Country Report

Fiji

June 2004

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Contents

Fiji

2 Summary 2 The region

The region

3 Outlook for 2004-05 4 The political scene 5 Economic policy and the domestic economy

7 Political structure

8 Economic structure 8 Annual indicators 9 Quarterly indicators

10 Outlook for 2004-05

12 The political scene

14 Economic policy

15 The domestic economy

17 Foreign trade and payments

List of figures

11 Fiji: gross domestic product 11 Fiji: consumer price inflation

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Fiji June 2004 Summary

Outlook for 2004-05 Tense relations between the prime minister, Laisenia Qarase, and the leader of the Indian-dominated Fiji Labour Party, Mahendra Chaudhry, will continue to mar the political outlook. More trials related to the 2000 coup could re-ignite nationalist sentiment, and strong investor confidence could easily evaporate. Visitor arrivals in 2004 are expected to break the record set in 2003.

The political scene Political tensions have delayed progress on plans to rescue the ailing sugar industry and land lease reform. Concern is growing about the failing health of the elderly president and whether the vice-president will be in a position to succeed him.

Economic policy A delegation from Fiji has appeared before the World Trade Organisation’s dispute panel to contest challenges to subsidies on sugar exports to the EU. A parliamentary select committee on sugar has been established. The Reserve Bank of Fiji (the central bank) lifted the official interest rate from 1.25% to 1.75% in May.

The domestic economy Heavy rains have damaged crops and infrastructure. The textile sector is seeks the renewal of preferential trade terms with Australia. Tourist arrivals rose strongly in the first quarter of 2004.

The region

Outlook for 2004-05 Pacific island governments are under mounting pressure to increase their anti- terrorism efforts. Despite their many problems, most island economies are forecast to expand in 2004. Financial aid will remain crucial. The prospects for the regional tourism industry are bright.

The political scene A meeting of the Pacific Islands Forum (PIF, the main political organisation in the region) in April resulted in agreement on a “Pacific Plan”. But apart from a mandate empowering the PIF secretary-general to initiate a speedy response to a crisis, the plan does little more than reaffirm existing priorities.

Economic policy and the Tourism is growing steadily, although the performance of airlines in the region domestic economy has been mixed. Kava producers have been lobbying for the ban on kava exports to Europe to be lifted. Trade officials have met to discuss implementation of the Pacific Agreement on Closer Economic Relations. Editors: Kate Allard (editor); Graham Richardson (consulting editor) Editorial closing date: June 15th 2004 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 2004-05

Pressure mounts for anti- Pacific island governments are under mounting pressure from countries such as terrorism action Australia and the US to increase their anti-terrorism efforts, amid fears that an island nation could fall victim to an attack similar to the night-club bombing in Bali, Indonesia, in October 2002. The Fiji-based Pacific Islands Forum (PIF, the main political organisation in the region) is co-ordinating the creation of a regional network of crime-fighting agencies intended to thwart the entry into the region of international criminal organisations that could serve as platforms for supporting international terrorism. The PIF’s 16 member governments (from 14 Melanesian, Polynesian and Micronesian independent states, together with New Zealand and Australia) have given the PIF secretariat fresh policy directives to enable it to respond more quickly and effectively when dealing with regional emergencies and to boost economic co-operation between members.

Most island economies will Whereas the Solomon Islands, devastated by communal violence and expand in 2004 corruption, have been helped on the road to recovery by an Australian-led intervention force, the small, once wealthy phosphate-mining state of Nauru is now reduced to penury as a result of the squandering by its political leaders of investment assets valued at more than A$2bn (US$1.5bn). Depopulation caused by migration means that the Cook Islands and Niue face severe labour shortages, while the collapse of Tonga’s national airline in April, with admitted losses of around US$10m, poses a significant risk to an already fragile economy. According to a report by the Economic and Social Commission for Asia and the Pacific (ESCAP), many island governments are struggling to face up to and deal with rising poverty in the region and the impact of a steady erosion in traditional systems of social support. Nevertheless, all six countries (Fiji, Papua New Guinea, Samoa, Solomon Islands, Tonga and Vanuatu) covered by ESCAP reported stronger economic growth rates in 2003 than in 2002, and most of the region’s main economies will expand further in 2004. ESCAP will follow the Asian Development Bank (ADB) by shifting its regional office from Vanuatu to Fiji.

Financial aid will remain Island governments are now resigned to the fact that future flows of aid will be crucial conditional on the implementation of reforms to their governmental and economic systems. In addition, having previously been reluctant to recognise the threat, the island governments are preparing to fight the creeping advance of HIV/AIDS into their region. Australia is doubling its annual economic aid to the region, with most of the extra money allocated to improving governance and rehabilitating the economy in the Solomon Islands, as well as improving the law-and-order situation and governance in Papua New Guinea (PNG). Funds also include A$20m (US$15m) over four years for the development in Fiji of a regional police academy to train 900 police personnel a year. However, an Australian think-tank, the Australian Strategic Policy Institute, stated in its

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annual assessment of the region that the Australian government should ask hard questions about the long-term viability of some Pacific island nations as independent states.

The prospects for the tourism Riding on perceptions of the region as being one of safety, peace and freedom industry are generally bright from Severe Acute Respiratory Syndrome (SARS), the regional tourism industry is enjoying something of a boom, and important new resort/hotel projects under way in Fiji, the Cook Islands, French Polynesia and Samoa will boost capacity significantly. By the end of 2004 rival island destinations will be able to analyse the impact on their respective tourism industries of the introduction of cut-price flights from Australia and New Zealand. Concern is growing about greatly reduced tuna catches in Fiji, Tonga and Samoa. Intense debate on the cause of the slump!climate change, overfishing, still little-understood natural weather and ocean-temperature cycles, or a combination of all of these!will continue.

The political scene

There are few surprises in the A meeting of the PIF’s 16 government leaders in Auckland, New Zealand in PIF’s new “Pacific Plan” April agreed on a “Pacific Plan” to achieve closer political and economic co-operation between PIF members and to intensify the efforts of the Fiji-based PIF secretariat in implementing leaders’ wishes. For the first time the PIF secretary-general, currently an Australian former diplomat, Greg Urwin, has the authority, in consultation with the incumbent PIF chair, to call meetings of leaders or foreign ministers for speedy action in dealing with a crisis. The Auckland meeting was convened by the New Zealand prime minister, Helen Clark, to discuss suggested reforms to PIF. Before the meeting, comments from Ms Clark and some regional officials hinted that the PIF could be turned into an EU-style institution, although the idea was quickly dismissed by several island leaders as premature and probably unworkable given the region’s huge geographic spread, the small size and weakness of most of the island economies, scant resources, and barriers such as high transport and energy costs and cultural differences. Apart from a mandate empowering the secretary-general to initiate a speedy response to a crisis!a move influenced by the near-collapse last year of the Solomon Islands!the Pacific Plan does little more than reaffirm existing PIF priorities and instruct the secretariat to become more active in executing them. Key goals are as before: to promote economic growth, sustainable development, good governance and security. Mr Urwin, whose arrival in January 2004 as secretary-general was a breath of fresh air for an organisation rendered somewhat stagnant under the former leadership, was instructed to report to the annual PIF meeting in Apia, Samoa, in August with ideas for implementing the plan. Australia is to increase its annual contribution to the PIF budget by A$1m, and New Zealand will also raise its contribution. However, Mr Urwin is not expected to create new departments or add greatly, if at all, to a staff of around 70; he will instead strengthen horizontal links across the secretariat’s divisions.

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His objective is to inspire the secretariat to be more vigorous in identifying, anticipating and preparing the PIF to deal with breaking regional emergencies. PIF membership is restricted to independent states, but the organisation has conferred observer status on New Caledonia, as the French territory is moving towards eventual independence. However, overtures from French Polynesia for observer status have been rejected, since it is considered to be a long way from independence.

Most Pacific states will meet a In May Ms Clark convened and chaired a three-day meeting at which regional deadline for port security rules officials discussed how international terrorism could affect the Pacific Islands. Ms Clark suggested that the region could fall victim to an attack similar to that of the night-club bombing in Bali in October 2002, or could be exploited as a base from which terrorist cells could prepare for attacks elsewhere. Most Pacific island nations will be ready to meet compulsory new International Maritime Organisation port security rules as required from July 1st 2004. From January 2006 Pacific airports and airlines that ignore new cargo security rules will have their aircraft barred from airports in the US, Australia and New Zealand.

Economic policy and the domestic economy

Tourism in the region is Tourism, now the largest foreign-exchange earner for the majority of Pacific growing steadily island economies, is growing steadily. Most tourist destinations did well in 2003, according to figures issued by the South Pacific Tourism Organisation (SPTO), which represents 12 national tourist offices. Although fears aroused by SARS, terrorism and the Iraq war cut world tourist arrivals by 1.2% in 2003, the number of visitors to the Pacific Islands rose by 6.3%, with growth averaging 10.3% year on year in the second half of 2003. According to the SPTO, the region benefited from the perception that the Pacific Islands were safer and more relaxing destinations than many others. Cai Jinbiao, China’s ambassador to Fiji, has said that Fiji, Vanuatu and French Polynesia would be added to his government’s list of countries approved as destinations for Chinese tourists by the end of 2004.

The performance of airlines in Fiji in particular is feeling the benefit of lower fares introduced by Air New the region is mixed Zealand for travel to all its Pacific island destinations, as well as “no-frills” flights begun initially to Fiji by its subsidiary, Freedom Air. Pacific Blue, an offshoot of an Australian low-cost airline, Virgin Blue, will begin flights to Fiji and Vanuatu in September, and has New Caledonia in its sights. However, some other regional airlines are in financial difficulties. The Kiribati government has cancelled the lease of an ATR-72 propjet operated for six months by Air Kiribati at a loss of A$8m. The Samoan government is to inject more cash into its national carrier, Polynesian Airlines, and after the collapse in April of Royal Tongan Airlines, the prime minister, Prince ‘Ulukalala Lavaka Ata, who was the Tongan national carrier’s chairman, said that urgent attention should be given to the idea of a regional airline. A regional airline and shipping transport study will be tabled at the PIF annual meeting in Apia in August, while the ADB has said that it will organise a study of the region’s air and sea transport problems.

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Kava producers want a ban on A PIF and EU-sponsored mission of kava exporters returned to Fiji to report that exports to Europe to be lifted Germany had agreed to reconsider a ban on kava imports imposed two years ago. The ban halted kava exports to the EU, at an annual loss to exporters in Vanuatu, Samoa and Fiji of more than US$30m. The mission said that German authorities were prepared to examine whether claims that kava-based pharmaceutical preparations caused severe liver disease and other compli- cations were based on misleading and inaccurate medical reports.

Trade officials meet to discuss Regional trade officials and ministers met in PNG in April to approve a regional the implementation of PACER trade facilitation programme covering customs, quarantine, and standards and conformance rules needed for the implementation of the Pacific Agreement on Closer Economic Relations (PACER), which came into force in October 2002. PACER requires the progressive lowering of tariffs and the removal of other trade barriers between island state signatories. A formal memorandum of understanding between member countries has yet to be signed.

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Political structure

Official name Republic of Fiji Islands

Form of state Parliamentary

The executive The president, appointed by the Great Council of Chiefs (Bose Levu Vakaturaga), appoints the prime minister, who selects the cabinet

Head of state The president, Ratu Josefa Iloilo

National legislature Bicameral parliament comprising an appointed upper house, the Senate (32 members), and an elected lower house, the House of Representatives (71 members). The 1997 constitution prevented the dominance of parliament by indigenous Fijians and abolished the requirement that the prime minister be an indigenous Fijian. There is universal suffrage for all citizens aged over 21. Voting is compulsory and preferential

Regional government Local administration is on a divisional basis, with separate councils for urban areas. There is a separate local government system for the indigenous Fijian population

Legal system Magistrates’ courts, High Court and Court of Appeal, presided over by the Supreme Court

National elections August 25th-September 1st 2001; the next election is due by 2006

Main political parties Soqosoqo Duavata ni Lewenivanua (SDL, People’s Unity Party); Fiji Labour Party (FLP); Matanitu Vanua (MV, Conservative Alliance); National Labour Unity Party (NLUP); National Federation Party (NFP); United General Party (UGP)

National government On September 10th 2002 Laisenia Qarase, the leader of the SDL, was appointed prime minister. The cabinet comprises 15 SDL members, two from the MV, two from the NLUP and one independent. In defiance of the constitution, Mr Qarase named a cabinet that did not include any members of the FLP. In July 2003 the Supreme Court upheld the contention of the FLP leader, Mahendra Chaudhry, that his party was constitutionally entitled to cabinet seats. A further ruling on the issue will be handed down later in 2004

Prime minister & minister for Fijian affairs Laisenia Qarase

Key ministers Agriculture, sugar & land resettlement Jonetani Galuinadi Commerce, business development & investment Tomasi Vuetil ovoni Education Ro Teimumu Kepa Finance & national planning Ratu Jone Kubuabola Foreign affairs & external trade Kaliopate Tavola Home affairs & immigration Joketani Cokanasiga Labour, industrial relations & productivity Kenneth Zinck Lands & mineral resources Ratu Naiqama Lalabalavu Multi-ethnic affairs George Shiu Raj National reconciliation, information & media Simione Kaitani Public enterprises & public-sector reform Irami Matairavula Tourism, culture, heritage & civil aviation Konisi Yabaki Women, social welfare & poverty alleviation Adi Asenaca Caucau Central bank governor Savenaca Narube

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Economic structure

Annual indicators 1999a 2000a 2001a 2002a 2003b GDP at current prices (F$ m; at factor cost)c 3,137 3,071 3,300 3,463 n/a Real GDP growth (av; %)c 9.6 -3.2 3.0 4.1 5.0 Consumer price inflation (av; %)c 0.2 3.0 2.3 1.6 4.2a Population (m)c 0.81 0.81 0.82 0.83 n/a Exports fob (US$ m)d 609 584 538 546 n/a Imports cif (US$ m)d 903 825 794 893 n/a Current-account balance (US$ m)d -72 -90 -56 n/a n/a Reserves excl gold (US$ m)e 428.7 411.8 366.4 358.8 423.6a Total external debt (US$ m)f 235.6 208.7 188.1 n/a n/a Debt-service ratio, paid (%)f 3.5 2.7 2.0 n/a n/a Exchange rate (av; F$:US$)e 1.970 2.129 2.277 2.187 1.896a a Actual. b Economist Intelligence Unit estimates. c Reserve Bank of Fiji, Quarterly Review. d Asian Development Bank. e IMF, International Financial Statistics. f World Bank, Global Development Finance.

Origins of gross domestic product 2002a % of total Components of gross domestic product 2001b % of total Agriculture, forestry & fishing 16.1 Private consumption 57.0 Mining & quarrying 2.5 Government consumption 17.1 Manufacturing 15.6 Fixed investment 14.5 Construction 4.3 Stockbuilding 1.0 Electricity & water 4.4 Exports of goods & services 55.7 Transport & communications 13.6 Imports of goods & services -60.7 Wholesale & retail trade, restaurants & hotels 19.5 Statistical discrepancy 15.4 Other services 24.0

Principal exports 2003a F$ m Principal imports 2003a F$ m Garments 252.7 Machinery & transport equipment 664.4 Sugar 230.7 Manufactured goods 440.8 Fish 85.0 Food 332.5 Gold 76.5 Mineral fuels 325.0 Timber 33.2 Miscellaneous manufactured articles 228.6

Main destinations of exports 2003a % of total Main origins of imports 2003a % of total Australia 26.5 Australia 34.6 US 18.1 New Zealand 17.3 UK 14.6 Singapore 10.7 Pacific Islands 10.0 Japan 4.9 New Zealand 4.5 US 3.6 a Reserve Bank of Fiji, Quarterly Review. b Asian Development Bank.

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Quarterly indicators 2002 2003 2004 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Government finance (F$ m) Total revenue & grants 331.8 258.9 n/a n/a n/a n/a n/a n/a Expenditure 352.8 350.7 n/a n/a n/a n/a n/a n/a Balance -20.7 -91.7 n/a n/a n/a n/a n/a n/a Prices Consumer prices (1993=100) 126.0 125.1 125.5 130.1 131.2 130.5 131.6 133.0 Consumer prices (% change, year on year) 0.9 0.8 0.3 3.4 4.1 4.3 4.9 2.2 Financial indicators . Exchange rate F$:US$ (av) 2.185 2.152 2.117 2.004 1.915 1.883 1.782 1.699 Exchange rate F$:US$ (end-period) 2.115 2.164 2.065 1.992 1.873 1.842 1.722 1.722 Bank (end-period; %) 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 Deposit (av; %) 0.62 0.57 0.56 0.57 0.52 0.48 0.47 0.44 Lending (av; %) 8.14 8.02 7.87 7.82 7.63 7.57 7.38 7.34 Money market (av; %) 1.00 0.83 0.85 0.87 0.79 0.99 0.80 0.80 Treasury bill (av; %) 1.70 1.68 1.56 1.23 0.55 1.25 1.22 1.19 M1 (end-period; F$ m) 661.2 681.7 712.0 843.1 744.9 763.3 900.6 743.8 M1 (% change, year on year) 10.6 14.5 14.7 31.7 12.7 12.0 26.5 -11.8 M2 (end-period; F$ m) 1,523.7 1,548.8 1,582.6 1,727.9 1,683.5 1,815.5 1,981.1 1,833.2 M2 (% change, year on year) 3.9 5.7 7.9 15.3 10.5 17.2 25.2 6.1 Sectoral trends Sugar exports (‘000 tonnes) 32.3 102.8 135.8 26.0 34.7 79.1 134.0 26.0 Tourism, visitor arrivals (‘000) 95 115 100 86 101 130 114 105 Tourism, length of stay (av; days) 8.4 9.0 8.5 8.5 8.6 9.1 8.5 n/a Tourism, gross earnings (F$ m) 130.3 174.0 139.0 124.1 139.3 205.4 153.3 n/a Foreign trade (F$ m) Exports foba 266.5 345.4 367.1 223.5 343.4 302.7 403.5 216.7 Imports cif -484.0 -507.5 -581.5 -467.8 -725.8 -501.2 -519.8 -490.8 Trade balance -217.5 -162.1 -214.4 -244.3 -382.4 -198.5 -116.3 -274.1 Foreign reserves (US$ m) Reserves excl gold (end-period) 358.0 356.2 358.8 332.2 372.3 361.4 423.6 421.2 a Includes re-exports. Sources: International Sugar Organisation, Statistical Bulletin; Fiji, Bureau of Statistics; IMF, International Financial Statistics; Reserve Bank of Fiji, Quarterly Review.

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Outlook for 2004-05

Political uncertainty will mar Tense relations between the prime minister, Laisenia Qarase, and the leader of an otherwise bright outlook the Fiji Labour Party (FLP), Mahendra Chaudhry, will continue to mar the political outlook and hamper efforts by investment promotion agencies to convince investors of the country’s political stability. At the eighth Talanoa (traditional-style, informal dispute-settling talks) in May, the two leaders appeared to make breakthrough agreements on saving the failing sugar industry, land use and tackling racial discrimination. But acrimony has since resurfaced, with the FLP boycotting a parliamentary committee it had agreed should deal with sugar industry and land matters, and Mr Qarase accusing Mr Chaudhry of being personally intent on “destroying the country”. As chief guest at a celebration of the 125th anniversary of the arrival of the first indentured plantation workers from India, Mr Qarase assured Indian citizens of their security in and value to Fiji. But at other meetings he told his indigenous- Fijian supporters that only permanent Fijian political dominance would guarantee future political stability and prosperity. He has also warned that if Fijian political unity fragments, Fijians could lose control of the government to ethnic-Indian-dominated political parties, as was the case in the 1978, 1987 and 1999 general elections. The prime minister is also insistent that however many cabinet seats the Supreme Court finally rules the FLP is constitutionally entitled to, his offer of junior portfolios only for FLP ministers will remain unchanged. Mr Chaudhry has so far rejected Mr Qarase’s offer of 14 junior cabinet seats for his party as a breach of the spirit of real power-sharing intended by the constitution, and claims that the number of FLP seats should be increased to 17. However, Mr Qarase is reluctant to risk losing support for the coalition government, led by his predominantly indigenous-Fijian party, Soqosoqo Duavata ni Lewenivanua (SDL, People’s Unity Party), by ejecting ministers from the minor parties in his coalition government to make room for the FLP in the 22-member cabinet. The Supreme Court is due to make its ruling later in June. The reappointment of the army commander, Frank Bainimarama, is seen as an assurance that there will be no repeat of the May 2000 coup, which he brought to an end before briefly serving as head of a temporary military government. Mr Bainimarama has pledged to protect constitutional government. However, tensions between him and the government could re-emerge as a result of an enquiry into allegations by dissident senior army officers that in December 2003 Mr Bainimarama had ordered them to plan for the removal of Mr Qarase’s government. Mr Bainimarama has denied the allegations, and claims that the enquiry would be a waste of money and could backfire on the government.

More coup-related trials could The trial of the Fijian vice-president, Ratu Josefa Seniloli, two cabinet ministers re-ignite nationalist sentiment and the deputy parliamentary speaker begins in mid-June. The politicians have denied charges of having administered or taken illegal oaths in 2000 when rebels holding Mr Chaudhry’s government hostage in parliament attempted to form a government. Fijian-nationalist sentiment could be revived if the trial, and the trial of four chiefs charged with illegal assembly during the coup, result

in convictions. The last remaining files on investigations into the instigation of the 2000 coup that ended Mr Chaudhry’s brief tenure as the country’s prime minister are about to be referred to the director of public prosecutions. One concerns the former police commissioner, Iskia Savua, who is now Fiji’s ambassador to the UN.

Strong investor confidence Strong local and foreign private-sector investor confidence is underpinning could easily evaporate expectations of an economic boom, driven mainly by tourism, construction, the growth of some manufacturing industries and new businesses such as the emergence of an embryonic information technology industry. Private business confidence could, however, be overoptimistic, as serious political issues between native Fijians and the descendants of Indian labourers will not be settled quickly and could easily be re-ignited.

The prospects for the tourism Visitor arrivals rose by 22% year on year in the first quarter of 2004, and full- industry are bright year figures are expected to break the new record set in 2003, thanks to the launch of “no-frills” flights from New Zealand and Australia and a likely 30% reduction in average air fares. Work on two large resorts, one to be managed by a French hotel group, Accor, and the other by a US hotel group, Marriott, is at last under way after delays caused by fears of further political instability. Planning for at least three other large resorts and several small “boutique” resorts, is well advanced or in progress. Important road, water, sewage, port and other infrastructure projects, funded mainly by Asian Development Bank (ADB) and EU grants, will tax the capacity of construction companies already short of skilled labour. The Reserve Bank of Fiji (the central bank) has raised its forecast for real GDP growth in 2004 from a fairly cautious 4.1% to 4.7% (compared with growth of 5% in 2003). The new forecast takes into account the adverse economic impact of the torrential rains and subsequent floods in May, which caused damage to infrastructure and some crops.

The political scene

Renewed tensions cloud the Renewed tensions between the prime minister, Laisenia Qarase, and the leader political scene of the Fiji Labour Party (FLP), Mahendra Chaudhry, as well as between the army chief, Frank Bainimarama and the government, have once again overshadowed attempts to restore political stability. An important breakthrough in dialogue between the coalition government, led by Mr Qarase’s predominantly indigenous-Fijian party, Soqosoqo Duavata ni Lewenivanua (SDL, People’s Unity Party), and the FLP was thought to have been made at the eighth Talanoa (traditional-style, informal dispute-settling talks) in May, which was chaired by Sitiveni Halapua, the relaxed Tongan director of the Pacific Islands Development Programme, based in Honolulu, Hawaii. It was agreed that new parliamentary committees should report within a few months on strategies for saving the failing sugar industry, reviewing conditions for the lease of Fijian-owned land to ethnic-Indian tenant farmers and establishing a standing committee on race relations. It was agreed that recommendations by an advisory team from India for the reorganisation of the sickly sugar industry were preferable to a plan produced by the government- controlled Fiji Sugar Corporation (FSC, the operator of the country’s four sugar mills), the cost of which was three times that of the Indian sugar experts’ plan (see Economic policy). However, politics quickly came back into play when the National Farmers’ Union (NFU), a sugar farmers’ association that is Mr Chaudhry’s power base, failed to win control of the Sugar Cane Growers Council (SCGC), which represents 22,000 mainly Indian growers. The NFU won 22 seats on the SCGC, while its rival, the Fiji Cane Growers’ Council’s (FCGA), won 14 and independents won two. But the government has the right to nominate eight members of the SCGC, thereby enabling it to retain control of the body with the FCGA. Mr Chaudhry demanded to be consulted over the selection of the government appointees, and said he should be allowed to nominate two of them. Unsurprisingly, Mr Qarase disagreed on both counts, and Mr Chaudhry responded by boycotting the parliamentary sugar and land committee meetings, accusing the government of bad faith over the sugar elections. Mr Chaudhry also attacked what he claimed was the secrecy surrounding a F$57m (US$27m) joint power generation venture between the FSC and a foreign energy company, for which a government guarantee was needed. In addition, he accused the government of reneging on a proposal to extend agricultural leases from their current 30-year term to a minimum term of 50 years; a proposal published later referred to a minimum lease term of only 20 years. Mr Chaudhry claimed that the government intended to deprive ethnic-Indian tenant farmers of land by reserving 60% of available leases for Fijian tenant far mers . These accusations led Mr Qarase to say of Mr Chaudhry in a television interview in May: “He has a personal agenda to destroy this country. I do not think he has the interest of Fiji at heart.” Mr Chaudhry appeared to back

down by stating a few days later that he was ready for another Talanoa meeting in June.

The prime minister and the Mr Qarase’s difficulties with the army chief, Frank Bainimarama, flared up army chief fall out again again in May, after five senior army officers who had been suspended and urged to resign for what Mr Bainimarama said was disloyalty to him claimed that they had refused in December 2003 to obey his instructions to plan for the government’s removal. In February Mr Bainimarama pledged loyalty to the president, government and country after having his appointment as commander of the army extended for five years. He was apparently unwilling to retire until the prosecution of those involved in the 2000 coup had been completed. Mr Bainimarama ended the coup by briefly imposing military government, and he made it known that he believed Mr Qarase’s government wanted to avert further coup investigations in order to retain the support of its Fijian-nationalist allies, on which it depends. His reappointment, to the government’s chagrin, bolstered the widely held belief that he remains the ultimate power in the land. Mr Bainimarama has dismissed the allegations and predicted that the enquiry into them announced by the government will merely embarrass Mr Qarase. The police have indicated that the army chief will also be questioned about his role in the removal during the 2000 coup of the then president, Ratu Sir Kamisese Mara, who died in April aged 83, two years after having suffered a stroke. Ratu Mara led Fiji to independence in 1970, and his removal in 2000 aroused great national emotion and a sense of guilt. Many commentators agree that Ratu Mara, widely regarded as being the grand old man of Pacific island affairs for three decades, was shabbily treated in being pressed to step down from the presidency. Mr Bainimarama is also to be questioned over a complaint made against him in February, at the height of controversy over his re-appointment, by the then Ministry of Home Affairs chief executive officer, Jeremaia Waqanisau, a retired colonel known to disapprove of him. Mr Waqanisau was subsequently removed from his post and became Fiji’s ambassador to China. Meanwhile, the police said that a former prime minister, Sitiveni Rabuka, who led a 1987 army coup against an Indian-dominated government, and the former police commissioner, Isikia Savua, currently Fiji’s ambassador to the UN, would also be questioned about their involvement in the 2000 coup.

There is growing concern Concern is growing about the failing health of the elderly president, Ratu Josefa about the president’s health Iloilo, who regularly visits Australia for medical attention. There is speculation that in the event of the president’s death the succession to the presidency of the vice-president, Ratu Jope Seniloli, could compromise his trial, with three others, on charges of supporting an attempt to establish an illegal government in 2000 by taking oaths of allegiance. The vice-president, two cabinet ministers and the parliamentary deputy speaker have denied the charges; the trial is scheduled to begin in mid-June. One of the ministers, an important chief from northern Fiji, is already on trial with three others, charged with illegal assembly during armed attempts to take over an army barracks and police stations in 2000.

Convictions could stir nationalistic sentiment is some sections of the Fijian community.

Fiji is removed from a human The FLP has condemned a decision in May by the Commonwealth Action rights watchlist Group (CMAG) to remove Fiji from a list of countries being monitored for human rights abuses. Mr Chaudhry said that the decision was “deplorable”, since the group had not carried out investigations in Fiji, where he said state- sponsored racial discrimination against non-Fijians continued unchecked. However, Mick Beddoes, the official leader of the opposition and head of the United General Party (UGP), argued that the CMAG’s decision would open international doors for Fiji.

Police have made a record In early June police and customs officials raided a Suva warehouse complex, drug seizure arresting seven people and seizing crystal methamphetamines with a street value estimated at F$1bn (US$500m). According to the police commissioner, Andrew Hughes, the clandestine laboratory was the largest ever found in the southern hemisphere, with the capacity to manufacture 500 kg of the drug weekly. The drugs were thought to be destined for Australia, New Zealand, Europe and the US. Four of those arrested were Asians who had entered Fiji on visitor permits. Mr Hughes said the drug operation was detected by a joint customs and police crime unit formed 14 months previously, and was “a frightening example of crossborder organised crime elements using Fiji as a staging ground”.

Economic policy

The sugar industry remains a According to the prime minister, Laisenia Qarase, the main priorities for the priority current year are to implement a rescue plan for the ailing sugar industry and to forge agreement on opening up Fijian-owned land to Indian tenant farmers on terms acceptable to both communities. Sugar production, which is still a key export and on which around 200,000 people depend for their livelihood, has become highly inefficient, and the industry faces an even tougher struggle from 2007, when EU subsidies for tropical sugar, which have kept Fijian sugar viable, will be cut back. The government-owned Fiji Sugar Corporation (FSC) is already technically insolvent. In April Fiji appeared before the dispute panel of the World Trade Organisation (WTO) to contest challenges from Australia, Brazil and Thailand that it says threaten the heavily subsidised price it gets for its 163,000-tonne annual sugar exports to the EU. Mr Qarase and Mr Chaudhry agree that the recommendations of a team of sugar experts from India offer the best plan for salvaging the sugar industry. However, the FLP has reservations about arrangements for the transport of sugarcane and a scheme to base payment for sugarcane on the measurement of its quality. The team of experts estimate that industry reforms would cost F$58m (US$27m), compared with an estimate of F$170m for the plan proposed by the FSC. The Asian Development Bank (ADB) and the European Investment Bank have offered financial support for the industry’s reorganisation, and the government of India may also provide financial assistance. The House of Representatives (the lower house of the

Fijian parliament) has established a Select Committee on Sugar to examine proposals to salvage the industry, although the FLP boycotted its first meetings. A parliamentary select committee appointed to deal with agricultural land lease matters, due to report in September, is also being boycotted by the FLP. The committee’s brief is to propose solutions for ending lease disputes that have hampered the development of the agricultural sector. In the meantime the Native Land Trust Board, which is entrusted with managing land owned by Fijian tribes (90% of land is in the possession of indigenous Fijians), is exploring a proposal to issue longer-term leases on some land on the payment of a single premium, instead of a series of shorter tenancies and annual rents. If adopted, the radical idea would significantly improve access to native land for non- Fijians, and would make leasing land for a variety of uses a much more attractive proposition.

The central bank has raised The Reserve Bank of Fiji (RBF, the central bank) lifted the official interest rate interest rates from 1.25% to 1.75% on May 27th, to help restrain rapid growth in consumer spending. The bank is keen to see a rebalancing in the composition of economic growth from the consumer sector to construction, agriculture and the greater exploitation of forest and fisheries resources. The bank has also revised upward its forecast for real GDP growth in 2004 to 4.7% (from 4.1% previously). Mr Qarase believes that the economy could expand by as much as 8% in 2004, although this would appear very optimistic. In its latest economic review, the RBF anticipates strong growth for the building industry this year, thanks to the construction of hotels and luxury villas, roads and bridges and several multi-storey commercial buildings. However, the severe floods in April and June (see The domestic economy) will have reduced output of sugarcane and some food crops. Garment and footwear production is expected to remain weak. The year-on-year rate of consumer price inflation fell from 4.9% in the fourth quarter of 2003 to 2.3% in the first quarter of 2004, thanks to lower food price inflation, although this improvement could be reversed in the coming months as food prices rise again in the face of shortages and higher world oil prices push up the cost of fuel imports.

Greater resources will be The Fiji Inland Revenue and Customs Authority is to create 57 managerial devoted to tackling tax evasion positions to help improve the collection of tax revenue and tackle tax evasion. The authority hopes that an agreement with Australian tax authorities will provide information about an estimated 5,000 bank accounts thought to be held in Australia by residents of Fiji.

The domestic economy

Heavy rains have damaged Torrential rain and flooding in April caused 11 deaths and severe damage to crops and infrastructure crops and infrastructure, and temporarily drove thousands of people from their homes in the eastern half of the main island of Viti Levu. The government diverted F$12m (US$6m) from the budget to deal with the disaster, which will cause a shortage of basic foods that is expected to last until the end of the year.

Further torrential rain in the affected areas in June caused less infrastructural damage but inflicted further destruction on food crops.

The textile sector seeks a trade The head of the Textile, Clothing and Footwear Council, Ray Dunstan, has deal extension with Australia warned that the garment industry would shed thousands of jobs unless Australia, the key market for Fijian garments, agreed to extend preferential treatment terms that are due to expire at the end of this year. Garments from the Pacific Islands are admitted duty-free to Australia if they have a minimum 50% local content. The number of garment factories has dropped from about 65 (employing 18,000-20,000 people) to between 20 and 25 (employing 12,000-14,000 workers) since the 2000 coup, owing to competition from China and other Asian producers as Australia progressively opens its market to them.

The electricity authority wants The Fiji Electricity Authority (FEA) has said that it will absorb steep rises in the fuel import duty scrapped cost of imported fuel oil and the cost of subsidising rural power supplies, but that it wants the government to abolish duty on fuel imports. A new, small hydropower scheme has raised generation capacity by around 15%, and several more small hydropower schemes are being built. According to the chairman of the FEA, Joe Mar, an estimated F$550m is needed over the next ten years to keep up with the rising demand for power, of which F$200m would be sought from the private sector. Mr Mar, who is also chairman of the Fiji Audio Visual Commission, said that the economy had benefited to the tune of around F$15m from the making of a film, Anaconda II, in Fiji by a Hollywood producer. He said that details of several more foreign films to be made in Fiji would be announced in the near future.

Tourist arrivals rose strongly in Visitor arrivals rose by 22% year on year in the first quarter of 2004, and the the first quarter of 2004 prime minister, Laisenia Qarase, remains confident that tourism earnings will reach the F$1bn (US$500m) mark by 2007 as targeted. Tourist arrivals from Australia and New Zealand will be boosted by the launch of cheap package- tour flights to Fiji from Australia by Pacific Blue, an offshoot of Australia’s Virgin Blue. The airline intends to start in September with six flights a week initially. Freedom Air, owned by the New Zealand national carrier, Air New Zealand, began flying to Fiji at the end of April, although a second New Zealand operator, Flight Centre, has abandoned plans to operate cheap flights to Fiji, blaming the Fijian government for delays in approving the flights. Air Pacific, in which the government has a 51% stake, announced a record F$24.5m after-tax profit for the year ending March 31st 2004. Air Pacific carried more than 500,000 passengers in a year for the first time in its 53 year history. The airline plans to respond to growing competition by cutting fares on Pacific island routes by an average of 30% while retaining its free full-meal, drink and entertainment service.

A new satellite TV service is to Fiji Television, which is owned by 14 Fijian provincial councils and a leading be launched local businessman, will in July launch a satellite television service offering 12 channels, including both free-to-air and pay-TV services, not only within Fiji but

also covering Tonga, Niue, Kiribati, Samoa, Vanuatu, the Solomon Islands and Nauru.

Foreign trade and payments

Rising foreign-exchange At end-April 2004 official foreign-exchange reserves stood at F$752.1m, or reserves boost import cover US$375m (equivalent to five months of import cover), up from F$738.5m at end- January (4.6 months of import cover). According to the Reserve Bank of Fiji (the central bank), the real effective exchange rate index of the Fiji dollar rose by 2% in the year to April 2004, pointing to a deterioration in the country’s international competitiveness. The deterioration largely reflects a higher domestic inflation rate than that of Fiji’s main trading partners.