Lessons from the 80s
p. 49 · Read in the full issue
IN its first report focussing on the South Pacific, the World Bank has highlighted poor economic growth and criticised island states for
failing to foster enough private development.
The report, Toward Higher Growth in Pacific Island Economies: Lessons from the 1980 s, says South Pacific economies have been sluggish mainly because island governments lack ap propriate policies to stimulate productive private enterprise and attract foreign invest ment.
It examined six island nations Fiji, Vanuatu, Solomon Islands, Tonga, Western Samoa and Kiribati which are all members of the World Bank.
As a group, they had an average growth rate in real GNP of only 0.6 per cent per annum during 1980 88. At the same time, their
populations grew 2 per cent each year leading to a significant decline in per capita income. This disappointing economic performance was despite some record injections of foreign aid. It also sharply contrasts with the more than 5 per cent GNP growth in comparable island nations in the Caribbean and the nearly 7 per cent growth of the Indian Ocean islands of Maldives and Mauritius.
“Comparisons with the more dynamic island economies of the Caribbean and Indian Ocean indicates that among the (South Pacific island states), there has been an inability to stimulate private investment in productive sectors,” the reports says.
Circulating in government circles since earlier this year, the South Pacific report coincides with the release of a major international review by the World Bank of development throughout the Third World.
Both reports stress the theme that development can only be sustained by bolstering capitalism a reflection of the United States-backed policy of focussing more resources on private production and trade and encouraging the sale of state-owned businesses to corporations and individuals as the best way to alleviate global poverty.
“The key to resumption of sustained economic growth,” it says, is for governments to facilitate “the private sector’s search for profitable niches in domestic and world markets.”
Given the weak outlook for commodities, the Pacific Islands urgently need to develop new sources of growth.
So far, Fiji has been the most successful in diversifying its export base by reviving tourism in the wake of two military coups and expanding its manufactured exports. Tonga has also had some success diversifying its small export base.
But “no substantial export diversification or expansion has occurred elsewhere,” the report says.
Despite the Bank’s obvious disappointment with the region’s economic performance, it notes that the Pacific Islands have achieved “relatively high living standards in the face of many constraints.”
For instance, Fiji, Tonga and Western Samoa have life expectancy rates (66 70 years) near that for industrialised nations and higher than the average for Asian countries.
Those nations also enjoy high basic literacy rates, modern transport and communications and access to qualified medical staff.
The picture is not so rosy for the Melanesian nations, Vanuatu and Solomon Islands, where infant mortality rates are high and life expectancy low. A large part of their adult
population remains illiterate; only half the people have access to safe water and intestinal diseases and malaria are endemic.
But all nations enjoy “moderately high standards of living” with “quite high levels of income compared to other developing countries.”
In part, however, this is due to the medical and educational infrastructure established “dur ing the colonial period, rather than through recent economic development.”
As the biggest lender to the Third World, the World Bank has been under pressure from the US, its largest stockholder, to do more for private business.
Owned by 155 countries, its main goal is to increase production in poorer areas of the world.
The US administration believes that encourag ing private business is the best remedy.
The Bank’s emphasis on free markets has been protested by the Overseas Development Council, a private study group in Washington. “True development (is) ... improving the well being of men, women and children around the world, sustaining the environment on which rich and poor depend,” said John Sewell, president of the council.
The World Bank says island states need to continue their emphasis on building basic infrastructure and developing human resources through education and training. But it says development has been stunted by government policies that have been too inward-looking.
“In choosing key sectors, Governments have not been able to pick industries with bright futures. Protection from foreign competition has contributed to high-cost local economies unable to compete on the world marketplace. Investments in infrastructure (largely financed by foreign assistance) have not made a substantial contribution to growth,” it says.
“State enterprises have been a burden on public finances.
Growth of a dynamic private sector has been stifled by over regulation. Potential foreign investors have set up operations in other countries where the environment is more conducive to doing business.”
Among other things the report recommends “serving the rigid link between wages and the cost of living”, shifting toward more indirect taxation and selling off non-viable public enterprises.
It also suggests that aid donor should re-order their priorities including channeling some resources through the commercial financial system to stimulate the private sector.
“Further improvements in social indicators will depend upon what can be achieved in broad-based, more rapid growth,” the report says.
And such growth is possible. The World Bank says all six countries “have the potential for more rapid growth on a sustainable basis”. Solomon Islands and Vanuatu must first overcome pressing budget problems before they are able to better exploit their rich endowment of resources. As well, population growth is excessive.
But Fiji is already surging ahead. Tonga and Western Samoa both have the capacity for 3-4 per cent annual growth and “even Kiribati, with “fisheries resource and competent labour force, can attain enduring growth,” it says.
The report is based on a World Bank mission to the region in November 1989 with follow-up missions last year. □
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