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Maldives (07/20/10)


July 20, 2010

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For the most current version of this Note, see Background Notes A-Z.

PROFILE

Geography
Area: 298 sq. km. (115 sq. mi.), over 1,100 islands; twice the size of Washington, DC.
Cities: Capital--Male' (pop. 100,000).
Terrain: Flat atoll islands.
Climate: Hot and humid.

People
Nationality: Noun and adjective--Maldivian(s).
Population (2009 est.): 314,000 (plus 80,000 expatriate workers who are not counted in the census).
Population growth rate: 1.66%. Population growth rate has dropped dramatically in recent years.
Ethnic groups: Maldivians.
Religion: Sunni Islam.
Languages: Dhivehi (official); many government officials speak English.
Education: Years compulsory--7. Enrollment--primary (grades 1-7) 100%; secondary (grades 8-10) 70%. Literacy--97%. (Sources: Maldives Department of National Planning and World Bank)
Health: Infant mortality rate--24/1,000 (Source: World Bank). Life expectancy--72 years.
Resident work force: Community, social and personal services--21%; manufacturing--13%; fishing--11%; tourism--11%; transport, storage, and communication--9%; other--35%.

Government
Type: Republic.
Independence: July 26, 1965 (formerly a British protectorate).
Constitution: August 7, 2008.
Branches: Executive--president, cabinet. Legislative--unicameral Majlis (parliament). Judicial--Supreme Court, High Court, Civil Court, Criminal Court, Family and Juvenile Court, and 204 general courts.
Administrative subdivisions: 19 atolls and capital city.
Political parties: Adhaalath Party (AP), Dhivehi Raiyyethunge Party (DRP--Maldivian People’s Party), Islamic Democratic Party (IDP), Maldivian Democratic Party (MDP), Social Liberal Party (SLP), Dhivevi Quamee Party (DQP), People’s Alliance (PA), Republican Party (Jumhooree), others.
Suffrage: Universal at age 21.

Economy
GDP (2009): $1.473 billion.
GDP growth rate (2009): -3%.
Per capita GDP (2009 est.): $4,600.
Inflation, year over year (2009 est.): 4%.
Debt, external (2009 est.): $933 million.
Exchange rate (official peg): 12.8 rufiyaa (MVR) = U.S. $1.
Unemployment rate (2006 est.): 14.4%.
Current account balance (2009): -$400 million.
Percentages of GDP (2009 est.): Tourism--27%; transport and communications--20%; government--18%; manufacturing--7%; real estate--7%; fishing--3%; construction--6%; agriculture--2%; other--10%.
Trade (2009 est.): Exports--$76 million: fish products. Major markets--Thailand, Sri Lanka, U.K., France. Imports--$967 million: foodstuffs, petroleum products, transport equipment, construction equipment. Major suppliers--Singapore, U.A.E., India, Malaysia, Sri Lanka, Thailand.

PEOPLE, HISTORY, AND CULTURE
Maldives comprises 1,191 islands in the Indian Ocean. The earliest settlers were probably from southern India. Indo-European speakers followed them from Sri Lanka in the fourth and fifth centuries BC. In the 12th century AD, sailors from East Africa and Arab countries came to the islands. Today, the Maldivian ethnic identity is a blend of these cultures, reinforced by religion and language.

Originally Buddhists, Maldivians were converted to Sunni Islam in the mid-12th century. Islam is the official religion of the entire population. Close community relationships and a strict adherence to Islamic precepts have historically helped keep crime low and under control. However, a growing heroin addiction problem and the emergence of youth gangs, especially in Male, have increased the crime rate and the incidence of street violence.

The official and common language is Dhivehi, which is related to Sinhala, a language of Sri Lanka. The writing system is from right to left. English is used widely in commerce and increasingly as the medium of instruction in government schools.

Some social stratification exists on the islands. It is not rigid, since rank is based on varied factors, including occupation, wealth, perceived Islamic virtue, and family ties. Members of the social elite are concentrated in Male'.

The early history of the Maldives is obscure. According to Maldivian legend, a Sinhalese prince named KoiMale was stranded with his bride--daughter of the king of Sri Lanka--in a Maldivian lagoon and stayed on to rule as the first sultan.

Over the centuries, the islands have been visited and their development influenced by sailors from countries on the Arabian Sea and the Indian Ocean littorals. Mopla pirates from the Malabar Coast--present-day Kerala state in India--harassed the islands. In the 16th century, the Portuguese subjugated and ruled the islands for 15 years (1558-73) before being driven away by the warrior-patriot Muhammad Thakurufar Al-Azam.

Although governed as an independent Islamic sultanate for most of its history from 1153 to 1968, the Maldives was a British protectorate from 1887 until July 25, 1965. In 1953, there was a brief, abortive attempt at a republican form of government, after which the sultanate was re-imposed. Following independence from Britain in 1965, the sultanate continued to operate for another 3 years. On November 11, 1968, it was abolished and replaced by a republic, and the country assumed its present name.

Environmental Concerns
There is growing concern about coral reef and marine life damage because of coral mining (used for building and jewelry making), sand dredging, and solid waste pollution. Mining of sand and coral have removed the natural coral reef that protected several important islands, making them highly susceptible to the erosive effects of the sea. The practices have been banned in recent years. In April 1987, high tides swept over the Maldives, inundating much of Male' and nearby islands. That event prompted high-level Maldivian interest in global climatic changes, as its highest point is about 8 feet (about 2.4 meters) above sea level.

Investment in Education
The government expenditure for education was 8% of GDP in 2006. Literacy in Maldives is high at 97%. Maldives has made great strides over the years in primary and lower secondary education, with 100% enrollment in the primary level (grade 1 to 7) since 2002. Secondary school enrollment has also improved significantly, with about 70% progressing to secondary level. Lower secondary schools (grades 8 through 10) are located on 138 islands. As of 2008, the government aimed to make 10 years of education available to all before 2010. Only a small proportion of children leave school with a qualification, and "Ordinary level" pass rates (at the completion of grade 10) are low for those who opt to take the examination. As of mid-2007, access to higher secondary schools (grades 11 and 12) was limited as schools were located on just 14 islands. Access to tertiary education is more limited. Although there is no gender bias for primary and lower secondary schools, there is a bias in favor of boys for upper secondary and tertiary education.

GOVERNMENT
A 1968 referendum approved the constitution, making Maldives a republic with executive, legislative, and judicial branches of government. The constitution was amended in 1970, 1972, 1975, and again in 2008.

Ibrahim Nasir, Prime Minister under the pre-1968 sultanate, became President and held office from 1968 to 1978. He was succeeded by Maumoon Abdul Gayoom, who was elected President in 1978 and reelected in 1983, 1988, 1993, 1998, and again in October 2003. After 30 years of rule, in October 2008 Gayoom was defeated by Maldivian Democratic Party candidate Mohamed Nasheed in the first multiparty presidential elections held in 30 years. President Nasheed was inaugurated on November 11, 2008 as head of the executive branch. Nasheed reduced the number of government ministries from 21 to 14, appointed a 14-member cabinet, and replaced the eight Majlis members appointed by his predecessor.

The current unicameral Majlis, elected in May 2009, is composed of 77 members serving 5-year terms. In February 2009, the Majlis passed legislation that increased the number of seats to 77 from 50. Election results were: DRP 36.8%, MDP 32.9 %, PA 9.2%, DQP 2.6% AP 1.3%, independents 17.1%; seats by party--DRP 28, MDP 25, PA 7, DQP 2, AP 1, independents 13; one seat unfilled. The next Majlis elections will be held in 2014.

The Maldivian legal system--a mixture of traditional Islamic and common-law principles--is administered by an attorney general, secular officials, a chief justice, and lesser judges on each of the 19 atolls, who are appointed by the president. A new Supreme Court appointed by the previous President, Gayoom, took office in September 2008. (Under the laws of the 2008 constitution, however, the judiciary has been subject to review by the Judicial Services Commission and will remain under review until August 7, 2010, when all sitting judges will then be granted tenure.) Additionally, each inhabited island within an atoll has a chief who is responsible for law and order. Every atoll chief, appointed by the president, functions as a district officer in the British South Asian tradition.

Principal Government Officials
President--Mohamed Nasheed (head of state and government)
Vice President--Mohamed Waheed
Minister of Defense and National Security--Ameen Faisal
Minister of Economic Development and Trade--Mahmood Razee
Minister of Finance and Treasury--Ali Hashim
Minister of Home Affairs--Mohamed Shihab
Minister of Foreign Affairs--Ahmed Shaheed

POLITICAL CONDITIONS
On November 8, 1988, Sri Lankan Tamil mercenaries tried to overthrow the Maldivian Government. At President Gayoom's request, the Indian military suppressed the coup attempt within 24 hours. In September 2003, following the death of an inmate, a brief prison riot broke out on an island near the capital, Male'. Three other inmates were killed during the incident. In response to the killings of the inmates, brief rioting took place on the streets of Male'.

Under Gayoom, the government often prevented opposition rallies from taking place. President Gayoom's commitment to introduce political reforms in June 2004 was widely welcomed. A human rights commission was established, and a special Majlis, or parliament, was convened to consider changes in the constitution, including the legalization of political parties. In August 2004, however, a demonstration in the capital turned violent and the government declared an emergency and arrested a large number said to be connected to the protest. Some of those arrested were prominent in the reform movement, including several members of the special Majlis. Most were released a few months later.

Maldives was badly hit by the Asian tsunami of December 26, 2004, which killed 82 and caused substantial damage to Maldives tourism, housing, and fishing infrastructure. The U.S. provided $1.6 million in immediate relief assistance. Despite the disaster, the Government of the Maldives held parliamentary elections, originally scheduled for December 31, on January 22, 2005. Reform candidates performed strongly. Following the poll, President Gayoom announced plans to establish multiparty democracy within a year.

In June 2005, the members of the People's Majlis unanimously voted to legally recognize political parties. In order of registration the first parties were the opposition Maldivian Democratic Party, the government's Dhivehi Raiyyethunge Party, the Adhaalath (Justice) Party, and the Islamic Democratic Party. More recently, a number of other parties formed, including the Social Liberal Party, the Maldivian National Congress, the Maldives Social Democratic Party, and the Republican Party. Some of these appear to have minimal public backing. Another political formation is the New Maldives group, but it has not registered as a party.

Throughout 2006, the opposition faced restrictions on freedom of assembly, and the government continued to arrest opposition activists. In March 2006, the government introduced a "Roadmap for Reform" and subsequently introduced several bills in parliament. In August 2007, voters decided via referendum that the Maldives' new constitution should provide for a presidential system of government (vice parliamentary). The special Majlis completed its work and the new constitution took effect in August 2008.

In accordance with the new constitution ratified by President Gayoom on August 7, 2008, the first round of presidential elections was held on October 10, 2008. As no candidate received 50% of the vote, a second round was held on October 29 between President Gayoom and Mohamed Nasheed. Nasheed won with 54% of the vote. Members of parliament declared their political affiliations long before the October 2008 multiparty elections. Five opposition leaders were allowed to contest the presidential elections, and the principal opposition candidate was elected. President Nasheed is among the founders of the Maldivian Democratic Party (MDP).

President Nasheed, a former Amnesty International "prisoner of conscience," has promised to further strengthen democracy and increase media freedom. During his campaign, Nasheed pledged that if elected, he would hold early presidential elections in the middle of his term. Nasheed’s proposals, however, have encountered fierce resistance from opposition parties and he has been unable to advance legislation in the Majlis. Several of his cabinet ministers have faced “no confidence” votes; some have successfully been impeached and removed from office.

The previous government kept a tight rein on expressions of Islamic extremism. There has been a growing trend in Islamic conservatism since the advent of democracy and free speech.

ECONOMY
The Maldivian economy is based on tourism and fishing. Of the Maldives' 1,191 islands, only 200 are inhabited. The population is scattered throughout the country, with the greatest concentration on the capital island, Male'. Limitations on potable water and arable land constrain expansion.

The Indian Ocean tsunami in December 2004 devastated many islands. The Maldivian economy made a remarkable recovery, with a rebound in tourism and post-tsunami reconstruction.

While income disparity remains high, particularly between the capital and distant islands, the Maldives' growth has yielded considerable social progress. The net enrollment in primary education is close to 100%. Literacy rates are about 97%. Infant and maternal mortality are declining rapidly.

GDP in 2009 totaled $1.4 billion, or about $4,600 per capita. From 2000-2008, real GDP growth averaged around 6% per year except for 2005, when GDP declined following the Indian Ocean tsunami. Economic growth has been powered mainly by tourism and its spinoffs in the transportation, communication, and construction sector. Fishing remains an important part of the economy as well. However, due partially to the global financial crisis, the country faced acute economic problems in 2009. The Maldivian economy shrank by 3%. Inflation was at 4% in December 2009.

The Maldives had a merchandise trade deficit of under $300 million until 2003. Since then the trade deficit has reached an unprecedented $700 million. Due to the global crisis, tourist arrivals contracted in early 2009, but rebounded toward the end of the year. As a result, 2009 arrivals were only about 4% lower than in 2008. Consequently, the current account deficit was contained at around $400 million in 2009. The balance of payments recorded a surplus of about $20 million.

Fiscal control has deteriorated recently due to increased government spending including large wage increases as well as falling revenues. The budget deficit was about 26% of GDP in 2009. Government expenditure was 58% of GDP and revenue was about 28% of GDP. According to government estimates, the deficit is to be lowered to 18.7% of GDP in 2010. Recent large budget deficits have led to a sharp buildup of public debt, prompting the World Bank and the International Monetary Fund (IMF) to classify Maldives as being at moderate risk of debt distress.

In December 2009, the IMF approved a $93 million loan for the country. The loan shores up reserves and will help smooth adjustment. Maldives faced a foreign exchange shortage in 2009. With the improvement in reserves, partly due to IMF disbursements and tightening of the money supply, pressures on the exchange rate have eased and the black market premium has come down. The current official exchange rate against the U.S. dollar is rufiyaa 12.8.

Under the IMF program, the government agreed to cut expenditure, substantially downsize the government workforce, reduce subsidies, change the tax system to direct taxes, and privatize many industries. The government also aims to move from being a service provider to a regulator, and to enhance the role of private sector. These programs require major reform in the legal and regulatory framework of the various sectors. However, most of these plans have not progressed smoothly. For instance, the government reduced civil servant salaries by an average of 14% in October 2009, but the Maldives Civil Service Commission (CSC) has filed a lawsuit to restore these salaries. Moreover, plans to retrench civil service staff have been put on hold for lack of funds. The government’s privatization plans are also jeopardized by a recent law passed by the parliament which requires parliamentary approval to privatize state institutions. The government did privatize the international airport, and it sold government-held shares in a telecommunications company prior the passage of law. The government also signed a management contract with an Indian healthcare provider to manage a state-owned hospital with the aim of improving its management and services.

Tourism is expected to rebound in 2010 and help restore economic growth. The Maldives Monetary Authority (Central Bank) expects GDP growth around 3.5% in 2010.

International shipping to and from the Maldives is mainly operated by the private sector with only a small fraction of the tonnage carried on vessels operated by the national carrier, Maldives Shipping Management Ltd. Over the years, the Maldives has received economic assistance from multilateral development organizations, including the UN Development Program (UNDP), Asian Development Bank, and the World Bank. Individual donors--including Japan, India, Australia, and European and Arab countries (including Islamic Development Bank and the Kuwaiti Fund)--also have contributed.

In a bid to promote exports, the U.S. Government restored the Generalized System of Preferences (GSP) trade program to the Maldives in December 2009. The United States is seeking to provide various other assistance efforts to defend against climate change, prevent drug use, and enhance U.S. investment. The Maldives became a member of the International Labor Organization in 2009.

Diversifying beyond tourism and fishing, reforming public finance, and increasing employment are the major challenges facing the government. Over the longer term Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80% of the area is 1 meter (about 3.3 feet) or less above sea level.

Economic Sectors
Tourism. In recent years, Maldives has successfully marketed its natural assets for tourism--beautiful, unpolluted beaches on small coral islands, diving in blue waters abundant with tropical fish, and glorious sunsets. Tourism now brings in about $600 million a year. Tourism and related services contributed 27% of GDP in 2009. But its indirect contribution is much higher. As a result, the tourism rebound could help Maldives boost growth in 2010.

Since the first resort was established in 1972, more than 95 islands have been developed, with a total capacity of some 20,000 beds. Maldives has embarked on an ambitious tourism expansion plan; several resorts are under construction. However, resort expansion has not been planned very well. There is a glut of hotel rooms and several half-built resorts. Over 655,000 tourists (mainly from Europe) visited Maldives in 2009. The average occupancy rate is over 70%. Maldives had experienced capacity utilization rates of over 80%--reaching over 95% in the peak winter tourist season--prior to the new resort drive that began in 2008. Average tourist stay is 8 days.

Fishing. This sector employs about 11% of the labor force. The fisheries industry, including fish processing, traditionally contributes about 7% of GDP. Due to a drastic drop in the fish catch, the industry's contribution to GDP was only about 4% in 2008 and 3% in 2009. Fish export earnings were estimated at $80 million in 2009. The use of nets is illegal; all fishing is done by line. Production was about 100,000 metric tons in 2009, most of which was skipjack tuna. More than 40% is exported, largely to Sri Lanka, Japan, Hong Kong, Thailand, and the European Union. Fresh, chilled, frozen, dried, salted, and canned tuna exports account for about 90% of all marine product exports.

Agriculture. Poor soil and scarce arable land have historically limited agriculture to a few subsistence crops, such as coconut, banana, breadfruit, papayas, mangoes, taro, betel, chilies, sweet potatoes, and onions. Almost all food, including staples, has to be imported. The December 2004 tsunami inundated several agricultural islands, which could take a significant amount of time to recover. Agriculture provides about 2.0% of GDP.

Manufacturing. The manufacturing sector provides less than 7% of GDP. Traditional industry consists of boat building and handicrafts, while modern industry is limited to a few tuna canneries, a bottling plant, and a few enterprises in the capital producing PVC pipe, soap, furniture, and food products. Five garment factories that had exported principally to the United States closed in 2005, following the expiration of the Multi-Fiber Arrangement (MFA) that had set quotas on developing country garment exports to developed countries. The loss of these factories has not proven an insurmountable hurdle, however, as most of the profits were repatriated and most of the labor was expatriate.

Other. The construction sector contributes approximately 6% of GDP.

FOREIGN RELATIONS
Maldives follows a nonaligned policy and is committed to maintaining friendly relations with all countries. According to the Foreign Ministry, the country has a UN Mission in New York, embassies in the United States (the Ambassador to Washington is resident in New York), Sri Lanka, China, the United Kingdom, Bangladesh, India, Japan, Singapore, and Malaysia, as well as diplomatic missions in Geneva and Brussels. India, Pakistan, Bangladesh, and Sri Lanka maintain resident embassies in Male'. Denmark, Norway, the U.K., Germany, Turkey, and Sweden have consular agencies in Male' under the supervision of their embassies in Sri Lanka and India. The UNDP has a representative resident in Male', as do the UN Children's Fund (UNICEF) and the World Health Organization (WHO). Like the United States, many countries have nonresident ambassadors accredited to the Maldives, most of them based in Sri Lanka or India. The Maldives is a member of the Organization of the Islamic Conference (OIC) and the Non-Aligned Movement (NAM). In 2009, Maldives hosted the 16th annual South Asian Association for Regional Cooperation (SAARC) summit, and in 2010 it was elected to a seat on the United Nations Human Rights Council. President Nasheed's skilled rhetoric and his consensus-building among smaller island nations brought global attention to Maldives at the December 2009 United Nations climate change conference. In March 2010, Maldives hosted a donor forum that yielded $313 million in pledges to the country from multilateral development banks, the European Union, and many nations including the United States.

U.S. MALDIVIAN RELATIONS
The United States has friendly relations with the Republic of Maldives. The U.S. Ambassador and some Embassy staff in Sri Lanka are accredited to the Maldives and make periodic visits. The United States has sought to support the Maldives’ democratic transition and economic development agenda. U.S. Naval vessels have regularly called at Male' in recent years. The Maldives has extended strong support to U.S. efforts to combat terrorism and terrorist financing. Maldives has offered in principle to resettle a Guantanamo detainee, but final arrangements had yet to be determined as of mid-July 2010.

U.S. contributions to economic development in the Maldives have been made principally through international organization programs. Following the December 2004 tsunami, the U.S. and Maldives signed a bilateral assistance agreement for $8.6 million in reconstruction assistance. This assistance will help in the rebuilding of harbors, sewerage systems, and electrical generation facilities and in the development of aid absorption capacity in the Ministry of Finance. The United States has directly funded training in airport management and narcotics interdiction and provided desktop computers for Maldivian customs, immigration, and drug-control efforts in recent years. At the March 2010 Maldives donor forum, the United States (largely through the U.S. Agency for International Development --USAID) pledged $4.6 million for climate change adaptation, bond market reform, maritime security, border security, and International Military Education and Training (IMET). The United States also trains a small number of Maldivian military personnel annually. About 10 U.S. citizens are resident in the Maldives; some 5,000 Americans visit the Maldives annually. The Maldives welcomes foreign investment, although the ambiguity of codified law acts as somewhat of a damper. Maldives signed a Trade and Investment Framework Agreement (TIFA) with the United States in October 2009, was granted GSP trade benefits in December 2009, and signed an Overseas Private Investment Corporation (OPIC) agreement with the United States in March 2010. Areas of opportunity for U.S. businesses include tourism, construction, and simple export-oriented manufacturing, such as garments and electrical appliance assembly. There is a shortage of local skilled labor, and most industrial labor has to be imported from Sri Lanka or elsewhere.

Principal U.S. Embassy Official
Ambassador--Patricia Butenis

The U.S. Embassy in Sri Lanka is at 210 Galle Road, Colombo 3; tel: +94-11-2498500; fax: +94 (11) 2437-345.
 



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