that New Delhi’s external aid portfolio has provisions for the purpose. In the aftermath of Muizzu’s own provocative anti-India statements and decisions in the early months of his presidency had created an anti-Maldives constituency in the country and the invisible pressure mounted by them on the government is not small.

President Muizzu’ recent declaration at Princeton University in the US becomes relevant in context. In the US to address the UN General Assembly (UNGA), Muizzu told his Princeton audience that he had never followed an ‘India Out’ agenda but his nation had problems with foreign troops on its soil. He was implying that with India 78 military pilots and technicians operating the three aerial platforms gifted by New Delhi with civilian personnel, they had no issues any more.

In the same vein, Muizzu also condemned the ‘mockery’ of India and PM Modi by three of his junior ministers, and recalled how he had started with their suspension and made two of them to quit. Opposition-sympathetic news sites in Maldives carried these parts of Muizzu’s Princeton speech with an old photograph of him wearing an ‘India Out’ T-shirt when he was Male City Mayor for estranged political mentor and former President Abdulla Yameen’s PPM-PNC coalition.

 Indian Ocean stability

In his Princeton talk, Muizzu also said that an independent Maldives was important for the ‘future order’ in the Indian Ocean. In the same vein, he added how the US-Maldives relations were key to stability in the Indian Ocean. He did not explain how. At the UNGA, he made some strong points, by indicating a desire for an end to veto-power for select nations (including China?) and proposed a rotating permanent seat for the group of Small Island Developing States (SIDS).

Back home, Muizzu was the chief guest at the Chinese national day celebrations hosted by the embassy in Male, and stressed bilateral development relations, and said they were based on ‘trust, respect and sovereignty’ – a term often used by Beijing officials to describe bilateral relations. Noticeably, Muizzu did not stress bilateral strategic or security cooperation, unlike in the days and weeks after his first state visit, to China, in January. Nor has he explained what he meant by referring to the US ‘contributions to Indian Ocean security’ in terms of bilateral relations.

The question thus is if and how Muizzu has back-tracked on the tall-talk of security cooperation with China, which continues to remain a rank outsider to the Indian Ocean, over the past months of ‘olive branch’ diplomacy with India. Significantly, during his August visit to Maldives, Jaishankar also met defence minister Ghassan Maumoon, who is expected to be on Muizzu’s India delegation.  While the Maldivian urgency to push forward their fiscal/economic agenda is understandable, New Delhi will also be keenly watching what Muizzu brings to the table on India’s security concerns.

 Pandora’s Box

Though Maldives is in no mood or has methods to take on the legal and diplomatic challenges that go with it, the Anglo-Mauritius agreement on the Chagos Islands may open a Pandora’s Box for Muizzu, both nearer home and elsewhere. His political adversaries, especially the Yameen camp, would question him on his government’s approach after Muizzu had contested the then Solih government’s withdrawal of pending claims to an ocean territory in the general region of the Chagos.

Under the Anglo-Mauritian pact, the US military base on Diego Garcia in the Chagos group can continue for another 99 years. In particular, Solih’s critics, starting with the Yameen camp of which Muizzu was a part, had claimed that the changed Maldivian position on Chagos owed to ‘pressure from India’. Today, the ball is in Muizzu’s court, he having slow-pedalled the issue as President after showing initial enthusiasm along with the ‘India Military Out’ demand from his election time. If nothing else, his domestic critics, starting with the Yameen camp, may hope to revive national interest in the subject by linking the forgotten Maldivian Chagos’ decision with the new bilateral/trilateral deal that does not concern.

Indian interest in the matter stopped with extending political and moral support to Mauritius in taking legal and diplomatic courses in the larger Chagos affair without reference to Maldivian claims for long. India saw it all as an end to one of the last and contested vestiges of colonisation from a different era. A statement from the Ministry of External Affairs (MEA) welcomed the return of Chagos’ sovereignty to Mauritius, and said that the deal would ‘reinforce long-term security’ of the Indian Ocean Region (IOR). The question is if China as an extra-regional power would want to meddle in the Chagossian waters, and if so will Muizzu’s Maldives allow itself to get dragged into the controversy that’s anyway not that of Beijing’s to begin with.

The writer is a Chennai-based policy analyst and political commentator. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.