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PIC Political instability and poor economic performance: the dialogue gaps Islands Business Month 2011

28/03/2012

[The East West Centre recently organized a “State of the Pacific Dialogue” between ambassadors,  academics, representatives of multilateral organisations in Honolulu, and a few former politicians from Fiji.  While most discussions were off the record, this presentation by Professor Wadan Narsey, given recently also to the USP School of Economics Seminar Series, was spared that limitation.]

Poor economic performances

Two facts stand out about the economic performance of the Pacific Island countries over the last three decades. First,  the simple average growth rate of major PICs has seldom been above 3%, far inferior to that of relatively successful similar island countries like Mauritius. Of course, this performance is also way below that of China and India.  Second,  when individual countries are examined through the lens of 5 year averages, they all show long wasted periods of well below 3% economic growth, with growth sometimes being negative.

PNG has had many years of poor growth but its recent growth and future prospects are extremely good, especially with massive investments taking place in LNG and minerals.  With extremely buoyant government revenues evident, PNG is set to become a major player, especially in the Melanesian Spearhead grouping.

Solomon Islands has had long periods of very poor performance.

Fiji’s performance has been on a long-term down trend for two decades.

Much of the poor performance of PICs may be attributed to the inability of political parties and leaders to co-operate in the governance of their countries and economies leading to loss of investor confidence.  There are unstable governments due to shifting alliances, bad economic policies, lack of accountability of governments, and political and legal developments that destroy investor confidence.

 

The inevitable outcome was low savings and investment ratios as a percentage of GDP (the example of Fiji was explained in detail).

The economic challenges

Major challenges for PICs were outlined: lack of gainful employment creation while population growth, school drop-outs and push-outs were creating unemployment time bombs (especially in the Melanesian countries); emigration of skilled persons, totally inadequate infrastructure (roads, water, sewerage, communications, hospitals, schools) with little hope of adequate government funds being available given poor economic growth (except now in PNG).

The presentation outlined a number of possible strategies that PIC governments could  attempt: investment in WTO-compatible (especially service) industries, elimination of inefficient monopolies (government and private); removal of  unjustifiable and inefficient protectionism; export of unskilled labor, and  efficient, honest  and accountable civil service.

The political challenges

A major ongoing problem was the lack of neutral and constructive dialogue spaces within PICs themselves, between the PICs and with and amongst donors operating in the PICs.

Within the PICs, there were poor governance structures: unsophisticated electorates not electing educated experienced leaders who could lead their peoples into the 21st century; parliaments dominated by unelected traditional leaders not selecting the best elected leaders for government positions (recent case of Tonga); political leaders enriching themselves at the expense of tax-payers; and the virtual absence of internal dialogue spaces where constructive debate on important national policy priorities could take place.

Regionally, the expulsion of Fiji from Forum has had the unintended effect of some countries feeling that Australia and NZ exercised an unhealthy influence in that dialogue space, leading the MSG to be seen as an alternative dialogue space.  Should Australia and NZ withdraw from that arena for specific issues which PICs felt they needed their own dialogue space?

The presentation pointed to the need for greater donor co-ordination on a number of fronts with transparency and accountability, on development issues and political dialogue.

Anomalous absence of China from EWC meeting

 

China's incredible growth

Professor Narsey’s presentation pointed out that it was a major anomaly that China and India were not present at the East West Centre dialogue, when they were increasingly major players in the world and world institutions (IMF, WB, WTO) and the Pacific.

Indeed, any study of the recent economic performance and current economic strength of the major donors in the Pacific makes clear that China, despite its own low per capita income, was in the strongest economic position (with massive foreign reserves) to assist PICs on a number of fronts requiring substantial loans and investments, especially for PIC infrastructure.

It is also quite an interesting phenomena in the international aid industry, that China is a major international donor, despite the fact that its GDP per capita is a mere tenth of the developed countries.

Yet China is relatively poor compared to other super-powers

Yet, despite the reality that China had single-handedly rescued the West from their recent Global Financial Crisis, China was still seen as a threat in the west, and “demonized” even in the Pacific, in contrast to other similar powers and donors in the Pacific.

Small PICs totally un-influential in global politics and economy, should  remember that just three decades ago, Japan was similarly feared as an imperial power extracting raw materials from the Pacific, and  purchasing large tracts of property.

PICs should also learn from history that in the decades after World War II, when United States emerged as the world’s creditor, large American investments flowing to Europe where they took over European enterprises also led to the Europeans fearing the US, often derogatively referred to as “Ugly Americans”.

The global benefits of super-powers

We need to understand that all empires grow but eventually wane but their enhancements in knowledge, technology, and eventually their enterprises, all diffuse to other countries, as they have done recently to China, India and Brazil.

Today, Ford, Hoover, IBM, Daimlers, Volvos,  Toyota, Sony, Toshiba are all household names, contributing to improvements in standards of living throughout the globe.

Similarly, the benefits of the economic boom in China and India will also eventually pass on to the rest of the world, with their new brand names also to become household names.

 

The challenge for PICs is how we manage our relationships with allPowers for the good of the PIC peoples, in a transparent and accountable way.

 

Need to incorporate China into Pacific Dialogues

 

China offers special benefits to PICs, such as soft loans for infrastructure development, which other traditional donors will find it difficult to match.

 

China was not present at the meeting in the EWC, and some traditional donors stated that they had their “own understandings” with China.  But PICs are not privy to these “own understandings”.

 

PIC governments can also have their “own understandings” with China, which may equally be less than transparent, and not necessarily in the interests of PIC peoples.

 

The challenge for all PICs and all Donors is to have transparent and accountable relationships with each other in neutral dialogues spaces.

 

The East West Centre was one dialogue space.

 

The University of the South Pacific, owned by 12 Pacific countries themselves, could be another, very neutral dialogue space.

 

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