reforms finally

Economic reforms finally a reality

With severe financial crises in the Cook Islands, Nauru and Chuk in the Federated States of Micronesia, and letters of credit scams in the Cooks, Vanuatu and the Marshall Islands, 1996 has not been a good year for Pacific Island Countries. But the news was not all bad on the financial and eco nomic front.

There were, in fact, some encouraging signs that global winds of change are being felt in the Islands and that real, if tentative, moves towards long overdue economic reforms are at last under way.

This year’s South Pacific Forum meet ing in Majuro indicated a greater aware ness of the part of all Pacific Island lead ers that they have to bite the reform bullet sooner rather than later if their nations are to survive in the increasingly competitive

global economy.

They may be understandably reluctant because there are some very tough and painful decisions to be made but, simply put, they have no alternative. There is less international aid money around and the strings attached to it in the shape of “help for those who help themselves” are get

ting tighter. International organisations

such as the World Bank, Asian Development Bank and International Monetary Fund are increasingly demand ing that the price of continued aid is will ingness to shoulder the burden of reform and move backward economies in the direction of the 21st Century. The European Union, which gives the Pacific more aid on a per capita basis than Africa and the Caribbean Island states, is taking a long hard look at the Lome Convention, whose current programmes expire in the Year 2000.

And trade margins of preference like those offered by the SPARTECA agree ment, which once offered a comfort zone, are dwindling as New Zealand and

Australia move in the global free trade direction.

High tariffs, import protection, bloated public services and the like all belong to a bygone age. The world lias moved on and the Pacific can no longer remain immune from the trends of reform, as painful as they may be. New Zealand is well aware of the pain ahead for the tiny Island states, having endured a decade of reform itself after recognising that it could not go on living beyond its means in the illusion of a South Pacific paradise untouched by global economic progress.

For much of that decade the Island states ignored what was happening on their doorstep, despite the very clear writ ing on the wall. Even at last year’s Forum in Madang, their leaders spent only about 10 minutes discussing economic reform.

It was a different story this year at Majuro, with an extended debate on the issues and clear recognition of the need for tariff reform, investment transparency and the development of a vibrant private sector. The latter will inevitably require privatisation of state assets and reducing the size and cost of the public service (often the only large employer), a bullet only tiny Niue, Western Samoa and now the Cook Islands have really bitten on so far. The Forum leaders acknowledged the need to “respond to global economic changes (for example WTO and APEC developments) and in particular increas ing trade liberalisation, which will pro

gressively make preferential trading

arrangements (including SPARTECA)

and the Lome Convention) less relevant”.

Acknowledging that economic reform and development are “so important for the future benefit of their peoples”, Forum leaders agreed their economic and finance ministers should meet annually from the next year “to cover the breadth of economic issues”.

Wellington

David

Barber

They will report to the Forum, ensur ing that economic trends remain high on the leaders’ future agendas - as they must if the momentum to reform is to be maintained. One of the most encourag ing signs is the readiness of some Island countries, including Papua New Guinea, the Solomon Islands and Vanuatu, to fol low Fiji in joining the World Trade

Organisation.

There will be huge compliance costs - PICs cannot join the WTO while main

taining their existing high tariff struc

ture, which is well out of kilter with the global trend towards lower import duties. This won’t be easy, for govern ment revenue in most Island states depends on import taxes. But the New Zealand experience has shown that, to lift international competitiveness and encourage exports, it is necessary to reduce import protection. There is no alternative. The fact is protected indus tries are not competitive and high tariffs are a disincentive to foreign investors.

PNG showed the way - and the size of the task - this year, cutting import duties on products like canned mackerel from 100 per cent to 55 per cent and pork and barracuda from 75 per cent to 40 per cent. It has agreed on a five-year time frame to cut 40 per cent protective duties on cement, beef and lamb as part of its WTO membership deal. Economic reform does not begin and end with cut ting tariffs, of course. Even harder deci sions lie ahead - like taxation. The PlCgovemments will, at some time in the future, have to look at increasing their revenue from sources other than import duties. This will inevitably involve more consideration of controver sial consumption taxes.

There are no illusions in Wellington of the scope of the problem. With the exception of Papua New Guinea and Fiji, if managed really well, there are proba bly no PICs that could be self-sustaining without foreign aid and overseas remit tances. But there is much they can do to improve their economies, given the political will and the ability to explain the need for change to their peoples.

Hopefully, 1996 will go down as an historic turning point in the tortuous path towards economic reform throughout the Pacific. ■