2003 September

Country Report September 2003

Tonga

September 2003

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Contents

2 Summary

The region

3 Outlook for 2003-04 4 The political scene 5 Economic policy and the domestic economy

Tonga

6 Political structure

7 Economic structure 7 Annual indicators 8 Quarterly indicators

9 Outlook for 2003-04

10 The political scene

12 Economic policy

12 The domestic economy

List of figures

8 Foreign trade 8 Consumer prices 10 Gross domestic product 10 Consumer price inflation

Country Report September 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 2

Summary September 2003

The region

Outlook for 2003-04 Political instability and economic weakness will continue to hinder the development of the Pacific island nations, although there are hopes that greater Australian involvement in the region will provide fresh impetus to efforts aimed at dealing with some of the islands’ many problems.

The political scene In a surprise development, Greg Urwin, an Australian former diplomat, has been appointed secretary-general designate of the Pacific Islands Forum (PIF). He will be the first non-Pacific islander to hold the post.

Economic policy and the The prospect of a Pacific Economic and Political Community has raised interest domestic economy in the ideas of a regional single currency, and of Pacific Islanders being given greater rights to work in Australia. Tourist arrivals are set to rise in the second half of 2003. However, increased competition could spell trouble for some of the islands’ own airlines.

Tonga

Outlook for 2003-04 Repeated attempts to curb media freedom will do little to improve the government’s international reputation, and calls for a democratic monarchy are likely to intensify.

The political scene A controversial bill exempting royal ordinances from judicial review has been dropped, although another bill to curb media freedom is in the pipeline.

Economic policy and the The government is pressing ahead with its privatisation plans, and proposed domestic economy tax reforms have been released for public consultation.

Editors: Kate Allard (editor); Graham Richardson (consulting editor) Editorial closing date: August 29th 2003 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

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The region

Outlook for 2003-04

Instability and poor governance Political instability and economic weakness will continue to hinder the will hinder development development of the Pacific island nations. Poverty, racial tensions, law-and- order problems and poor governance are rife in countries such as the Solomon Islands, Vanuatu and Fiji, and will deter much-needed foreign investment. The significant differences between the islands make generalisations difficult. However, overpopulation, environmental degradation, corruption, weak or non-existent growth, vulnerability to periodic cyclone damage and a proliferation of small arms mean that many island governments are finding it increasingly difficult to protect and provide for the most disadvantaged sections of their populations. The Economist Intelligence Unit remains pessimistic about the ability of existing governments in the region to address these issues.

Greater Australian engagement Concern about instability in the region has increased since the bombing in Bali, raises hopes of progress Indonesia, in 2002 and, more recently, the bombing of a hotel in the Indonesian capital, Jakarta. This has led the Australian government, in particular, to take far more interest in the affairs of the small island states, amid fears that the breakdown of their political systems could lead to infiltration by terrorists. There are hopes that greater Australian involvement in the region, as demonstrated by the country’s newfound willingness to intervene directly to prevent the Solomon Islands from descending further into lawlessness, will provide fresh impetus to efforts to deal with some of the islands’ many problems. The Australian prime minister, John Howard, has already spoken of his belief that the island nations should pool their limited resources to provide essential services, such as policing and air travel, and he has gone as far as to suggest that they could form a federal government. The appointment of an Australian diplomat as head of the main regional body, the Pacific Islands Forum (PIF), is likely to lead to further debate on such proposals, which are not without merit. However, the success of Australia’s greater engagement will depend in part on how sensitively the Australian government pushes such issues, as any heavy- handedness is likely to be poorly received by island governments anxious not to cede any sovereignty. Indeed, while island governments gave their blessing to the Australian-led intervention in the Solomon Islands, many politicians expressed fears of an Australian takeover in the region, suggesting that the action had lowered the bar to direct intervention and could lead Australia to intervene more readily in other troublespots. This would appear unlikely, given that the levels of lawlessness and social collapse in the Solomons are so much more serious than elsewhere. However, intervention in other island troublespots cannot be ruled out, should there be a sudden flare-up in one of the other island nations.

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The island nations will depend The support of aid donors and financial institutions will be critical to the heavily on foreign aid development of the Pacific island nations, which for the most part lack the resources to extricate themselves from their current predicaments. The Asian Development Bank (ADB) and the UN Development Programme (UNDP) will continue to provide financial and technical support for a broad range of projects and initiatives. Substantial funds will also be made available to Pacific island nations over the next few years under the Cotonou Agreement, an accord signed in June 2000 to succeed the Lomé Convention in setting out relations between the EU and the 78 African, Caribbean and Pacific (ACP) states. These funds will be channelled into projects in areas such as fisheries, tourism, investment and trade facilitation. Many of the island nations will also benefit from funding and expertise via the donor programmes of Australia and New Zealand, both of which have experience in peacekeeping and strong links with many island communities through large expatriate populations. However, aid donors can only work through conventional channels, funding projects for capacity building, rewarding efforts to improve transparency and accountability, and advocating greater fiscal discipline, private-sector development and the facilitation of foreign investment. Any progress is, therefore, likely to be slow. Moreover, there is concern that aid is feeding a culture of dependency and blunting the incentive for structural reform. Financial aid is thus likely to become increasingly conditional on the achieve- ment by recipient counties of tangible progress in areas such as law and order, standards of governance and the reform of bloated public sectors.

The political scene

An Australian has been In a surprise development and a break with tradition, Greg Urwin, an appointed as secretary-general Australian and a former high commissioner to Fiji, Samoa and Vanuatu, was appointed secretary-general designate of the Pacific Islands Forum (PIF) at the organisation’s annual summit in mid-August. Mr Urwin will replace Noel Levi, from Papua New Guinea, who has already served two terms (under PIF rules tenure is limited to two three-year terms). The post of secretary-general, the top regional position, has always been filled by a Pacific islander, and the leaders of some of the smaller PIF member states, including Nauru and the Cook Islands, were unhappy at the aggressiveness of Australian lobbying for their candidate. Indeed, at one point the sub-group of six small island nations (comprising the Marshall Islands, the Cook Islands, Kiribati, Tuvalu, Nauru and Niue) appeared to veto Mr Urwin’s appointment, suspicious of Australia’s motives in seeking the top position in the organisation. However, Mr Urwin, who is married to a Samoan, was finally appointed in a secret ballot. It remains to be seen whether differences of opinion on his appointment, which takes effect in January 2004, will reduce his effectiveness as secretary-general!although he has dismissed suggestions that he is “John Howard’s man”.

Summit hints at further areas The appointment of a new secretary-general of the PIF is likely to lead to a of co-operation review of the direction of the organisation and a re-assessment of the range of issues on which the 16 PIF members co-operate. The issues discussed during the recent PIF annual summit in Auckland give an indication of the future direction

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of debate. Central to the agenda were issues such as pooled regional governance, greater co-operation on regional air transport, security and cross- border crime and the role of foreign aid, as well as the perennial issues of climate change and the impact of globalisation and trade liberalisation on small island economies. One concrete measure agreed at the summit was the creation of a new regional police training centre, which will be based in Fiji. The initiative, to be sponsored by Australia and New Zealand, will see several hundred police officers from the Pacific islands receive training at the centre each year in an effort to improve policing skills and standards across the region.

Economic policy and the domestic economy

A single currency and labour Although not part of the summit agenda, the prospect of a Pacific Economic mobility would be contentious and Political Community, comprising the 13 island states together with Papua New Guinea, Australia and New Zealand, was hotly debated. The idea, proposed in a recent report by the Australian Senate’s Standing Committee on Foreign Affairs, Defence and trade Reference, included the possibility of a single currency within the region, based on the Australian dollar, and greater labour mobility, giving Pacific islanders increased rights to work in Australia. The ideas were coolly received by Mr Howard, Alexander Downer (the Australian foreign minister) and Michael Cullen (the New Zealand finance minister), as well as by most Pacific island leaders, with the chief concern being the possible undermining of the island states’ independence.

Tourist arrivals set to recover Heightened global uncertainty before and during the US-led war in Iraq, in the second half of 2003 together with the outbreak of Severe Acute Respiratory Syndrome (SARS) in Asia, inevitably persuaded many tourists to stay at home in early 2003; the destinations most dependent on Japanese tourists were worst hit. However, the impact on tourist arrivals was not as severe as had been feared, and there were some signs of recovery towards the end of the second quarter. Bookings to most Pacific destinations are expected to pick up in the second half of the year, with the Pacific island nations, for the most part, continuing to be viewed as low-risk in terms of terrorism. Tourism in several of the island nations will receive a further boost when Virgin Blue, which operates low-cost, no-frills domestic flights in Australia, launches new services to several leading island destinations, such as Fiji and Vanuatu, later this year. However, there are fears that the increased competition and lower fares resulting from Virgin Blue’s entry into the market could spell further trouble for the islands’ own airlines, many of which are already struggling to survive.

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Tonga

Political structure

Official name Kingdom of Tonga

Form of state Constitutional monarchy, in which the monarch retains significant power

The executive The king appoints a cabinet, led by a prime minister, comprising the governors of Ha’apai and Vava’u and ministers of the crown; ministers are appointed permanently until retirement age

Head of state King Taufa’ahau Tupou IV

National legislature Unicameral Legislative Assembly with limited powers, comprising the speaker, the cabinet (appointed by the king), nine nobles chosen by the 33 nobles of Tonga, and nine representatives elected by all Tongans aged 21 and over; three of the representatives are elected from Tongatapu, one each from Niuatoputatu and Niuafa’ou, two from Ha’apai and two from Vava’u; the nobles are chosen to represent similar areas

Legal system Modelled on the English system, with the Privy Council (consisting of the cabinet presided over by the king) sitting as the Court of Appeal

National elections March 7th 2002; the next election is due by March 2005

Main political organisation Tonga Human Rights and Democracy Movement (HRDM, formerly the People’s Party)

Prime minister, minister of agriculture, fisheries & forestry, communications & civil aviation, foreign affairs & defence Prince ’Ulukalala Lavaka Ata Deputy prime minister, minister for environment, marines & ports, & minister for works Cecil Cocker

Key ministers Education Paula Bloomfield Finance Siosiua ’Utoikamanu Health Viliami Ta’u Tangi Justice & attorney-general Aisea Taumoepeau Labour, commerce & industry, tourism Masaso Paunga Lands, survey & natural resources Honourable Fielakepa Police, fire services, prisons & immigration Clive Edwards

Governor of Ha’apai Honourable Malupo

Governor of Vava’u Honourable Tuita

Governor of the National Reserve Bank Siosiua ’Utoikamanu

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Economic structure

Annual indicators 1998a 1999a 2000a 2001a 2002a GDP at current prices (T$ m)b 219 237 261 277 n/a Real GDP growth (av; %)bc 2.4 2.9 6.5 0.5 1.6 Consumer price inflation (av; %)d 3.2 4.9 5.9 8.4 10.3 Population ('000)b 98.4 98.7 99.1 99.4 n/a Exports fob (US$ m)b 7.6 12.0 8.9 n/a n/a Imports fob (US$ m)b 68.7 72.8 70.0 n/a n/a Current-account balance (US$ m)bc -18 -1 -10 -13 7 Reserves excl gold (US$ m)d 28.7 26.8 27.0 26.1 27.7 Total external debt (US$ m)e 64.9 69.1 65.5 63.4 n/a Debt-service ratio, paid (%)e n/a n/a n/a 2.8 n/a Exchange rate (av; T$:US$)d 1.49 1.60 1.76 2.12 2.20 a Actual. b Asian Development Bank. c Fiscal year ending June 30th. d IMF, International Financial Statistics. e World Bank, Global Development Finance.

Main origins of gross domestic product 2001ab % of total Agriculture 25.9 Mining 0.4 Manufacturing 5.3 Electricity, gas & water 2.0 Construction 6.6 Trade 13.6 Transport & communications 8.3 Finance 10.1 Public administration & other 23.3

Principal exports fob 2001c T$ m Principal imports cif 2001c T$ m Squash 7.1 Food, beverages & tobacco 47.7 Fish 2.8 Fuels, minerals and chemicals 38.2 Root crops 2.1 Machinery & transport equipment 22.4

Main destinations of exports 2001a % of total Main origins of imports 2001a % of total Japan 42.3 New Zealand 32.6 US 39.9 Fiji 21.8 New Zealand 5.5 Australia 10.4 Australia 2.0 US 7.7 Fiji 1.8 Japan 4.7 a Asian Development Bank. b Fiscal year ending June 30th. c National Reserve Bank of Tonga.

Quarterly indicators 2001 2002 2003 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Prices Consumer prices (1995=100) 128.3 132.0 136.2 139.3 141.9 144.8 150.8 154.1 Consumer prices (% change, year on year) 6.7 8.3 10.5 10.5 10.6 9.7 10.7 10.6 Financial indicators Exchange rate T$:US$ (av) 2.108 2.172 2.198 2.190 2.159 2.199 2.233 2.191 Exchange rate T$:US$ (end-period) 2.151 2.230 2.207 2.172 2.153 2.238 2.229 2.190 Deposit rate (av; %) 5.47 5.47 5.47 5.47 5.47 5.47 5.47 5.5 Lending rate (av; %) 10.45 14.68 10.28 10.22 10.35 10.12 15.04 10.2 M1 (end-period; T$'000) 32,998 34,275 41,744 38,856 42,365 40,797 55,103 41,757 M1 (% change, year on year) 18.3 8.7 26.2 30.0 28.4 19.0 32.0 7.5 M2 (end-period; T$'000) 124,083 134,975 140,249 132,752 132,833 136,419 151,197 134,175 M2 (% change, year on year) 25.9 15.5 14.9 12.7 7.1 1.1 7.8 1.1 Foreign trade (T$'000) Exports foba n/a 2,900 9,400 2,000 3,600 8,900 n/a n/a Imports fob n/a -44,900 -45,300 -44,200 -55,900 -50,000 n/a n/a Trade balance n/a -42,000 -35,900 -42,200 -52,300 -41,100 n/a n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 23.92 23.33 26.10 20.20 24.69 20.57 27.70 23.43 a Includes re-exports. Source: IMF, International Financial Statistics.

Outlook for 2003-04

Pressure for a democratic The government, led by Prince ’Ulukalala Lavaka Ata, the prime minister and monarchy will grow younger son of King Taufa’ahau Tupou IV, will come under increasing pressure to match ongoing economic reform with political reform. Repeated attempts to curb media freedom will do nothing to improve the government’s international reputation, already tarnished by continued legal wranglings in the US to recover US$20m lost from the Tonga Trust Fund through mismanagement and possibly fraud. The monarchy will also continue to be criticised over the preferential treatment proffered to senior members of the royal family, such as Crown Prince Tupoutu’a and his sister, Princess Tuita, who have acquired controlling interests in a number of profitable local companies. The continued excesses of the royal family serve only to strengthen the cause of the opposition Human Rights and Democracy Movement (HRDM). It argues that many of the country’s problems stem from the undemocratic nature of the Tongan constitution and governmental institutions, and is calling for the implementation of a “democratic monarchy”. The leader of the HRDM, ’Akilisi Pohiva, warns that failure to implement political reform and curb royal privilege could trigger an uprising. This seems unlikely, given the culture of acceptance among the majority of Tongans and the respect they have for the ailing king in particular. However, Crown Prince Tupoutu’a will not be held in the same regard when he accedes to the throne, and reformists are hoping to use the transition to a new monarch as an opportunity to push forward their demands for political reform.

Progress on economic reform A stagnant economy, high inflation and a sizeable budget deficit are some of will be slow the many reasons why the government needs to pursue its programme of economic and public-sector reform resolutely. Another major reason for doing so is to deny the HRDM a further reason to criticise it. However, the Public Finance Management Act!intended to help the government work towards a balanced budget in fiscal year 2004/05 (July-June)!has had a patchy start, and the target of fiscal balance appears well beyond reach. Further privatisations are on the cards, as the government tries to focus public spending on core areas! although such efforts sit uncomfortably with spending blowouts in other areas, such as the continued financing of Royal Tongan Airlines’ hugely unprofitable Boeing-757, leased from Brunei last December. The government plans to introduce a comprehensive tax reform programme in 2004. However, the package, which foresees an exemption from personal income tax for low- income earners, will be difficult for the cash-strapped government to implement fully. The outlook for the tourism industry is improving, although prospects could be blighted by the possible demise of the national carrier, Royal Tongan Airlines. Periodic cyclones mean that earnings from agriculture will remain volatile and that dependence on substantial foreign aid and expatriate remittances (which make a crucial contribution to the Tongan economy) will continue. Unemployment will be exacerbated by the rationalisation of the civil service,

but it is the high level of unemployment among the young that is most worrying in the longer term.

The economy will continue to Economic growth has averaged a below-trend 1% in the past two years, underperform although growth is likely to pick up in 2003-04, provided that the government maintains its commitment to economic reform. The continuing weakness of the Tongan dollar, together with strong credit expansion and the government’s loose fiscal stance, will contribute to keeping inflation high, at around 10%, in 2003. However, inflation is expected to ease in 2004.

The political scene

Attempts to clamp down on Despite domestic and international pressure the government has attempted, the media continue with mixed success, to press ahead with a raft of constitutional amendments designed to increase the king’s already considerable power. Chief among the controversial bills was one exempting royal ordinances from judicial review, which was widely seen as the government’s latest attempt to ban the pro- democracy newspaper, the Times of Tonga. This follows repeated attempts by the Privy Council, which is presided over by the king and his cabinet, to outlaw the paper, which is published in Auckland, New Zealand, by the exiled Kalafi Moala. Each attempt to ban the paper has been overturned by the Tongan Supreme Court, which ruled the action illegal and unconstitutional, and the chief justice, Gordon Ward, had threatened the entire cabinet with contempt of court unless the latest ban was lifted. The bill, fiercely opposed by Tonga’s pro-democracy movement and condemned internationally, was quietly dropped in mid-July. The bi-weekly Times of Tonga, whose distribution was delayed for over two months because of the repeated bans, finally appeared on news stands in mid- June. Flown in from Auckland, 2,000 copies, selling at half price, sold out within two hours. However, opposition members of parliament (MPs) fear that the paper’s future availability in Tonga could still be jeopardised by the passage of the overseas media operators bill at the end of July. Pro-democracy campaigners fear that the new law, which restricts foreign ownership of media

organisations in the kingdom to 20%, could be used to deny Mr Moala, who holds US citizenship, a new import licence for his paper when the current one expires. Opposition MPs allege that the government took advantage of the fact that a number of pro-democracy MPs were abroad to pass the bill.

Proposed media restrictions In a further attempted clampdown, the government is planning a bill which are widely condemned abroad the pro-democracy movement fears will severely curb media freedom. The proposed bill gives the government the right to restrict reports considered to threaten the national interest, to be harmful to the royal family or to run contrary to the cultural traditions of the kingdom. Such legislation would constitute another setback for Mr Moala and Tonga’s pro-democracy politicians, who see political reform as crucial, not just in terms of fostering independent media and protecting political dissidents, but as a precondition for economic reform and prosperity. The proposed legislation has drawn stiff criticism from Australia and New Zealand in particular: Phil Goff, New Zealand’s foreign minister, has said that the bill may violate the Commonwealth’s Harare Declaration on Human Rights, while the prime minister of New Zealand, Helen Clark, has warned that Tonga could face suspension from the Commonwealth if such a bill were enacted. However, Mr Goff has so far resisted calls for firm action in protest at the proposed law, a policy underlined by the New Zealand cabinet’s decision to approve a visit to Tonga by the governor-general of New Zealand, Dame Silvia Cartwright, to attend celebrations marking the King’s 85th birthday on July 4th. New Zealand is also continuing with its bilateral aid programme to the kingdom (see The domestic economy).

Two important court rulings The latest in a series of victories for the pro-democracy movement came in late go against the government July, when the Court of Appeal dismissed two appeals lodged by the government against various people associated with the Times of Tonga. In the first case, the court upheld a Supreme Court judgement that Mr Moala, Akilisi Pohavia, the leader of the opposition Human Rights and Democracy Movement (HRDM), and Filokalafi Akauola, the paper’s assistant editor, had been wrongfully imprisoned for 26 days in 1996 for “contempt of parliament”. The court held that the charges were without foundation and that their imprisonment was a clear breach of their constitutional rights. The three men had contributed to an article that appeared in the paper about the impending impeachment of a Tongan cabinet minister who had attended the Olympic Games in Atlanta without permission. The second appeal dismissed by the Court of Appeal was the government’s latest effort to overturn the ruling that the ban on the sale of the Times of Tonga was unlawful. In both cases the damages awarded against the government were substantial. These and similar recent rulings have further impaired the credibility of the government and have given added momentum to the “democratic monarchy” reform proposals of the HRDM. Under this wide-ranging reform, all members of a lower house of parliament would be elected by the people; the nobles would elect representatives to a new upper house; the king’s power to veto legislation would be severely reduced; and parliament would have a fixed term, so that the king could not dissolve parliament on a whim.

Tonga joins peacekeeping The kingdom remains keen to play a role on the international stage. Following forces in the Solomon Islands its support for the US-led war in Iraq, Tonga has joined the Organisation for the Prohibition of Chemical Weapons (OPCW), the Hague-based group that aims to eliminate all chemical weapons by 2007. Closer to home, the government is sending 38 soldiers from the Tongan Defence Force (which numbers only 430 in total) to join the Australian-led peacekeeping force sent to the Solomon Islands to help restore law and order there.

Economic policy

The government presses ahead As part of the ongoing Public Enterprise Reform Programme (PERP), the finance with privatisation plans minister, Siosiua ‘Utoikamanu, has announced the start of a comprehensive assessment to establish which current government activities would be best undertaken by the private sector. The programme has already seen the sale of shares in Sea Star Fishing Company Ltd, and other privatisations planned for fiscal year 2003/04 (July-June) include Leiola Duty Free, Tonga Investments Limited (and its subsidiaries), and the disposal of a 10% stake in Tongan Communications. The government also plans to transform the post office into a corporate entity with the management structure of a commercial organisation.

Proposed tax reforms are Tax reforms put forward by the finance ministry have been released for public announced consultation before final recommendations are made to the government. The changes under consideration are the raising of tax-free thresholds for personal income from T$2,500 (around US$1,100) to T$5,000, the replacement of different corporate tax rates for resident and non-resident companies with a single, lower 20% rate, and the abolition of customs duties ranging from zero to 525% in favour of a single 10% levy on most imports. To reduce the tax system’s dependence on import levies, it is proposed that the current 5% sales tax should be increased in two stages to 15%, to be levied on all imported goods as well as on goods and services produced locally by firms with an annual turnover of more than T$1m (US$450,000).

The domestic economy

A mid-year review of fiscal The finance ministry has released an economic and budget review covering the year 2002/03 is published first half of fiscal year 2002/03 (July-June). According to the review, the economy was on track to expand by a real 2.5% in 2002/03, thanks to increased production of squash, vanilla and root crops. However, the fish catch was severely dented by unfavourable conditions linked to the El Niño weather system. The budget deficit for the first half of the fiscal year was just T$100,000 (US$45,000), although tax revenue and grants totalled T$43.8m (US$20m), only 42% of total budgeted revenue for 2002/03, and the government has acknow- ledged that revenue collection needs to be improved. However, at T$43.9m, expenditure was slightly under budget (this figure includes T$2m to pay for unsubscribed shares in the national carrier, Royal Tongan Airlines, previously offered to the Tongan public under the Public Enterprise Reform Programme).

Tourism improved in the period covered by the review, helped by the weak exchange rate, with total arrivals by air increasing to 20,234, a 9% rise year on year. However, the future of Royal Tongan Airlines is in doubt following the failure of the airline’s “two seats for the price of one” offer to drum up business. The airline, which operates a single Boeing 757 aircraft, has run up high losses in the past few years.

Inflation continued to rise in The latest figures show that the year-on-year inflation rate has risen from an the second quarter of 2003 average of 10.2% in the second half of 2002 to 10.8% in April 2003 and 11.7% in May, reflecting price increases in goods such as tobacco, alcohol and kava and the impact of the steady depreciation in the value of the Tongan currency, the pa’anga, against the New Zealand and Australian dollars (an important factor in an economy so dependent on imports). Meanwhile, official foreign reserves had fallen to T$37.5m by the end of April 2003 (equivalent to 2.2 months of import cover), but their level was still up by T$11.2m year on year.

New Zealand and Australia Despite the present controversy regarding the government’s latest proposals to offer additional aid restrict the media, the New Zealand government has confirmed that Tonga will receive an estimated NZ$5.6m (US$3.3m) in bilateral funding in 2003/04, to be channelled into areas such as education and training, the development of the outer islands, public-sector reform and private-sector development. During Dame Silvia Cartwright’s recent visit to Tonga, the New Zealand governor- general presented the final NZ$500,000 (US$295,000) instalment of an estimated NZ$8m that NZAid, the New Zealand government’s development agency, has given over the last 30 years to fund a forestry programme. The tropical pine and cedar project on the reef island of ‘Eau will from now on be run on a commercial basis. For its part, the Australian government has built the fourth of five planned power stations on Haafeva island, as part of its Haiapai Outer Islands Project. The power station, constructed with a T$6.4m donation from AusAID, the Australian government’s development agency, will provide electricity for five islands. Residents have previously relied mainly on kerosene lamps, but will now be able to use electrical appliances such as refrigerators.