Wednesday, August 26, 2009

Hardly an idyllic paradise

Aug 26, 2009

By Bruce Gale

ASIA'S economies may be about to lead the world out of recession, but not the South Pacific. Indeed, while the popular image of the South Pacific is of idyllic islands, the reality is very different.

A recent report submitted to the Australian Parliament concluded that Fiji's economy, the South Pacific's largest after New Zealand's, could contract by at least 5 per cent this year. And while Fiji's problems look particularly bad, they are really just an extreme example of the situation facing island nations across the region.

Most South Pacific nations are expected to register negative economic growth. Cash reserves, investment and trade are declining. The cost of imported goods is also rising as nations devalue their currencies in an attempt to stimulate exports.

The global economic slowdown is not the only reason for the gloom. The H1N1 influenza pandemic has taken its toll, and islanders report more frequent cyclones as well as rising waters - the result of global warming. Tonga's main island of Tongatapu, as well as Pukapuka in the Cook Islands, Kiribati and Tuvalu are particularly at risk.

But not all of the South Pacific's woes can be blamed on external influences. Long before the global financial crisis, many South Pacific economies had already deteriorated to the point where they were heavily dependent on international aid and foreign remittances from an estimated 150,000 Polynesian, Melanesian and Micronesian people living in Australia.

The Pacific island countries receive the highest amount of foreign aid in the developing world per capita. But despite this, few have shown much progress.

Nor is the aid well coordinated. Speaking at a summit of the Pacific Islands Forum in Cairns earlier this month, Australian Prime Minister Kevin Rudd lamented the 'spaghetti bowl' of aid programmes - the 'dozens of competing and occasionally conflicting development assistance programmes'.

According to Dr Mahendra Reddy of the Fiji Institute of Technology, many of those who have prospered in Pacific island countries have acquired their wealth through government monopolies. As a result, vested interests provide strong opposition to market-opening measures.

Meanwhile, the deadening effect of the Melanesian system of traditional chiefs discourages dissent. Fiji is run by a military dictatorship. In Tonga, reformers are trying to replace an authoritarian monarchical system with something that more closely resembles a democratic polity. In other countries, central governments struggle to maintain control. The Solomon Islands is just emerging from a long period of near anarchy.

Other nations launch seemingly pointless reforms. Samoa, for example, is in the midst of a national debate about a multimillion-dollar plan to switch to left-side driving on Sept 7. Tiny Tokelau, on the other hand, seems more focused on critical problems. Its 1,500 residents worry about replacing an ageing vessel that is their only link to the outside world via a 30-hour trip to Samoa.

The eyes of most outside the region are focused on Fiji, an ethnically fractured island state with a population of about 950,000. Fiji's gross domestic product (GDP) grew 0.2 per cent last year after contracting 6.6 per cent in 2007 due to the impact of a coup. Its main industries include tourism, sugar, fisheries and garment manufacturing.

In a report on Fiji to the Australian Parliament on Aug 11, Ms Renuka Mahadevan, a senior academic at the University of Queensland's School of Economics, painted a picture of inappropriate economic policies, political uncertainty and slow progress on economic reform.

According to Ms Mahadevan, a devaluation in April designed to stimulate the export sector did little to help. Worse, she said, this approach to solving the nation's economic problems shifted the focus away from the pressing need for domestic economic reform. Financing the government deficit is also likely to be a growing problem. The ratio of external debt to GDP is low (7 per cent), but political problems have caused Fiji's credit rating to decline significantly in recent years.

Fiji has been under military rule since the country's armed forces chief Frank Bainimarama seized power in a 2006 coup. Fiji's subsequent refusal to bow to international demands for elections has left the country isolated. Suva has already been suspended by the Pacific Islands Forum, a regional bloc of 16 nations. Major trade partners, including the European Union, Australia and New Zealand, have also imposed sanctions. The Commonwealth has threatened Suva with suspension.

Whatever else one may say about it, the South Pacific is hardly an idyllic paradise.

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