The Pacific paradox

Opinion

Forum faces task of overcoming barriers to economic growth

Four years have passed since the World Bank pro duced its report on island economies that intro duced the phrase “The Pacific Paradox” into the regional lexicon. It defined it as follows: “Virtually no growth occurred in real per capita income dur ing the last decade or so despite a favourable natural and human resource endowment, high levels of aid and reason ably prudent economic management.”

It posed the question why the Pacific island countries were per forming so badly compared to similar states in the Caribbean and Indian Ocean, which had the same disadvantages of small internal markets, narrow production bases, high infrastructure costs, heavy dependence on foreign trade and tourism and vulnerability to exter nal shocks and natural disasters.

It is a situation that has long worried New Zealand and Australia, who more than any other nations want to see their Pacific neigh bours achieve sustainable economic growth and higher living stan dards. While there has been no dramatic turnaround in their eco nomic fortunes since the World Bank report in 1993 - and indeed some setbacks - it would not be true to say no progress has been made. In fact, there is considerable evidence that the island states who previously tended to put economic reform in the too hard bas ket - now recognise what they have to do. They may not all be ready to bite the bullet, but at least they have taken it out of the box and are thinking about sharpening their teeth.

As I have previously noted, South Pacific Forum leaders took a big step forward at Majuro last year, holding an extended debate on the issues and acknowledging the need for moves in the direction of tariff reform, investment transparency and the development of a vibrant private sector. The Forum’s task this year is to follow that up with an action plan and formal work programme on the mea sures needed to overcome the barriers to economic growth and chart the course to sustainable development.

It is without doubt the single most important issue facing the island states and as we move towards the coming Pacific Century time is running out for action not words - for real progress not rhetoric. The island countries of the Pacific are at a crossroads. To put it bluntly, they either stay as they are and accept increasing

irrelevance in the new global economy or embrace change and play a full and active role in the community of nations.

As the World Bank said; “Development of the small and scat tered economies can come about only through effective economic engagement with the rest of the world.” This requires not just acknowledging that the days of high tariffs, import protection, cos seted public services and other out-dated practices of an inward looking society are over. It also requires a positive commitment to create nations and a region that are vital integral parts of the

increasingly competitive international economy.

The stakes are high for present and future Pacific generations prosperity and pride or poverty and economic oblivion. The Majuro Forum having set the scene, the island states now have the oppor tunity to put 1997 into the history books as the year they launched into action. Take-off should come in a couple of months when Forum Economic Ministers meet for the first time, in accordance with a decision by their leaders at Majuro. This gathering, which follows meetings of Finance Ministers in the last two years, is charged with drawing up a framework for policy change and an action plan to put before leaders when they meet again in Rarotonga later this year. Its importance cannot be overestimated. The minis ters will have a wide-ranging brief to discuss just about every aspect of policy affecting their economies. The issues on their agen da will not be new. By now, politicians and officials of all the island states will be familiar with topics like public sector reform, privati sation, taxation, investment and tariff policy. But for the first time, ministers with responsibility for all these areas will sit down togeth er with the common objective of drawing up national and regional strategies to put all the threads together into one coherent whole.

Their overall aim; To define the basic social and economic infrastructure they need to put in place to ensure that a small Pacific island economy is viable and sustainable in the long term.

It will not be easy because the ministers know already - from New Zealand’s reforms over the last decade and more recently from the Cook Islands’ experience - that the process of change is bound to be painful and politically unpalatable. In addition, the ministers will have to consider regional responses to external developments, including the rapid changes taking place in the world economy.

New trading arrangements under the World Trade Organisation, the far-reaching liberalisation programme of the Asia Pacific Economic Co-operation forum and the European Union’s review of the current Lome Convention which expires in 2000, will all affect the island states, no matter how small their economies. The bottom line is the need for every country to live within its means and be as self-reliant as possible. It will all take time and nobody expects miracles overnight. But the now apparent general acceptance of the need to do something about the region’s over-protected economies and to make them work better is one of the most significant devel opments in the Pacific for many years. It can truly be said that there is now cause for optimism. ■ • Regular columns by Debbie Singh and Jemima Garrett have been not included this month due to unforeseen circumstances.

David Barber

Wellington