When last October FTSE 100 (related to London Stock Exchange) share index plunged about 10%, falling below 4,000 points for the first time in five years, most Maldivians would have been blissfully unaware. Even the few who WERE aware would have simply shrugged it off, "Surely all those yelling traders in UK have nothing to do with me?"
Wrong. Their actions will affect your food prices, your health bills, your electricity bills, your salary, your investments and what you earn as rent from your home. FTSE 100 will affect the Maldives directly and indirectly. Directly because the United Kingdom is one of our main tourism markets and indirectly because London is the world's number 2 financial center. In fact, the ripple effects of UK's financial woes were felt immediately, with falls across the world - in France, Germany, Australia, Hong Kong, Singapore and Russia, as well as in Tokyo and on Wall Street.
Actual tourist arrivals in the Maldives appear to be sustained, at least for the time being. But many resorts report low bar sales and extras, indicating that tourists are tight with their wallets. In addition, there are recent indications that world tourism is slowing. In an ominous development British Airways two days ago reported a loss of £70 million over the past year.
Under normal circumstances a credit crunch in the developed world would have relatively less impact on a relatively isolated financial market as in the Maldives. This is because a sort of 'reverse Darwinism' works in the international money market: the more sophisticated a system is the more it is affected by any downturn. Thus it is no coincidence that the current crisis had its origins and severest impact in London and New York –They are the most sophisticated financial centers in the world. Compared to them our financial system is primitive. Not many Maldivians have even heard of 'collateralized debt obligations' and 'mortgage-backed securities,' let alone own them.
But thanks to Bank of Maldives, we have our very own version of 'toxic debts' in the form of non-performing loans given to political bigwigs. This is an unfortunate coincidence.
The picture for our immediate financial future is very bleak. But not many of us appear to be worried. Our restaurants are still overflowing. Shopping is a bit slow only because traders are unable to get foreign exchange to pay for import bills. We are still in overspending mode even though our foreign currency reserves cover only a few weeks of imports. How long can we go on as if nothing has happened?