In the shadow

of the donors

Mastering the balancing act that can keep the aid dollars down

By Ian Williams

United Nations correspondent CAN the Pacific Islands leam to live on less aid? Describing it as a “daunting challenge”, the United Nations Economic and Social Com mission for Asia and South Pacific (ESCAP) sees the prospects getting worse in its gloomy report forr 1990. In the two previous years, of course, it was the

politically strategic Eastern European

countries which competed for shrinking aid budgets, but now, ESCAP’s director Shah Kibria told Pacific Islands Monthly ; “The preoccupation of developed countries with events in the Gulf is likely to aggravate the situation.”

This was not made easier by the natural disasters which hit the region.

Samoa, for example, had the heavy financial burden of rebuilding the infra structure after Cyclone Ofa in February last year, while Vanuatu was hit in 1985 and 1987. And some setbacks are man made. Some Pacific Island nations now have to face abandonment by their former colonial rulers. Britain and France, for example, have cut offbudget ary aid to both Vanuatu and Tuvalu in

the last few years.

However, despite such cuts, ESCAP reports that 14 Pacific Island economies received US$62B million official develop ment assistance between them in 1988.

Although it was less than half of Bangladesh’s total, the islands get more aid than almost everywhere else in comparison with the size of their popu

lations and economies.

That reflects a dangerous dependency on aid for most of the Pacific islands, except for some like Nauru, and Fiji, which have reasonable sources of export income. The report says censeriously, “For many of the Pacific Island econom ies aid accounts for 20 per cent or more of their GNP, with the figures rising to 70 and even 100 per cent in some cases.

Per capita aid receipts similarly reach above USS2,OOO a year in some cases.”

In line with current theories in international financial institutions, ESCAP recommends restraining expen ditures and increasing savings, and

making public enterprises more efficient.

Its report holds up PNG and the Solomons for their success in coping with their budget deficits. In PNG, “Successsive governments have estab lished a tradition of sound economic management which has resulted in a steady, if small, growth in incomes, a low

Pacific Islands Monthly Aid needed: Road damaged by Cyclone Ofa in Western Samoa

rates of inflation, a stable monetary environment and a sustained level of debt service,” ESCAP says. In the Solomon Islands, the overall budget deficit had “almost tripled between 1985 and 1987” but “some improvements were made in 1988 and 1989.”

In Vanuatu, the government has not balanced its budget, albeit by severely tightening, budgets for sectors like educa tion and health, and by domestic bor

rowing.

But its call for “appropriate financial policies, ... measures for widening and deepening of sound financial markets, institutions and instruments may encour age household savings”, may not be appropriate for some of the smaller nations. In 1987, Kiribati and Palau each depended on aid for 109 per cent of their government expenditure.

And in many Pacific countries, the government sector plays a disproportionately large role in the economies. The island governments have had to cope with providing essential services for a fast growing population, which has been developing the habit of urban living. To finance it, they have had to reply on economies which are small and isolated and which have narrow output and export bases.

The report concludes by calling for forpns of aid which contribute towards self reliance. ESCAP adds: “The cur rently known resource base of many Pacific Islands is so limited that aid dependency will be a long term reality, notwithstanding the efforts' already un dertaken or planned.” But the bad news is that “The Pacific Island economies

should prepare themselves for a further reduction in ODA” (Overseas Development Assistance).

In a s i m ij ar ve i n , the United Nations

Development Programme, which has

commitments of some SSO million in aid in its current cycle, it trying to make its programmes more sensitive to the recipients’ needs. It has regular roundtable talks between a government and its donors, and this is holding for Tonga, Tuvalu and the Marshalls. “For these meetings, countries are supposed to

present their development programmes and investment proposals to the donors like UNDP, the World Bank and Asian Development Bank and individual donor countries. This year we are putting more effort to make these meetings part of the indigenous government’s efforts to co ordinate its plans,” a UNDP official told Pacific Islands Monthly , making it less of a donor driven effort than in the past. But it leaves the question unanswered can the islands give up aid without painful economic withdrawal symptoms? □