bitter pill

Economy

A

for Vanuatu

By Patrick Decloitre

The results of an Australian-funded sur vey about Vanuatu have been received in the island state with mixed feelings.

The most sensitive points of the recom mendations are the local currency’s devaluation and the copra industry.

A team from the National Centre for Development Studies at Australian National University presented its survey, Pacific 2010, and strategies for Vanuatu in November.

The Pacific 2010 project, which seeks to draw attention to issues relating to sub stantial growth in populations in Melanesian states, looks at Vanuatu, the Solomons Islands, Papua New Guinea and Fiji.

The team, which included Rodney Cole ( Director of Islands/Australian pro gramme at NCOS) and Michael Grey (Development Economics Advisor at Australia’s International Development Assistance Bureau (AIDAB)), spent over a week in Port Vila holding a series of talks and presenting Pacific 2010 strate gies for Vanuatu to a wide range of offi cials. Ministers, members of the Opposition and representatives of the business community were invited to attend.

What they heard was not a pleasant tale.

In an attractive, professionally presented “show”, Cole and Grey painted a bleak picture of the future of Vanuatu: a popu lation that will double by 2010, hence an expected fall in Gross Domestic Product per capita (which was already at a low of about US$l2OO per year per head in 1990). The capital’s population, they projected, will also be different in

15 years: from 22,000 now, to 80,000.

And as population increases by 2010, so too will the number of ni-Vanuatu look ing for jobs.

Purely from these population-related fig ures and extrapolations, the project designers explained the impact of this on the nation’s infrastructure, such as schools, hospitals, water supply as they come under increasing pressure.

In order to increase the country’s GDP, its economy has to be improved and the number of jobs has to be increased accordingly.

The recommendations are similar to those expressed by another expert, John Fallon, in his report, The Vanuatu Economy.

Among other issues touched upon in both reports are Vanuatu’s relatively high costs - for labour, electricity and telecommunications. “Strategies must reduce Vanuatu’s costs and make them relative to international costs,” The Vanuatu Economy says.

The recommendations include a reduc tion of the minimum wage (currently about US$l3O per month), a leaner pub lic service, an investment in education, a major tax reform which involves intro ducing income tax, the devaluation of the vatu to make Vanuatu products competitive on the international market and an end to subsidies paid to local copra producers. In a word, a full liber alization of the Vanuatu economy.

The last three recommendations have created the most controversy, as the leaders and officials concerned grasped their full implications.

The tax reform project, which has

already been drafted by Australian tax expert Neil Warren, had triggered con cern at the Vanuatu Finance Center. The center said this would discourage new investment and “harshly hit” the tourism and retail sectors.

Vanuatu Prime Minister Maxime Carlot had to quell mounting rumours that an income tax would soon be introduced in what has so far been a tax haven.Tm totally against it and I ask all men of good faith not to listen to those for eigners propagating the rumours,”

Carlot said in Parliament.

“Our government accepted the princi ple of these reforms, but this does not mean it will implement every single recommendation,” he said.

Similarly, after the Pacific 2010 team left, rumours of a possible devaluation of the vatu were rife, leading to con cern in the banking system. Carlot had to again make a statement defusing a potential financial crisis. “In the past few days, a number of traders have speculated against the vatu.This specu lation consists of exchanging the funds in vatu to Australian or American dol lars. This speculation is based on a rumour which arose following a semi nar recently organised with the help of some lecturers from a university in Australia. ... I want to say clearly that a devaluation of the vatu is totally not jus tified,” Carlot told parliament.

Part of the recommendations also touched on the sensitive issue of world prices for copra. The commodity is cur rently subsidised by the STABEX fund from the European Union. The aim of the fund is to subsidise prices paid to local producers in order to protect them from price fluctuations on the world market. The ANU study and The Vanuatu Economy report recommend seeking other cash crops and gradually moving away from copra.

There were strong reactions from copra industry officials and, at a higher level, from the Minister of Economic Affairs, Serge Vohor, who said copra played a significant part in Vanuatu economy and should not to be

dropped.

The Pacific 2010 team, on its first visit to one of the countries surveyed, has made a significant impact. But it remains to be seen whether it was real ly a constructive study, and how it will be accepted if, in future, governments choose to implement some of its rec ommendations. ■