Introduction
The Maldives, a picturesque island nation in the Indian Ocean, has recently found itself at a crossroads in its geopolitical and economic landscape. The changing dynamics, particularly in its relations with India and China, have significant implications for the region. This discussion will delve into the factors influencing this shift, focusing on the role of the Research and Analysis Wing (RAW) of India and the Maldives’ economic situation.
Economic Dependency on Tourism
All the resorts in the Maldives earn money in dollars and take bookings in dollars. If you are taking bookings in dollars, then you can convert your guest dollars there. If you are taking the payment for the food and entertainment of the people you are hosting in dollars, then it would not be wrong to say that, from an economic point of view, the resorts and hotels in the tourism sector must be depositing a lot of dollars to the government.
However, this is what you are wrong about, because as much money is being earned by the hotel and resort owners inside the Maldives, there is a 40-year-old law under which there is no obligation on the owners of all those hotel resorts to go and exchange their dollars into Maldivian Rufiyaa. In other words, they are not required to change that money into the local currency of the Maldives.
Now think about it: you are buying foreign exchange. You are earning foreign exchange, which is coming to you, but if you are not converting that foreign exchange, then that money is not reaching the government, and this is due to that 40-year-old law.
Foreign Exchange and Economic Impact
Another problem is that today, all these hotel and resort owners have been given an exemption that whatever foreign exchange you earn, it is not necessary that you keep the earned foreign exchange in the bank within the Maldives itself. You can keep it in the bank of any other country because this is your earned money. Now think about the economic situation of the Maldives: a lot of dollars are being earned from tourism, but all this money is being taken out of the country.
The question arises: why can’t there be a change in this law? Well, maybe because the leaders who would make the change own all the hotels and resorts. Why would those leaders make such a law that would ensure that our money remains stuck in this country, trapping them in the economic crisis?
Political Promises and Financial Shortcomings
Our station chief of RAW understood this first problem. The second thing he found in his study was that many leaders and parties in the last ten years, from 2014 until today, have promised big projects to people during elections. They made false promises of development and projects like connecting islands with bridges, creating hospitals, establishing housing projects, and providing clean water due to the scarcity of fresh water caused by being surrounded by sea.
Now, the question arises: where will the money for these projects come from? The money will not come from anywhere because, as I just told you, the main revenue generator here is hospitality—the hotel industry. So, the money is not only being saved; it is being taken out as soon as it is earned. When these big projects were announced in the Maldives, the problem was that when it was time to finance all the projects, the Maldives was forced to borrow money from other countries.
As a result, the Maldives has borrowed about $1.5 billion to date, out of which $35 billion is money taken from outside countries. This means that one day, the Maldives will have to return the money. After analyzing this at his level, the RAW chief saw that the situation in the Maldives is like this: last year, he predicted that by August-September 2024, the Maldives would be in such a situation that they would not have the money to repay the loans, especially when the due date arrives.
Strategic Patience and Geopolitical Leverage
When the time comes to return the money to China, and China asks, “Brother, please return my money to me because the time limit is over,” the Maldives will not have the money, and President Mohamed Muju will get trapped in this predicament. After completing this study, the RAW station chief came to India in December last year and informed top officials of RAW and the Ministry of External Affairs, as well as the Prime Minister’s Office.
He explained the whole game in a presentation, emphasizing one word: “keep strategic patience.” He predicted that the Maldives would be in such a crisis that it would have to return all the borrowed money it has taken from China, and they would be in trouble. At that time, they would have no money, and more than 300 ministers, along with more than 2,000 political appointments, would be affected. India could then exercise its economic leverage.
After this presentation by India’s RAW station chief in December last year, India adopted a strategy of strategic patience. The President of the Maldives stated, “Call back all your defense personnel.” India said, “Send them; we will not allow tourists from India to come.” We reduced the number of tourists, which decreased the burden of interest on foreign exchange generated for hotels.
If the income and money do not come into those hotels, it affects the MPs, as all the MPs own hotels. For instance, when I went to the Maldives, the hotel where I stayed was owned by the former Vice President of India, a luxurious five-star hotel on an entire island. If Indian tourists do not visit that hotel, the consequences will impact that MP as well, and without foreign exchange, the situation worsened.
The President of the Maldives then stated, “We need tourists,” but we had already decided to go to Lakshadweep instead. Consequently, he urged that all Indian defense personnel be removed from the Maldives.
Conclusion: A Shift from Pro-China to Pro-India
In this context, the RAW station chief’s entire assessment proved to be correct. As the Maldives approached the month of September, a notice was sent to India from the Indian side, demanding that the Maldives return $50 million in treasury bills. The State Bank of India sent a notice, stating that on behalf of the Government of India, the Maldives needed to pay back the treasury bills.
When the Maldives was urged to pay back the money, they found themselves in a precarious position. When they sought assistance from China in August, China said that their economic condition was poor and that they couldn’t help the Maldives, implying that they would still expect repayment in the future.
At this critical juncture, the President of the Maldives sent a letter to India requesting a rollover facility for their debt, indicating that they needed to defer payments. A few months prior, they had been distancing themselves from India, but now they were reaching out for help.
In this situation, India exercised its economic leverage and sanctioned $30 billion in aid, along with a bilateral currency swap of $400 million. The conditions set forth were clear: the Maldives must publicly state their gratitude towards India and ensure they would not jeopardize India’s security interests.
During a press conference, the President of the Maldives acknowledged India’s assistance and stated, “We will work in the interest of India, keeping all its security interests in mind.” This marked a significant pivot for the Maldives, transitioning from a pro-China stance to one that aligns more closely with India.
Understanding this situation requires a nuanced view of geopolitical maneuvers and economic dependencies. The Maldives’ leadership has had to navigate a complex landscape, balancing domestic needs and international pressures. The RAW’s assessment and subsequent actions have proven pivotal in reshaping the Maldives’ foreign relations, marking a victory for India in the ongoing geopolitical contest in the Indian Ocean region.
As the Maldives continues to confront its economic challenges, the implications of this shift will be felt not just within its borders but throughout the region.
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