Structural reform-a prickly

Opinion

Structural reform-a prickly nettle for Pacific countries

David Barber

Wellington

There would never, of course, have been a right time for Asia’s financial and economic crisis to occur. For Pacific Island countries, strug gling to come to terms with the need for radi cal reform of their fragile economies, the timing was cer tainly awry.

Asia, including Japan, takes up to 80 per cent of some of the island states’ exports. It was the fastest-growing source region for tourists. If you exclude Australia’s massive assistance to Papua New Guinea, Japan is the Pacific’s biggest aid donor. Korea has already cut back its aid projects in Fiji and closed its International Cooperation Agency’s Port Moresby office.

Asian firms have substantial investments in logging, fisheries, agriculture, tourism, banking and property developments in sever al Pacific Island countries - investments that could be jeopardised as money gets tighter and they look for greater security closer to home.

Depending how the situation, particularly in Japan, settles down - and at the time of writing this is far from clear - the poten tial impact on the island economies is enormous.

It will certainly be well to the fore in the minds of South Pacific Forum Economic Ministers when they meet in Nadi next month and their leaders when they gather in Pohnpei later in the year.

The Asian crisis occurred at a time the island states, who left eco nomic reform in the “too hard” basket for far too long, had begun to grasp what is for them a particularly prickly nettle. Structural reform can never be achieved without pain and social dislocation, as New Zealand well knows.

It is to the credit of the Forum leaders that they had embarked on a process of change that while politically and socially difficult, is crucial to their countries’ survival in an increasingly complex and tough global economy. They recognised that the days of high tariffs, import protection, feather-bedded public services and other anachronistic practices were over and they had to take their peo ples into the real, if cruelly competitive, world if they were to give them a 21st Century quality of life and standard of living.

But to achieve this they need time and understanding. New Zealand and Australia, acutely aware that sustainable economic growth in the Pacific and regional security are in their interests, were prepared to give them these while encouraging change.

No one, least of all the Australasian nations who themselves had become increasingly dependent on Asian markets, tourists and investment, bargained on the regional financial domino col lapse which began with the Thai baht last July. The more vulner able island states already had enough to deal with. The Solomon Islands certainly could not afford to lose its log exports which accounted for more than a third of government revenue and half of foreign exchange - nor could Papua New Guinea, already suf fering a prolonged drought and falling gold and copper prices.

Fiji could ill afford the 90 per cent fall in Korean tourism and 20 per cent drop in Japanese tourist numbers which hit early this year or the increased threat from cheaper Asian goods to its cloth ing sector which represented 23 per cent of exports. Vanuatu cer tainly didn’t need the impact on its already limited exports of beef and timber. The island economies were already struggling. As the recent United Nations Economic and Social Survey of Asia and the Pacific noted, only Samoa and the Solomons exceeded 3 per cent growth in 1996 and 1997 and most were well below that.

New Zealand statistics highlight their problem. Total exports to New Zealand from 25 Pacific states and territories slumped nearly 40 per cent last year, only Fiji (up 14 per cent) and the Solomons (up 23 per cent) showing any increase on 1996, apart from minor sales by New Caledonia, the Northern Mariana Islands and Pitcairn. Sales to New Zealand from the entire region came to only SNZ9I.S million, the lowest figure in more than a decade. Reasons for the collapse are varied, but the pattern demonstrated the difficulties the islands have in developing viable and sustainable economies, able to compete in international com merce as New Zealand and Australia drop their tariffs against imports from the rest of the world.

Forum Economic Ministers, who drew up a framework for change and an ambitious action plan when they met in Cairns last year, will have a number of reports to contemplate in Nadi. They include a wide-ranging one by the Forum Secretariat on the prospects of a free trade agreement, one looking at intra-regional trade among the Forum Island Countries themselves and another at trading arrangements with the French Pacific territories.

They will consider studies on tariff reduction and changes in tax systems. They recognise they have to move away from a high tariff system - e.g. Tonga still has import duties of 45 to 60 per cent- and will have to move, like Samoa, towards other means of raising revenue, such as a GST. As far as trade with New Zealand and Australia is concerned, SPARTECA has probably gone about as far as it can go.

Looking further afield, the Lome agreement with the European Union is up for re-negotiation and Fiji, in particular, wants con tinued access for its sugar. But if the ministers want to lift their exports they could start by looking closer to home. Only 2 per cent of their total exports go to other Pacific island countries and some of their highest tariff barriers are against each other. ■