Privatization: A Panacea for Poverty?

Can anyone think of any failed government enterprise that was privatized and became a success story in the Maldives? Dhiraagu? MWSC? Maldive Gas? Not many people agree that these companies were privatized in the first place. Further, on closer look the success of such organizations may not be related to privatization at all.

A former board member of Dhiraagu says the success of the company was mainly due to the management expertise of the foreign partner, which also had the advantage of a signed agreement with the government through which they were able to control government interference to a minimum. The exclusive monopoly on telephony also helped of course. It’s the same story basically with MWSC.

Will privatization help a company such as STO? A former STO board member doubts it. According to him the main problem with STO during his time was government interference, particularly from relatives of the former president. It was particularly difficult when two very close relatives were vying for influence and giving conflicting commands to STO.

From these examples it appears that the remedy for poor performance is reducing government interference, not privatization. This is exactly what Deng Xiaoping did in China. He did not privatize the village factories, which were the engine of the growth of the rural economy. In fact, they were almost all owned by local governments in Deng’s China. In the cities too, reforms in industry didn’t include privatization at all. What Deng did was cutting government influence from the factories and open them up to market forces. Perhaps we can learn something from his policies.

“It does not matter what color a cat is as long as it catches mice.” –Deng Xiaoping

The truth about Gasim’s philanthropy

With 700 students studying on Villa Scholarships and thousands of patients getting treated abroad, few would even think of denying Gasim Ibrahim's philanthropic credentials. His detractors have therefore concentrated on questioning his motives and casting aspersions on how he acquired wealth, slyly insinuating that he has some undisclosed obligations to spend on welfare.

One such insinuation revolves around the loans granted by International Finance Corporation (IFC) to Villa Shipping and Trade. A popular story alleges that Villa Foundation (which grants Villa Scholarships) is a precondition set by IFC for the loans. Let us examine this allegation in detail. IFC says its work is to provide investments and advisory services to build the private sector in developing countries. It operates commercially and grants loans at market-based interest rates up to a maximum of 25% of the project cost. Eligibility criteria for IFC loans do not include establishing national scholarship schemes. The detailed eligibility criteria merely require that a project must:

• Be located in a developing country that is a member of IFC;
• Be in the private sector;
• Be technically sound;
• Have good prospects of being profitable;
• Benefit the local economy; and
• Be environmentally and socially sound, satisfying IFC environmental and social standards as well as those of the host country.
  

Gasim is not the only Maldivian borrower from IFC, nor is he the biggest. According to information currently disclosed by IFC, it has granted a total of $ 74.5 million to the Maldives private sector. This includes $ 25 million to Universal Enterprises, $ 21 million to Villa, $ 20 million to Wataniya Maldives and $ 8.5 million to Taj Hotels. (see graph above.) These are all type A loans subject to the same terms and conditions.

A related insinuation is that the loan to Gasim was secured by a Government guarantee. Funnily enough, IFC regulations prohibit the organization from accepting government guarantees. IFC relies instead on the client company's proposal and track record. IFC "fully shares risks with its partners."

According to another widely circulated story, Gasim did not become rich but was made rich by Ilyas Ibrahim. The story says Gasim became rich through a petroleum monopoly served to him on a platter by STO, when Ilyas was running the company.

Gasim says, far from favoring him, the government has constantly put hurdles in his path. In an interview to TVM's Siyaasath program, Gasim revealed how the government willfully blocked him from bagging a dealership from Sri Lanka Petroleum Company. Gasim says STO also tried, though unsuccessfully, to block his dealership with Shell for importing Rotella and other petroleum products.

To put Gasim's revelations in perspective, one must recall that the backdrop for the alleged events was the 1980s, a period during which the government followed a policy of foreign exchange controls and restrictive import quotas. STO was involved in many dealership feuds with private companies during the period, one of the most celebrated of which was the one with DIK over the dealership of Benson and Hedges.

We may never know Gasim's true motives, if any, for his philanthropy. But one thing is certain. He was already the biggest individual spender on health and education long before there was any practical hope of standing for the presidency.