Country Report December 2003

Pacific Islands

December 2003

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Summary December 2003

Outlook for 2004-05 ’s intervention in the and a gradual amelioration of communal stresses in should help improve political stability in the region. Despite modest growth, little headway will be made by small, isolated and resource-poor island nations in tackling their many problems.

The political scene Debate over the appointment of an Australian, Greg Urwin, as -general of the has quickly subsided. and Taiwan have continued to woo the island nations with aid. The region has begun to face up to the spread of HIV/AIDS.

Economic policy and the Island countries have been warned that they are ill-prepared to cope with domestic economy Severe Acute Respiratory Syndrome (SARS). Tourism bookings are set to pick up in 2004, although the launch of Pacific Blue, the new offshoot of Virgin Blue, an Australian-based budget airline, has been pushed back to mid-2004. The islands have begun to prepare for trade negotiations with the EU. Concern is growing about the depletion of tuna stocks.

Editors: Kate Allard (editor); Graham Richardson (consulting editor) Editorial closing date: December 3rd 2003 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

EIU Country Report December 2003 © The Economist Intelligence Unit Limited 2003 2 Pacific Islands

Outlook for 2004-05

Most island nations will Australia’s intervention in the Solomon Islands, a reshaping of its aid relations experience modest growth with (PNG) and a gradual amelioration of communal stresses in Fiji should help improve political stability in the region. The Economist Intelligence Unit anticipates modest growth for most of the island nations, along with a continued fall in inflation, with most island nations banking on tourism and the exploitation of tuna stocks for their future economic security. However, little headway will be made by small, isolated and resource-poor countries in tackling problems presented by population pressures in some island nations, migration in others, environmental degradation, corruption and weak economic growth. After a decade of near-inaction, Pacific island governments are finally facing up to the advance of HIV/AIDS into the region. But we remain pessimistic about the ability of most governments to overcome this and other challenges without steady, sympathetic support, coupled with measured pressure, from aid donors.

Another Australian-led Australia’s firm hand in the Solomon Islands is broadly approved of, although intervention is unlikely not necessarily publicly so, by the other 13 island members of the Pacific Islands Forum (the main regional body). In the Solomon Islands in particular, grass-roots opinion is generally one of relief felt by a people disillusioned by the erosion of basic government services, worsening employment oppor- tunities, lack of development and rising crime, made worse by corruption and poor governance. However, the picture of the region often portrayed—one of general lawlessness, political and economic collapse and infiltration by undesirable foreign forces—is probably exaggerated. With the exceptions of the chaos and national insolvency associated with a succession of governments in and the long-term prospect of a democracy-inspired change of govern- ment in monarchist , the Pacific island states are generally more stable that they are given credit for, and an intervention such as that currently under way in the Solomon Islands is unlikely to occur elsewhere in the region.

The island nations will Given the inevitable economic weaknesses stemming from their isolated struggle to fulfil aid conditions geographical position and, in and Micronesia, an acute lack of resources and land, the Pacific island states can be assured of continued substantial support from Australia, , the EU, and, increasingly, China, as well as institutions such as the and the UN Development Programme. However, while most island countries are resigned to the conditions, such as higher standards of governance, greater transparency and accountability, now being attached to aid, they are not well equipped to fulfil them.

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The political scene

Debate over new Australian Debate over the appointment in August of an Australian, Greg Urwin, to the head of the PIF has subsided position of secretary-general of the Pacific Islands Forum or PIF (the post has traditionally gone to a ) quickly subsided. During and after the PIF summit meeting at which delegates failed to reach consensus on a replace- ment from the Pacific islands for the incumbent, Noel Levi of PNG, some leaders chose to interpret Mr Urwin’s appointment as yet another symbol of Australia’s strong hand in the region. But privately many regional bureaucrats and PIF staff agreed that Mr Urwin was by far the best candidate to implement improvements to the organisation and redirect work programmes and policies While attending the Asia-Pacific Economic Cooperation (APEC) summit meeting in November as an observer, the retiring PIF secretary-general, Mr Levi, asked APEC members to consider extending their relationship with PIF members in the same way as the EU has already done. Mr Levi also suggested that APEC assist PIF countries in compiling individual country reports for inclusion in APEC’s investment climate guide. In his address to the Conference of the Pacific Community in in November, the prime minister of Fiji, Laisenia Qarase, complained that the number of regional organisations had mushroomed in recent years, diverting island governments’ scarce financial resources to regional and international bureaucracies. He added that in his opinion many of the regional meetings and workshops were of little value.

China and Taiwan continue to The battle between China and Taiwan for influence in the region has woo island nations with aid intensified in recent months. China has wooed Nauru and the with offers of aid, and has also won support for its One China policy from Fiji and Tonga—both recipients of substantial Chinese aid, as are and Papua New Guinea. However, China experienced a setback in in November when the newly elected president, Anote Tonga, established diplomatic relations with Taiwan, whose ambassador arrived at Tarawa, the most populous island, almost immediately after the election. China has made threatening noises about breaking ties with Kiribati, where it has an embassy, but it does not wish to lose the tracking station it operates at Tarawa. A number of Pacific island leaders briefly met the US president, George W Bush, when he passed through Hawaii on the way home from visits to South- east Asia and Australia. The encounter is unlikely to yield any tangible benefits for a region that the US regards as the responsibility of Australia.

The region has begun to face A long overdue assault on the spread of HIV/AIDS in the region began in late up to the advance of HIV/AIDS 2003, funded by Australia and a grant from the UN-backed Global Fund. According to the Pacific Community (a technical assistance agency based in that covers all 22 Pacific island countries), the incidence of the disease is highest in PNG, , and New Caledonia, followed by Kiribati and the Marianas Islands. AIDS is now the major cause of death at general hospital in PNG.

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Economic policy and the domestic economy

PIF island members prepare In September and October PIF island members held a series of workshops to for trade negotiations with EU prepare for negotiations on new trade arrangements with the EU under the Cotonou Agreement, an agreement signed in June 2000 to succeed the Lomé Convention, setting out trade relations between the EU and the 78 African, Caribbean and Pacific (ACP) states. Negotiations are due to commence in mid- 2004, and the resulting agreement is scheduled to take effect in January 2008. In addition to market access for their very limited product range, the island states are seeking technical assistance to help develop management skills in areas such as fisheries, tourism and agriculture, as well expertise in fiscal reform and the development of services. With the assistance of the PIF, kava producers are preparing a campaign to recover substantial markets worth tens of millions of US dollars per year, lost by , Samoa, Fiji and Tonga when European governments, led by , banned kava exports early in 2002. The producer countries insist that claims that kava-based medicinal products cause liver damage are wrong.

Island countries warned over The Pacific Community warned in November that the region was not equipped measures to cope with SARS to cope with an outbreak of Severe Acute Respiratory Syndrome (SARS). The outbreak of SARS in some Asian countries in early 2003 did not reach the region, but there are concerns that a fresh outbreak could spread to the islands, with devastating consequences for the regional tourism industry.

Tourist bookings are expected Tourist bookings to most Pacific destinations are expected to pick up in 2004, to pick up in 2004 with the Pacific island nations 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 extends its services to New Zealand and some Pacific islands countries through an offshoot to be known as Pacific Blue—although the launch of the first flights, to Fiji and Vanuatu, has now been pushed back until mid-2004. A New Zealand operator plans to launch low-cost flights to Fiji in direct competition with Air New Zealand and the Fiji international carrier, Air Pacific. However, by making travel to Fiji cheaper, the growing competition could erode visitor arrivals to less well-served destinations, such as Samoa, Vanuatu, Tonga and the Cook Islands. Meanwhile, the Association of South Pacific Airlines (ASPA), which represents most of the region’s major airlines, has given a cool reception to the launch of an Australian-sponsored study of the feasibility of a single regional airline. According to APSA, survival for its struggling members depends on maximum co-operation between the airlines rather than full integration.

Concern is growing over Recent research on tuna and billfish stocks suggests that the high-priced depleted tuna stocks yellowfin tuna fish, one of the four species that are the core of the region’s US$2bn fisheries industry, is being overfished and needs to be conserved. At an estimated 438,000 tonnes in 2003, the regional yellowfin catch is likely to be the lowest in six years. Two other tuna species, albacore and skipjack, remain in good shape and could withstand further exploitation, although stocks of big- eye tuna, like those of yellowfin tuna, are becoming severely depleted.

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