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Maldives Upsets Big Brother India

By Prasenjit Bhattacharya (WSJ): The government of the Maldives’ cancellation of a multi-million dollar airport management contract with a consortium led by India’s GMR hasn’t gone down well with India, its biggest ally.

The cancelation of the airport contract was “major setback” to ties between the two countries, said Salman Khurshid, India’s foreign minister, said in an interview with CNN-IBN. “Maldives has been an important partner for us and we would want it to remain so. But in a partnership, there are responsibilities. We have a right to expect that those responsibilities will be fulfilled.”

Earlier in the week, the Ministry of External Affairs said in a statement: “The decision to terminate the contract with GMR without due consultation with the company or efforts at arbitration provided for under the agreement sends a very negative signal to foreign investors and the international community.”

President Mohammed Waheed Hassan Manik doesn’t see the brouhaha in the same light. In an interview with the Press Trust of India, he said relations with India are stronger than ever before, and that the cancelation of the contract was simply a business decision.

“The bilateral relation, especially in the fields of military, trade and business, is even stronger than before,” he said.

On Wednesday, the Maldives government canceled a contract awarded in 2010, under the previous government of Mohamed Nasheed, to a consortium of GMR Infrastructure Ltd. 532754.BY +4.48% and Malaysia Airport Holdings 5014.KU -0.56% for running the country’s only international airport in Male for 25 years and for constructing a new passenger terminal.

GMR has since filed a lawsuit seeking to revoke the decision in a Singapore court. The Maldives set a deadline of seven days for GMR to hand over airport operations.

India has always considered the Maldives to be in its sphere of influence, as the string of 1,200 coral islands that make up the small country falls in the strategically-important sea lanes of the Indian Ocean.

India has provided the Maldives’ navy with a Trinkat patrol vessel and a helicopter, as well as training its defense personnel and building a military hospital. Indian vessels and aircraft routinely patrol Maldivian waters to guard against pirate attacks.

However, over the last decade China has been increasing its influence in Maldives by investing in infrastructure, such as the rebuilding of the country’s only national museum in Male, the capital. Chinese nationals are the largest group of tourists visiting the Maldives, a significant economic factor in a country where tourism’s about the only game in town. Maldives, with a population of 400,000, pulled in almost a million tourists to its remote islands and exotic resorts last year.

That has been noticed in the Maldives. The Adhaalath Party, a radical Islamic political party that is an ally of the government, sent out a stream of tweets yesterday berating GMR and India’s presence in the Maldives and extolling relations with China.

One of them read, “We would rather give the airport contract to our friends in China, who now make the majority of our tourist population.”

S. Chandrasekharan, a former Indian bureaucrat and analyst with the South Asia Analysis Group in New Delhi, said the cancelation of airport contract amounts to a failure of Indian diplomacy. “India should have seen this coming. Our diplomacy is so one-dimensional that it wasn’t able to take care of our economic interests in Maldives.”

Mr. Chandrasekharan said that the episode marks an attempt by the Maldives to assert its “nationalism and sovereignty.”

An Indian government official said Indian diplomats have been trying for a year to avert the GMR deal cancelation, but Maldives didn’t relent. He described the GMR issue as political in nature: “The president is in a political fight with those opposing him and this is a decision that certain parties supporting the government want.”

The Maldives’ former president, Mr. Nasheed, said the move to cancel the GMR contract was just one more episode in the nation’s economic mismanagement.

“The government’s reckless decision will scare off investors. It will have serious ramifications for the economy, at a time when we can ill-afford to see it falter,” he said in a statement.

On Sunday, Masood Imad, President Waheed’s spokesman, said in an interview that the decision to cancel GMR’s contract will be a positive signal for investors that the government won’t tolerate illegitimate practices.

GMR said the bidding process for the airport was transparent.

The Associated Chambers of Commerce and Industry of India, in a statement, expressed concern over the “unilateral decision” of the Maldives’ government and urged the country to initiate talks with GMR to find an amicable solution to the disagreement.

Published Date: Saturday, December 1st, 2012 | 06:14 PM

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