Letters To The Editor

Cooks situation not as negative

Dear Madam, The February issue of PIM included an article entitled ‘Cooks situation likely to worsen in 1998’. I am not going to suggest that the Cooks Islands has not had, and does not have, financial problems but I am equally sure that if somebody was asked to write as negative an article as they possi bly could on the Cook Islands economy, that article would take the prize.

For many of the years after it became a self-governing nation in 1965, the Cook Islands government was sustained by large dollars of aid particularly from New Zealand. About a decade ago that aid began to decline but the civil service con tinued to expand. In 1987 the democratic government launched into an ambitious project to build a large Sheraton Hotel.

However, the Italian construction compa ny which was meant to build the hotel became insolvent having been paid DMSI million of loan monies from the Italian lending bank although this expenditure bore no relation to the value of the work actually completed. The project continued to be fraught with problems. Most of those problems the Cook Islands government had no control over. The project finally ground to a halt near the end of 1993.

The debt arising from the ill-fated hotel project is under negotiation with the Italian authorities and, with the disputed sum amounting to NZ$9O million (SUS4Bm) (not NZ$l2O million as stated in the story), it makes up the bulk of government debt.

In respect to the remaining government debt, being about NZ$B3 million (USs4sm), Standard & Poors have noted that although the amount of debt is high the interest rate burden on the bulk of those debts is relatively low. Furthermore, gov ernment is, and has for some time now, been paying its debts when they fall due while, at the same time, reducing historic debt. Standard & Poors predict a stable outlook and improved rating for the Cook Islands in the future, as long as it can pro duce a balanced budget as it has done.

In 1996 the Cook Islands government, with the assistance of the Asian Development Bank, launched its economic reform programme. Restructuring the pub lic sector was quickly identified as a mea

sure to reduce spending and improve effi ciency. Accordingly, the public service has been downsized by two-thirds and redun dant workers have shifted to private employment. Standard & Poors on this matter remarked, “Until last year, 44 per cent of the workforce were civil servants, a number that has since fallen by half as a result of fiscal austerity.” Yet, remarkably, output appears to have grown as redundant workers shifted to private employment.

In May of 1996, a new Public Service Act was passed vesting in the heads of ministries discretion over the appointment of their staff. Prior to this, the appointment of public servants was highly centralised.

In July of 1996, the Ministry of Finance and Economic Management (MFEM Act) was put in place. This imposed new responsibilities on government to be fis cally responsible. It made heads of min istries responsible for their own staff. The Ministry of Works Environment and Physical Planning was closed, not because government had run out of money as the article implies, but because that ministry had spent its allocated budget. The tempta tion for government was to close the min istry but to prop it up notwithstanding it had overspent. It refused to do this. While one or two ministries had trouble living within their means the great majority did not and the new system whereby heads of ministries are left to get on with the job without outside interference has over

whelming support.

The MFEM Act also requires three year budget forecasting and increases the reporting requirements and accountability to the public for the expenditure of monies.

Also in July 1996 the Public Expenditure Review Committee and Audit Act passed.

The Act created an independent ‘watch dog’ committee which scrutinises public expenditure and the management of public money, and is designed to hold every ser vant of the crown and the politicians them selves accountable for the expenditure and management of public monies. Already, it has proved itself to be no paper tiger.

In addition to improving accountability to the public, government has also sought to improve the level of consultation with the public about major policy decisions. It set up a National Development Council made up representatives from the Chamber of Commerce, non-govemment organisa

tions, traditional leaders, religious adviso ry council and other community bodies.

The Cooks Islands government is possibly the only government in the world that cir culates to an organisation representing the community, copies of its draft budget for comment. In addition two national retreats have been held where a large number of people have been invited to formulate pro posals for government action, resolutions have been made and government has instructed ministries to take appropriate steps for their implementation.

In September 1996, a Development Investment Board manned by people from the private sector was established to pro mote trade, investment and business in the Cook Islands. While overall policy direc tion remains the responsibility of cabinet, the board is responsible for determining the merits of individual cases. In June 1997, a goods and services type of tax, similar to that which operates in New Zealand, was introduced. Simultaneously, a new income tax regime was brought in which lowered rates of taxation and pro vided a number of incentives for those wishing to invest in the country. For exam ple, the Act provides that from income before tax can be deducted a 100 percent allowance for depreciation on newly

acquired assets.

There is no doubt the privatisation and asset sales programme has not moved for ward as speedily as government would have wished. However, it is quite mislead ing to describe it as ‘disastrous’ as the arti cle did. Prior to the reform process govern ment held a monopoly on the importation of liquor. This was reversed when the industry was deregulated and the govern ment owned liquor store was sold. Less than two years into the reform implemen tation not only the liquor store but also the Aitutaki Lagoon Resort Hotel, the

Rarotongan Hotel, Government Printing

Services, Government Computer Services and government’s controlling share in Telecom have all been sold. Meanwhile television and radio broadcasting, rubbish collection and a myriad of other functions have been privatised. The privatisation and sale of more state functions and public

assets is currently being negotiated.

In respect to the Rarotongan there was no cash upfront offer of NZ$5 million (SUS2.7m) as the article claimed and gov

emment has no regrets disposing of a hotel which was costing taxpayers more than half a million dollars a year to maintain.

To assess the reform programme the Cook Islands government invited respect ed international credit agency, Standard & Poors, to give an appraisal of the country’s economic performance and reform pro gramme thus far. Although Standard & Poors acknowledged the existence of vul nerable financial position, it says the long term outlook for the Cook Islands is stable.

Reform measures such as fiscal disci pline and transparency, private sector led growth, reduction in spending, selling of assets and public service restructuring have been endorsed by Standard & Poors.

The only evidence I know of ‘Cooks situation likely to worsen in 1998’ is Air New Zealand’s decision to temporarily use 767 s rather than 747 s to fly into Rarotonga thus reducing passenger loading and hence the number of tourists, and the possibility the ‘Asian crisis’ may, by its impact on New Zealand, reduce the number of tourists from that country visiting here.

Standard & Poors do not occur with the view that things are likely to worsen and I think most will take more cognisance vis a vis the economy of the views of some of the world’s best economists than they will of the article which does little credit to the publishers of a reputable magazine.

Brian Mason

Deputy Chief of Staff Office of Prime Minister Government of the Cooks Islands