On our way to Bhutan’s capital earlier this month we drove through a long valley surrounded by tree-covered mountains. This magnificent scene of natural beauty was dotted by the occasional Buddhist chorten. A river rushed below – spanned here and there by a shaky pedestrian bridge made of planks and wire draped with prayer flags.
After this uplifting drive from the airport, it was a bit of a shock to see downtown Thimpu surrounded by half-finished four- and five-story buildings. We passed 2 miles of frozen construction sites that resembled Bangkok after the 1997 economic crisis, when parts of that city became a ghost town. In Bhutan’s case the housing bubble has not yet burst, but the demand for raw materials from India has been so enormous that the country now has a temporary rupee shortage and has restricted imports of construction materials.
New York’s Mayor Bloomberg is probably not famous among Bhutan’s citizens, but he might be pleased to know they have some ideas in common: Bhutan fines people for smoking in public and has banned the importation of cigarettes for resale. The Bhutanese recently added an extra tax on non-essential imports: cars and foreign junk food. As a result, construction seems to have slowed. But the shacks of the Indian laborers who do the building in Bhutan remain, sometimes screened from public view by a green fence. “We are building proper housing for them,” a government official promised.
Many economists, including my husband, are not worried about the rupee shortage, because Bhutan has about 740 million dollars in U.S. dollar reserves – an amount relative to its GDP that puts it in the same league as China, according to International Monetary Fund data from December 2010. Curiously, while Bhutan has been borrowing to buy rupees, paying an outrageous 10 percent interest, it has essentially been lending to the U.S., getting back close to zero return. It can easily sell off some of its dollars to pay back the rupee-denominated loans. Fixing the problem is largely a matter of better liquidity and portfolio management. Hard-currency shortages are common in import-dependent developing countries with overvalued exchange rates and dwindling reserves, but not in a country with large reserves.
Nonetheless, the rupee shortage has worried many Bhutanese, and the press has been warned by the government not to refer to it as a “crisis.” “I need to think of my grandmother in the village,” said one Bhutan Broadcasting Service reporter when describing his reassuring evening news coverage.