trade winds

The policy of inertia

Despite its greater population, bigger industrial base, and gen erally higher level of sophistica tion, Fiji is compared badly with other, smaller, countries of the South Pacific by the latest academic review of banking and financial activities, just pub lished by the National Centre for Development Studies at the Australian National University.

The author, Professor War ren Hogan, of the Department of Economics at Sydney Uni versity, says Fiji’s institutions are too rigid and that govern ment direction overwhelms market response. There appeared to be little or no concern about the efficiency of financial markets, he said. “The impression is one of policy inertia. .

By comparison, he wrote, Tonga, Vanuatu and Solomon Islands were notable for having evolved financial sectors “re markable for their diversity” yet currently well adapted to the economies within which they operated.

Western Samoa, on the other hand, offered “a salutary re minder that an economy may have the mechanisms for finan cial intermediation, but they serve little purpose when the institutional and policy commit ments lack strength of national direction. ”

Yet, said Professor Hogan, “there is an impressive capacity among these Pacific countries to gain access to foreign fun ding, either officially or in terms of market connections. Only recently have some of their authorities begun to question whether or not that ease of access is entirely beneficial, a questioning probably reflecting lessons from other places with excessive foreign debt bur dens. ”

Whether the whole weight of such examples was being taken aboard by the small Pacific countries was questionable, he

wrote. “The impression from analysing the workings of ex isting arrangements is that too little attention has been given to efficient financial mechanisms for the mobilisation of domestic financial resources.”

Examining the Fiji scene, Professor Hogan pointed to the dominance of the National Pro vident Fund in total lending operations, and to the fact that in the two years between 1981 and 1983 the flow of funds to the government sector was twice as great as to the business sector. The upshot had been that in those two years business relied almost as much on fore ign funding (to the tune of Fiji $69.5 million) as on domestic sources (F 577.7 million) to fin ance its operations.

“There is no doubt about the shift in direction of funding,” he wrote. “Nowhere is this more apparent than in the working of the Fiji National Provident Fund which has steadily reduced its commitments to the market sector. ”

Statistics provided in the re view show that in 1977 the FNPF made 30.84 per cent of its loans to the private sector.

This proportion then showed a steady decline until, by 1983, only 19.8 per cent of loans were to the private sector.

In 1983 there was a total of F$ 146,537,000 in outstanding loans by the FNPF to the Fiji government, an increase of $54,889,000 (59.89 per cent) over the 1981 figure. A further $60,090,000 was outstanding to the Housing Authority (an increase of 51.98 per cent since 1981). Loans to the private sector totalled, in 1983, $69,951,000 (up 26.52 per cent on the 1981 total).

“Business has been severely restricted in its access to domes tic funding to the point of raising serious questions about the possibilities of ‘crowding out’,” Professor Hogan wrote.

However, while Fiji has bor

rowed abroad at a much higher rate in the last few years than previously, he said, the increase in debt-service commitments was not, so far, onerous. Debt service on official borrowing amounted to nearly 10 per cent of export earnings in 1983.

“Not an unreasonable ratio,” he commented. [However, since 1983, Fiji’s foreign earnings have suffered further dedine because of the world slump in commodity prices and this percentage is now likely to be somewhat, though still not ruinously, higher. ] Professor Hogan went on to wonder whether the apparent taste of business to find its funds overseas was because it preferred to do so, or because of

shortcomings in domestic finan dal markets. “Therefore the commitments to interest pay ments abroad may be the price of failure to foster effective institutional arrangements in Fiji to service medium-term fun ding requirements of the mar ket sector.”

Throughout his review Pro fessor Hogan was clearly trou bled by the difficulties he had encountered in obtaining reli able, complete and up-to-date financial information in most of the Pacific countries he had surveyed. There was a shortage of information on financial flows and a lack of devices of assembling it, he said. Some of this might have come about because of the foreign domi

nance of the business sector.

Most financially notable of the five countries reviewed was Vanuatu which had made vigorous efforts to develop as an international finance centre, mainly as a tax haven. The relative success of this scheme appeared to be stimulating an interest in similar possibilities for Tonga and Western Samoa.

Meantime, as Professor Hogan noted, Vanuatu’s status as a tax haven and an emerging finanical centre enabled it to provide a range of services not available in other parts of the South Pacific.

But, he said, “complexity of financial arrangements is not necessarily a measure of matur ity. It may well equally reflect confusion and gross segmenta tion of what are minuscule financial markets.”

The Pacific economies relied heavily on foreign transfers to support gross domestic capital formation, he said. For most the main instrument had been offi cial development assistance.

However, foreign borrowings, including loans through Eurofi nance markets, had lately assumed much greater promin ence, along with direct foreign investment.

“Each of the five countries under review has participated in Eurofinance activities with four of the five (Western Samoa being the exception) showing transactions outside the inter bank market: in short, funds were drawn for purposes other than financial management.

“But, because of the vagaries of the Pacific economies, brought about by severe clima tic effects upon export crops (such as the cyclones and the 1983 drought which damaged Fiji’s sugar and tourism in come), the balance of pay ments and its financing hao crucial effect.

“Therefore, a major question is whether or not that access to international financing has been beneficial to the development of domestic financing arrange ments,” he wrote.

Fiji sheep meat

Fiji’s experiments with produc tion of sheep meat seem to be going well after some early failures. Since 37 Barbados Blackbelly hair sheep arrived on Makogai Island in April, 1980, breeding has progressed well. The type is suitable for tropical conditions, unlike breeds tried earlier. Flock num bers have now increased to the point where a surplus for slaughter is available.

Through Australian aid Quirk’s Refrigeration, Pty Ltd., of Mel bourne, has put in a chiller, a generator to provide power, and a self-contained refriger ated container to take chilled carcasses to Suva by barge.

Early production levels are intended to serve only the local market with chilled lamb, re placing imported frozen lamb, and thereby saving foreign ex change. Later there may be sufficient production to supply neighboring island countries.

The Makogai chiller has a

capacity to hold 50 carcasses at just above freezing point.

Quirk’s sent Mark Anderton to Fiji for three weeks to install, commission and test the equip ment and train the project manager and his staff in its operation. Burton Consoli dated, Pty Ltd., also of Austra lia, who built the chiller room and the container sent Lex Herd to oversee their side of the project and Kooline Refrigera tion of Suva provided a re frigeration mechanic and an electrician. • • • Japan has given $lOO,OOO to the Pacific Islands Development Program operated by the East- West Centre in Honolulu.

Hawaii governer, George Ariyoshi, who is one of eight island leaders on the standing committee of the Pacific Islands Conference, accepted the donation saying “Japan follows the way of being helpful with out being overpowering” in offering assistance to the Pacific island nations.