the brunt of adjustment

Self employed bear the brunt of adjustment

Fiji’s self employed especially the sugarcane farmers have borne the brunt of the govern ment’s tough measures to ad just to plummeting export prices.

According to an IMF survey of the Fijian economy, sugar growers’ real incomes fell by more than half between 1980 and 1984.

The IMF traces the reasons back to the late 70s. Since 1977 annual cost of living adjust ments have been based on wage guidelines announced by the Tripartite Forum comprising representatives of the govern ment, the trade unions and the employers’ associations.

Fiji, nevertheless, is poised to resume economic growth after a period of crippling deteriora tion in its terms of trade.

The country was hit hard by the sharp decline in commodity prices during 1984 when the world price of sugar, Fiji’s major export, fell by 40 per cent only to tumble by another 20 per cent the following year.

And while a large proportion of Fiji’s crop is sold under long term contract at fixed prices, the weighted average price de clined by about 20 per cent between 1983 and 1985, said the survey.

Meanwhile, the world price of coconut oil, another export staple, plummeted by about 50 per cent in 1985 following an ’B4 peak.

Price dives in Fiji’s other exports fish, gold and for estry products were less spectacular, but average returns were down by about 10 per cent last year.

With import prices edging up slightly, the country’s terms of trade deteriorated by an esti mated 14 per cent last year after a 4 per cent decline in 1984.

In 1984 the government stepped in. Convinced (they were proved right) that com modity prices would deteriorate still further in 1985, they insti tuted an adjustment program.

Fiji’s process of adjustment to plummeting commodity prices has had the most effect on the country’s self-employed, particularly the sugarcane growers whose real incomes were more than halved between 1980 and 1984. However, according to an IMF survey, the nation now has real prospects for economic growth.

This involved a wage freeze, budget tightening and a squeeze on domestic credit and money supply the classic IMF response.

The package of measures was painful, but it seems to have worked. Reduced domes tic demand contained inflation (4.4 per cent last year) while the balance of payments position improved.

Real gross domestic product (GDP), however, fell by about 2 per cent largely due the ravages of cyclones.

“While real incomes,” said the IMF (adjusted for the terms of trade) were declining, wages and salaries were protected by the forum guidelines.

“The burden of adjustment and the consequent pressure to lower real incomes thus fell entirely on workers not protected by these guidelines the non unionised workers and the self employed, includ ing sugarcane farmers.”

Others were protected by the Tripartite Forum guidelines under which wages were normally increased by a margin closely resembling the previous year’s inflation rate.

This led to the 1984 intro duction of the wage freeze after the forum members failed to reach voluntary agreement to curb wage increases.

The wage freeze, in effect, lives on. The government had* originally hoped to replace it with something more flexible at the end of last year by which time the forum might have negotiated a formula.

It didn’t happen and a gov ernment-imposed 2.25 per cent cost of living increase for all workers was decreed.

“The implied further decline in real wages is an essential

element of the government’s strategy to increase public sec tor savings, restore cost com petitiveness and promote exter nal adjustment,” said the IMF.

The wage policy pursued un til 1984, says the survey, saw the wages and salary bill soar by 50 per cent between 1981 and 1984 about twice the rate of increase in tax revenue.

“In order to contain the budget deficit, the government accommodated the increase in the wage and salary bill by reducing its investment outlays capital expenditure as a proportion of total expenditure in fact fell from 27 per cent in 1982 to 13 per cent in 1984,” said the survey.

And although some other current expenditure increased sharply last year (including the cost of repairs to damage caused by four cyclones), total current expenditure declined slightly the first such decline ever recorded.

On the other side of the equation, however, the external position was helped significant ly by insurance payouts for the same cyclone damage.

These amounted to about Fs3l million in the first half of 1985 with a further Fsl2 mil lion expected in the second half.

This contributed to a balance of payments surplus of Fsl2 million, about the same as the previous year.

“This represented a substan tial improvement over the pre vious three years when deficits were recorded,” according to the report’s author, Sukhdev Shah of the IMF’s Asian depart ment.

He is carefully optimistic on the prospects for growth.

Fiji’s ninth development plan (1986-1990) aims at real GDP annual growth of 5 per cent.

The government intends to place emphasis on resource based industries, such as for estry and fishery products, sugarcane, coconuts, cocoa, ginger and gold.

Wage restraint and a planned shift towards consumption based taxes to control demand complete the basic picture.

The development plan’s objectives, however, “will de pend substantially on both weather conditions and the world economic environment,” said Shah.

K The immediate outlook for the latter has improved as a result of sharp declines in world oil prices and interest rates.

“Thus there is cause for reasonable optimism that Fiji can achieve sustained growth. ”