COUNTRY PROFILE

Pacific Islands: Islands Western

Our quarterly Country Report, Pacific Islands: , Fiji, , Western Samoa, Vanuatu, Tonga, analyses current trends. This annual Country Profile provides background political and economic information about Fiji, Solomon Islands, Western Samoa, Vanuatu, Tonga and some of the smaller territories. has a separate Country Profile of its own.

1996-97

The Economist Intelligence Unit 15 Regent Street, SW1Y 4LR The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 40 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

August 1996

Fiji

6 Basic data 7 Political background 13 Population and society 15 16 The economy 17 National accounts 19 Employment 20 Wages and prices 21 , forestry and fishing 24 25 Energy 26 Manufacturing 27 Construction 27 and other services 29 Transport and communications 30 Finance 33 Foreign trade 34 External payments and debt

Solomon Islands

38 Basic data 39 Political background 41 Population and society 42 The economy 42 Currency 43 National accounts 44 Employment 45 Wages and prices 46 Agriculture, forestry and fishing 49 Minerals 49 Energy 50 Manufacturing 51 Construction 51 Tourism 52 Transport and communications 53 Finance 55 Foreign trade 56 External payments and debt

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Western Samoa

60 Basic data 61 Political background 62 Population and society 63 Currency 63 The economy 66 National accounts 67 Employment 67 Prices 68 Agriculture, forestry and fishing 69 Mining and energy 69 Manufacturing 70 Construction 70 Tourism 71 Transport and communications 72 Finance 73 Foreign trade 73 External payments and debt

Vanuatu

77 Basic data 78 Political background 80 Population and society 81 Currency 81 The economy 82 National accounts 83 Employment 84 Wages and prices 84 Agriculture, forestry and fishing 86 Mining 86 Energy 87 Manufacturing 87 Tourism 88 Transport and communications 89 Finance 90 Foreign trade 92 External payments and debt

Tonga

95 Basic data 96 Political background 97 Population and society 98 Currency 98 The economy

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98 National accounts 99 Employment 99 Agriculture, forestry and fishing 100 Mining 101 Energy 101 Manufacturing 102 Construction 102 Tourism 102 Transport and communications 103 Finance 104 Foreign trade 105 External payments and debt 108 108 Basic data 109 Political background 110 Population and society 110 Currency 110 The economy 111 National accounts 112 Prices 112 Agriculture, forestry and fishing 112 Mining 113 Manufacturing 113 Tourism 114 Transport and communications 114 Finance 114 Foreign trade

Cook Islands

116 Basic data 117 Political background 118 Population and society 118 Currency 118 The economy 118 National accounts 119 Employment 119 Wages and prices 120 Agriculture, forestry and fishing 121 Mining 121 Energy 121 Manufacturing 122 Construction 122 Tourism 122 Transport and communications 123 Finance 124 Foreign trade

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Kiribati

125 Basic data 126 Political background 127 Population and society 127 Currency 128 The economy 128 National accounts 129 Employment 129 Prices 129 Agriculture, forestry and fishing 130 Mining 131 Manufacturing 131 Construction 131 Tourism and other services 131 Transport and communications 132 Finance 132 Foreign trade and external payments

Nauru

135 Basic data 136 Political background 137 Population and society 137 Currency 137 The economy and national accounts 138 Employment 138 Wages and prices 138 Agriculture, forestry and fishing 138 Mining 139 Energy 139 Manufacturing and construction 139 Tourism and other services 139 Transport and communications 140 Finance 140 Foreign trade, external payments and debt

Niue

141 Basic data 142 Political background 142 Population and society 142 Currency 142 The economy and employment 143 Agriculture, forestry and fishing 143 Manufacturing 143 Tourism

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143 Transport and communications 144 Finance 144 Foreign trade

Tuvalu

145 Basic data 146 Political background 146 Population and society 146 Currency 147 The economy and national accounts 147 Agriculture, forestry and fishing 148 Mining 148 Energy 148 Manufacturing and construction 148 Tourism 149 Transport and communications 149 Finance 150 Foreign trade and external payments

Former US Trust Territories

151 Basic data (Federated States of , , , ) 152 Political background 153 Population and society 153 Currency 154 The economy 155 Transport 156 Regional institutions 159 Membership of international organisations

160 Select bibliography

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Fiji

Basic data

Land 18,333 sq km

Population 715,375 (1986 ); 796,078 (official end-1995 estimate)

Major islands ,

Main towns Population, 1986

Suva (capital) 69,665 27,728

Climate Tropical

Weather in Hottest months, January-March, 23-30°C (average daily minimum and (altitude 6 metres) maximum); coldest months, July-August, 20-26°C; driest month, July, 124 mm average rainfall; wettest month, March, 368 mm average rainfall

Languages English, Fijian and

Measures Metric

Currency =100 cents. Exchange rate average 1995: F$1.4063:US$1. Exchange rate end-July, 1996: FS$1.3976:US$1

Time 12 hours ahead of GMT

Public holidays May 27, Sir Day; 17, Queen’s Official ; July 22, Constitution Day; July 29, Birth of the Prophet Muhammad; 7, Fiji Day; November 11, ; December 25-26, Christmas; January 1, 1997, New Year’s Day; March 14, National Youth Day; March 28-31, Easter

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Political background

History Archaeological evidence indicates that the Fijian Islands have been settled for at least the last 3,000 years, originally by Melanesian and Polynesian peoples. Tasman sighted the islands in 1643, as did Cook and Bligh in 1774 and 1789. In the first half of the 19th century the islands became subject to increasing European influences as the islands’ sandalwood and bêche de mer resources attracted European traders. Christian missionaries soon followed. At this time, the islands were dominated by warring tribal factions. By the 1850s these had coalesced into two main factions under Cakobau, Tiu Viti (king of Fiji), and Ma’afu, a chief of Tongan extraction. It was the initiative of the Cakobau faction to cede the islands to Britain, which brought Fiji into the as a colony on October 10, 1874. The island of , which lies to the north of Vanua Levu, was added to the territory in 1881. The islands remained under colonial rule until independence on October 10, 1970.

Many decisions taken during the colonial period still have repercussions for Fiji today. In particular, the decision to bring indentured labour over from and the subsequent treatment of the Indian population by the colonial govern- ment have created a racial diversity, which remains at the root of many of Fiji’s problems today. Between 1879 and 1916 around 2,000 immigrants a year arrived in Fiji, most of whom were destined to work in the -cane fields. However, the colonial administration sought to protect the indigenous Fijian population and prevent them from becoming alienated from their land in the face of high levels of immigration. The administration established parallel governments, creating a system of provincial government for the indigenous Fijian population alongside the colonial government. In addition, the land ownership pattern was frozen by recording existing indigenous Fijian land ownership. Around 80% of the islands are owned by indigenous Fijian commu- nities, but over 90% of the sugar crop is produced by Indians, usually on land leased from . From 1909 onwards further land sales were forbidden and the management of native land was assigned to the Native Land Trust Board.

Fiji gained independence within the Commonwealth on October 10, 1970 and in April 1972 the first election was held under the 1970 constitution. The election was won by the Party (AP), which consisted of several, mainly indigenous Fijian, constituent organisations. For the next 15 years, the AP, under the leadership of Ratu Sir , governed the country without interruption, until it lost the April 1987 elections to a coalition led by Dr Timoci Bavadra. The coalition, comprising the Fiji Labour Party (FLP), the National (NFP), whose support came from the Fijian Indian community, and the smaller Western United Front, won 28 out of the 52 seats in the . The FLP, founded in May 1985 following a split in the NFP, drew its backing from the Fijian Trades Union Conference (FTUC) and supported and a national medical scheme. Al- though Dr Bavadra was a Melanesian (ie ethnic Fijian), the coalition’s support came mainly from the Fijian Indian community: of the 28 seats won by the coalition, only seven were held by indigenous Fijians, thus Dr Bavadra led the first Fijian government in which ethnic Indians played a dominant role.

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Hitherto, the ethnic Indians and indigenous Fijians had managed to coexist without actually integrating, but soon after the elections, racial tensions be- tween the two communities began to surface. On , 1987, a military coup led by Lieutenant-Colonel (later Brigadier and now Major-General) forcibly removed the new Indian-dominated government from power and placed the cabinet under arrest. After an initial attempt at resis- tance, the governor-general, Ratu Sir , agreed to suspend parlia- ment. Ratu Ganilau appointed a temporary Advisory Council, which was to rule the country for an initial period of six months until fresh elections could be arranged. The Council of 18 members included Brigadier Rabuka and the defeated prime , Ratu Mara, and was dominated by their followers. Only one ethnic Indian was included. The deposed prime minister, Dr Bavadra, was invited to join, but declined on the grounds that the council was unconsti- tutional and that his supporters were inadequately represented.

Racial violence escalated as calls for Dr Bavadra’s reinstatement intensified. On 23, 1987, Ratu Ganilau, Ratu Mara and Dr Bavadra came to an agreement, known as the Deuba Accord, but two days later, the recently pro- moted Brigadier Rabuka staged a second coup. Brigadier Rabuka claimed that the Accord would compromise the objective of the first coup of ensuring con- tinued Melanesian political domination in Fiji by giving equal representation in parliament to the AP and the FLP/NFP coalition. Responding to calls from the militant Taukei Movement, Brigadier Rabuka revoked the 1970 consti- tution and declared Fiji a on October 7, 1987. Ratu Ganilau refused to step down as the representative of the British crown, so Brigadier Rabuka dismissed him as governor-general and declared himself , in effect deposing the British Queen. Having assumed power, Brigadier Rabuka then set up a 22-member Council of Ministers which pledged to hand over to an elected government within a year. By , 1987, a civilian government had already been reinstated. Ratu Ganilau was appointed the first president of the new republic, despite his original refusal to accept the post. Ratu Mara was re-appointed as prime minister and selected a governing council of 21 minis- ters. The council included four military members, one of whom was Brigadier Rabuka, but excluded members of Dr Bavadra’s FLP/NFP coalition. On the expire of this interim government’s two-year term, Ratu Mara agreed to remain as prime minister until the country was returned to democratic rule. The Council of Ministers was left largely unchanged but for the military element, which opted to return to barracks.

During 1991 and 1992 as elections approached, the leading political contend- ers began jockeying for position. Union activity also increased. The sugar ind- ustry was affected by opposition to a new Sugar Master Award which was to govern the division of proceeds between growers and millers. The resultant discord delayed harvests and lowered production in 1991 and 1992. The mine was also hit by extended strike action in 1991 with a consequent loss of production. At the end of 1991, the interim government announced punitive decrees in order to deter strike action in key industries, but the decrees were subsequently suspended as the extent of their unpopularity became apparent. The now Major-General Rabuka managed to enhance his political standing, by undertaking a key role in negotiating the suspension of

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the decrees. His reputation was improved further by his election as president of the Soqosoqo ni Vakavulewa ni Taukei (SVT). This new party was formed by the (the Bose Levu Vakaturaga which consists of every hereditary chief or ratu of each Fijian clan, numbering 70 members in all) to fight the elections on behalf of indigenous Fijians.

The first elections to the under a new constitution were held peace- ably in May 1992. The SVT won 30 of the 37 seats reserved for ethnic Fijians and, of the seats reserved for Indian representatives, the NFP won 14 and the FLP 13. Major-General Rabuka was able to consolidate his position within the SVT and secure his appointment as prime minister through unexpected sup- port from the Fiji Labour Party (FLP), which he had originally ousted from government in his 1987 coup. During its first 18 months in office, Major- General Rabuka’s government was rocked by successive crises, culminating in the defeat, in November 1993, of 1994 budget proposals, which were criticised for failing to address Fiji’s economic problems, in particular, to reduce the budget deficit. The prime minister pre-empted a vote of no-confidence by resigning. Ahead of the election in February 1994, several former SVT mem- bers, who had been responsible for the rejection of the budget, formed a new party, the Fijian Association (FA), under the leadership of a former minister of finance, Josefata Kamikamica. The February elections returned the SVT, under the leadership of Major-General Rabuka, to power in a continuing coalition with the General Voters’ Party (GVP), which represents the interests of voters who are neither Fijians nor Indians. Despite a strong showing in pre-election opinion polls, the FA was defeated, winning only five seats of the 37 allocated to indigenous Fijians in the House of Representatives. The SVT secured 31, only one more than in the previous election and the GVP won four seats, resulting in a government majority of four seats. The cabinet announced by Major-Gen- eral Rabuka following the election was composed exclusively of indigenous Fijians. Also at the beginning of 1994, Ratu Sir Kamisese Mara was sworn in as president, following the death of Ratu Ganilau in December 1993.

In recent months, Major-General Rabuka has proposed the formation of a coalition uniting all the non-Indian parties, the SVT, the FAP and the GVP. He was responding to a call for “national” (ie ethnic-Fijian) unity from Fiji’s Great Council of Chiefs and suggested that all ethnic-Fijians should stand together during the review of the 1990 constitution and the debate over land-lease issues. The proposal appears to have received a lukewarm reception from the leader of the FAP, Josefata Kamikamica, who stated that only a multiracial government was a credible option for Fiji. It appears that Major-General Rabuka is looking to consolidate his position as debate over the constitutional issue intensifies over the coming year. (See The constitution, below.)

An important area of contention in Fijian politics is related to the land-lease issue. Several leases agreed between Indian sugar-cane growers and indigenous Fijian owners under the Agricultural Landlord and Tenants Act (ALTA) are due to expire in the next few years. Ethnic Indian farmers are faced with the prospect of being displaced to other of the country, as land is returned to the indigenous Fijian owners. Some 83.4% of the land area in Fiji is “native land”. The of the ethnic Fijian clans or matagali, and 8.4% is govern- ment land. Ethnic Indians, who make up around 45% of the population, own

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less than 2% of the land in Fiji. The predominantly Indian cane-growers are therefore highly dependent on leased land and face being displaced as land is returned to Fijian owners as leases expire. There are currently 10,959 ALTA leases held by cane growers on native land: 27 are due to expire in 1997, 128 in 1998, 171 in 1999 and 1,221 in 2000, with the remaining leases expiring by 2024. The government has now set aside uncultivated land at Korotolutolu on Vanua Levu to accommodate displaced farmers. The Indian cane growers find themselves in a vulnerable position, particularly as the Indian population is bound by the racial bias of the constitution to have a minority role in the government of the country.

The constitution Before independence in 1970, government in Fiji was by an appointed gover- nor operating through promulgated ordinances. Under the constitution adopted at independence, the British sovereign, represented by the governor- general, was head of state. The legislature consisted of a Senate and a House of Representatives and the prime minister was chosen from the largest party in the 52-member House of Representatives. While the system of government was formally based on the Westminster model, the 1970 constitution contained extensive provisions for the protection of the rights of indigenous Fijians, particularly as with regard to land. These rights were enforced by a rigid com- munal electoral system—ensuring indigenous Fijians 22 seats, Fijian Indians 22 and “” (other races) eight seats in the House—and by the re- quirement that bills to amend laws affecting specified indigenous rights be passed by three-quarters of the House and the Senate. The Senate was also constituted so as to safeguard indigenous rights. Its 22 members were ap- pointed by the governor-general on the following basis: eight on the advice of the Great Council of Chiefs (a traditional body which functioned even during colonial times for the protection of the native Fijian population); seven on the advice of the prime minister; six on the advice of the leader of the opposition; and one on the advice of the , an island which lies to the north of Vanua Levu.

The constitution adopted at independence was revoked when Fiji was declared a republic on October 7, 1987. At the same time Queen Elizabeth II was re- placed as head of state initially by then Brigadier Sitiveni Rabuka and later, when the country returned to quasi-civilian government in December 1987, by the new president, Ratu Sir Penaia Ganilau, who was succeeded by the former prime minister, Ratu Sir Kamisese Mara. The system of government was at this time based on presidential decrees, pending the holding of elections under the terms of a new constitution. The new constitution, which was agreed by the Great Council of Chiefs on June 25, 1990, has received widespread criticism, both domestic and international, for its bias in favour of the indigenous Fijian population. The constitution guarantees indigenous Fijians a majority of 37 out of 70 seats in the House of Representatives, whereas Fijian Indians have 27 seats and “general electors” (the non-indigenous, non-Indian, chiefly European minority) have five seats. What is more, only five of the 37 seats allocated for ethnic Fijians are in urban areas where around one-third of ethnic Fijians live. In addition, one seat is allocated for the of Rotuma Island. The Senate consists of 34 appointed members, 24 of whom represent the indigenous Fijian community.

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The first elections under the new constitution were held in May 1992. However, the racially biased constitution has caused a considerable international outcry. The secretary-general of the Commonwealth, Chief Emeka Anyaoku, has reiter- ated the organisation’s stance that Fiji would be refused readmission to the Commonwealth until the constitution was changed. In response to the wide- spread condemnation of the constitution, particularly from India and Mauri- tius, in June 1994 Major-General Rabuka announced the establishment of a commission to review the constitution. The Constitutional Review Committee (CRC) is now in the process of compiling its report which is expected to be presented to the president, Ratu Sir Kamisese Mara, by mid-1996. The House of Representatives will then have until 1997 to make its response to the report. The CRC is now headed by Sir , after the opposition criticised the original appointment of a Fijian chairman. General Rabuka has indicated an uncompro- mising stance on the constitutional issue in his statements that all parties would have to accept that indigenous Fijians and would continue to have a predominant say in the governing of Fiji. It can be expected that debate about the constitutional issue will intensify during 1996.

Indigenous Fijians have local administrations based on villages and on the 14 provinces. Each is governed by a council and an head, whose appointment has to be approved by the Fijian Affairs Board. The island of Rabi has a special status and is administered by the Council. The island is owned as a freehold by the Banabans, who were obliged to leave their homes on Ocean Island in when the phosphate reserves on the island were mined, but it is part of Fiji and the islanders are Fijian citizens.

Political forces The main political parties in the period from independence until the 1987 coups were the (AP), led by Ratu Mara, and the National Federation Party (NFP). Although Ratu Mara advocated multiracialism in politics, the AP remained largely the vehicle for traditional indigenous Fijian political aspira- tions. During the period from 1970 to 1987 multiracialism in Fijian politics was achieved by the AP working together with the General Electors’ Association (the party of non-Fijian/non-Indian voters, now known as the General Voters’ Party) and a small number of prominent Fijian Indians who joined the AP. The NFP remained the traditional party for the Fijian Indian voters.

In the 1980s the political landscape changed with the development of a polit- ical voice for the new urban working population and the increasing role of the trade unions in Fijian politics. The labour-based movement shifted away from the traditional political parties in Fiji and in May 1985 formed the multiracial Fiji Labour Party (FLP). In the elections held in April 1987, the FLP in coalition with the NFP defeated the AP, winning 28 seats to the AP’s 24 seats.

The evolution of Fijian political parties in the run-up to the 1992 elections reflected the changes in the constitution and in the personalities involved. The Soqosoqo ni Vakavulewa ni Taukei (SVT), formed by the Great Council of Chiefs, assumed the role of the old AP in representing the interests of the indigenous Fijians. Although the SVT accepts multiracialism, it advocates the constitutional dominance of ethnic Fijians. The NFP continued to represent the traditional values of the Fijian Indians, but was seriously challenged by the FLP in the 1992 elections, when the FLP won 13 of the 23 Indian seats it

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contested. The FLP was particularly successful in the sugar-cane growing areas, which possibly reflected the popularity of the party’s Fijian Indian leader, Mahendra Chaudhry, who took an active role in the unrest in the cane fields during the period of interim government.

Before the February 1994 elections, there was a split in the SVT, with several prominent members leaving to join the Fijian Association (FA), which had been a constituent party of the old AP under Ratu Finau Mara. However, in the elections the FA won only five seats, and its leader, Mr Kamikamica, was not re-elected. Meanwhile, the NFP gained ground at the expense of the FLP, win- ning 20 of the 27 Fijian Indian seats. The SVT formed a coalition with the General Voters’ Party (GVP), one Rotuma representative and one independent.

The GVP party now represents the interests of all non-indigenous Fijian and non-Fijian Indian citizens of Fiji and therefore includes, for instance, islanders from the other Pacific island groups. In the 1970s and 1980s it had largely been the party representing the interests of European settlers. In 1995 the FA merged with the multiracial All Nationals to form the , under the leadership of Josefata Kamikamica.

General election results, 1994 No of seats Seats reserved for ethnic-Fijians Soqosoqo ni Vakavulewa ni Taukei 31 Fijian Association 5 Independent 1 Seats reserved for ethnic-Indians National Federation Party 20 Fiji Labour Party 7 General Voters’ Party 4 All Nationals Congress 1 Rotuma Island representative 1 Total 70 Source: Press reports.

Several small extreme groups wield some political influence, particularly on the indigenous Fijians. The most important of these groups is the nationalist Taukei movement, an extremist voice which supports indigenous Fijians. The Taukei movement played a significant role in inciting the army to carry out its two coups d’état in 1987. Although the army expanded considerably after the coups it has not interfered in politics since 1987.

The Fiji Trades Union Congress (FTUC), headed by the then general secretary, Mahendra Chaudhry, maintained a conspicuous presence during the interim government. However, many of its rights were eroded by legislative develop- ments in that period. In 1992 the government gave the FTUC official recogni- tion, withheld since 1986, as the sole representative of workers in Fiji. The FTUC is an important focus of opposition activity within Fijian politics.

International relations The government welcomed the signing of the South Pacific Nuclear Free Zone and defence Treaty by the UK, USA and on March 25, 1996, 11 years after the South Pacific countries had signed it. The treaty was signed two months after France

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had carried out its sixth and final underground test in French . In Fiji there was widespread opposition to the nuclear tests, which has soured rel- ations with the French government. Fiji signed the Treaty of Rarotonga which bans nuclear bases, the possession, use and testing of nuclear weapons, and the dumping of nuclear waste in the .

Fiji’s relations with its former Western allies and some of its Pacific neighbours have been strained by the military coups of 1987 and by the Internal Security Decree of 1988, which was promulgated after the discovery of smuggled arms in western Viti Levu and gave the authorities extensive powers of arrest and deten- tion. Fiji’s membership of the Commonwealth ceased in October 1987 after the second coup and there was a notable deterioration in Fiji’s relations with Austra- lia, and India. Aid from , New Zealand, the UK and the USA was suspended after the first coup, but, following the reinstatement of civilian government in December 1987 and the suspension of the Internal Security Decree in November 1988, there was a move towards the resumption of full relations. This process of rehabilitation was completed after the 1992 elections. Of Fiji’s Melanesian neighbours, Papua New Guinea and Vanuatu were generally sympathetic to the motives underlying the coup. Papua New Guinea went out of its way to recognise the regime, but Solomon Islands was not willing to follow suit. This lack of concord among the countries slowed progress on the formulation of a Joint Set of Principles for the Melanesian Spearhead Group. As a result of the coups Fiji also lost its pre-eminent position in the South Pacific Forum.

The 1990 racially biased constitution has brought Fiji widespread criticism. The secretary-general of the Commonwealth, Chief Emeka Anyaoku, has recently reiterated that Fiji will not be readmitted to the Commonwealth until the 1990 constitution is reformed. India and , in particular, are likely to veto Fiji’s readmission as long as the Fijian constitution discriminates against ethnic Indians. Fiji’s relations with India have been strained since the 1987 coups, which ousted the Indian-dominated government. In November 1989 the In- dian ambassador was asked to leave Fiji and in May 1990 the government ordered the closure of the Indian embassy in reaction to India’s ban on trade between the two countries and its alleged interference in Fijian internal affairs.

Fiji’s armed forces total 3,900—3,600 in the army and 300 in the navy—and are supported by some 5,000 reservists. Around 1,000 of Fiji’s military are currently involved in UN peace-keeping missions overseas. Defence co-operation agree- ments with New Zealand and Australia ceased following the 1987 coup, but were reinstated in 1992 and 1993.

Population and society

Area and population Fiji consists of an of around 300 islands of varying sizes, only about 100 of which are permanently inhabited. The two largest islands—Viti Levu (10,389 sq km) where 70% of the population live and Vanua Levu (5,534 sq km), where 20% of the population live—make up around 87% of Fiji’s land area. The capital city, Suva, is situated on the east coast of Viti Levu. At the time of the 1986 census, about 160,000 inhabitants, 22% of Fiji’s total population, lived in

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the greater Suva area. Other important towns in Fiji are Lautoka, and on the western side of Viti Levu, on the east, and , the main town on Vanua Levu. The island of Rotuma, to the north of Vanua Levu, and eight smaller islands of the group, also make up part of Fiji.

In the 1986 census, the population of Fiji was recorded at 715,375; an end-1995 official estimate put the level at 796,078. In 1986, the largest component of the Fijian population consisted of the 349,320 Indians (48.8% of the total), who were originally brought to Fiji by the British as indentured labour for the sugar and industries. By the end of 1988 the Bureau of Statistics estimated that indigenous Fijians had become the largest community in the islands for the first time since 1946. The indigenous Fijian population had been on the de- cline since the 1850s following and ’flu epidemics, which decimated the population. At the end of 1995, official estimates of the population indi- cated that 346,523 (43.5%) were Indians, 403,288 (50.7%) were indigenous Fijians, and the balance comprised people of part-European, Chinese and other descent. The shift in the population has been caused by an exodus of Fijian Indians since the coups in 1987. Between May 1987 and December 1989 over 22,000 Fiji citizens, of whom more than 80% were Indians, left the country. The rate of emigration peaked in 1990 with an average of 487 residents leaving each month. Emigration, particularly from the ethnic Indian community, still continues apace: in the first ten months of 1995, 90% of the 4,000 Fijian citizens who left the country were ethnic Indians, amounting to almost 1% of the ethnic Indian population in the country and averaging a rate of more than 300 per month. This rate of emigration is likely to worsen the shortage of skills and experience that already exists in Fiji.

Nearly two-thirds of Fiji’s population lives in rural areas but there is a marked drift to urban areas, and in particular to Suva, Lautoka and Nadi. Population density is 42 people per sq km. The annual growth rate of the population, which rose from 1.6% to 3.3% in the intercensal period from 1936 to 1966, was estimated to have fallen to 2.1% in 1966-76 and to 2% in 1976-86. The even lower estimated annual growth rate for 1986-94 of 1.1% owed much to high levels of emigration. In addition, a family planning programme instituted by the government led to a reduction in the birth rate from more than 32 live births per 1,000 in 1980 to 27 per 1,000 in 1986.

At the time of the 1986 census, 53% of Fijians were Christian, mainly Methodist, 38% were and 8% were Muslim.

Social conditions Education. The literacy rate in Fiji in 1986 averaged 87%, with slightly lower rates among women. In 1992 there were 693 state primary schools (with 145,630 pupils enrolled) and 142 state secondary schools (with 60,237 pupils enrolled). In 1990 there were 41 technical or vocational schools, four - training colleges, a school of (associated with the University of the South Pacific) and a school of nursing in Fiji. Most schools are operated by local committees and they tend to be attended by pupils of a single race, though there is no formalised . Over 100 schools are run by churches and other religious groups. Education is not compulsory in Fiji, but the government provides free education for the first eight years of schooling. In 1992, 95% of children of school age were enrolled in school. According to the 1986 census

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60% of 15-year-olds were enrolled in school. The University of the South Pacific, which is financially supported by other Pacific island countries as well as Fiji, is located in Suva. The university’s School of Agriculture is located in Western Samoa and has extension facilities in other countries of the region.

Health. Health-care standards are high in Fiji compared with those in most developing countries. In 1992 the average at birth was 72 years and the infant mortality rate was about 23 per thousand. There are 27 hospi- tals, with a total of 1,747 beds. Most medical facilities are provided by the government, which employs more than 3,800 staff, including 384 doctors and medical assistants, 1,525 nurses and orderlies, and 250 paramedics. The num- ber of medical staff has fallen with the exodus of professional people, mainly Indians, since the coups of 1987. Recruitment of doctors from overseas has filled some of the gaps. Suva and Lautoka have specialist medical services.

Languages. English is the official language and the Fijian dialect most widely used is Bauan. The majority of the Indian population speaks a locally devel- oped dialect of Hindi, known as Hindustani.

Currency

The currency is the Fiji dollar. Its value is based on a fixed relationship with a weighted basket of the of Fiji’s most important trading partners. Between 1980 and 1985 the value of the Fiji dollar in terms of the US dollar depreciated steadily, but it recovered some ground in 1986 despite a 5% devalu- ation early in the year. However, it depreciated against the Australian, New Zealand and Japanese currencies. The slide accelerated in 1987 when the Fiji dollar was twice devalued, by 17.75% in June and by 15.25% in October, in response to capital flight and international loss of confidence following the two coups. The devaluations improved Fiji’s competitive position at a time when the country was becoming more export-oriented. A strong economic recovery in 1989-90, when the economy grew by over 8% per year enabled the Fiji dollar to hold its own against the US dollar. The nominal exchange rate appreciated by 5.3% between 1993 and 1994 and by a further 4.1% between 1994 and 1995. Further appreciation threatens to erode Fiji’s competitive posi- tion and would undermine Fiji’s prospects of export-led growth. At the end of July 1996 the exchange rate was F$1.3976:US$1 (US$0.7155:F$1).

Exchange rate of the Fiji dollar

1990 1991 1992 1993 1994 1995 US$:F$ (av) 0.6753 0.6777 0.6653 0.6486 0.6830 0.7111 F$:US$ (av) 1.4809 1.4756 1.5030 1.5418 1.4641 1.4063 A$:F$ (end period) 0.8888 0.8934 0.9224 0.9601 0.9136 0.9405a F$:A$ (end period) 1.1251 1.1193 1.0841 1.0416 1.0946 1.0633 a

a End-September actual.

Source: IMF, International Financial Statistics.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 16 Fiji

The economy

Fiji has the largest economy of the Pacific Islands. Nominal GNP per head was US$2,130 in 1993. The economy has traditionally been dependent on the and tourism earnings, both of which are subject to external influences beyond the control of the country and the government. Fiji is prey to hurri- canes which can cause serious damage to crops and also discourage foreign visitors. Earnings from tourism can be affected by the economic conditions prevailing in the visitors’ countries of origin. Fiji has managed to weather falls in sugar prices better than most developing countries because quota arrange- ments with the EU and the USA have enabled Fiji to sell sugar at prices higher than those attainable on the open market.

The political turmoil of 1987 wiped out much of the gain in income that had been made over the previous decade, so that in 1991 GDP per head of F$1,151 (US$823) (at constant prices) was only 3.3% higher than the level of F$1,114 recorded in 1981. The government has recognised the need for macroeconomic stability to foster strong export-led growth and for a reduction in the size of the public sector. Although it has attempted to introduce reforms to the economy, progress has been slow. Fiscal policy has largely failed to effect the government’s development goals, with the size of the budget deficit reflecting recurrent ex- penditure overruns rather than high levels of public-sector investment. In addi- tion, ongoing concern over political rights (relating to the 1990 constitution) and property rights (relating to the land-lease issue) prevents economic reforms from taking full effect, inhibits domestic investors from making long-term com- mitments and deters foreign investment. The level of investment in Fiji is con- sequently low by Asian, and particularly by South Pacific, standards. According to the , in the 15 years to 1983 gross domestic investment averaged 32% of GDP in East Asian and Pacific countries and 21% in low-income econo- mies. During the same period, the average for Fiji was 21% and during the 1990s this fell to less than 15% of GDP. In 1994 gross fixed investment is estimated at 10.7%, one of the lowest levels in the Pacific Island economies. Private invest- ment fell from an average of 12% of GDP in 1980-86 to 5% in 1992-94 and public-sector investment is estimated to be around 2% of GDP.

Long-term plans for the economy focus on the development and diversific- ation of agriculture and ago-industry, particularly as the Uruguay Round trade agreement is likely to to lower sugar prices in the future. In addition, the government is aiming to shift the economy away from its reliance on agricul- ture by boosting tourism and manufacturing as sources of income. The govern- ment has announced tax incentives to encourage the expansion of five-star hotel accommodation in Fiji. The incentives include flexibility on the terms of capital depreciation; the carry-over of losses for up to six years; duty-free im- port of all equipment, machinery and plant; and a 20-year corporation tax holiday. The government also created a Tax-Free Factory/Tax-Free Zone scheme in 1989 which attracted some foreign investment.

The government has achieved some success in reorienting the economy. Manufacturing’s share of GDP has grown only slightly over the past decade from 11.7% in 1985 to 12.4% in 1994. In the same year agriculture still ac- counted for 22% of GDP. The shift in Fiji’s economy is highlighted by the

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Fiji 17

changing composition of Fiji’s exports. In 1987 sugar accounted for 55.7% of domestic exports, but by 1994 this had fallen to 38.4%, whereas garment exports rose from 2.6% of total exports in 1987 to 21.5% in 1994, and are now the second largest export earner.

During 1995 the government made a series of recommendations on policies to promote Fiji’s future economic growth. At the National Economic Summit, held in May 1995, the minister for finance, , emphasised the need for a flexible labour market, low taxes, an efficient and small public service and an export-oriented growth strategy. With a view to reducing the considerable public sector, the government last year tabled the Public Enterprise Bill, which will provide the legal framework for the government to privatise, fully or in part, publicly owned enterprises. During cabinet meetings in September a list was drawn up of those enterprises that would best operate in the commercial sector. The list of public enterprises for sale included , the Fiji Broadcasting Commission, the , the Fiji Tannery, the government shipyard, Fiji Home Finance, Rewa Rice and the of Fiji. Early in 1996, the government pressed ahead with this programme by arranging the sale of part of the government shipyard at Walu Bay in Suva to a New Zealand-based consortium for F$3,187,500. The disposal saves the govern- ment F$1.4m a year on its operating budget.

National accounts

Growth in Fiji’s GDP has fluctuated considerably and in recent years efforts have been made to diversify export crops and to expand the contribution of manufacturing to GDP, in order to reduce the vulnerability of the economy to shocks. During 1972-81 Fiji experienced an average rate of real GDP growth of 5.1% a year but the next four years saw the economy contract by an average of 0.6%. In 1986 GDP growth picked up sharply to 7.6% as sugar output increased by more than 30% and tourism flourished. At the start of 1987 the economy looked set for another year of strong growth, but the political turmoil during the year inflicted damage on both the sugar and the tourism industries, result- ing in a contraction of GDP in 1987 and only modest growth in 1988. Increases in sugar prices and improvements in sugar production, a pick-up in tourism and growth in manufacturing, particularly of garments, contributed to a strong recovery in 1989 and 1990.

Gross domestic product (at factor cost) 1989 1990 1991 1992 1993 1994 Total (F$ m) At current prices 1,661.4 1,810.9 1,942.1 2,094.3 2,220.0 2,331.0 At constant (1977) prices 820.5 849.4 853.8 880.9 896.7 943.4 Real change (%) 12.9 3.5 0.5 3.2 1.8 5.2 Per head (F$) At current prices 2,294.8 2,473.9 2,617.4 2,781.3 2,902.0 2,972.3 At constant (1977) prices 1,133.0 1,160.0 1,151.0 1,170.0 1,172.0 1,211.0 Real change (%) 12.1 2.4 –0.8 1.7 0.2 3.3 Source: Reserve Bank, Quarterly Review, June 1995.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 18 Fiji

Growth in by sector (% annual change; at constant 1977 prices) 1990 1991 1992 1993 1994 Agriculture, forestry & fishing –4.1 –1.3 3.1 3.4 8.5 Mining & quarrying –2.1 –33.7 34.4 2.4 –8.9 Manufacturing 6.7 4.6 –0.7 4.9 8.1 Utilities 5.5 3.3 9.2 2.8 7.8 Construction –16.2 15.0 23.5 –29.9 6.4 Transport & communications 7.4 2.5 9.5 0.4 4.3 Commerce 14.1 –5.9 –2.2 8.6 5.5 Finance, insurance etc 6.8 1.2 2.6 2.8 2.1 Community & personal services 1.4 3.3 2.1 –0.2 0.8 Source: Reserve Bank, Quarterly Report, June 1995.

Gross domestic product by sector (F$ ’000; in constant 1977 prices at factor cost) 1989 % of total 1994 % of total Agriculture, forestry & fishinga 189,580 23.1 207,470 22.0 Sugar cane 78,990 9.6 88,240 9.4 Other crops 26,420 3.2 28,140 3.0 Livestock 7,400 1.0 8,740 0.9 Fishing 12,990 1.6 15,010 1.6 Forestry 12,540 1.5 14,610 1.5 Subsistence 51,240 6.2 52,720 5.6 Mining & quarrying 1,880 0.3 1,530 0.2 Manufacturing 92,840 11.3 116,740 12.4 Sugar 30,560 3.7 34,280 3.6 Other food, drink & tobacco 27,420 3.3 32,890 3.5 Other manufacturing 32,220 3.9 46,750 5.0 Self-employment 2,630 0.3 2,830 0.3 Electricity, gas & water 10,080 1.2 13,290 1.4 Construction 35,460 4.3 31,520 3.3 Wholesale & trade, etc 160,740 19.6 193,470 20.5 Trade 132,810 16.2 159,430 16.9 Hotels & restaurants 27,920 3.4 34,040 3.6 Transport & communications 112,670 13.7 142,350 15.1 Transport 96,220 11.7 121,230 12.9 Communications 16,450 2.0 21,120 2.2 Finance, insurance, etc 99,420 12.1 115,800 12.3 Community & personal services 140,560 17.1 151,170 16.0 Imputed service charges –24,350 –3.0 –31,800 –3.4 Total incl others 820,480 100.0 943,380 100.0

a Components do not add in source.

Sources: Reserve Bank, Quarterly Report, June 1995.

In 1991, however, lower sugar prices, disruption of the sugar harvest by farm- ers’ boycotts, and fewer tourists from recession-hit Australia and New Zealand, led to a slowdown in GDP growth to 0.5%. The economy recovered only slightly in 1992 and 1993. Economic performance in 1993 was hampered in particular by which struck in January, inflicting an estimated US$84m of damage on agriculture and infrastructure. In 1994 economic

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Fiji 19

growth picked up to 5.2% from 1.8% in 1993, boosted by record sugar prod- uction and record earnings from tourism. This level of growth is unlikely to have been exceeded in 1995, when sugar production was marred by strikes and poor mill performances and tourism was severely affected by the resumption of French nuclear testing in the region in the latter half of the year.

Expenditure on gross domestic product (at current market prices) 1989 1994 F$ m % of total F$ m % of total Private consumption 1,210.2 65.0 1,786.2 65.3 Government consumption 296.1 15.9 454.2 16.6 Gross fixed investment 237.8 12.8 292.8 10.7 Stockbuilding 24.5 1.3 40.0 1.5 Exports of goods & non-factor services 1,162.9 62.5 1,611.0 58.9 Imports of goods & non-factor services –1,058.9 –56.9 –1,573.7 –57.5 Statistical discrepancy –12.0 –0.6 126.4 4.6 GDP 1,860.6 100.0 2,736.9 100.0 Source: ADB, Key Indicators of Developing Asian and Pacific Countries, 1995.

Employment

Nearly two-thirds of the Fijian labour force are self-employed, mainly in the agricultural sector and in small businesses involved in trade and distribution. In mid-1995, 97,276 people were engaged in formal (paid) employment, repre- senting 36.2% of a total labour force estimated at 268,900 in 1993. This level of employment was 2% higher than the previous year, which has been the trend growth rate since 1991. Over 90% of the total labour force would be classed as employed if self-employed and unpaid family workers were included.

In mid-1987, after the first coup, the level of formal employment declined to 77,597 from 79,854 the year before. The downturn in the private sector resulted in a decline in private-sector employment virtually across the board. This was masked in part by an increase in public-sector employment; and recruitment, mainly into the armed forces, accounted for a net increase of 1,719 in the “community, social and personal services” category. As the economy bounced back in 1989-90, so did the number of wage- and salary-earners in employment. By mid-1989 their numbers were already well in excess of pre-coup levels. Ex- pansion in total formal employment since the mid-1980s has been faster than the rate of growth of the population, despite the downturn of 1987-88. Since 1989 there has been a slight shift in sectoral employment, with an increase in the proportion of the labour force involved in manufacturing, construction and mining compared with a decline in most of the other sectors.

The labour market continues to suffer from high levels of emigration from Fiji. In the first half of 1995, a total of 2,436 Fijians emigrated, an increase of 14.8% on the same period of the previous year. Of these emigrants, 12.5% were industrial workers, 10.8% were professionals and technical workers, 9.8% clerks

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 20 Fiji

and supervisors, and 5.1% administrative and managerial staff. If this level of emigration continues, the country faces the loss of a considerable body of experienced personnel.

Employment by sector (mid-year) 1989 % of total 1994 % of total Agriculture, forestry & fishing 2,130 2.4 2,303 2.4 Mining & quarrying 1,456 1.7 1,917 2.0 Manufacturing 19,666 22.3 23,677 24.8 Electricity, gas & water 2,548 2.9 2,213 2.3 Construction 5,227 5.9 7,427 7.8 Wholesale & retail trades, restaurants & hotels 13,695 15.5 14,125 14.8 Transport, storage & communications 9,852 11.2 9,959 10.4 Finance, insurance, real estate & business services 5,385 6.1 5,978 6.3 Community, social & personal services 28,209 32.0 27,746 29.1 Total 88,168 100.0 95,345 100.0 Sources: Bureau of Statistics, Current Economic Statistics; Reserve Bank, Quarterly Report, June 1995.

Wages and prices

Movements in wages have reflected periodic attempts by the government to freeze, or even cut back, wages in the public sector to improve its budgetary position. Thus in 1987 a 15% wage cut was imposed on all civil servants in an effort to bring government expenditure into line with falling revenue as a result of the economic contraction caused by the coups. This cut was sub- sequently reversed in stages and public-sector wages have since tended to keep pace with inflation. The public-sector pay rise granted in 1993, at 5%, was close to that year’s average inflation rate.

Given the economy’s high dependence on imports, the rate of inflation is largely determined by trends in import prices and by the movement of the Fiji dollar against major trading currencies. The inflation rate doubled from 5.7% in 1987 to 11.8% in 1988 largely as the result of currency devaluations in June and October 1987 which totalled 30.3%. Inflation eased back in subsequent years, partly as a result of low imported inflation from Fiji’s main trading partners. However, the pace picked up again in July 1992, when value-added tax was introduced which raised inflation to a peak of 7.1% in June 1993 and gave an average of 5.2% for the year. In 1994, once the effects of the new tax had worked their way out of the data, the average annual rate of inflation fell down to 0.6%. In 1995 it rose to 2.2%, mainly due to a 2.6% rise in housing costs from 0.6% in 1994. In addition the heavily weighted food index (35.4% of the total index) increased to 0.7% from 0.5% in 1994, although the strength- ening of the against the currency of its major source of imports, the , helped to limit the price rise.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Fiji 21

Trends in prices and wages (1990=100; period averages) 1990 1991 1992 1993 1994 1995 Consumer prices 100.0 106.5 111.7 117.5 118.2 120.8 % change 8.2 6.5 4.9 5.2 0.6 2.2 Wages 100.0 105.0 110.2 n/a n/a n/a % change 6.0 5.0 5.0 n/a n/a n/a Source: IMF, International Financial Statistics.

Agriculture, forestry and fishing

The economy is heavily reliant on agriculture, which accounted for 22% of GDP in 1994, and in particular on sugar which provided 9.4% of GDP in the same year; while sugar processing contributed a further 3.2%. Sugar is also an important source of foreign exchange. In 1994 sugar exports accounted for 38.4% of domestic export earnings. In recent years timber and fish, chiefly , have also become increasingly important. It is estimated that in 1993 around 37.2% of the labour force was involved in the agricultural sector, al- though only around 2% are regarded as formally employed in it.

Agriculture Sugar. Expansion of agricultural production, with the emphasis on sugar, has been considered essential to provide employment for a growing labour force and to retain population on the land. Since 1986, when sugar production reached 502,000 tons, results have been mixed. The 1987 crop was hit by drought and late harvesting, and part of the crop was destroyed in the aftermath of the May coup. Production in 1988 was even more disappointing, but there was a good recovery in 1989. Output was down again in 1990, as a result of a boycott of the harvest, which delayed cane-cutting for up to five weeks. This meant that excep- tionally poor quality cane was delivered to the mills leading to a TC/TS ratio (tons of cane required to make a ton of sugar) of 9.8, the worst in 22 years. Delayed harvesting led to poor yields in 1991 and Fiji was reduced to importing sugar early in 1992 in order to meet export commitments. Production improved in the 1992 and 1993 seasons as relations within the sugar industry returned to normal in the aftermath of the 1992 general elections. 1994 was the best year since 1986. Output rose to a record 516,598 tons and the TC/TS ratio was 7.9. However, the 1995 crushing season which came to an end in February 1996 was marred by strikes and poor mill performances. The four sugar mills currently operating in Fiji crushed over 4 million tons of cane, producing around 450,000 tons of sugar, down 13% on 1994. Industrial disputes now appear to have been resolved. However, uncertainties over the land-lease issue may con- strain growth in the industry as Indian cane-growers may be reluctant to invest in their land if they expect to receive no compensation for any improvements. Following the Uruguay Round Agreement, Fiji is faced with the possibility that preferential access to lucrative markets, particularly within the EU, will eventu- ally be phased out, and that world sugar prices will fall. This is forcing the sugar industry to look at how it can compete in world markets in the future and specifically at how it can reduce costs. The Sugar Protocal of the Lomé Conven- tion will provide protection to Fijian sugar growers until 2001. Of the 300,000 tons of sugar guaranteed annual access to the EU from 15 , and

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 22 Fiji

Pacific (ACP) countries, in 1996 Fiji will be guaranteed access for 40,000 tons at a price of 18 US cents per lb (compared with the EIU’s forecast of a 1996 price of 11.28 US cents).

A South Korean-based company, South Pacific Agricultural Development, has announced plans to set up a sugar plant on the island of Vanua Levu. A feasibility study is under way for a 100,000-ton (raw sugar) plant, which would ease pressure on existing mills in the country.

Subsistence agriculture and the production of other cash crops are also impor- tant, although a wide range of foodstuffs still needs to be imported.

Copra. Annual copra production has been in fairly steady decline since the mid-1960s, when it peaked at over 41,000 tons/year (t/y). During the 1970s and early 1980s production was in the range of 20,000-25,000 t/y, but cyclone damage caused a sharp fall in output in 1987 and, with prices weak and stocks ageing, the crop has been well below 20,000 t/y in most years since. In 1993, copra production fell by 31% over the previous year to 11,000 t/y. Any recovery in output depends on a sustained improvement in copra prices. As commercial production of copra is very price-sensitive, subsistence farmers take it up only when it becomes worthwhile.

Bananas. These are now grown solely for domestic consumption. Projects for the production of citrus fruit, cocoa and several other items have been slow to materialise, but some success has been achieved with ginger, and also with poultry and pig-rearing.

Small amounts of ginger and oil are exported, accounting respectively for 0.2% and 0.6% of total exports in 1994.

To encourage agricultural production and exports and provide more added value, small processing plants have been installed. They include an abattoir, a desiccated-coconut plant and facilities for handling ginger and groundnuts.

Crops grown primarily for domestic consumption include rice and various other cereals, vegetables, pineapples and other tropical fruits. Dairy products, beef, poultry and pork are also produced for the home market.

Agricultural production (’000 tons unless otyerwise indicated) 1988 1989 1990 1991 1992 1993 Sugar cane 3,185 4,099 4,016 3,380 3,500 3,700 Sugar 363 461 408 389 426 442 Copra 11 13 19 15 16 11 Coconut oil 7 8 12 8 9 n/a Paddy rice 31 32 32 29 22 20 Cocoa (tons) 238 375 406 363 325 152 Beef (tons) 3,566 4,000 2,902 2,847 2,624 2,429 Pork (tons) 531 600 603 714 711 765 Chicken (tons) 3,958 4,674 5,491 5,888 4,622 n/a Ginger (tons) 3,900 4,700 5,500 n/a 3,267 2,906 Sources: Bureau of Statistics, Current Economic Statistics; Reserve Bank, Annual Report, 1994.

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Of the total cultivated land area of 1.8m ha in Fiji, 1.5m ha are communally owned by indigenous Fijians. The remaining cultivated land is freehold or various categories of state land. Some of the best and most easily cultivated land is freehold. The fact that Fijian communally owned land cannot be alien- ated or sold freehold creates a constraint on some types of agricultural develop- ment. In addition, the imminent expiry of Agricultural Landlord and Tenants Act (ALTA) land leases agreed with Indian sugar-cane farmers casts a shadow over the agricultural sector.

The sugar industry

1988 1989 1990 1991 1992 1993 Area harvested (’000 ha) 64 71 70 n/a n/a n/a Cane production (’000 tons) 3,185 4,099 4,016 3,380 3,500 3,700 Yield (tons/ha) 49.8 57.7 57.4 n/a n/a n/a Prices paid to growers (F$/ton) 44.0 46.5 41.3 50.9 55.0 n/a Input of cane per ton of sugar (tons) 8.8 8.9 9.8 8.7 8.2 8.4 Sugar production (’000 tons) 363 461 408 389 426 442 production (’000 tons) 130 151 164 138 129 n/a Source: Fiji Sugar Corporation, Annual Report, 1994.

Forestry The timber sector has performed well since the mid-1980s, with increasing overseas demand and diversification into new products such as wood chips boosting production. Earnings from exports of timber and its products have increased substantially since 1986 as run by Fiji Pine, the main operator in Fiji, have come on stream. In 1987 earnings, from lumber exports were F$10.7m (US$7.6m), 3.2% of total export earnings and have risen to F$31.2m in 1994, 4.7% of total domestic export earnings. As Fiji Pine’s plant- ations reach their full production potential, probably by the year 2000, it is hoped that timber will rival sugar as a proportion of total exports, generating around F$300m a year.

The Fiji Pine Commission (FPC) was set up in 1977 to promote the industry, succeeding the Pine Scheme that had been in existence since 1972. The target was to have 54,000 ha of Caribbean pine by 1990, sufficient to sustain annual output of 550,000 cu metres of roundwood. However, forest fires, drought and hurricanes slowed progress substantially. It is estimated that as much as 7,000 ha was destroyed by fire in 1987, some perhaps as a result of arson. The FPC’s budget for 1988 was cut as part of a general government drive to control expenditure. A timber milling complex was built on Viti Levu and commis- sioned in 1987 with a capacity of 52,000 cu metres of sawn pine and 136,000 cu metres of wood chips. The company running the plant, Tropik Wood Industries, is 51% owned by the FPC, with British Petroleum holding a stake of 29%, and the Commonwealth Development Corporation and the European Investment Bank each owning 10%. The FPC was privatised in 1990, and Fiji Pine took over the assets, liabilities and functions of the commission.

Fishing Over the past three years, the fisheries sector’s contribution to GDP has ex- panded and stood at 1.6% in 1994. There is still considerable potential for exploitation of the extensive fishing resources within Fiji’s exclusive economic

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 24 Fiji

zone. Local commercial fishing is limited, the main operator being the for- merly government-owned Ika Corporation, which was privatised in 1990. Large-scale fishing is in the hands of Japanese, South Korean, and US fleets. US fishing is governed by the treaty that the South Pacific Forum Fisheries’ Agency originally signed with the USA in 1988. These fleets supply their fish to the Pacific Fishing Company (PAFCO) cannery in , which is owned in part by the government of Fiji. The largest market for Fiji’s fish exports is , which accounts for around F$25m of total fish exports. The value of exports of canned tuna and of other fish varied between F$39m (US$28m) and F$49m in 1988-93. In 1994 the value of fish exports stood at F$55.8m, a 29.2% rise on the 1993 outturn.

Mining

Although the mining and quarrying sector contributed only 0.2% of GDP in 1994, it is expected that the developments in the sector will increase this level over the next few years.

Gold Gold is the most important mineral mined in Fiji. In 1988 its export contrib- ution peaked at F$81.5m (US$58m), accounting for over 18% of the country’s total domestic export earnings. The industry employed over 7,000 people in the mining area at Vatukoula. The mine had been on the verge of closure in 1980 as a result of low-grade ore and rising costs, but incentives to continue production came from wage reductions, government subsidies and the rise in the world price of gold. The Emperor Gold Mining Company at Vatukoula now owns the entire venture, having acquired the remaining share of Western Mining Corporation of Australia in February 1991. From that time until the newly elected government intervened in late 1992, the company was beset with labour problems, which led to a sharp fall in production in 1991 to 2,743 kg and in exports to F$46.6m. Both output and gold exports picked up again in 1992-93. Exports of gold earned Fiji F$67.1m in 1993 and F$62.6m in 1994, accounting for 9.5% of total domestic export earnings. Several mining com- panies are actively engaged in , spurred in part by the recent rise in gold prices. Following the discovery of new gold deposits, the Mount Kasi gold mine, was reopened in 1994, the first gold mine to be opened in Fiji for 25 years. The original production target for the mine was around 35,000 oz of gold per year from throughput of 500,000 tons of ore, with estimated total project resources of 296,815 oz. The developer of the mine, Pacific Islands Gold, now expects these targets to be exceeded and has raised F$1.86m to fund the devel- opment of the mine. Plans have also been announced for a F$30m expansion of the gold mine at Vatukoula by Emperor Gold Mining.

Gold production (kg) 1988 1989 1990 1991 1992 1993 4,273 4,222 4,116 2,743 3,701 3,784 Source: Bureau of Statistics, Current Economic Statistics.

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Copper Following exploration for copper in the Namosi area of Viti Levu, including a four-year pre-feasibility study which indicated reserves of around 600m tons of low-grade copper ore and some associated gold deposits, the government has now come to an agreement with Placer Pacific on the development of the copper prospect. The company had suspended investigatory drilling last April after failing to reach an agreement with the government on the tax terms for the development. The development and exploitation of the mine is likely to provide a major stimulus to the economy, through increased employment (around 1,000 jobs are expected to be created at the open-cast operation) and through export earnings from the projected annual output of 135,000 tons of copper concentrates and 4 tons of gold.

In 1991 Fiji produced 493 kg of silver and production has expanded in recent years.

Other resources Fiji has deposits of bauxite, lead, , iron, phosphate and marble, but there are no plans for their development. A survey of the waters around Fiji has indicated prospects for iron, manganese, cobalt and copper in the around the island of Rotuma. Fiji currently acts as the base for an inde- pendent regional intergovernmental organisation, the South Pacific Applied Geoscience Commission (SOPAC), which assesses and researches mineral and other offshore resources in the region.

Energy

Exploration for oil and natural gas has taken place during the last few years and there are some hopes of finding them in commercially exploitable quantities. Test drilling by Chevron in late 1980 ended with discouraging results, but other companies have since shown interest in further drilling. In 1993, 20 potential oil-bearing sites were identified. Mineral fuels accounted for around 12% of Fiji’s imports in 1993.

Energy balance, 1995 (m tons oil equivalent) Elec- Oil Gas tricity Other Total Production 0.00 0.00 0.00 0.10a 0.26 0.36 Imports 0.40 0.00 0.01 0.00 0.00 0.41 Exports 0.12 0.00 0.00 0.00 0.00 0.12 Primary supply 0.28 0.00 0.01 0.10a 0.26 0.65 Net transformationb 0.02 0.00 0.00 0.06 0.01 0.09 Final consumption 0.26 0.00 0.01 0.04c 0.25 0.56

a Primary electricity production, imports and exports of electricity are expressed as input equiva- lents on an assumed generating efficiency of 33%. b Net transformation comprises transformation input and output, plus energy industry fuel and losses. c Output basis.

Source: Energy Data Associates.

In a contentious move, in 1991 the Fiji government established the Fiji National Petroleum Company to purchase Malaysian crude, refine it in and

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 26 Fiji

control distribution to the Pacific islands via Fiji. The project was abandoned in 1992 and the company wound up. A new regional agency, the Pacific Forum Energy Agency, has been formed to assess and advise on energy management, new and environmental issues.

Fiji’s government has invested heavily in hydroelectricity, which is now the principal source of power. The Monasavu project was completed in 1983 at a cost of F$233m (US$167m). Monasavu’s initial generating capacity enables it to meet over 90% of Fiji’s current needs and has reduced the oil import bill by one-third by eliminating fuel imports for electricity generation.

Total consumption of electricity amounted to 374m kwh in 1991, of which 285m kwh was for commercial use. (A proportion of electricity consumed is generated by the Fiji Sugar Corporation for its own use.) Electricity accounts for only 5% of national energy consumption. Only about one-third of the popul- ation is supplied with electricity, although the figure rises to 70% in urban areas. About 96% of electricity is consumed on the island of Viti Levu, where Suva and Lautoka and the main tourism facilities are located. In 1994 the electricity and gas sector contributed 1.4% to GDP.

Manufacturing

Manufacturing provided 12.4% of GDP in 1994 and accounted for 24.8% of total formal employment. The sector has been dominated by the processing of sugar-cane and other agricultural products, notably copra, coconut oil and timber. Other manufactures of importance include cement, beer and other beverages, cigarettes and tobacco, various food products, paints, soaps, furni- ture, metal fabricating, paper products and packaging materials. Following the 1988 introduction of tax exemptions, the garment sector has developed rapidly into an important industry in Fiji, accounting for 21.5% of domestic export earnings in 1994.

Manufacturing productiona (tons unless otherwise indicated) 1988 1989 1990 1991 1992 1993 Butter 1,204 1,363 1,227 1,477 1,505 1,481 Cigarettes 530 505 603 585 484 506 Beer (m litres) 16 17 19 18 17 17 Paint (’000 litres) 1,776 1,830 2,188 2,339 2,565 2,731 Soap 7,915 6,398 6,614 7,067 6,891 7,003 Manufactured tobacco 5 4 1 0 0 0 Matches (’000 gross boxes) 145 122 153 150 142 145 Cement 44 58 78 79 68 79

a For certain processed agricultural products see section on agriculture.

Source: Bureau of Statistics, Current Economic Statistics.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Fiji 27

Production indices of selected products (1986=100; four-quarter average) 1989 1990 1991 1992 1993 1994 Animal feed 102.9 120.6 137.8 133.6 122.7 159.6 Ice cream 163.2 156.1 126.3 127.7 142.9 150.9 Soft drinks 135.5 180.1 210.3 235.7 264.4 230.2 Retraded tyres 82.3 80.8 81.8 76.3 78.3 79.8 Garments 257.1 363.9 489.0 338.9 477.0 406.3 Source: Reserve Bank, Quarterly Report, June 1995.

The government places a high priority on developing manufacturing and export-oriented industries. The scheme granting tax-free status and other bene- fits to enterprises exporting 95% or more of their output has met with consid- erable success and has encouraged substantial new investment, particularly from overseas, in the clothing industry. At the end of 1993, 128 factories were in operation (compared with 44 in 1988), 87 of which were garment factories. Garment exports were worth F$131.1m (US$93.8m) in 1991, 24% of Fiji’s domestic export earnings, compared with zero in 1986. The value of garment exports fell back to F$116.8m in 1992, largely as the result of the decline in sales to New Zealand in the face of competition from Asian producers, and then rose to F$128.8m in 1993 and F$141m in 1994.

Construction

Construction contributed 3.3% of GDP in 1994 and employed 7,427 people. A 25% downturn in construction employment and an even sharper 54% decline in the value of work between 1986 and 1988 was the result of the shelving of projects amid the political uncertainty following the two coups. Once this uncertainty eased there was a sharp upturn in construction activity, which peaked in 1992.

Estimated value of work put in placea (F$ ’000) 1988 1989 1990 1991 1992 1993 30,500 36,900 53,100 88,200 111,200 79,300

a By private contractors.

Source: Bureau of Statistics, Current Economic Statistics.

Tourism and other services

Tourism Tourism has become a mainstay of the Fijian economy and has helped to reduce the country’s heavy dependence on sugar as a source of foreign exchange earn- ings. Total tourism earnings rose from F$104m (US$74m) in 1980 to F$185m in 1986 when the number of visitors was 258,000. Receipts were rising sharply in the early part of 1987, at a rate which promised earnings for the year of around F$200m, before the May coup devastated business. Tourism was just beginning to recover, with low-cost promotions in the key markets, when the September

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 28 Fiji

coup again cut the level of activity. The number of tourists visiting Fiji in 1987 consequently fell by 26% on the previous year. Recovery was slow and the number of visitors did not return to pre-coup levels until 1989. In 1991, with the key Australia and New Zealand markets in recession, the number of visitors fell to 259,000, but there was a recovery in 1992 and 1993 despite a fall in the number of Australian arrivals. In 1994 a record number of arrivals (318,874) was recorded and total tourism earnings reached a peak of F$392.5m. Total visitor arrivals of 318,495 in 1995 only just met the 317,600 target. The resumption of French nuclear testing in the South Pacific resulted in a dramatic downturn in the number of tourists visiting Fiji. The Fiji Visitors Bureau (FVB) expects that the damage to tourism will be felt well into 1996 and has thus set its target for 1996 at 339,000, just 6.7% over the 1995 target.

Most of Fiji’s visitors come from Australia and New Zealand. Before 1987 num- bers coming from the USA were rapidly increasing, rising from 13% of the total in 1983 to 27% in 1986. However, US trade suffered a blow from Continental Airlines’ decision to discontinue flights to Fiji and the US share declined to 20% in 1988 and stood at 12.5% in 1995. The Japanese share of the tourism market declined between 1984 (6.3% of visitors) and 1988 (1.8%) but this trend was reversed once the new Air Pacific service between Tokyo and Nadi began in October 1988. Japanese tourists represented 14.2% of all visitors in 1995. The average length of stay for all visitors in 1995 was 8.5 days.

Tourism statistics 1990 1991 1992 1993 1994 1995 No of visitors (’000) 279 259 279 287 319 318 No of cruise passengers (’000) 28 27 30 8 17 18 Rooms available 4,229 4,466 n/a n/a n/a n/a Gross receipts (F$ m) 295 286 328 363 392 339a

a For the first three quarters.

Source: Bureau of Statistics, Statistical News; Reserve Bank, Quarterly Report, June 1995.

Tourist arrivals 1994 1995 % change Australia 85,532 78,503 –8.2 New Zealand 53,495 59,019 10.3 Japan 39,782 45,300 13.9 USA 45,351 39,736 –12.4 UK 23,915 24,409 2.1 Total (incl others) 318,874 318,495 –0.1 Sources: Bureau of Statistics, Statistical News.

The coups led to a serious downturn in investment in tourism. However, a recovery in the tourism market has encouraged several acquisitions and new developments. Substantial developments have gone ahead at Denarau, and are proposed for Suva and Natadola Bay.

The total number of hotel rooms available fell from 3,927 in 1980 to 3,778 in 1983, and had fallen still further by 1987 to 3,429, largely as a result of hurricane damage. By 1991 this number had risen again, to 4,466. The room occupancy rate is usually just under 60%, but it was much lower in 1987, 1988 and 1991.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Fiji 29

The FVB identified the greatest constraint on growth in visitor numbers as the lack of hotel accommodation of an international standard in the 200-300 room category. In response to this and recognising the need to encourage growth in tourism, the government has offered tax concessions to investors planning to construct five-star hotels by the year 2000. The concessions include: flexibility in capital depreciation terms; the carry-over of losses for up to six years; duty- free entry for all equipment, machinery and plant; and a 20-year corporation tax holiday. The policy initiative appears to be yielding results. In January 1996, Hyatt International announced plans to build a US$141m five-star hotel at Nadi, in a joint-venture with Fiji Paradise. A South Korean company, Korea (Fiji) is expected to spend F$3.5m (US$2.5m) transforming the former Atholl Hotel in Deuba to be the main centre for Korean visitors. An increase in Korean visitors to Fiji is expected following the start of four-weekly flights between Seoul and Nadi. The tourism industry in Fiji is also likely to benefit from government proposals to allow the operation of casinos in Fiji, following a cabinet sub-committee recommendation on the subject in March 1996.

Distribution and The Fijian Indian and Fijian Chinese communities and government-supported exporting cooperatives are strong in small-scale retailing. The sector suffered in the after- math of the military coup of May 1987. Importing, wholesaling and large-scale retailing are dominated by two Australian groups. Some of the companies established originally to import into Fiji have also now taken up the export of Fijian products. Traditionally, the export of primary and secondary products has been handled by the relevant producer organisations. The administration and promotion of exports have been strengthened by the setting up of the Economic Development Board and the National Marketing Authority. The latter became a corporate body at the start of 1991.

Transport and communications

In all its development plans, especially the 1976-80 plan, the government has emphasised the development of airstrips, boat-building and the improvement of communications.

Roads The most important projects in road construction undertaken so far have been the Queen’s Road, Suva-Nadi highway, which runs around the south side of Viti Levu, and the King’s Road which will complete the circumference of Viti Levu around the north side.

The road system is fairly well developed, with a total length of 4,777 km. At the end of 1993 there were 24,586 passenger cars, 14,431 light goods vehicles, 2,455 heavy goods vehicles, 1,145 buses and 2,917 taxis registered. Total vehi- cles registered were 50,560.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 30 Fiji

New vehicles registered 1990 1991 1992 Total 4,799 3,742 3,929 of which: private cars 2,491 1,540 1,710 goods vehicles 1,711 1,599 1,629 tractors 141 219 91 buses 28 37 45 taxis & rental cars 273 219 58 Source: Bureau of Statistics, Current Economic Statistics.

Ports and shipping There are about a dozen international shipping lines serving Fiji. The main ports of entry are Suva, Lautoka, Levuka and . The Ports Authority of Fiji is responsible for all ports and wharves. The government shipyard at Walu Bay has now been partly sold into private hands, in the hope that private-sec- tor expertise will be able to turn the company into a profitable enterprise.

Air services The international airports of Fiji are Nadi, about 200 km from Suva, and Nausori, which is about 20 km from Suva. The national carrier, Air Pacific, was managed by Qantas on a three-year contract from March 1985. A new contract was subsequently negotiated, with Qantas agreeing to take a 20% stake in the airline. The Fiji government has a stake of 77%. Of the total arrivals in Fiji in 1995, 98% came by air.

Communications There are telephone or radio telephone links to almost all the inhabited is- lands. Most large towns on Viti Levu have automatic telephone exchanges and direct dialling. In 1994 Vodafone linked up with Fiji’s Post and Telecommun- ications Company to establish a cellular phone network in Fiji. Through the Commonwealth Pacific Telephone Cable (Compac), Fiji is linked with the international telecommunications network. A satellite receiving station is op- erated by Fiji International Telecommunications (Cable & Wireless).

Mass media The Fiji Broadcasting Corporation (FBC) is a government-owned radio station and until mid-1985 was the sole operator. FBC has faced competition from a privately-owned competitor, FM 96, since 1986. Television broadcasting was introduced in 1991 with Television New Zealand (TVNZ) being given a six- week trial period to broadcast the . TVNZ has since been broadcasting on a temporary licence pending a government decision about television broadcasting licensing policy. The service can only be received in and around Suva at present. The major Fijian newspapers were closed down at gun point following the September 1987 coup. One older national daily, The , quickly reopened, but another, The Sun, never resumed publication. A new newspaper, The Daily Post, began publication in 1989.

Finance

Public finance The government has consistently run relatively high deficits on its budget operations. The borrowing requirement as a percentage of GDP (excluding debt repayments) has fluctuated around the 3% level over the past five years. In

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Fiji 31

1991, the level (excluding debt repayments) fell to 2.1% and moved to 2.9% in 1992 due to the delayed implementation of value-added tax affecting revenues and generous public-sector wage settlements raising expenditure. The level shot up to 3.7% in 1993, as revenue fell due to economic slowdown and to tariff reductions. Expenditure on wages and salaries increased, as did allo- cations for relief and rehabilitation of areas hit by Cyclone Kina. In 1994 the budget deficit (excluding debt repayments) of F$45m (US$32m) meant that the budget deficit/GDP ratio fell to a low of 1.9% of GDP. In 1995 the ratio rose to an estimated 2.8%, mainly due to an extraordinary provision of F$20m to refinance the ailing National Bank of Fiji. If this provision is excluded, the budget deficit/GDP ratio for 1995 remains roughly the same as for 1994. The government has set itself a target of balancing the budget by the year 2000.

Central government revenue and expenditure (F$ ’000) 1989 1990 1991 1992 1993 1994 Revenue Customs & excise 188,560 222,970 220,050 198,290 179,030 190,310 Inland revenue 184,570 218,120 229,210 284,370 348,570 369,820 Non-tax revenue 95,100 101,450 119,870 112,670 122,340 129,800 Grants 11,770 8,680 7,300 7,190 4,110 4,130 Total 480,000 551,220 576,430 602,520 654,050 694,160 Expenditure of which: administration 110,340 126,370 150,230 161,640 178,530 165,130 social services 151,160 176,420 195,200 196,340 248,700 251,530 infrastructure 74,150 83,230 85,580 95,590 130,860 120,690 public debt charges 127,130 122,020 136,340 123,540 152,970 140,960 Total incl others 581,400 605,940 679,790 714,560 812,740 803,520 Balance –101,400 –54,720 –103,360 –112,040 –158,690 –109,360 Source: Reserve Bank, Quarterly Review, June 1995.

Government financing (F$ ’000) 1989 1990 1991 1992 1993 1994 Local borrowing 67,444 34,310 80,650 100,740 146,870 78,560 Banking system –11,600 –2,000 31,000 61,950 95,500 196,340 Use of cash deposits 25,644 –2,660 6,520 20,340 –4,270 –58,760 Fiji National Provident 0 –1,300 –1,575 0 0 0 Other non-bank 53,400 40,273 44,707 18,450 55,640 –59,020 Foreign borrowing 33,957 20,409 22,710 11,300 11,820 30,790 International institutions 33,957 19,085 22,570 11,300 5,730 26,430 Bilateral 0 1,324 140 0 6,090 4,360 Open market 0 0 0 0 0 0 Total financinga 101,401 54,720 103,360 112,040 158,690 109,360

a Discrepancies with balances in previous table are in original source.

Source: Reserve Bank, Quarterly Review, June 1995.

The fluctuation in the borrowing requirement owed much to the sensitivity of revenue receipts to Fiji’s trade performance. In the period 1987-1990, customs and excise duties accounted for an average of 37% of total receipts. However, an important addition to government revenues was made in 1992, with the introduction of value-added-tax, which has reduced the dependence on

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 32 Fiji

customs and excise receipts to 27% by 1994. However, the introduction of value-added tax (VAT) has met with mixed success. The World Bank has warned the government to expect shortfalls in revenue if there is no improve- ment in the level of arrears. The VAT unit for the Western Division, for example, has reported accumulated arrears at the end of 1995 of F$30m, of which F$9m has been written off as the result of business closures or owners leaving the country. The World Bank has recommended stiffer penalties, im- proved identification of arrears and more aggressive efforts to encourage non- payers to settle.

The bulk of the government’s budget deficit has usually been funded by dom- estic borrowing, largely through the short-term advance facility of the Reserve Bank. This dependence on monetisation increased in 1987-88 when foreign sources of concessional funding dried up after the military coups. (The World Bank has estimated that at the end of 1994 total outstanding government debt reached the equivalent of 42% of GDP, with domestic debt amounting to around 34% of GDP.)

Money and banking Fiji’s is controlled by the Reserve Bank (formerly the Central Monetary Authority), created in 1983 to replace the Currency Board. The role of the board was restricted to the issue of currency, but the Reserve Bank acts as a with wide powers over monetary and credit control.

There are six commercial banks in Fiji. The domestically controlled bank, the National Bank of Fiji (NBF), enjoys the status of a commercial bank, but it does little business. The troubled NBF is currently undergoing a process of restruc- turing following revelations of a high level of non-performing loans. Two- thirds of the loan portfolio, amounting to F$220m, now looks problematic. The other commercial banks operating in Fiji are overseas banks: , the Bank of Baroda, the Australia and New Zealand Banking Group (ANZ), the Habib Bank and the Bank of . There is also a merchant bank, the Mer- chant Bank of Fiji, which opened in 1986. It is a joint venture between the Fiji Development Bank, Westpac and the International Finance Corporation (IFC) of the World Bank. Its lending is split between individual and commercial customers.

Money and credit (F$ m unless otherwise indicated; end-period) 1990 1991 1992 1993 1994 1995 Currency in circulation 86.0 91.0 103.1 112.4 115.6 117.8 Demand deposits 179.2 183.1 211.0 251.4 229.0 268.3 Money (M1) incl others 265.3 274.4 314.1 363.8 344.6 386.2 M1 growth (%) 0.6 3.4 14.5 15.8 –5.3 12.1 Quasi-money 722.9 855.4 977.4 1,013.7 1,069.7 1,089.6 Money (M2) 988.2 1,129.8 1,291.5 1,377.5 1,414.3 1,475.8 M2 growth (%) 25.2 14.3 14.3 6.7 2.7 4.3 Domestic credit 812.4 982.6 1,090.4 1,225.2 1,306.0 1,315.3 Claims on central government 60.8 82.2 91.6 88.9 80.7 65.4 Claims on public sector 75.2 97.5 118.4 141.9 144.4 137.7 Claims on private sector 676.4 802.9 880.4 994.4 1,080.9 1,112.2 Net foreign assets 373.0 376.0 462.5 406.2 381.0 464.9 Source: IMF, International Financial Statistics.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Fiji 33

The Fiji Development Bank provides finance for local enterprises to promote national economic and indigenous Fijian development within the framework of government policies. It provides mainly medium-term and long-term funds to private-sector borrowers, guarantees and underwriting; it can also take up equity participations. Preference is given to projects which will broaden local entrepreneurship, contribute to reducing income disparities, utilise local raw materials, have a high export and/or import substitution potential, diversify the economy and are labour-intensive.

Growth in money supply has fluctuated largely in response to trends in foreign trade, affecting the level of reserves. The government tends to follow a cautious monetary policy, which has concentrated on maintaining price stability (after the relatively high levels experienced in 1990-93) and on managing high levels of liquidity in the commercial banking system resulting from low levels of private investment.

Foreign trade

The trade balance has been heavily in deficit for many years. The extent of the deficit tends to vary with fluctuations in output and in world commodity prices.

Foreign trade (F$ m) Trade Exportsa fob Imports cif balance Re-exports fob 1989 658.6 860.4 –201.8 106.2 1990 731.9 1,112.9 –381.0 124.5 1991 664.6 961.8 –297.2 109.8 1992 667.0 947.1 –280.1 112.2 1993 692.4 1,109.8 –417.4 104.0 1994 800.5 1,209.9 –409.4 143.5

a Including re-exports.

Source: Reserve Bank, Quarterly Review, June 1995.

Sugar accounted for 38.4% of Fiji’s exports in 1994, just over the average of 36% during the preceding six years, partly due to record levels of production. Earnings from fish and timber fluctuated between F$40m-55m (US$29m-39m) and F$25m-30m, respectively between 1989 and 1994. Gold earnings have suffered from lacklustre world prices and from the 1991 labour troubles at the Vatukoula mine. A stronger gold price over the past year should boost earnings in this sector. Exports of manufactured garments have increased sharply since the industry took off under the stimulus of the tax incentives offered since 1988, rising from F$30.1 in that year to F$141 in 1994.

Imports of machinery (31.2% in 1994) and manufactures (23.1%) now make up the bulk of Fiji’s imports. Until the Monasavu hydroelectric scheme came on stream in 1983 and oil prices fell in 1986, mineral fuels had been the largest single import item.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 34 Fiji

Major items traded (F$ m) 1989 1990 1991 1992 1993 1994 Domestic exports fob Sugar 228.3 223.7 220.4 221.3 230.7 252.2 Garments 99.3 115.8 131.1 116.8 128.8 141.0 Gold 76.2 75.8 46.6 60.7 67.1 62.6 Fish, incl preserved & canned 44.8 49.3 46.6 39.3 42.2 55.9 Timbera 25.4 30.9 26.2 30.2 31.0 31.2 Coconut oil 5.3 4.9 2.3 5.7 3.7 3.8 Molasses 9.8 6.4 13.3 2.3 4.4 13.6 Imports cif Manufactured goods 206.0 244.2 245.2 239.3 251.6 279.0 Machinery 222.0 341.6 216.3 233.5 306.3 377.2 Food & beverages 131.0 151.1 149.3 144.3 176.8 176.4 Mineral fuels 109.8 157.1 146.3 133.5 132.7 137.3 Chemicals 78.2 81.6 72.5 78.6 82.1 89.5

a Lumber only.

Sources: Bureau of Statistics, Current Economic Statistics; Reserve Bank, Quarterly Review, June 1995.

In 1994, 33% of imports came from Australia. New Zealand (16.9%) and Japan (8.1%) were also important sources of imports. Manufactured goods and food are the main import items from New Zealand, and machinery and manufac- tured goods from Japan. The largest export destination in 1994 was Australia (21.7%), followed by the UK (19.4%), the USA (17.9%) and Japan (6.8%).

External payments and debt

Current account Fiji usually records a deficit on its trade balance, whereas surpluses on the services account arise from tourism earnings and official transfers. The recovery of tourism earnings in particular resulted in current-account surpluses in five of the last six years for which figures are available. In 1993, the trade deficit widened by over 100% as shortfalls in domestic food production necessitated high levels of food imports. In addition, an expansion in credit during the year led to an increase in machinery and manufactured goods imports as both consumption and investment increased. In 1994 the trade deficit is estimated to have fallen, partly as a result of a strong performance by the sugar industry and slower growth in imports compared with the previous year. Record net earnings for tourism in 1994 estimated at US$233.9m boosted the services account. The largest debits on the services account are freight charges for foreign trade and investment income paid to foreign resident entities. A small deficit of US$58.4m on the current account deficit is estimated for 1994.

Capital account The political turmoil and uncertainty of 1987 produced a sharp fall in direct investment inflows, followed by a recovery to US$80.4m by 1990. There was another sharp fall in 1991 to US$15.0m, followed by a recovery to US$50.4m in 1992. Other capital movements have been negative in recent years. There is no portfolio investment in Fiji. Since 1989, direct investment inflows into Fiji have more than offset outflows on official capital. Net direct investment in

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Fiji 35

1994 was F$100.4m (US$72m). The 1994 capital account is estimated to have been in surplus by US$19.3m, due to high investment inflows related to copper mining development and airplane financing. The overall balance of payments in 1994 is estimated to have remained in deficit at US$19.8m.

Balance of payments, IMF estimates (US$ m) 1988 1989 1990 1991 1992 1993 Exports of goods fob 373.6 439.5 494.7 446.3 438.2 443.6 Imports of goods fob –389.9 –487.9 –644.6 –549.5 –539.5 –653.5 Trade balance –16.3 –48.5 –149.9 –103.2 –101.3 –209.8 Exports of services 244.9 336.2 378.9 403.2 429.1 491.5 Imports of services –183.3 –226.4 –258.0 –289.3 –299.2 –298.5 Income credit 46.3 55.8 63.4 70.9 65.9 65.8 Income debit –61.5 –75.1 –62.7 –65.2 –72.3 –78.0 Transfers credit 53.5 55.3 41.5 63.9 63.0 70.7 Transfers debit –12.9 –22.3 –23.0 –27.9 –25.7 –28.6 Current-account balance 70.7 75.0 –9.9 52.5 59.4 13.1 Direct investment abroad –1.9 –26.5 –4.9 4.4 –1.7 –6.0 Direct investment in Fiji 32.0 8.0 80.4 15.0 50.4 48.9 Portfolio investment assets 0.0 0.0 0.0 0.0 0.0 0.0 Portfolio investment liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Other investment assets –7.0 –36.1 –12.3 39.1 9.2 –5.3 Other investment liabilities 23.1 –17.8 –14.5 –56.1 –21.0 –31.7 Financial balance 46.3 –72.4 48.6 2.4 36.8 5.9 Capital account nie credit 0.1 0.1 0.6 0.1 0.1 0.2 Capital account nie debit –12.2 –21.1 –24.6 –30.7 –27.7 –26.3 Capital-account nie balance –12.1 –21.0 –24.0 –30.7 –27.6 –26.1 Capital-account balance –34.2 –93.4 24.6 –28.3 9.2 –20.2 Net errors & omissions 7.3 4.8 21.1 –14.6 –15.2 –35.0 Overall balance 112.1 –13.5 35.8 9.6 53.4 –42.1 Memorandum item Total change in reserve assets (–indicates inflow) –109.7 16.6 –35.0 –9.6 –53.4 42.1 Source: IMF, International Financial Statistics.

Reserves Reserves fell sharply in 1987, the year of the two coups, dipping to less than US$100m in August, following the loss of domestic and international confi- dence in the country. After tighter restrictions on the amount of money resi- dents were allowed to take out of the country, reserves had risen again by the end of the year to US$132m. With the partial reinstatement of aid programmes and more buoyant foreign investment they had reached US$317m at the end of 1992, sufficient for seven months of merchandise imports at that time. The fall in reserves in 1993 to US$269.75m reflected the doubling of the size of the trade deficit (because of a surge in imports) and a sharp fall in the surplus on the capital account. According to IMF figures, total reserves (excluding gold) rose by just 1.4% in 1994 to US$273.4m, but by 28% in 1995 to US$349m, representing around five months of import cover.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 36 Fiji

International liquidity (US$ m unless otherwise indicated; end-period) 1990 1991 1992 1993 1994 1995 Foreign exchange 227.22 248.51 294.32 247.19 247.77 322.76 SDRs 23.45 13.25 8.21 8.59 10.79 11.41 Reserve position in the IMF 10.13 9.67 14.34 13.67 14.58 14.87 Total reserves excl gold 260.79 271.43 316.87 269.46 273.14 349.03 Golda 0.28 0.27 0.25 0.29 0.29 0.29 Total reserves incl gold 261.07 271.70 317.12 269.75 273.43 349.32 Memorandum item Gold (m fine troy oz) 0.001 0.001 0.001 0.001 0.001 0.001

a Valued at 75% of the fourth-quarter average London price.

Source: IMF, International Financial Statistics.

Disbursements of gross development assistance (US$ m) 1988 1989 1990 1991 1992 1993 Bilateral 49.1 38.0 45.1 41.2 56.0 51.7 of which: Australia 19.8 18.7 19.4 20.5 24.6 15.2 Japan 9.1 7.5 9.0 8.2 16.3 20.3 New Zealand 1.8 2.7 6.2 2.8 5.8 7.3 UK 2.2 3.3 3.7 4.3 3.7 3.5 France 10.2 2.2 1.9 2.0 2.6 2.0 Multilateral 6.9 6.6 6.9 5.3 9.8 15.3 of which: EU 2.7 1.7 2.9 1.6 5.7 n/a UNDP 1.5 1.1 1.4 1.5 1.3 n/a Total 56.0 44.6 52.0 46.5 65.8 67.0 Source: OECD, Geographical Distribution of Financial Flows to Developing Countries.

Aid Australia has traditionally been the major source of aid to Fiji but in 1993, Japan overtook Australia as the largest donor of bilateral aid to Fiji. Most donor countries suspended aid after the coups in 1987 and a new group of countries— France, and —was quick to offer assistance. Since the formal resumption of civilian government in December 1987 traditional donors have resumed their contributions. Multilateral aid is mainly project-related and var- ies considerably from year to year.

Debt Total external liabilities were rising in the 1980s. According to World Bank figures, in 1987 and 1988 respectively, total external debt as a proportion of export earnings was 82.2% and 72%. Subsequently large falls were recorded as both official and private creditors reduced their exposure in Fiji: by 1994 total debt as a proportion of export earnings had fallen to 26.2%. Interest payments and total debt service have decreased since 1990 as total external debt has declined and a higher proportion of long-term debt has been on concessional terms. Debt service and the debt-service ratio are at a manageable level. The debt-service ratio has fallen from a high of 11.8% in 1987 to 7.1% in 1994.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Fiji 37

External debt (US$ m unless otherwise indicated) 1989 1990 1991 1992 1993 1994 Total external debt 414 413 360 339 330 299 Long-term debt 399 401 349 308 283 283 Short-term debt 14 12 11 31 47 16 Use of IMF credit 1 0 0 0 0 0 Public & publicly guaranteed long-term debt 302 306 271 227 199 195 Official creditors 264 279 253 221 197 194 Multilateral 191 202 203 184 166 166 Bilateral 72 77 51 37 31 28 Private creditors 38 27 17 6 3 1 Commercial banks 17 12 6 2 1 1 Total debt service 91 106 103 84 78 80 Principal 587373605759 Interest 33 33 30 24 21 21 Ratios (%) Total external debt/GNP 34.3 30.7 24.5 21.4 20.5 17.8 Debt-service ratioa 11.0 11.3 11.9 9.3 8.2 7.1 Private debt/total external debt 23.6 22.9 21.8 24.0 25.5 29.3 Short-term debt/total external debt 3.4 2.9 3.2 9.0 14.1 5.4 Concessional long-term loans/ total long-term debt 9.6 10.9 13.8 14.9 15.8 19.4 Variable long-term loans/total long-term debt 30.5 30.0 30.2 31.7 33.5 41.8

Note. Long-term debt is defined as having original maturity of more than one year. a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, World Debt Tables.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 38 Solomon Islands

Solomon Islands

Basic data

Land area 27,556 sq km

Population 285,176 (1986 national census); 367,800 (mid-1995 estimate)

Major islands , Choiseul, Santa Isabel, , , San Cristobal

Capital (population 35,288 mid-1990), on Guadalcanal

Climate Tropical, maximum temperature 31°C; cooler season April to November. From November to April higher temperatures occasionally accompanied by cyclones

Weather in Honiara Average rainfall 229 cm per year

Languages English (official language), Pidgin, 87 different local languages also in use

Measures Imperial and metric

Currency Dollar=100 cents. Exchange rate average 1994: SI$3.2914:US$1. Exchange rate end-July, 1996: SI$3.5525:US$1

Time 11 hours ahead of GMT

Public holidays May 27, ; June 15, Queen’s Official Birthday; July 7, Independence Day; December 25, Christmas Day; December 26, Boxing Day; January 1, 1997, New Year’s Day; March 28-31, Easter

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Solomon Islands 39

Political background

History Excavations on Santa Ana and Guadalcanal indicate that Solomon Islands has been inhabited since 1000 BC. The islands were first subjected to European influ- ences when Alvaro de Mendaña sighted them in 1568. They were thought to be the fabled lost islands of King Solomon and were named accordingly. A number of exploratory visits over the centuries followed until the mid-19th century when, after some unsuccessful attempts to bring to the islands, Europeans arrived seeking labour for the plantations of Fiji and Queensland.

The forcible recruiting of labour, known as “”, started in 1870 and ended in 1911. The violence of the labour trade caused the UK to declare the islands a protectorate in 1893. There was very limited economic development beyond agriculture before the Second World War.

The islands were occupied by Japan during the Second World War and were the scene of almost continual fighting between 1941 and 1943. A six-month battle in the area around what is now Honiara airport on Guadalcanal, in which some 50 and 1,200 aircraft were destroyed, is regarded by many as the turning point of the .

The islands returned to British administration after the war, with responsibilities being passed gradually to Solomon Islanders, particularly in the 1970s in the lead-up to independence. Solomon Islands became an independent member of the Commonwealth on July 7, 1978. The present prime minister, , leader of the Solomon Islands National Unity Reconciliation and Progressive (SINURP) party, was elected by a parliamentary vote on November 7, 1994, after a vote of no confidence in the incumbent, .

The constitution The country is a constitutional with the British sovereign as head of state, represented by a governor-general, currently Moses Pitakaka, who is ap- pointed on the recommendation of the legislature every five years.

Executive power is in the hands of a cabinet headed by the prime minister. The legislature is the unicameral 47-seat National Parliament, elected for four-year terms by universal adult suffrage. Before the 1993 elections there had been 38 seats, but parliament was thereafter expanded in accordance with the 1992 recommendations of the Constituency and Boundary Commission.

Local government is administered through elected councils. The central government created an eighth province in September 1990 and has devolved some powers to the local governments.

Political forces Party allegiances in Solomon Islands tend to be fluid, related more to individu- als and to particular issues than to any firmly held, longstanding political or ideological position.

The leading political parties in the 1993 elections were the Group of National Unity and Reconciliation (GNUR) led by Mr Mamaloni, the National Action Party of Solomon Islands (NAPSI) led by Francis Saemala, the United Party, the Labour Party and the People’s Alliance Party (PAP). In the May 1993 elections the GNUR took 21 of the 47 seats. After the election a number of opposition

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 40 Solomon Islands

parties combined to form the National Coalition Partners (NCP) with the sole aim of toppling Mr Mamaloni, then prime minister, from power.

The NCP nominated Mr Billy Hilly, an independent, for the post of prime minister and he was duly elected on June 18, 1993. But, given the looseness of political loyalties, and with only a small majority in parliament, Mr Billy Hilly’s position was never secure. Although he managed to fend off a number of no-confidence motions, he finally came to grief in his attempt to reduce the highly lucrative but unsustainable rates of logging through a moratorium on log exports. Members of his coalition shifted their allegiance to Mr Mamaloni, leader of the Solomon Islands National Unity, Reconciliation and Progressive Party (SINURP), formerly the GNUR. On October 13, 1994, Mr Billy Hilly was asked to step down by the governor-general on the grounds that he no longer held majority support in parliament. Although Mr Billy Hilly successfully con- tested the order in the High Court, he subsequently resigned at the start of a no-confidence debate in Parliament, having watched what was left of his sup- port switch over to the Mamaloni camp.

Mr Mamaloni was elected prime minister on November 7, 1994, beating the only other candidate, the former , Sir , by 29 votes to 18 in a parliamentary vote. Previously Mr Mamaloni had been a chief minister in the 1974-76 pre-independence government, prime minister in 1981-84 and again from 1984 until ousted by Mr Billy Hilly following the May 1993 general election. The six political groups which had formed the coalition government of Mr Billy Hilly united as an opposition group in parlia- ment under Sir Baddeley Devesi. The next election is due in 1997.

International relations The government has followed a policy of non-alignment since independence. and defence It favours the creation of a nuclear-free zone in the Pacific and is a signatory to the South Pacific Nuclear Free Zone Treaty.

With Papua New Guinea and Vanuatu, Solomon Islands has formed the Melanesian Spearhead Group (MSG) which aims to promote cooperation be- tween the three countries and to further Melanesian economic, political and cultural interests in the region. The Melanesian Free Trade Agreement between the three countries came into effect in late 1994 (see Regional Institutions).

The functioning of the MSG has traditionally been hampered by tense relations between Papua New Guinea and Solomon Islands over a series of border inci- dents connected with the Bougainville secessionist movement. is very close to the , the most north-westerly part of Solomon Islands, and family and community ties cross the border. However, during the prime ministership of Mr Billy Hilly, Solomon Islands adopted a more conciliatory approach to resolving the crisis and played a key role in bringing the Papua New Guinea government and the Bougainville Revolutionary Army () to the negotiating table. Despite his former sympa- thy with the BRA, the present prime minister, Mr Mamaloni, has continued to support the warming of relations between the two countries. In September 1995 the two countries signed a framework treaty guiding future relations between them. However the continued presence of the BRA spokesman Matu Mirion in Honiara remains a source of tension.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Solomon Islands 41

The Solomon Islands National Reconnaissance and Surveillance Force was es- tablished in 1995. The police force also has two patrol boats for use in surveil- lance activities in the maritime economic zone around the Solomon Islands.

Population and society

Area and population The total land area is 27,556 sq km. The country is composed of six large islands, 20 smaller ones and hundreds of small and reefs. The capital, Honiara, is on the largest island, Guadalcanal. The other major islands are Choiseul, Santa Isabel, New Georgia, Malaita and San Cristobal. The most heavily populated islands are Malaita and Guadalcanal.

At the time of the last national census in November 1986 the population totalled 285,176. It was estimated at 367,800 in mid-1995. The annual popul- ation growth rate has been very high, at 3.2% in 1980-85, but it has since eased to 2.8% in recent years. Migration of wage earners and their dependants to Honiara and North Guadalcanal has given both those places rates twice the national average.

About 94% of the population are Melanesian, 4% are Polynesian, 1.4% are Micronesian and there are about 3,000-4,000 expatriates. The official language is English but the most widely used tongue is Pidgin.

Some 90% of the population live in rural areas and the traditional village community structure is strong. As much as 90% of land is held by traditional community land-tenure arrangements. Rural farmers are primarily engaged in a subsistence economy.

Social conditions There are six government hospitals and two run by missions, together with 124 clinics of various types. In total, they provide 713 hospital beds and 685 clinic beds. The country has 38 doctors and about 420 nurses. In 1976 there were 6,250 people per doctor, but by 1989 this had risen to 7,420. Figures provided by the UN indicate life expectancy at birth of 69 years for the period 1985-90.

The incidence of malaria, tuberculosis and leprosy is still a serious problem. Solomon Islands has one of the highest rates of malaria in the world, and 86,820, or over 20% of Solomon Islanders, were recorded as developing the disease in 1990. The Malaria Research Institute claimed in 1991 that more than 80% of Honiara’s population had been suffering from malaria in 1990 (al- though this figure may include some double counting). More recently the World Health Organisation (WHO) reported that the number of malaria cases in 1995 dropped to 50 cases per 1,000 people.

Only 58% of the rural population have a safe water supply and only about 20% have proper sanitation facilities. This problem was exacerbated by the wide- scale damage to existing water supplies from cyclones in early 1987 and 1988. In 1992 Honiara was declared a water disaster area, when one of the town’s four main water sources was badly contaminated.

According to the 1986 census, 52% of the population had had no education, 40% had received primary education, 7% secondary education and 1% higher

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education. Primary school enrolment covers only about two-thirds of the chil- dren in the relevant age groups. In 1993 there were 522 primary schools and 23 secondary schools with total enrolments of 70,103 and 7,351 respectively.

The economy

Solomon Islands remains heavily dependent on its renewable resource sector. About 90% of the population rely on the subsistence sector as their main source of livelihood. As a whole the agricultural sector accounts for less than one fifth of GDP but almost all of exports. In 1994 the principal agricultural export commodities were , copra and cocoa worth US$11.2m, US$5.6m and US$2.9m, respectively. Fishing is also important both as a subsis- tence activity and as a source of foreign exchange. In 1994 fish exports totalled US$29.9m, equivalent to 20% of total export earnings.

Since 1992 exports have been dominated by the forestry sector with timber exports worth US$84.1m in 1994. The current level of official production of 830,000 cubic metres, mainly whole log exports, is running at nearly three times the sustainable level. At current extraction rates the nation’s forests could be depleted by the end of the century.

Although the has recorded strong GDP growth throughout the 1990s this has disguised two fundamental structural weaknesses in the eco- nomy: the unsustainable rates of logging and high levels of government ex- penditure.

The emergence of the forestry sector as the driving force behind the economy has created a dilemma for the government. On the one hand, it has not been able to regulate the industry impartially but on the other hand, it has become very dependent upon log-export taxes. The industry is also the main earner of foreign exchange.

The other major concern for the economy remains the excessive levels of expenditure by the government. Despite the huge rise in logging revenue the government has continued to borrow heavily, largely to finance consumption expenditures such as wages and salaries for civil servants. Unsustainable in- creases in domestic government borrowing have contributed to high domestic demand which has sucked in imports and seriously undermined the growth in export receipts.

Currency

From 1977, when the was introduced, it circulated alongside the Australian dollar until 1979, when the Australian currency was withdrawn. The rate for the Solomon Islands dollar is floating and is related to a trade-weighted basket of currencies of four of Solomon Islands’ main trading partners, Australia, Japan, the USA and the UK.

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The Central Bank may make discretionary adjustments in the value of the Solomon Islands dollar up to a total of 2% in any four-week period. This has enabled a substantial depreciation of the currency since 1980. The Central Bank provides daily quotations of the exchange rates against the Australian dollar, the yen, the US dollar and the sterling, but for other currencies the commercial banks are free to set their own rates. In 1994 the trade- weighted nominal exchange rate depreciated by 9% after a 10% depreciation in 1993. The Solomon Island dollar depreciated by 12% against the yen and 11%, 5% and 0.4% against the Australian dollar, and the US dollar respectively. The currency has continued to fall since 1994, and is now 6.3% lower against the US$ than at the end of 1994. At the end of July 1996, the exchange rate was SI$3.5525:US$1.

Exchange rate (SI$:US$; period averages) 1989 1990 1991 1992 1993 1994 1995a 2.2932 2.5288 2.7148 2.9281 3.1877 3.2914 3.340

a EIU estimate.

Source: IMF, International Financial Statistics.

National accounts

The estimation of gross domestic product is on an approximate basis, as unre- corded incomes are important in the economy, with around 19% of GDP generated by subsistence agriculture.

Gross domestic product (SI$ m; at market prices) 1990 1991 1992 1993 1994a 1995a At current prices 406.0 506.0 612.0 781.0 718.0 860.0 At constant (1984) prices 234.0 243.1 260.8a 284.0a 296.8 312.8 Real change (%) 1.8 3.8 7.3 8.9a 4.5a 5.4

a EIU estimates.

Sources: Central Bank of Solomon Islands, Quarterly Review; ADB, Key Indicators of Developing Asian and Pacific Countries, 1995.

Growth in GDP has fluctuated over the past 15 years: in the period 1990 to 1995, GDP growth has ranged from 1.8% to 8.9%, averaging 5.3% per year. Between 1980 and 1985 GDP grew by an average of 4.3% per year, before the growth rate dropped to an average of 3.2% per year in 1986-91. The collapse of copra prices and the damage to the economy caused by in 1986 meant that real GDP fell by 0.7% in that year. A recovery in 1987-89 returned GDP to pre-Namu rates of growth. A surge in lumber production (round-log volumes) in 1992 pushed up GDP growth and log production continued to be the major driving force behind economic growth in 1993-94. In its 1994 “Annual Report” the Central Bank of the Solomon Islands’ warned that GDP growth (the result of escalating logging activity and improved commodity prices) disguised the severity of the government’s fiscal problem and the im- pact this was having on the economy overall.

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Gross domestic product by expenditure (SI$ m; at current market prices) 1984 % of total 1989a % of total Private consumption 122.0 55.0 300.0 78.0 Government consumption 52.1 23.5 133.4 34.7 Investmentb 50.9 23.0 107.9 28.1 Exports of goods & services 135.2 61.0 249.0 64.8 Imports of goods & services –138.5 –62.5 –405.9 –105.6 GDP 221.7 100.0 384.4 100.0

a Latest available data. b Including change in stocks.

Source: IMF, International Financial Statistics.

Primary production, particularly of agricultural products which make up a large proportion of overall production, and central and provincial government services are by far the largest contributors to GDP.

Gross domestic product by sector (SI$ m; at 1984 market prices) 1986 1987 1988 1989 1990 1991a Primary industry 65.7 56.3 64.4 73.2 74.3 75.9 Manufacturing & construction 14.5 15.2 15.2 15.9 16.1 16.1 Transport & utilities 13.4 12.3 12.8 15.0 16.2 19.7 Trading & financial services 27.7 29.5 27.4 31.2 31.2 31.3 Social & personal services 41.8 52.7 56.0 54.0 58.3 55.7 Total monetary outputb 163.1 166.1 175.8 189.3 196.1 198.7 Non-monetary outputc 37.0 38.7 39.9 41.3 42.7 44.3 GDP 200.1 204.8 215.8 230.6 234.0d 243.1

a Most recently available figures. b Output traded for money. c Output produced for subsistence purposes plus output traded by . d Total does not add in source.

Source: Central Bank of Solomon Islands, Quarterly Review.

Employment

According to the Central Bank of Solomon Islands, the total number of em- ployers increased by almost 38% from 1,797 in 1987 to 2,478 in 1993. Over the same period the number of salaried workers increased by only 10% to 24,059. Of the 1993 total, 9,600 worked for the national government and another 1,500 for provincial governments. Around 20,000 were employed in the pri- vate sector.

Over the period 1990-95 the number of employees in the formal sector has remained below 30,000. A limited number of new jobs are created by the formal sector each year which is inadequate to cope with the 1,000-1,500 young people who leave secondary school and the 6,000-7,000 who leave the educational system annually after primary school to join the labour force.

There are 14 trade unions in Solomon Islands. The largest are the Solomon Islands Public Employees’ Union and the National Union of Workers.

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Formal wage and salary employmenta

1986 % of total 1991b % of total Primary industry 8,411 43.6 7,704 28.9 Manufacturing & construction 3,257 13.6 3,184 12.0 Transport & utilities 2,216 9.2 1,921 7.2 Trading & financial services 3,095 12.9 3,630 13.6 Social & personal services 7,047 29.3 10,192 38.3 Total 24,026 100.0 26,631 100.0 of which: national & provincial government 8,632 35.9 9,507 35.7 foreign workers 916 3.8 698 2.6

a End-Jun; annual survey revised between 1986 and 1987 making data not wholly comparable. b Most recently available figures.

Sources: Central Bank of Solomon Islands, Annual Report; Solomon Islands Statistics Office, Statistical Bulletin.

Wages and prices

Statutory minimum wages are set by the Wages Advisory Board. The Prices Advisory Committee advises on the prices of 14 essential commodities and although difficult to enforce, this advice provides some restraint on inflation.

Large rises in public-sector salaries have fuelled inflation. A 17.5% pay increase was awarded to civil servants in mid-1989. got an 18.5% increase at the beginning of 1990. Both public servants and teachers received additional in- creases of 16.5% in April 1991. There was no public-sector negotiated wage settlement in 1992, but a restructuring of public services still resulted in pay increases ranging from 64% for the lowest paid to 15-20% in the middle and upper levels of the service. Government payroll costs increased by 10% in 1994.

Given the country’s very high dependence on imports, the major influence on domestic inflation is imported inflation, particularly from Australia, the princi- pal source of imports. The movement of the Solomon Islands dollar against major trading denominations is also an important factor.

Consumer prices (period averages) 1990 1991 1992 1993 1994 1995a Index (1990=100)b 100.0 115.1 118.3 138.7 157.6 180.3 % change 8.7 15.1 2.8 17.2 13.6 14.4

a EIU estimate. b 166 items, covering lower- and middle-income households in Honiara.

Source: IMF, International Financial Statistics.

In 1994 consumer prices, as measured by the Honiara Retail Price Index rose by 13.6%, with the prices of local items rising by 17.1% and imported items by 11.3%. The estimated price rise in 1995 was 14.4%.

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Agriculture, forestry and fishing

The economy depends on primary production, which accounted for 38% of total monetary output (output traded for money) in 1991. Agriculture is by far the largest sector in primary production (25% of total monetary output in 1989) compared with the contributions of fishing (6%) and forestry (8%). Around 90% of the population depend for their livelihood on subsistence agriculture.

The climate is tropical, with high rainfall and occasional cyclones which can cause serious damage. Only about 30% of the total land area is cultivable. The rest has poor soil or comprises coastal swamps and steep hills and valleys. Most land is held under traditional communal tenure, inhibiting the transfer of land from one clan to another and often creating problems for agricultural and forestry projects.

In view of the extremely scattered population distribution (the average size of a population centre is estimated at 39 persons), the provision of agricultural support services is both difficult and costly.

The high rate of population growth is already putting pressure on land avail- ability and leading to emigration from certain islands. The problem is com- pounded by the land-tenure conditions. The traditional slash-and-burn system of cultivation necessitates long periods of fallow, but land shortage is resulting in shorter rejuvenation periods, with damaging consequences for productivity and the environment.

Agriculture In 1994 copra production was 23% down on its level in 1993, reflecting bad weather conditions, collection problems, increased consumption of green and the overall low economic return from producing copra partic- ularly when compared with other production activities, such as logging. Copra production has been in decline for the past ten years. Palm oil output ex- panded by 37% in 1992 and has, since then, remained constant. Cocoa prod- uction rose only marginally in 1994 and remains 28% below the level achieved in 1991. Of the 3,337 tons produced in 1994, about 2,200 tons came from the smallholder sector. Declining cocoa production was due in part to the scaling down by Solomon Islands Plantations Limited (SIPL) of its cocoa operations in favour of palm oil. SIPL, which accounts for all palm oil output, plans to cease cocoa production completely by the end of 1995. Unfavourable weather condi- tions were also a factor.

About 70% of copra production comes from smallholders and 30% from plant- ations. All copra is marketed through the Solomon Islands Copra Marketing Board. A joint venture between the government and Unilever, which has large plantation interests in the islands, resulted in the establishment of a new copra-crushing mill at the end of 1989.

The first palm oil mill came into production in 1976. It is operated, as are the country’s large-scale plantations, by SIPL, which is a joint venture between the government and the Commonwealth Development Corporation (CDC). Half of the total cocoa output also comes from plantations.

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Production by smallholders includes, apart from fruit and vegetables for the domestic market, various spices such as ginger, turmeric and cinnamon for export, although the amounts involved are not large. Some tobacco is grown for local use and for export.

Cattle production has been on the decline, but the government has undertaken a cattle development project to improve the quality of livestock in the country by importing high quality breeding stock. Pig rearing provides an important source of food.

Production of main agricultural products (’000 tons unless otherwise indicated) 1989 1990 1991 1992 1993 1994 Copra 33.7 34.3 25.1 29.1 29.1 22.2 Coconut oil 0.0 2.7 2.7 3.9 4.3 2.8 Palm oil 20.1 22.1 22.5 30.9 31.0 29.7 Palm kernels 4.5 5.1 5.0 6.8 7.0 7.2 Cocoa 3.3 3.9 4.6 4.2 3.3 3.3 Source: Central Bank of Solomon Islands, Annual Report.

Forestry Forests of commercial value cover about 8% of the total land area. Major timber operations are on New Georgia, Santa Cruz and Guadalcanal. The bulk of production is exported as round logs but some sawn timber is produced for both export and domestic use.

There was an explosion of logging activity in 1992, with log output climbing by 90% to 640,000 cu metres, almost double the estimated annual rate of national sustainable yield, 325,000 cu metres. As a result of the boom in for- estry in 1992 GDP growth picked up to an estimated 7.3% from 3.8% in 1991, the budget deficit narrowed to SI$22m (US$6m) and the trade balance (balance-of-payments base) went into surplus. In response to very high inter- national log prices, the rate of forest extraction continued to accelerate un- abated in 1994 for a third consecutive year. Nearly 635,000 cu metres of logs, worth about SI$267m, were approved for export in 1994. Solomon Islands is one of the few countries where there are no restrictions on the export of unprocessed tropical logs. Under pressure from the World Bank, the govern- ment undertook to limit exports from mid-1994, with a moratorium on the issue of new logging licences. However, the award of 15 new short-term li- cences early in 1994 raised questions about the government’s commitment to cut back the rate of exploitation, which would have a direct impact on the government’s revenue and the balance of payments. The efforts to control logging received a further setback in late 1994 when one of the first acts of Solomon Mamaloni’s new government was to cut the duty on round-log ex- ports from 65% to 35%. The government has also announced an extension of existing logging licences from 1997 to 1999, although the moratorium on new licences is to be retained. Considering the existing licences already allow har- vesting at nine times the sustainable yield, it is doubtful whether there will be any trees left even before the end of the period. The government also has plans to privatise its forest plantations at Viru, Allardyce, Gizo and Santa Cruz.

Despite high levels of logging, limited reforestation is in progress. In 1989 the government and the CDC began to plant 12,000 ha of fast-growing hardwoods

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for future commercial exploitation on island (which, until 1986, was the site of the country’s largest logging operation). The continued existence of the project was threatened when the central government with- drew its participation in 1990. Shareholding was, however, taken over by the provincial government and the project has continued successfully.

About 55% of log exports go to Japan, 27% to and 8% to the . Sawn timber is sold to Australia, New Zealand and the UK.

Production of logs (‘000 cu metres) 1989 1990 1991 1992 1993 1994a 304 442 336 640 547 267

a January-June.

Source: Central Bank of Solomon Islands, Annual Report.

Fishing During the last ten years the fisheries sector has expanded strongly and its potential has been greatly enlarged by the declaration of a 200-mile exclusive economic and fisheries zone around the islands. Fish production, which is subject to large fluctuations from year to year, was depressed as a result of climatic and conditions in most of 1993, falling by 19% to 32,486 tons. The catch in 1994 was about 20% higher than in 1993, at 39,005 tons.

The South Pacific Forum Fishing Agency Treaty with the USA has opened about 10% of Solomons Islands’ exclusive economic and fisheries zone to US vessels, but, with less than 1% of the USA’s South Pacific catch coming from the Solomon Islands’ waters, the government earns very little from arrangement. There are also agreements allowing access to fishing boats from Taiwan and Japan and, since 1992, three joint ventures between provincial governments and Filipino, Russian and Singapore-based tuna-fishing interests. In 1994 the government earned about SI$6m in licence fees under bilateral fishing arrange- ments. Solomon Taiyo, a company jointly owned by the government and Japanese interests, has as its shore base the Noro cannery and fishmeal plant, which was opened in 1989. In 1995 the Solomon Islands became the latest signatory to the regional fisheries access agreement which gives preference to signing countries in applying for fishing licences within the exclusive eco- nomic zones of other member countries. The overall aim of the agreement is to raise the level of participation by island countries in the region’s fishing ind- ustry.

The main commercial species are skipjack tuna, yellowfin, albacore and other types of tuna suitable for the raw fish market in Japan.

Fish catch (‘000 tons) 1989 1990 1991 1992 1993 1994 37.0 26.0 50.9 40.0 32.5 39.0 Source: Central Bank of Solomon Islands, Annual Report.

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Minerals

There are deposits of bauxite estimated at 30m tons on and 28m tons on Vaghena Island. Rights to exploitation of the Vaghena deposits are held by Conzinc Rio Tinto of Australia (CRA), a subsidiary of the UK’s Rio Tinto Zinc (RTZ). Phosphate-bearing rock exists in exploitable quantities on , near Rennell.

Gold is produced in small amounts by licensed individual panners who sell it to dealers for export to Australia. Both the volume and the value of gold have declined since 1986, when about 117 kg, worth US$1.3m, was exported; in 1994 only 8 kg, worth US$91,900, was exported. A large US mining company, Mining, completed prospecting on Gold Ridge in 1986, where reserves are estimated to be 3m oz. In 1988 the company undertook a pre-feasibility study to look at the possibility of establishing a gold mine producing perhaps 30,000-40,000 oz (around 1 ton) per year. Arimco, the Australian company which took on the special prospecting licence for Gold Ridge in early 1993, decided not to proceed, but at the end of 1994 the government awarded a new prospecting contract to an Australian oil company, Saracen Minerals, a subsidi- ary of Crusaders. Development of the prospect was hampered by land acquisi- tion issues. Saracen Minerals has now been taken over by another Australian company, Ross Mining. Other prospectors have also applied for licences espe- cially on Guadalcanal and Western Provinces. Gold hopes to survey every island except Malaita.

Lateritic deposits of around 25m tons of ore, capable of supporting 15-20 years’ exploitation, have been proven on Santa Isabel and also San Jorge. The Department of Mineral Resources hopes further exploitation will be encour- aged by changes to the mining and petroleum exploration laws, which had acted as a barrier to potential developers.

Energy

Electricity is available in several urban areas from six generating stations. In 1992 total consumption was 42m kwh, the bulk of which was in the capital, Honiara. The (ADB) is providing assistance in the development of electricity supplies. A loan of US$4.2m is to be used to upgrade the power supply to Honiara. The ADB has provided a grant of US$1.3m to prepare a detailed design for the Komarindi hydroelectric project in central Guadalcanal, which is expected to cost US$31m. The project had been delayed by problems with land trustees. Mini-hydro schemes are being developed in several provincial areas and are expected to produce about 150 kw of electricity to provincial centres. The projects are being funded by the German govern- ment, and the Solomon Islands Electricity Authority (SIEA) is involved in the design and construction stages.

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Energy balance, 1995 (m tons oil equivalent) Elec- Oil Gas Coal tricity Other Total Production 0.000 0.00 0.00 0.000 0.032 0.032 Imports 0.058 0.00 0.00 0.000 0.000 0.058 Exports 0.000 0.00 0.00 0.000 0.000 0.000 Primary supply 0.058 0.00 0.00 0.000 0.032 0.090 Net transformationa 0.010 0.00 0.00 –0.002 0.000 0.008 Final consumption 0.048 0.00 0.00 0.002b 0.032 0.082

a Net transformation comprises transformation input and output, plus energy industry fuel and losses. b Output basis.

Source: Energy Data Associates.

Manufacturing

The manufacturing sector is in the early stages of development, and currently contributes less than 4% of GDP. The main manufacturing enterprises are the factories for freezing, canning and smoking fish. There are also several medium- scale sawmills. In 1989 new coconut oil and livestock-feed mills began oper- ation. Other manufacturing, all on a small scale, includes palm-oil milling, copra processing, boat-building, and the production of wickerwork furniture, articles in fibreglass, clothing, shell , batteries, spices, tobacco and soft drinks. Various handicraft items are exported. Data on manufacturing are not collated.

Until 1992 the only factory of any size was the fish-processing plant at Noro, part-owned by the government. The factory also has electricity-generating capacity and sells some electricity in its neighbourhood. National Fisheries Development is now undertaking a feasibility study on setting up a new fish cannery in . There is an abattoir near Honiara and an oil palm mill, also on Guadalcanal.

In 1992 two larger-scale foreign-owned investments were established, taking advantage of the government’s tax-free incentive package and, in one case, unlimited duty-free imports by the USA of garments from Solomon Islands. The garment factory is South Korean-owned and employs 170-200 women. Both operations are based on Honiara’s Ranadi industrial estate. The other factory, Solomon Brewers, a SI$30m (US$8.4m) joint venture between the government and Brauhaus, a German brewery, benefited in late 1994 from the government’s decision to increase the import duty on beer to 33%.

The government has introduced a programme to assist small and medium- sized industries (SMIs). In 1994, 21 SMIs were established and 29 were planned for 1995. The majority of the SMIs are in timber processing, followed by food and drinks manufacturing.

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Construction

Construction activity, as measured by the value of building permits issued by the Honiara Municipal Authority, has remained fairly constant in real terms. However, two years, 1988 and 1991, were exceptional, with approvals rising rapidly, in 1988 because of a surge in commercial and industrial building and in 1991 as a more general increase in all building categories took place. After a sharp fall in 1992, construction activity, measured by the value of building permits issued, picked up strongly in 1994, surpassing the previous high in 1988.

There has been considerable government expenditure on infrastructure, with substantial sums committed to port and town development, hospitals and school buildings. Two new bridges on Guadalcanal have been completed using Japanese aid of SI$24m (US$6.8m). The second stage of the US$10.5m Honiara Road Development Project has started, following the granting of a soft loan from the Kuwait Fund.

Tourism

The tourism sector is undeveloped, but the government is beginning to make efforts to promote Solomon Islands as a tourist destination. The number of tourists visiting Solomon Islands by air (as opposed to by cruise ) fell to a low of 3,840 in 1990, largely as a result of the burning down and closure of the Anuha Island resort, one of the largest in the country. The number of tourist arrivals picked up in 1991 and was back up to 7,500 per year in 1992 and 1993 as a result of visitors arriving to commemorate the 50th anniversaries of the battle of Guadalcanal and of the US landings. In 1993 tourism earnings were estimated to be SI$6.4m (US$1.8m). In 1994 Solomon Islands received almost 17,000 visitors, almost half from Australia and New Zealand. The average dura- tion of stay was two weeks.

Tourism’s potential is limited by poor air connections and a lack of tourism infrastructure. There are about 500-600 hotel and motel rooms of which 400 are located in Honiara. The government has adopted a positive attitude to tourism and is promoting private-sector investment by offering tax incentives for hotel and resort developments. In August 1994 a casino, the Honiara Gam- ing Club which is owned by a consortium of Australian and Malaysian com- panies, opened for business. During 1994, two , the Lelei Resort and Inon Bottom Sound Hotel also started operations. The government also in- tends to revive the Anuha resort.

Visitor arrivalsa

1989 1990 1991 1992 1993 1994 By air 9,276 9,411 11,511 15,299 11,570 13,160 By sea 3,570 2,616 1,502 4,358 2,650 3,742 Total 12,846 12,027 13,013 19,657 14,220 16,902

a Including non-tourists.

Source: Central Bank of Solomon Islands, Annual Report.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 52 Solomon Islands

Transport and communications

Roads In total there are 1,300 km of government-maintained roads, of which 470 km are classified as main roads (100 km of these being bitumen roads). The roads on Guadalcanal are being upgraded, and a four-lane highway is under con- struction in Honiara (see Construction).

Air transport Overseas air services are provided by , Air Pacific, Air Nauru and the state-owned , which began international flights in mid-1990. Since November 1995 Solomon Airlines has been operating a twice-weekly service to in conjunction with Air Nauru. Internal air services are run by Solomon Islands Airways (Solair), which is wholly owned by the govern- ment. The project to upgrade Honiara’s Henderson Airport, including extend- ing the runway, at an expected cost of SI$60m-65m (US$17m-18m) is making slow progress.

Ports and shipping The main international shipping services, including those of container ships, are to Australia, New Zealand and Papua New Guinea.

The main overseas port is Honiara and most foreign trade activity is concen- trated there. Gizo and Yandina, on Gizo Island and Island respectively, are important for the export of copra and Tulagi is the main port for handling tuna from the Florida Islands and Central Province. Timber is exported from Ringgi Cove and the Shortland Islands. The port of Noro has been developed to service the tuna cannery and fishmeal plant there.

Inter-island shipping services are important for the development of domestic trade; the collection of export commodities, many of which, notably copra, come in small consignments; and also the country’s economic and social inte- gration. There are about 100 vessels registered with the Marine Department, but in addition there is a large “informal” fleet of very small craft which are important in inter-island trade.

Telecommunications The government agreed with Cable & Wireless (C&W) in 1988 to establish a company, owned 40% by C&W and 60% by the Investment Corporation of Solomon Islands (ICSI), to set up a domestic, satellite-based telecommun- ications system. The new company also acquired the existing domestic and international telephone systems. The UN estimated that there were 5,000 tele- phone lines in use in 1991.

Mass media The government has approved an application for an FM broadcasting licence from Radio National Corporation, a joint venture between a local company, Jumi Communications, and Uni-Tel of Australia. Once established, the radio station will represent the first direct competition with the state-owned Solomon Islands Broadcasting Corporation.

Proposals to establish a television service are currently being reviewed by parliament.

There are four weekly newspapers, of which the Solomon Voice, with a circul- ation of 10,000, is the most popular.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Solomon Islands 53

Finance

Public finance Solomon Islands’ governments have continually faced large fiscal deficits as a result of rising demand for public-sector services from a fast-growing popul- ation, rapid increases in the government payroll, the increasing cost of debt servicing and ineffective taxation machinery. Current expenditure accounted for a huge 94% of total expenditure on average in 1990-94, and capital expend- iture was commensurably small. Infrastructure is poorly maintained and vital programmes for malaria control and reforestation are inadequately funded.

Many years of high fiscal deficits have generated ever-increasing debt-service obligations. Debt service as a proportion of total expenditure rose from 17.3% in 1990 to a budgeted 19.8% in 1995. In 1994, even after foreign grants and foreign borrowing, the portion of the fiscal deficit in need of financing through domestic borrowing amounted to 8.1% of GDP. The government was able to avoid the crisis coming to a head, as logging camps supported foreign reserves and government revenues. The government was also able to finance its fiscal deficit by borrowing from the banking sector. This has led to a dramatic rise in the money supply, increased demand in the economy leading to higher infla- tion, and a crowding out of private-sector credit.

This crisis finally surfaced in June 1995 when the central bank halted the servicing of government securities because quite simply no revenue was com- ing in for this purpose and the government had already hit its borrowing ceiling. It remains unclear whether the government has grasped the gravity of the situation. It has turned to privatisation as a quick fix to raise revenue but what is really needed is a systematic programme of fiscal stabilisation. Gross government debt in 1995 is estimated by the Central Bank to have been at least SI$755m (US$213m), more than double the level in 1990.

Government finance (SI$ m) 1990a 1991a 1992a 1993a 1994a 1995b Total expenditure 162 219 224 294 338 354 Current expenditure 151 208 211 278 321 328 Salaries 67 82 88 106 125 111 Debt service 28 43 29 48 55 70 Other 56 83 94 124 141 148 Development expenditure 11 11 13 17 18 26 Total revenuec 135 146 202 222 274 275 Balance –27 –73 –22 –73 –64 –79

a Outturn. b Budget. c Including foreign loans and grants.

Source: Central Bank of Solomon Islands, Annual Report.

The public-sector domestic borrowing requirement is financed through com- mercial bank borrowing and, traditionally, extensive monetisation via credit from the Central Bank. In 1990-94 net Central Bank borrowing amounted to 15.1% of total net domestic borrowing on average, a major factor behind the growth of money supply and, therefore, inflation. Net Central Bank borrowing was 21.1% of total net borrowing in 1994.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 54 Solomon Islands

Sources of government domestic borrowing (SI$ m) 1989 1990 1991 1992 1993 1994 Commercial banks –3.62 11.26 23.69 38.14 25.31 43.20 Central Bank 18.59 26.63 35.48 –26.79 14.20 13.80 Other 3.13 –1.28 10.13 17.46 20.87 8.36 Total net domestic borrowing 18.10 36.61 69.30 28.81 60.38 65.36 Source: Central Bank of Solomon Islands, Annual Report.

Money and banking In 1983 the Solomon Islands Monetary Authority became the Central Bank of Solomon Islands (CBSI). There are now three commercial banks located in Solomon Islands: the Australia and New Zealand Banking Group, Westpac (which took over the Hongkong and Banking Corporation’s local operations in mid-1988) and the National Bank of Solomon Islands (NBSI). Only the NBSI has branches outside the capital. Most villages rely on credit unions. The government’s 49% shareholding in the NBSI was sold to the National Provident Fund as a part of a privatisation programme in 1992. The remaining 51% stake is held by the Commonwealth Banking Corporation of Australia (CBC).

The Development Bank of Solomon Islands (DBSI) is an important supplier of investment funds to local manufacturing enterprises and to the construction sector. Almost all domestic organised construction activity is financed by the DBSI. However, the DBSI has very little involvement in export credit activities. In 1994 DBSI made a SI$707,365 (US$200,000) profit, a 53% increase over the previous year. The bank approved 425 loans in 1994, worth a total of SI$9.7m, compared with 216 new loans worth SI$4.5m in 1993.

Money and credit (SI$ m unless otherwise indicated; end-period) 1989 1990 1991 1992 1993 1994a Currency in circulation 22.65 25.22 27.80 30.83 42.11 50.23 Demand deposits 28.25 39.23 51.74 74.08 81.82 112.65 Money (M1) 50.90 64.46 79.54 104.91 123.93 162.88 M1 growth (%) 3.8 26.6 23.4 31.9 18.1 31.4 Quasi-money 76.68 75.65 94.02 111.12 125.88 149.70 Money (M2) 127.58 140.11 173.56 216.03 249.81 312.58 M2 growth (%) –0.4 9.8 23.9 24.5 15.6 25.1 Domestic credita 129.95 162.28 210.32 220.60 256.67 314.12 Claims on central government 23.71 60.29 118.21 134.20 165.10 200.70 Claims on public sector 8.23 12.47 10.18 5.52 5.60 5.11 Claims on private sector 92.23 82.31 75.64 72.22 84.22 107.06 Claims on other financial institutions 5.73 6.57 6.01 8.18 1.34 0.00 Net foreign assets 50.18 34.45 20.88 73.08 60.61 52.21

a Totals do not add in source.

Source: IMF, International Financial Statistics.

The government participates in private investment projects through a holding company, the Investment Corporation of Solomon Islands (ICSI), the successor

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Solomon Islands 55

to the Government Shareholding Agency. It holds the government’s equity in other financial institutions, notably the DBSI, as well as in many other com- panies, some of which are foreign-controlled. The government, via the ICSI, uses locally borrowed funds and foreign aid to assist industry. The government also guarantees commercial bank loans to companies in which the ICSI has an equity holding.

Foreign trade

Until 1994 the merchandise trade balance regularly recorded a deficit. But in 1994 there was a surplus of SI$54.7m (US$15.4m) as export earnings boomed with an increase in log export volumes and a rise in commodity prices, fol- lowed by an estimated surplus of SI$102.9m in 1995. Exports of log and sawn timber rose 12% in volume terms to 680,000 cu metres and 19% in value to SI$277m. Log exports now account for 56.3% of all export earnings compared with 23.9% in 1985. The high dependence on one export commodity is becom- ing a source of weakness of the economy.

Foreign trade (SI$ m) 1990 1991 1992 1993 1994 1995a Exports fob 178.1 226.5 301.1 411.4 491.7 608.4 Imports cif –234.7 –299.6 –307.2 –443.6 –437.0 –505.5 Balance –56.6 –73.1 –6.1 –32.2 54.7 102.9

a EIU estimates.

Source: Central Bank of Solomon Islands, Annual Report.

Fish is the next main source of export earnings for Solomon Islands, account- ing for 20% of total earnings in 1994. Total revenues earned from fish exports rose 19% to SI$99m, as a result of improved volumes and prices.

Main commodities tradeda (SI$ m; fob) 1989 1990 1991 1992 1993 1994 Exports 171.3 177.6 229.9 303.9 411.4 491.7 of which: logs & timber 41.3 60.8 53.6 110.5 231.7 276.8 fish 65.3 53.2 106.4 88.0 82.7 98.6 palm oil 18.2 17.9 19.4 32.9 35.8 36.9 copra 21.0 10.9 10.4 21.3 18.5 18.4 cocoa 7.9 11.4 13.7 13.4 16.8 9.7 Imports 259.5 234.7 299.6 166.2b 217.1c 309.9d of which: machinery & transport & equipment 94.6 n/a n/a 57.7b 84.5c 114.3d food 36.6 n/a n/a 26.0b 24.5c 40.9d fuel 25.1 n/a n/a 19.5b 21.7c 27.2d

a Totals differ from those in previous table in source. b Second and fourth quarters only. c First half only. d First three quarters only.

Source: Central Bank of Solomon Islands, Quarterly Review.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 56 Solomon Islands

Export earnings from other commodities were mixed in 1994. Earnings from palm oil rose, whereas cocoa export earnings fell sharply due to a fall in the volume exported which was not offset by a rise in prices. Although copra volumes were sharply down, much higher prices meant that export earnings from copra were flat overall.

Initial full-year estimates indicate that total imports in 1994 fell to SI$437m, down slightly on 1993. Increases in imports of machinery and transport equip- ment associated with the booming logging industry have been partly offset by falls in the volume and value of fuel imports.

Main trading partners (% of total value) Exports to: 1988 1993 Imports from: 1988 1993 Japan 34.3 41.7 Australia 45.5 34.7 Asia excl Japan, Australia 22.1 27.3 Japan 16.2 10.7 UK 14.4 14.3 Singapore 5.4 18.2 1.7 6.8 New Zealand 8.3 8.3 Australia 4.7 2.1 UK 5.3 n/a USA 0.1 1.4 Source: Central Bank of Solomon Islands, Annual Report.

Japan and other Asian countries are the most important destinations of ex- ports, being the main purchasers of fish and timber from the islands. Australia continues to be the main source of imports followed by Japan, New Zealand and Singapore.

External payments and debt

Current account After almost a decade of current-account deficits, Solomon Islands’ balance of payments improved strikingly in 1992-94, driven by the dramatic rise in log exports. By 1994, in spite of a deterioration in the services balance, the current account was in surplus, by US$4.5m, for the first time in over a decade.

There has consistently been a large deficit on the services account, resulting from freight costs and insurance on imports, the outward transfer of profits by foreign direct investors engaged in exporting from the country, and chartering and wage costs paid in respect of the fishing fleet in which the government is in a joint venture with the Japanese.

A significant offsetting item in the accounts has been official transfers, which have halved the deficit on current-account payments. During 1986-92, US$30m of Stabex (Stabilisation of Export Earnings) funds were received from the to offset fluctuations in export incomes resulting from movements in commodity prices. This constituted 40% of all official cash transfers and 12% of total official transfers during this period.

Capital account The overall balance on the capital account also moved into surplus in 1994. However, foreign direct investment tailed off from a level of US$22.7m in 1993 to less than US$1m in 1994.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Solomon Islands 57

Balance of payments (US$ m) 1989a 1990a 1991a 1992a 1993b 1994b Exports of goods fob 74.7 70.1 83.4 101.7 129.1 149.4 Imports of goods fob –94.3 –77.4 –92.0 –87.4 –139.2c –132.8c Trade balance –19.6 –7.2 –8.6 14.3 –10.1 16.6 Exports of services 26.5 25.4 31.6 36.0 41.9 49.5 Imports of services –75.3 –78.7 –88.3 –78.0 –79.0 –89.5 Income credit 3.9 2.3 1.4 1.0 1.5 1.3 Income debit –11.8 –7.6 –10.4 –10.9 –5.9 –7.6 Net private transfers 6.1 4.7 1.9 1.8 4.5 1.1 Net official transfers 36.8 33.3 36.3 34.0 37.8 33.1 Current-account balance –33.4 –27.9 –36.1 –1.9 –9.3 4.5 Direct investment 11.6 10.4 14.5 14.2 22.7 0.5 Portfolio investment 0.0 0.0 0.0 0.0 0.0 0.0 Other capital 13.5 12.4 0.6 8.3 –15.8 –1.1 Capital-account balance 25.1 22.8 15.1 22.5 6.9 –0.6 Errors & omissions –5.2 –8.6 8.4 –6.2 1.1 –1.9 Overall balance –13.5 –13.7 –12.6 14.4 –1.3 2.0

Note. Totals may not add due to rounding. a IMF data. b Central Bank of Solomon Islands data, converted into US . c Cif.

Sources: IMF, International Financial Statistics; Central Bank of Solomon Islands, Annual Report.

The boom in logging exports enabled foreign reserves to recover in 1992 and 1993 from a low in 1991 when import cover dropped to around one month. Import cover deteriorated in 1994 once again when foreign reserves fell 33.1% from their 1993 level to US$12.9m, and import levels rose.

International liquidity (US$ m; end-period) 1989 1990 1991 1992 1993 1994 Foreign exchange 25.40 16.49 7.67 22.70 19.29 12.91 SDRs 0.07 0.36 0.10 0.06 0.04 0.01 Reserve position in the IMF 0.70 0.75 0.77 0.74 0.74 0.79 Total reserves excl gold 26.16 17.60 8.54 23.50 20.07 13.71 Source: IMF, International Financial Statistics.

Aid Japanese assistance increased steadily in the late 1980s, and in 1988 Japan overtook Australia as Solomon Islands’ largest aid donor. Budgetary support from the UK ended in 1981, but other aid flows from the UK continue. Assist- ance from multilateral organisations has fluctuated in recent years.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 58 Solomon Islands

Disbursements of gross development assistance (US$ m) 1988 1989 1990 1991 1992 1993 Bilateral 34.8 37.9 31.2 28.2 27.5 49.9 of which: Japan 13.9 14.3 8.7 10.8 8.0 28.0 Australia 8.5 11.7 11.5 9.3 10.6 9.5 UK 9.3 8.4 6.6 5.5 6.3 8.4 New Zealand 1.5 2.1 2.1 1.7 2.1 3.0 Multilateral 23.9 12.3 15.0 8.9 18.2 10.4 of which: EUa 13.5 4.0 5.6 4.3 14.4 4.1 Asian Development Banka 6.2 3.8 4.1 –0.2 1.2 2.7 Total 58.9 50.2 46.2 37.1 45.6 60.3

a Net total receipts; not strictly comparable with rest of table, which is in terms of gross loans plus grants.

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Debt Borrowings from multilateral sources, mainly from the Asian Development Bank and the World Bank’s International Development Association (IDA), have risen steadily since 1980; those from bilateral sources have fallen since 1988. Debt-service costs are contained by the high proportion of official bor- rowing on concessional terms. The debt-service ratio halved in 1992 as exports began to surge. Total external debt has expanded dramatically in the past two years. According to figures released by the World Bank, total external debt rose by 73.6% from a low of US$95.1m in 1992 to US$165.1m at the end of 1994. Total external debt as a proportion of GNP reached 53% in 1994, and the debt-service ratio is likely to have risen from its 1992 low of 5.6%. With few new loans forthcoming from either the Central Bank or commercial banks, the government appears to be funding its activities by running up debts with domestic and foreign suppliers of goods and services.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Solomon Islands 59

External debt (US$ m unless otherwise indicated; debt stocks as at end-period) 1989 1990 1991 1992 1993 1994 Total external debt 101.0 121.5 130.4 95.1 151.3 165.1 Long-term debt 99.5 104.2 99.3 93.3 145.1 154.1 Short-term debt 0.0 16.6 31.0 1.8 6.1 11.0 Use of IMF credit 1.4 0.7 0.0 0.0 0.0 0.0 Public & publicly-guaranteed long-term debt 99.5 104.2 99.3 93.3 95.0 99.6 Official creditors 82.7 90.1 88.5 84.0 85.4 93.6 Multilateral 54.4 62.5 64.7 63.9 67.8 76.8 Bilateral 28.3 27.7 23.8 20.1 17.6 16.8 Private creditors 16.8 14.1 10.8 9.3 9.5 6.0 of which: banks 13.6 10.9 8.2 5.5 2.7 0.0 bonds 0.0 0.0 0.0 0.0 0.0 0.0 of which: short-term debt 0.1 0.5 1.4 0.9 0.2 0.5 Total debt service 9.8 11.7 13.5 7.7 10.1 17.4 Principal 6.0 8.0 9.3 5.3 7.2 13.8 Interest 3.8 3.7 4.2 2.4 2.8 3.6 Ratios (%) Total external debt/GNP 44.3 58.6 61.9 40.7 55.3 53.0 Debt-service ratioa 9.3 12.0 11.6 5.6 n/a n/a Short-term debt/total external debt 0.0 13.7 23.8 1.9 4.1 6.7 Concessional loans/total external debt 68.9 64.4 60.1 78.1 50.6 51.5

Note. Long-term debt is defined as having original maturity of more than one year. a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, World Debt Tables.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 60 Western Samoa

Western Samoa

Basic data

Land area 2,831 sq km

Population 159,862 (November 1991 census); 163,400 (mid-1995 estimate)

Major islands Upolu (1,100 sq km) and Savai’i (1,820 sq km)

Capital , on Upolu (population 34,126 at 1991 census)

Climate Tropical; temperature range: 24°C to 28°C

Weather in Apia Average rainfall is 300 cm per year. There is a marked dry season from May to August, and a rainy season from December to April

Languages English and Samoan (official languages)

Measures Metric

Currency The Tala (or Western Samoan dollar) composed of 100 sene (cents). Exchange rate average 1994: Tala2.447:US$1. Exchange rate end-July, 1996: Tala2.4432:US$1

Time 11 hours behind GMT

Public holidays May 27, Whit Monday; June 1-3, Independence Celebrations; November 21, National Women’s Day; December 25, Christmas Day; December 26, Boxing Day; January 1, 1997, Independence Day; January 2, New Year’s Day; March 28-31, Easter; April 25, Anzac Day

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Western Samoa 61

Political background

History The first European contact with the arose in the 1720s. As with other Pacific island groups intermittent visits followed until the first major settlements in the 1830s for missionary work and trade. During the 19th cen- tury political leadership in the islands was the subject of rivalry between the five Samoan chiefly families, with varying degrees of European interference.

Western Samoa became a German colony in 1899 after a succession of wrangles between the UK, the USA and . Eastern Samoa was ceded to the USA as a naval base and, in return for the renunciation of British claims in Samoa, Germany renounced claims in Tonga, Solomon Islands and .

New Zealand annexed Western Samoa following the outbreak of the First World War and the islands became a mandated territory of New Zealand under the Treaty of Versailles. Between the two World Wars there was considerable agitation for the removal of foreign control over Samoan affairs. After the Second World War Western Samoa was administered by New Zealand as a UN trust territory while measures were gradually introduced to prepare the islands for self-government.

In 1962 Western Samoa became the first South Pacific to gain independence.

The constitution The 1960 constitution (which came into force on January 1, 1962) provides for a head of state, with functions similar to those of a constitutional , who is elected by the legislative assembly for a term of five years. But at independence in 1962 it was decided that this post would be held jointly by the two existing High Chiefs of Samoa. Since his co-ruler died in April 1963 the post has been held by Tanumafili II, who will hold it for his lifetime. The head of state appoints as prime minister the member of the legislative assembly who commands majority support, as determined by a secret ballot of members after a general election. The prime minister selects 12 members to form the cabinet, which acts as the executive arm of government.

Elections have been held every three years for membership of the 49-seat legislative assembly, the Fono. Under the electoral system that existed from independence until 1991, village chiefs held the proxies of their people. The electoral roll for the 1988 election consisted of about 19,000 matais (elected clan chiefs of small family units) and about 2,000 registered voters in Apia, the capital. The majority of Western Samoa’s adults had no franchise. Moreover, with the exception of two seats reserved for citizens of mixed Samoan and European descent, only matais could be MPs.

After independence the government faced sporadic demands for electoral re- form, and became an important issue. A plebiscite was held in 1990 to decide whether voting should be extended to all non-matais aged 21 or over and whether membership of parliament should continue to be re- stricted to matais. The principle of universal suffrage won approval in a referen- dum in October 1990, and legislation was enacted to put the result into effect in time for the 1991 general election. However, the principle that only matais should be eligible to become MPs was upheld.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 62 Western Samoa

The Fono approved further constitutional reforms in November 1991. The term of a parliament has been extended from three to five years, the number of cabinet members has been expanded from eight to 12, and the number of seats in the Fono has been increased by two to 49. The members occupying the two new seats are elected by non-Samoans.

Political forces The main political parties are the Protection Party (HRPP), the Samoa National Development Party (SNDP); the Va’ai Kolone group, and the Christian Democratic Party. The first elections to be held under universal suf- frage took place in April 1991. After the final count the ruling HRPP, led by Tofilau Eti Alesana, declared victory with 30 seats and the support of one independent in the then 47-seat Parliament. The opposition SNDP won 16 seats, but its leader, Tupua Tamasese Efi, lost his seat.

Elections for the two newly created seats were won by the HRPP in early 1992.

International relations The 1962 Treaty of Friendship between New Zealand and Western Samoa is and defence indicative of the close links between the two countries. New Zealand will consider “sympathetically” applications for technical and other assistance and may act as agent for Western Samoa in dealing with other countries and inter- national agencies. Western Samoa is non-aligned and does not maintain any military force. It is a member of the Commonwealth and of the UN. Western Samoa condemned the resumption of nuclear testing by the French govern- ment in 1995, which was greeted by demonstrations in the capital, Apia.

Population and society

The country consists of two large islands, Upolu and Savai’i, and several smaller ones. The total land area is 2,831 sq km. Forests and woodlands cover 133,000 ha; there are 55,000 ha of arable land and 67,000 ha of permanent crops.

Western Samoa is populated predominantly by Polynesians. The November 1991 census showed a population of 159,862, slightly lower than the 161,039 recorded in the 1986 census. The decline was largely because of emigration by islanders, mainly to New Zealand and the USA. Of the total population, about 110,000 live on the main island, Upolu, and most of the remainder on Savai’i. In the middle of 1995 the total population was estimated at 163,400.

Overall population density is 59 people per sq km. Most of the population live in villages; there are about 360 villages with an average of 350 people each. Villages are autonomous and governed by local councils of chiefs. All land in the villages is communally owned.

English is used in administration and commerce. Although very widely used, it is not known by everyone. Samoan, a Polynesian language, is used in parlia- ment, but simultaneously translated into English.

There are about 50 doctors (one for every 3,000 people) and 31 hospitals with a total of almost 700 beds. Western Samoa has one of the lowest infant mortal- ity rates in the South Pacific (25 per 1,000 births) and a high life expectancy, 65 years for females and 63 years for males.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Western Samoa 63

The government introduced for children up to the age of 14 in 1992. According to the 1991 census 86% of those in the 5-19 age group attended full-time education. The literacy in Samoan, an official language, is around 97% of the adult population.

Currency

The currency is the Tala, also known as the Western Samoan dollar. The Tala is divided into 100 sene (cents). Until March 3, 1985, the value of the Tala was determined in terms of the . Since March 4, 1985, when the New Zealand dollar was floated, the value of the Western Samoan currency has been fixed by reference to a weighted basket of the currencies of its most important trading partners.

Following substantial devaluations in the early 1980s, in recent years the Tala has continued to depreciate in nominal terms. In real terms the effective ex- change rate appreciated by a total of 3.2% between 1990 and 1994. At the end of July 1996 the currency stood at Tala2.4432:US$1, a rise of 6% since the end of 1993.

Exchange rate (Tala:US$; period averages) 1989 1990 1991 1992 1993 1994 1995 2.2686 2.3095 2.3975 2.4655 2.5681 2.5349 2.4772 Source: IMF, International Financial Statistics.

The economy

The condition of the Western Samoan economy has been largely determined by the high levels of from Western Samoans living abroad and by aid flows. The annual inflow of remittances in 1995 was Tala88m (US$36m) compared with the total aid inflow of Tala72m. These funds help to meet the country’s consistently large appetite for imports.

The primary sector usually accounts for one-third of GDP and almost all ex- ports. In addition the sector provides the livelihood of three-quarters of the population. Subsistence agriculture is of great importance. The principal ex- ports are coconut products, which in the past have accounted for around 40% of total exports on average. The export earnings of coconut products fluctuated considerably during the 1980s and early 1990s, reflecting trends in world prices. This had a major impact on output. By 1992 the combination of cyclone damage and depressed prices had reduced coconut output to below domestic requirements. The economy is highly vulnerable to the cyclones, which strike the islands regularly each year, causing damage to the agricultural, manufac- turing and tourism sectors.

The world economic recession of the early 1980s had a severe impact on the Western Samoan economy. Real output declined by 2.3% a year between 1980 and 1983, compared with a targeted annual growth rate of 4.7%. Foreign trade

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 64

Oceania in 1995

Gross domestic product Gross domestic product per head $ bn $

Australia 347.4 Australia 19,240

New Zealand 57.7 New Zealand 16,110

Papua New Guinea Fiji

Fiji Tonga(a)

Solomon Islands Vanuatu

Vanuatu Papua New Guinea

Tonga (a) Western Samoa

Western Samoa Solomon Islands

012345 0 500 1,000 1,500 2,000 2,500 (a) Fiscal year beginning July 1. (a) Fiscal year beginning July 1. Sources: EIU estimates; national sources. Sources: EIU estimates; national sources.

Consumer prices Gross domestic product % change, year on year % change, year on year

Papua New Guinea Western Samoa

Solomon Islands Solomon Islands

Australia Vanuatu

New Zealand Australia

Vanuatu Tonga (a)

Fiji Fiji

Tonga New Zealand

Western Samoa Papua New Guinea

0 2 4 6 8 10 12 14 16 18 -6-4-202468 Sources: EIU estimates; national sources. (a) Fiscal year beginning July 1. Sources: EIU estimates; national sources.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996

66 Western Samoa

deficits increased, and inflation rose to over 20% per year in 1981. The country turned to the IMF for a stand-by loan and embarked on an austerity pro- gramme which involved reductions in government expenditure, new duties and taxes, a series of currency devaluations and restrictions on imports. The rate of economic growth recovered to an average of 1.6% a year in 1984-89 (with wide fluctuations), but entered another period of decline in 1990, with severe cyclone damage in that year, in late 1991 and again early in 1993.

According to the World Bank, GDP contracted by 5.9% in 1990, largely as a result of damage caused by . The country had just about recovered when it was hit by in December 1991. This was the most damaging storm to have hit the islands in over 100 years, causing an estimated US$300m of damage. Agricultural output fell sharply and industrial production was se- verely disrupted by a shortage of power and raw materials, and by factory damage. Tourism was also badly affected and, although the construction ind- ustry was boosted by the high demand for rebuilding and repair work, GDP fell by an estimated 3.3% in 1992. Although the economy recovered somewhat in 1993, GDP is estimated to have declined by a further 5% in 1994, largely as a result of crop disease in the industry.

There was some prospect of a recovery in 1995. Domestic agricultural prod- uction has risen, reducing food shortages which should also limit rises in the rate of inflation. Nevertheless, the economy continues to face a large external imbalance: the balance of payments remain in deficit, international reserves are low and debt is mounting. The situation is exacerbated by unsustainable levels of government expenditure which have been made worse by the decision to bail out the national carrier, Polynesian Airlines. Thus, although GDP growth is likely to have recovered strongly in 1995, the recovery will probably ease off in 1996.

Attempts to diversify the economy and exploit additional resources have been slow to show results. Diversification is being encouraged by offering tax incen- tives to attract foreign investment, which has met with some success. The Japa- nese Yazaki Corporation established a motor parts assembly plant in Apia in 1991 and is now the largest employer outside the civil service (see Employment).

National accounts

There are no official national accounts data.

Gross domestic product (Tala m; market prices) 1989 1990 1991 1992 1993 1994 At current prices 248.4 258.8 268.3 275.3 291.8 321.2 At constant (1982) pricesa 180.4 169.7 173.0 167.3 176.7 167.9 Real change (%) 2.9 –5.9 1.9 –3.3 5.6 –5.0

a EIU estimates.

Sources: World Bank, Pacific Island Economies: Towards Efficient and Sustainable Growth; ADB, Key Indicators of Developing Asian and Pacific Countries, 1995.

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Figures compiled by the Asian Development Bank (ADB) show total con- sumption accounting for 104.9% of GDP in 1988 (the latest year for which the consumption breakdown is available), imports for 66.8% and exports for only 30.4% of GDP. By 1992 the level of imports had soared to account for 120.3% of GDP compared with exports accounting for 41.1%. No breakdown by indus- trial origin is available.

Employment

According to the 1991 census, 89,500 persons, 55% of the total population, are in the economically active 15-64 age group. Of these, 65% are engaged in agriculture (including forestry and fisheries), mainly within the traditional village environment. Total formal employment has been estimated at 18,000 (1991) with the government being the largest employer, with about 4,500 workers. Yazaki Samoa Limited, the Japanese automotive parts manufacturer, is the country’s largest private-sector employer. Yazaki expected to recruit several hundred more workers in 1995. This would bring the total number of Western Samoans working at the Yazaki plant to about 2,000.

Emigration of skilled labour to New Zealand, the USA and remains a problem and has led to a noticeable labour shortage in rural areas, and high dependency ratios.

Prices

Inflation is largely determined by the effects of the weather in particular, cyclone damage and by movements in prices in New Zealand, the main source of Western Samoa’s imports. The exchange rate of the Tala against the New Zealand dollar is also important. Cyclone Ofa caused extensive damage in 1990 and the resulting shortages led to inflation of 15.2%. After easing in 1991, prices rose once more in 1992 following Cyclone Val. The inflation rate fell in 1993, largely in response to favourable trends in import costs and higher levels of domestic food production.

In 1994 inflation once again shot up, mainly due to the destruction of the taro crop, a staple in the Western Samoan diet, and to the introduction of a 10% value-added tax on goods and services. In 1995 the inflation rate fell as con- sumers switched to cheaper taro substitutes and the inflationary effects of the new tax were absorbed.

Consumer prices (period averages) 1990 1991 1992 1993 1994 1995 Index (1990=100) 100.0 98.2 107.0 108.9 128.9 130.3 % change 15.2 –1.8 9.0 1.8 18.4 1.1 Source: IMF, International Financial Statistics.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 68 Western Samoa

Agriculture, forestry and fishing

Agriculture The economy is heavily dependent on agriculture, forestry and fishing, which are estimated to contribute about one-half of GDP. Most agriculture is for subsistence, though farmers also harvest products which they sell into the money economy. Agricultural products also account for a large proportion of Western Samoa’s export earnings.

Several small private plantations engage in commercial cropping, but the only large-scale plantation operation is the government-owned Western Samoa Trust Estates Corporation (Westec). This was created from the takeover of for- mer German plantations at the end of the First World War. Westec controls about 12,000 ha, 20% of the country’s total cultivated area. It is the main supplier of export products, and operates 13 plantations, four cattle ranches and a piggery. The government is anxious to diversify Westec’s activities away from the traditional copra, cocoa and cattle to include bananas, taro and other crops, and the production of animal feeds. It is considering subdividing and leasing out the land to private farmers. Subsistence production, mainly of banana, coconut, taro and other root crops, remains important, accounting for an estimated 26% of GDP (1992). Commercial agriculture, including coconut products, cocoa and taro is estimated to account for only 14% of GDP.

In recent years the cyclone damage to the country’s agricultural base has been devastating. The initial loss of production caused by Cyclone Val in 1992 is estimated at 80% for coconuts, 90% for cocoa and 100% for banana. Just when tree crops were set to make a full recovery, the agricultural sector was further hit by the occurrence of taro leaf blight from the end of 1993. This has resulted in a further decline in agricultural production and exports in 1994. The spread of leaf blight has severely reduced the importance of taro as a cash crop and foreign exchange earner. In 1993 earnings from taro were US$3.8m, around half of total export earnings, whereas in 1995, earnings from taro were US$65,000. Natural disasters aside, the agricultural sector is also hampered by high real wages and the high levels of out-migration from rural areas.

Agricultural exports (tons unless otherwise indicated) 1988 1989 1990 1991 1992 1993 Copra 3,282 5,944 2,400 0 0 0 Copra meal 5,281 3,058 2,215 0 38 0 Coconut oil 10,330 6,292 5,188 35 837 0 Coconut cream 1,166 n/a 1,576 1,557 1,295 960 Cocoa 474 605 220 2 0 0 Taro (’000 cases) 191 264 128 212 107 202 Source: Central Bank of Samoa.

Forestry Western Samoa has an estimated 80,000 ha of forest cover, of which two-thirds is on the island of Savai’i. The forestry sector has also suffered from cyclone damage and, more recently, unsustainable rates of logging. The export of round logs has been banned since the beginning of the 1990s. With backing from a number of aid donors, the government is pursuing a policy of forest

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Western Samoa 69

resource regeneration and sustainable harvesting. With stricter controls now in place about US$64,300 of timber was exported in 1994.

Timber exports (‘000 board ft) 1988 1989 1990 1991 1992 1993 Timber 955 112 18 7 0 0 Source: Central Bank of Samoa.

Fishing The fishing sector has been in decline for many years and was virtually wiped out following the cyclones in the early 1990s which destroyed both the fish habitats and the fishing industry’s vessels and infrastructure. Only an esti- mated 1,000 tons of fish are caught locally each year, compared with the 3,000 tons of fish products imported annually. Various projects for the devel- opment of fisheries are under way. The main objective is to increase production and reduce imports.

Mining and energy

No minerals are produced, and the only indigenous source of energy is wood. A small hydroelectric power station was opened at Sauniatu in 1985. Another (capacity 4 mw) is being built at Afulilo at a cost of US$23.8m, largely funded by the ADB, the World Bank and the EU. A wood-burning electricity generating station is to be built with financial aid from the Arab Economic Development Fund, and Japan has undertaken a rural electrification project.

Energy balance, 1995 (m tons oil equivalent) Oil Gas Coal Electricity Other Total Production 0.00 0.00 0.00 0.005a 0.017 0.022 Imports 0.045 0.00 0.00 0.00 0.00 0.045 Exports 0.00 0.00 0.00 0.00 0.00 0.00 Primary supply 0.045 0.00 0.00 0.005a 0.017 0.067 Net transformationb 0.010 0.00 0.00 0.001 0.00 0.011 Final consumption 0.035 0.00 0.00 0.004c 0.017 0.056 a Primary electricity production, imports and exports of electricity are expressed as input equivalents on an assumed generating efficiency of 33%. b Net transformation comprises transformation input and output, plus energy industry fuel and losses. c Output basis.

Source: Energy Data Associates.

Manufacturing

The manufacturing sector is small but has been increasing in relative impor- tance as agricultural production has been falling. Although no recent statistics are available, industrial output is thought to have declined in 1989 and 1990, while 1991 and 1992 saw very big increases with the establishment of factories by overseas investors taking advantage of Western Samoa’s tax incentives, cheap labour and political stability.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 70 Western Samoa

The largest industrial employers are the Yazaki Samoa automotive parts factory, the timber and veneer factory and Western Samoa Breweries. Yazaki Samoa assembles wiring harnesses for the motor industry from imported components. The company started production in 1991 and is already the country’s single largest earner of foreign exchange. Western Samoa Breweries, largely govern- ment-owned, now faces competition from the Apia Bottling Company, which entered the brewing business after the expiry in 1991 of a ten-year guaranteed monopoly. Other manufactured products include animal feed, paint, tobacco, aluminium windows, screens and doors, footwear, cigarettes and matches.

Index of industrial production (1982=100) 1988 1989 1990 1991 1992 1993 Electricity 137.7 141.4 130.6 148.3 154.6 174.9 Beer 113.7 105.9 101.3 90.6 117.4 108.6 Soft drinks 221.9 186.0 195.9 145.5 178.9 166.0 Cigarettes 100.0 100.6 103.8 99.7 104.4 91.2 Coconut oil 115.0 81.2 49.6 6.4 3.2 n/a Coconut cream 332.2 427.1 449.0 495.8 351.5 273.8 Timber 55.2 62.1 50.2 55.7 55.4 37.0 Total incl others 135.3 129.9 118.1 105.1 105.1 98.7 Source: Central Bank of Samoa.

Construction

The construction industry depends heavily on expatriate specialists and tech- nicians, but the government wishes to avoid creating too much distortion in the labour force by allowing large numbers of people to enter the country to work on construction projects. Foreign aid funds are the major determinants of the level of activity in this sector.

Tourism

Tourism has been an important foreign exchange earner and provides much direct and indirect employment. Most visitors are from American Samoa, New Zealand, the USA and Australia. In 1990 the tourism sector contributed about US$13m to foreign exchange earnings, equivalent to 10% of GDP. The number of tourists peaked in 1989 at 54,000 and fell sharply to 36,450 in 1992 due to Cyclones Ofa and Val, which caused extensive damage to tourism infrastruc- ture. The level of tourist arrivals has recovered since then.

Tourist arrivalsa (’000) 1988 1989 1990 1991 1992 1993 49.09 54.00 48.10 38.89 36.45 43.72

a Includes Western Samoans whose usual place of residence is overseas.

Source: Central Bank of Samoa.

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A major constraint on the tourism sector is that there are only two hotels of international standard. One of these, Aggie Grey’s, has completed a major up- grading; the other, the Tusitala, was purchased from receivership in December 1990 by the Japanese Kitano Corporation. A Hong Kong-American company Apt Hotels and Resorts, has announced plans to build Western Samoa’s first tourist resort at a cost of US$100m. The resort will include a 300-room hotel and two golf courses.

Transport and communications

Roads There are more than 1,800 km of roads, of which 400 km are classified as main roads and 260 km are surfaced. During the late 1980s the government gave high priority to road building. However, the cyclones in 1990 and 1991 seri- ously damaged the road network in the country. Over 4,500 vehicles are regis- tered, of which about 1,800 are private cars.

Air transport The national airline, Polynesian Airlines, was at the centre of a major political scandal in 1994. In a report on the airline the chief auditor accused several cabinet ministers of misusing public funds by exposing public money to huge debts through government loan guarantees. In June 1994 the airline’s debt reached US$20m, equivalent to about 40% of Western Samoa’s total foreign exchange reserves. Polynesian Airlines’ problems stemmed largely from an over-ambitious expansion plan. The airline received financial assistance from the government in 1994 and 1995, by mid-1995 and appeared to be trading its way out of trouble.

Other airlines which operate services to Western Samoa are , Hawaiian Air, Air Pacific and South Pacific Island Airways. The only inter- national airport, Faleolo, is about 40 km from the capital, Apia.

Shipping The head office of the shipping company is in Apia. The government, like those of neighbouring countries, is a shareholder in this line. International services are also operated by several other shipping lines.

Telecommunications There are international direct telephone dialling services via satellite links. Apia is served by an automatic telephone exchange. In 1992, 2,700 telephone lines were estimated to have been in use.

Mass media The local radio station is government-owned. There is no local television, but a US station can be received.

There are several daily newspapers and two main weeklies. In September 1994 The Samoa Times, one of Western Samoa’s oldest newspapers, was merged into the Samoa News, an American Samoan daily.

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Finance

Public finance The budget is heavily dependent on foreign aid. The 1995 budget projected government expenditure at Tala274m (US$112m), an increase of 10% on 1994. Between 1990 and 1994 government expenditure rose by over 50%, while revenue climbed by only 30%. Admittedly the economy has had several natu- ral disasters to contend with, but the fiscal problems have been compounded by the government’s failure to spend within its means. Examples of over- spending include an increase in the number of government departments, wage and salary increases and the introduction of a senior citizens’ benefit scheme.

In its 1991 budget the government started to implement a policy of broadening the tax base by raising indirect taxes and easing direct taxes, the burden of which has fallen mainly on the small number of wage earners and businesses in Western Samoa. The process continued with the introduction of a 10% goods and services tax in January 1994, to compensate for a 10% cut in per- sonal income tax rates introduced in 1993. But, following public protests over the introduction of the new excise duties, the import duties on 13 basic food- stuffs were removed in March 1994. Just under half of current government revenue comes from customs duties on imports.

Money and banking The Central Bank of Samoa was established in May 1984 and took over the activities of the Monetary Board. An Australian Bank, ANZ, acquired the government’s 25% stake in the Bank of Western Samoa (BWS), becoming its outright owner. The Bank of Western Samoa is the largest bank in the country with assets of about A$16m (US$13m). The government has also sold its Post Office Savings Bank (POSB) to a consortium of local businesses. The bank, to be renamed the National Bank of Samoa, is the country’s first locally owned commercial bank. The other banks are the Pacific Commercial Bank (owned by Westpac, the and local shareholders) and the Development Bank of Western Samoa.

Money and credit (Tala m unless otherwise indicated; end-period) 1990 1991 1992 1993 1994 1995 Currency in circulation 12.94 13.96 12.31 13.95 16.82 21.60 Demand deposits 34.35 28.97 25.73 29.70 30.38 39.34 Money (M1) 47.29 42.93 38.04 43.65 47.20 60.94 M1 growth (%) 42.6 –9.2 –11.4 14.7 8.1 29.1 Quasi money 73.69 75.78 81.52 77.63 90.88 107.30 Money (M2) 120.98 118.71 119.56 121.28 138.08 168.24 M2 growth (%) 19.3 –1.9 0.7 1.4 13.9 21.8 Domestic credit 0.02 –10.82 –3.89 19.61 31.00 50.74 Claims on central government –61.36 –76.36 –77.17 –62.24 –47.65 –50.34 Claims on public sector 2.57 2.35 2.37 0.56 3.16 3.70 Claims on private sector 58.81 63.19 70.91 81.29 75.49 97.38 Net foreign assets 157.78 162.55 145.03 119.18 117.73 126.66 Source: IMF, International Financial Statistics.

Parliament passed legislation in early 1988 to allow the setting up of an off- shore banking centre. More than 1,000 companies have registered in Apia

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under the new tax haven legislation. The banking centre’s contribution to the national budget in 1994 is estimated to have been about Tala400,000.

Foreign trade

As key commodity prices improved and coconut oil displaced copra as the main source of export earnings, exports rose strongly in 1982-85 and touched a high of Tala36.8m (US$15m) in 1984. Export levels have since fluctuated, but never repeated this performance. Coconut production has been in decline and round-log exports have been banned.

Nearly all consumer goods are imported. A marked rise in the trade deficit in 1991 and 1992 reflected still lower exports and increases in imports, mainly due to the effects of the cyclones in 1990 and 1991.

After a five-year break, as a result of cyclone damage, Western Samoa has started exporting copra once more (coconut oil exports resumed early in 1995). About 4,400 tons were exported to Germany in 1995. The revival of the export is particularly welcome at a time when production of the other traditional export, taro, has completely collapsed, beset by disease problems. In 1995 total export earnings rose by 136.3% in Tala terms over the previous year to Tala21.5m following the resumption of coconut oil and copra exports and some growth in manufacturing exports. In the same period imports rose by 14.1% to Tala235.3.

Foreign trade (Tala m) 1989 1990 1991 1992 1993 1994 1995 Exports fob 29.2 20.5 15.5 14.3 16.5 9.1 21.5 Imports cif –171.2 –186.1 –225.3 –271.3 –269.1 –206.3 –235.3 Balance –142.0 –165.6 –209.8 –257.0 –252.6 –197.2 –213.8 Source: IMF, International Financial Statistics.

The main buyers of Western Samoa’s exports are New Zealand (51.6% of the total in 1993), Australia (12.5%), American Samoa (17.2%), the USA and other Pacific islands. The main import suppliers are New Zealand (38.7% in 1993), Australia (23.7%), the USA (8%), Japan and Germany.

External payments and debt

Current account The merchandise trade account, which is consistently in deficit by a multiple of total export earnings from goods (by ten times in 1995), is partly offset by the balance on services and investment income, such as receipts from the offshore finance centre which normally records a modest surplus, and by trans- fers. The transfers come in the form of official aid and remittances from nat- ionals working abroad, which amounted to Tala83.4m (US$34m) in 1994. Some 90% of the work force of 5,000 in the two tuna canneries on American Samoa are Western Samoans; they remit US$4m-7m a year. There are also many Western Samoans working in Australia and New Zealand who repatriate

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savings. Remittances reached record levels in 1990, the year of Cyclone Ofa. Initial figures for 1995 indicate that earnings from tourism increased by 38% over the previous year, which, together with an increase in overseas private remittances, resulted in a balance of payments surplus of US$3.26m, a large improvement on the deficit of US$6.1m recorded in 1994.

Capital account There is no foreign direct or portfolio investment, and the surplus on the capital account largely reflects official borrowing.

Balance of payments (US$ m) 1988 1989 1990 1991 1992 1993 Exports of goods fob 15.09 12.87 8.85 6.48 5.82 6.43 Imports of goods fob –66.57 –66.99 –70.00 –77.62 –89.90 –87.37 Trade balance –51.47 –54.12 –61.15 –71.15 –84.07 –80.94 Exports of services 26.89 30.90 35.58 30.75 36.65 35.78 Imports of services –18.25 –18.80 –24.72 –34.64 –43.43 –38.22 Income credit 2.89 4.48 6.68 7.21 6.15 4.33 Income debit –2.12 –2.39 –1.53 –2.39 –2.55 –4.42 Net private transfers 35.47 38.15 39.72 31.00 34.75 28.38 Net official transfers 14.54 14.60 12.68 10.57 0.0 16.42 Current-account balance 7.95 12.81 7.26 –28.66 –52.50 –38.68 Direct investment 0.00 0.00 0.00 0.00 0.00 0.00 Portfolio investment 0.00 0.00 0.00 0.00 0.00 0.00 Other capital 0.49 0.48 9.40 18.60 19.95 15.55 Capital-account balance 0.49 0.48 9.40 18.60 19.95 15.55 Errors & omissions 1.67 –2.61 –5.66 7.97 19.82 13.82 Overall balance 10.10 10.68 11.00 –2.08 –12.72 –9.31 Memorandum item Total change in reserve assets (– indicates inflow) –8.69 –10.66 –11.49 –0.42 12.95 8.29 Source: IMF, International Financial Statistics.

International liquidity (US$ m; end-period) 1990 1991 1992 1993 1994 1995 Foreign exchange 64.82 64.06 57.65 47.11 46.92 51.28 SDRs 4.18 3.70 2.60 2.68 2.91 3.03 Reserve position in the IMF 0.04 0.04 0.91 0.91 0.97 1.00 Total reserves excl gold 69.05 67.81 61.16 50.71 50.80 55.31 Source: IMF, International Financial Statistics.

Aid In 1995 the total aid flow into the country was valued at Tala72m (US$29m). The Asian Development Bank (ADB) and the World Bank have funded a tele- communications project on the islands and the ADB has also approved fund- ing for various natural resource projects.

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Disbursements of gross development assistance (US$ m) 1988 1989 1990 1991 1992 1993 Bilateral 22.1 20.5 27.8 25.9 29.5 29.9 of which: Japan 7.7 6.0 9.2 10.0 6.8 15.8 Australia 7.3 7.6 8.9 9.2 12.1 7.6 New Zealand 4.0 3.5 5.8 4.2 7.9 5.7 Germany 2.9 2.2 2.0 1.2 1.5 0.6 Multilateral 10.3 12.6 21.8 32.4 26.0 24.4 of which: EUa 3.6 2.7 0.6 6.8 6.2 7.0 Asian Development Banka 1.7 3.7 1.6 4.5 3.4 3.9 Total 32.4 32.3 49.6 58.3 55.5 54.3

a Net total receipts; not strictly comparable with rest of table, which is in terms of gross loans plus grants.

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Debt Western Samoa’s gross external liabilities remained fairly stable between 1984 and 1989 at around US$75m, but increased sharply to US$141m in 1991 and US$194m in 1993. Total external debt fell to $155m in 1994, mainly as a result of a reduction in short-term debt. The country has been successfully transfer- ring its debt on to concessional terms. The concessional proportion of the total debt stock rose from 56.2% in 1980 to 98.7% in 1992 before a large burst of short-term commercial borrowing in 1993 pulled it down to 72.1%. Conces- sional loans now make up almost all of the country’s total external debt. Partly as a consequence of the increase in the proportion of concessional loans the debt-service ratio fell from 12.3% in 1980 to 10.5% in 1994.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 76 Western Samoa

External debt (US$ m unless otherwise indicated; debt stocks as at year-end) 1989 1990 1991 1992 1993 1994 Total external debt 73.6 92.0 140.7 117.9 194.2 154.8 Long-term debt 71.9 91.0 113.4 117.8 140.9 154.6 Short-term debt 0.2 0.1 27.1 0.1 53.4 0.2 Use of IMF credit 1.6 0.8 0.2 0.0 0.0 0.0 Public & publicly guaranteed long-term debt 71.9 91.0 113.4 117.8 140.9 154.6 Official creditors 70.5 89.6 112.2 117.0 138.7 154.6 Multilateral 61.3 81.1 104.2 110.1 124.5 143.7 Bilateral 9.2 8.5 7.9 6.9 14.2 11.0 Private creditors 1.4 1.4 1.2 0.8 0.6 0.0 of which: banks 0.0 0.0 0.0 0.0 0.0 0.0 bonds 1.4 1.4 1.2 0.8 0.6 0.0 Total debt service 6.8 5.5 5.5 4.8 5.4 5.1 Principal 5.4 4.1 3.5 3.5 2.8 3.7 Interest 1.4 1.3 2.0 1.3 2.6 1.4 Ratios (%) Total external debt/GNP 52.3 60.9 94.4 77.8 125.6 87.5 Debt-service ratioa 8.0 5.8 7.0 5.5 6.9 10.5 Short-term debt/total external debt 0.2 0.2 19.3 0.1 27.5 0.1 Concessional loans/ total external debt 92.2 95.5 78.9 98.7 72.1 99.9

Note. Long-term debt is defined as having original maturity of more than one year. a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, World Debt Tables.

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Vanuatu

Basic data

Land area 12,190 sq km

Population 142,944 (May 1989 census); 168,400 (mid-1995 estimate)

Major islands Efate, Espiritu Santo, Malakula, Tanna, Erremango

Capital (population 19,311 at 1989 census)

Climate Tropical

Weather in Vila Cool weather in winter and cyclones in summer (December-April). Average annual rainfall is about 230 cm at Vila, and average year-round humidity is 83%. Temperatures range from 22° to 27°C

Languages (Pidgin) English and French (all official); about 110 local languages

Measures Metric

Currency The vatu, which came into circulation in March 1983. Exchange rate average 1994: Vt116.41:US$1. Exchange rate end-July, 1996: Vt110.950:US$1

Time 11 hours ahead of GMT

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 78 Vanuatu

Political background

History Vanuatu, formerly the Condominium, was ruled jointly for 74 years by an Anglo-French condominium and two separate French and English administrations before independence on July 30, 1980. The first elec- tions, in November 1979, resulted in a clear majority for the New Hebrides National Party, later renamed the Vanua’aku Pati (VP), led by an Anglican priest, Father Walter Lini.

The VP originally drew support from the anglophone indigenous ni-Vanuatu, while the francophone ni-Vanuatu became identified with the secessionist Nagriamel movement and French-speaking nationalist parties representing the interests of the French expatriate farmers. In June 1980, Nagriamel announced a breakaway provisional government of the Northern Islands which was sup- pressed with the help of troops from Papua New Guinea. The secessionist movement’s leader, Jimmy Stevens, was arrested and imprisoned.

Father Lini and his Vanua’aku Party remained in power for 11 years, winning the 1983 election with 55% of the vote and the 1987 election with 47%. Father Lini survived a leadership challenge in 1988 by the then secretary-general of the VP, Barak Sope. Mr Sope persuaded 18 members of parliament to boycott parliament and was later sworn in as prime minister of an interim government by George Sokomanu, who was president at the time. But, without the support of the police force, the government collapsed. Mr Sokomanu was dismissed from the presidency and imprisoned after a controversial trial, together with three other members of the interim government, including Mr Sope.

The increasingly autocratic behaviour of Father Lini created mounting oppo- sition to him from within his own party. At an extraordinary session of parlia- ment in September 1991 Father Lini was deposed by a vote of no confidence. Donald Kalpokas, newly elected VP leader at a party congress boycotted by Father Lini, became prime minister for the short period leading up to the general election in December 1991.

The defeat of Father Lini as prime minister created a split within the VP, resulting in the formation of a new party, the National United Party (NUP), led by Father Lini and his supporters. The elections held on December 2, 1991, resulted in a narrow victory for the francophone Union of Moderate Parties (UMP), which won 19 seats, five short of the 24 seats necessary for an outright majority. The VP and the new NUP won ten seats each. The UMP was forced to seek a coalition partner and, in an unexpected move, chose the NUP. The leader of the UMP, Korman Maxime Carlot, was elected prime minister and Mr Kalpokas became leader of the opposition. Mr Carlot named a cabinet of both UMP and NUP members. The former finance minister in Father Lini’s VP government, Sethy Regenvanu, was named deputy prime minister. Father Lini was not given a portfolio.

Since the last general election, held on November 30, 1995, Vanuatu has expe- rienced considerable political instability. Already in the run-up to the general election, Mr Carlot was ousted by the president of his party, Serge Vohor. The Unity Front was the most successful party in the election, winning 21 seats; the UMP won 17, down two from the previous selection, and the NUP won seven

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seats. Mr Vohor emerged as the new prime minister of Vanuatu, having won the votes of 28 of the 50 MPs, supported by his own UMP MPs and also NUP MPs.

However, Mr Vohor’s coalition government of lasted only two months, the shortest life of any government since independence. The first signs of trouble came in January 1996 when a breakaway faction of six UMP MPs together with 20 Unity Front MPs tabled a in the government. The government was eventually replaced by yet another coalition led by Mr Carlot, which comprises the Unity Front and the UMP breakaway MPs.

The government candidate, Jean-Marie Leye, was elected president in March 1994, with VP support. Since then he has proved to be something of an embar- rassment to the government, which has accused him of making improper use of his powers. His controversial decisions include the release of 26 criminals and the freeing of a Taiwan fishing boat that had been caught fishing illegally.

The constitution The Republic of Vanuatu is a sovereign democratic state. The president is head of state and is elected by parliament and the presidents of the regional councils for a five-year term. Legislative power rests in a unicameral parliament of 46 members. Executive power is vested in the Council of Ministers (the cabi- net), which is appointed by the prime minister and cannot have more than 11 members.

According to the constitution, the structure of the government must be decen- tralised, in order to allow for greater local participation and to ensure more regional autonomy. The central government consists of 11 ministries with 40 departments. In late 1994 parliament passed the Decentralisation Act which replaced the 11 local councils with six provincial governments.

The constitution provides that all land in Vanuatu belongs to “custom owners” and their descendants, that rules of custom shall form the basis of ownership and use of land, and that transactions in land are to be carried out only with the permission of the government.

Political forces The NUP was formed in September 1991 when Father Lini broke away from the ruling Vanua’aku Pati (VP). The United Front which contested the 1995 general election is a rather improbable coalition of three partners: the Vanvaa’aki Pati, the Melanesian Progressive Party and Tan Union. These three partners joined forces with the primary objective of trying to beat the UMP. Other successful partners in the 1995 election included Nagriamel with two seats, the Fren Party with one seat, and two independents. Two new partners were also formed to contest the elections: the women-only Vanuatu Women in Politics Party and the Independent Christian Front. In addition there were 17 Independent candidates two of which were successfully elected.

The UMP was formed in 1980 to represent francophone interests in Vanuatu. It favours closer economic and cultural ties with France, although it has ex- pressed its support for the Kanak independence movement in New Caledonia. Following the split in the UMP in January 1996, the remaining breakaway UMP MPs are now expected to form a new party.

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International relations Relations with France have improved in recent years when compared with the and defence tensions after independence. Vanuatu, when under the premiership of Maxime Carlot, was the only country in the South Pacific not to have condemned France’s decision to resume nuclear testing.

Closer ties have also been established with Australia and New Zealand, partic- ularly due to the growing importance of tourism, aid-funded projects and military cooperation. However, a major diplomatic row broke out with Austra- lia in mid-1992 following the expulsion of the acting Australian high commis- sioner to Vanuatu, James Pearson. He had expressed concerns about an amendment to the Business Licence Act, which empowers the finance minister to refuse or revoke business licences at any time. Relations soured further with the appointment of a former president of Vanuatu, George Sokomanu, to head the South Pacific Commission. He singled out Australia for adopting a “colonial club” attitude in the Pacific. Eventually the two countries were able to resolve the difficulties. Full diplomatic relations were restored in early 1993 and to Vanuatu was not affected.

A defence pact was signed with Papua New Guinea when Vanuatu became independent in 1980. In May 1991 a joint defence agreement between New Zealand and Vanuatu was renewed, whereby New Zealand Defence Forces are allowed to conduct military exercises in Vanuatu in return for training Vanu- atu’s small Mobile Force. This was followed by a visit by Australia’s defence minister to review Vanuatu’s defence co-operation programme with Australia. Australia provides more than US$2m annually in defence assistance. However, Vanuatu still has only one patrol boat to police its 200-mile offshore zone.

Population and society

The total population in 1995 is estimated at 168,400, of which about 18% live in the two largest towns: the capital, Port Vila, on Efate and on Espiritu Santo. Because of migration to the capital, Efate has the fastest growing population. During the 1970s Vanuatu’s population grew by about 3% a year. Since 1981 the average growth rate has been 2.7%.

The majority of the population, 98%, are Melanesian, known as ni-Vanuatu. There are around 1,500 Europeans (of whom about two-thirds are French) and mixed-race people of European and Melanesian or European and Polynesian descent. Another 500 or so are Polynesians and there are about 1,000 Vietnam- ese and Chinese. About 70% of the population lives in the four main islands of Efate, Espiritu Santo, Malakula and Tafea, and the overall population density is about 14 per sq km.

According to the constitution, the national language is Bislama, an English- based Pidgin used throughout the archipelago. The languages of government, business and education are French and English and many official documents are published in both. The dual education system inherited from the days of the British-French condominium still exists. About 55% of children are edu- cated in English-language schools and 35% in French-language schools.

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Although 90% of ni-Vanuatu children have primary education, only about 9% go on to Vanuatu’s 21 secondary schools and the national literacy level is below 60%. Vanuatu has one institute of further education, a branch of the University of the South Pacific. In addition, a limited number of grants are available to send ni-Vanuatu students to foreign universities. Vocational train- ing is provided at the Tagabe Agricultural School, the Vanuatu Teachers’ College and the Vanuatu school of nursing.

Health standards are considered satisfactory. Malaria is the most serious prob- lem. Vanuatu has ten hospitals, of which the largest and best equipped is in Port Vila, and over 200 village health centres, rural dispensaries and first aid posts. There is one doctor per 5,500 of the population, and life expectancy at birth in 1992 was 63 years.

Currency

The unit of currency is the vatu (Vt), which was introduced in March 1981. Until early 1988 the vatu was linked to the SDR, but to reduce speculation its value is now set in line with a basket of currencies, the components of which the government has refused to disclose. A flexible exchange rate policy has been followed since 1988. At the end of July 1996, the exchange rate was Vt110.950:US$1

Exchange rate of the vatu (Vt:US$; period averages) 1989 1990 1991 1992 1993 1994 1995 116.04 117.06 111.68 113.39 121.58 116.41 112.11 Source: IMF, International Financial Statistics.

The economy

Some 16 years after it gained independence, Vanuatu is still struggling with a fragile economy, high population growth, heavy dependence on foreign aid and, more recently, political turmoil. Since the 1991 general election Vanuatu has experienced an unprecedented level of political instability. This is not an environment conducive to coherent economic policies or their sustained im- plementation. In 1995 Vanuatu was back in the UN list of the world’s least developed countries (LDC).

The economy is dominated by agriculture; in particular subsistence agriculture is very important, with about 82% of the population living in rural areas. Growth is highly dependent on the export performance of copra, beef and veal, timber and cocoa. The newly emerging export-oriented vegetable squash sector has shown extremely promising signs. Tourism and financial services are sig- nificant sectors. Manufacturing is restricted to the processing of agricultural commodities.

The government’s domestic policies have been aimed at achieving economic self-reliance over a 15-year period, with emphasis on balanced regional and

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rural growth, the utilisation of the country’s rich supply of natural resources, the promotion of the private sector and the preservation and restoration of the traditional way of life that had been disrupted by .

National accounts

Cyclone damage has been the most important factor in determining the rate of GDP growth. Economic activity was depressed in both 1987 and 1988 by a cyclone in early 1987, but there was an upswing in growth in 1989; in 1990 an increase in tourist arrivals to record levels and healthy demand for the services of the offshore financial centre contributed to record real growth in GDP of 5.2%. The GDP growth rate slowed in 1991 as export earnings from copra and beef declined, while economic activity in 1992 was hit both by severe cyclone damage in the early months of the year and also by growing uncertainty about the government’s stance towards foreign investors. A large rise in outward transfers by resident expatriates dampened the finance and insurance sectors. There was some recovery in the economy in 1993 and 1994.

Gross domestic product (Vt m; at market prices) 1988 1989 1990 1991 1992 1993 1994a At current prices 10,850 16,367 17,899 19,212 20,524 21,959 23,160 At constant (1990) prices 16,268 17,007 17,899 18,631 18,775 19,494 20,079 Real change (%) 0.6 4.5 5.2 4.1 0.8 3.8 3.0

a EIU estimate.

Sources: IMF, International Financial Statistics.

Gross domestic product by sector (% real change; at factor cost) 1988 1989 1990 1991 1992 1993 Agriculture, forestry & fishing –9.9 9.4 15.1 –2.0 1.9 8.2 Manufacturing 16.3 13.2 12.5 15.0 –7.2 –4.4 Electricity, gas & water 6.1 12.0 9.8 –2.6 –13.1 2.5 Construction 16.3 6.7 2.0 3.1 –8.6 13.5 Transport & communications 5.6 9.1 1.2 3.9 1.9 –0.6 Wholesale & retail tradea 0.2 0.6 4.4 9.7 3.5 0.5 Financeb 40.6 –0.2 3.3 1.2 –0.5 6.0 Public administration –3.1 –11.1 –7.2 7.0 4.3 9.4 Total GDP 0.6 4.5 5.2 4.4 1.0 4.0

a Including hotels and restaurants. b Including insurance, real estate and other services.

Sources: ADB, Key Indicators of Developing Asian and Pacific Countries 1995; Vanuatu Statistics Office, Statistical Indicators.

Around one-quarter of GDP is attributable to the agricultural sector, and over half of that is from subsistence farming. The trade, transport and communi- cations sectors (covering tourism, shipping, and retail and wholesale distrib- ution) accounted for 41% of GDP in 1993. The contribution of the offshore

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financial sector to GDP is about 10%. The manufacturing sector is growing but remains very small, accounting for around 6% of GDP in 1993.

Gross domestic product by expenditure (Vt m; current market prices) 1988 % of GDP 1993 % of GDP Private consumption 6,330 58.3 11,701 53.3 Government consumption 3,817 35.2 6,029 27.5 Gross fixed investment 2,847 26.2 6,075 27.7 Change in stocks 350 3.2 540 2.5 Exports of goods & services 4,232 39.0 9,743 44.4 Imports of goods & services –7,362 –67.9 –13,262 –60.4 Statistical discrepancy 636 6.0 1,133 5.0 GDP at market prices 10,850 100.0 21,959 100.0 Sources: IMF, International Financial Statistics; Vanuatu Statistics Office, Statistical Indicators.

Employment

The total number of people in employment was 66,597 in 1989 (the year of the last national census), of whom 61% worked in agriculture, forestry and fishing, 12% in community and social services, and just over 1% in manufacturing.

Some thousands of workers have been repatriated in recent years from New Caledonia, where they went to work in the nickel industry before inde- pendence when there was free movement of labour between the two territories. A programme of incentives was set up in 1991 to try to attract skilled foreign workers to seek employment in Vanuatu.

Employment by industry, 1989

No % of total Agriculture, forestry & fishing 40,889 61.4 Manufacturing 891 1.3 Electricity, gas & water 110 0.2 Construction 1,302 2.0 Trade, restaurants & hotels 2,712 4.1 Transport & communications 1,030 1.5 Financial & business services 646 1.0 Community & social services 7,891 11.8 Other 11,126 16.7 Total 66,597 100.0 Source: Statistics Office, National Population Census, Main Report, May 1989.

At the end of 1994 the government announced plans to reduce the size of the public sector by as much as one-fifth. Over half of the government’s budget goes on salaries and wages.

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Wages and prices

Labour costs in Vanuatu are low and 80% of the population still live at subsis- tence level. Vanuatu’s constitution stipulates regular minimum wage and public-sector wage reviews.

Inflation was in double digits in most years of the early and mid-1980s but has since moderated. There have been statutory price controls and, although the government has accused traders of excessive profit margins, fluctuations in prices have been largely due to exchange rate changes. Inflation almost halved in 1988, when the vatu was linked to a basket of foreign currencies, and continued to fall in 1989-90. After rising in 1991, consumer price inflation averaged 3.3% in 1992-94.

Despite the inflationary pressure which resulted from the business tax intro- duced in January 1995 together with rising inflation in Australia, a major source of imports, the urban CPI, rose by only 0.3% in June 1995 over the previous year. This very low sale reflected falling rents and a reduction in import tariffs on food in the second quarter of 1995. However, by September 1995 the year-on-year change in the CPI had risen to 3.1%.

Consumer prices (period averages) 1989 1990 1991 1992 1993 1994 Index (1990=100)a 95.5 100.0 106.5 108.8 114.7 118.9 % change 7.8 4.7 6.5 2.2 5.4 3.7

a Index covering Port Vila and Luganville only.

Sources: IMF, International Financial Statistics; Vanuatu Statistics Office, Statistical Indicators.

Agriculture, forestry and fishing

Agriculture Agriculture is by far the most important sector of the economy, accounting for over 75% of exports and 19% of GDP. Vanuatu’s development strategy remains focused on agriculture. Coconut, cocoa and squash are the main cash crops. Of Vanuatu’s total land mass, about 45% is arable and much of the remainder is suitable for timber cultivation. However, only about 1,000 sq km, or 18% of available land, is currently in use.

About 69,000 ha are planted with coconut. Three-quarters of copra output comes from smallholdings and one-quarter from plantations (although small- holder production can vary greatly from year to year, depending on price). Successful schemes for quality improvement and price stabilisation have been introduced. Copra production reached a peak of 47,000 tons in 1984, largely in response to high prices. Production has since fluctuated but on a downwards trend. Cyclone damage, ageing trees and a switch by farmers to other crops have been blamed for the fall in production. Traditionally most copra is sold to the EU but is increasingly taking a larger portion, being able to offer higher prices because of its relative proximity to Vanuatu. Export earnings from copra were US$7.7m in 1994, accounting for 37.2% of total exports.

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Cocoa producers have, until recently, also had to contend with falling world prices, although in 1990-91 increased production offset the fall in prices. In 1994 output was 1,205 tons. Metenesel Estates was launched in 1983 to develop a 1,700-ha cocoa project on Malakula. Production from these estates is projected to reach over 2,000 tons by the year 2000.

A new development is the production of squash, which has shown tremendous potential. After only a few years of squash exports, the vegetable is already Vanuatu’s third largest agricultural export, after copra and cocoa.

The livestock sector is extremely important. There are an estimated 126,000 head of cattle and the export of beef is well established, accounting for 21.4% of domestic exports in 1993. There are good meat processing facilities, includ- ing three abattoirs and three canneries. The main Luganville abattoir, with a capacity of 1,500 tons a year, meets European Union (EU) standards. A second abattoir opened in Luganville in April 1993. Most beef is exported frozen, although about 30% is canned. Output of beef and veal exceeded 4,000 tons for the first time in 1994, but is expected to decline in 1995 because the domestic industry has lost a number of contracts to more established exporters from Australia and New Zealand. As a result, the beef industry is to focus more on supplying regional markets such as PNG, Solomon Islands and New Caledonia.

Production of selected commodities (tons) 1989 1990 1991 1992 1993 1994 Copra 24,869 45,071 28,440 27,429 27,981 26,983 Cocoa 1,573 2,173 2,174 1,357 2,121 1,205 Cattlea n/a n/a 3,387 3,329 3,699 4,069 Pigsa 46 n/a 67 59 49 66

a Slaughtered carcass weight.

Sources: Vanuatu Statistics Office, Statistical Indicators; Reserve Bank of Vanuatu, Quarterly Economic Review.

Forestry The forestry sector is increasing in importance and is now seeing the benefit of the work of the Forest Service Department, which was set up in 1970. By the end of 1983 1,200 ha had been planted and it was proposed to increase that to 6,000 ha over the following 20 years. Exports of sawn logs rose to a record 19,283 tons in 1987, and fell to an all-time low of 1,844 tons in 1990. By 1994 timber exports had recovered to 4,128 tons.

Production of sawn timber (tons) 1989 1990 1991 1992 1993 1994 12,626 1,844 1,673 2,269 6,612 4,128 Source: Reserve Bank of Vanuatu, Quarterly Economic Review.

An indefinite ban on sandalwood exports has come into effect in order to evaluate current availability, particularly on the southern island of , where much of the wood is grown, and to ensure that existing levels can be sustained. Following a study to establish Vanuatu’s sustainable annual cut, the government in early 1994 banned the export of round logs, restricted the annual timber harvest to 25,000 cu metres and reduced the number of logging

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companies permitted to operate on Erromango from four to two. Before this ban a Malaysian company, Parklane Industries, alone had had permission to harvest an annual quota of 70,000 cu metres of timber. Unlike its Melanesian neighbours, Vanuatu has been prepared to manage its forest reserves on a sustainable basis. In 1995 the government announced plans to introduce a new code of conduct for logging, first proposed by the former Australian prime minister, Paul Keating. The code is designed to ensure that logging practices comply with international standards, particularly in relation to sustainable cuts and road building.

Fishing The tuna fishing industry was set up over 20 years ago by the South Pacific Fishing Company. The total fish catch is about 3,000-3,500 tons per year.

Problems persist with South Korea and Japan over drift-net fishing, but Taiwan signed a fishing treaty with Vanuatu in 1989 under which each Taiwan fishing vessel pays a US$5,000 licence fee and in return is permitted to catch tuna using long lines only. About 30 Taiwanese fishing boats operate around Vanuatu, employing approximately 400 ni-Vanuatu. In 1995 the government, in colla- boration with the , established Vanuatu Fishing Investments to develop the country’s deep-water commercial fishing industry.

Mining

Manganese was produced at the open-cast Forary mine in Efate until the end of 1978. Investigations in the early 1990s revealed that some 2m tons of high- grade ore remained in the area. In 1992 an Australian company announced plans to extract 60,000 tons of manganese for export to and Japan.

Prospecting for gold is being carried out by several large international com- panies, by many other smaller firms and by a number of private individuals. City and Suburban Properties has announced that it has found ore with high gold and silver values in the Taorau area on Malakula island and in the south- west of Espiritu Santo.

Energy

The only indigenous fuel is wood. No hydrocarbons have been discovered. Electricity generation is thermal, and the government is examining geothermal energy resources. Construction work on Vanuatu’s first two hydroelectric power plants, on Malakula and Santo, began in 1993. China is financing up to 75% of the government stake in the Malakula project and Japan is funding the Santo development. In 1994 electricity sales in Port Vila and Luganville, the only areas served, were 31.1m kwh.

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Energy balance, 1995 (m tons oil equivalent) Elec- Oil Gas Coal tricity Other Total Production 0.000 0.000 0.000 0.000 0.006 0.006 Imports 0.021 0.000 0.000 0.000 0.000 0.021 Exports 0.000 0.000 0.000 0.000 0.000 0.000 Primary supply 0.021 0.000 0.000 0.000 0.006 0.027 Net transformationa 0.011 0.000 0.000 –0.003 0.000 0.008 Final consumption 0.010 0.000 0.000 0.003b 0.006 0.019

a Net transformation comprises transformation input and output, plus energy including fuel and losses. b Output basis.

Source: Energy Data Associates.

Manufacturing

Manufacturing contributed only 5.8% of GDP in 1993 and is largely focused on the processing of agricultural and forestry products. The main industries are meat canning, fish freezing, and cement, biscuits, dairy ice cream and rubber sandal manufacture. Other products include soft drinks, building materials, sandalwood, rattan and bamboo furniture, fabricated aluminium items and printed materials.

A tannery built in 1985 with Australian aid is now an important adjunct to meat production. The government is attempting to promote export processing industries and in 1990 set up a joint venture with Pripps Bryggerier of Sweden to produce beer, exports of which began in early 1993.

Tourism

Tourism is an important source of foreign exchange earnings. Total visitor arri- vals were 42,143 in 1994, over 70% of them tourists. Australians account for over half of all visitors. Regular promotion campaigns in Australia and New Zealand and, more recently, Japan, and improved air connections to the region, should enable tourism to continue to be a major growth sector of the economy.

Visitor arrivals, 1994

Country of origin No of visitors Australia 2,945 New Caledonia 5,462 New Zealand 5,293 Other Pacific islands 2,558 2,297 Japan 1,227 1,140 Total incl others 42,143 Source: Vanuatu Statistics Office, Statistical Indicators.

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The growth in arrivals pushed up hotel room occupancy rates from 40-45% in the late 1980s to 61% in 1994. At the end of 1994 there were 1,095 beds available in 11 hotels in the vicinity of Port Vila.

Transport and communications

Air transport Air Vanuatu, Vanuatu’s national carrier, operates international services. After the Vanuatu government’s failure to re-negotiate Ansett Air’s management contract for Air Vanuatu, the airline was closed for most of 1987. A temporary solution was found by leasing an aircraft from Australian Airlines, and in December 1988 a Boeing-727 was purchased from Australian Airlines.

In 1993 Air Vanuatu finally moved into profit, seven years after its launch. This was achieved after switching from the Boeing-727 to the smaller Boeing 737 and after repayment of loans due to the government. A new runway extension was opened at Bauerfield, Port Vila’s airport, in 1990 to accommodate larger aircraft and a new international terminal was completed in 1991. In order to assist the expansion of the tourism industry, the government also plans to rehabilitate the airport at Espiritu Santo. Apart from Air Vanuatu, other inter- national airlines serving Vanuatu are Air New Zealand, Air Pacific, Ansett, Air Niugini and Air Calédonie International.

Roads Vanuatu has 1,130 km of roads of variable quality. Only 54 km, mostly on Efate, are surfaced. There were 4,515 registered vehicles in 1986, 5,781 by the end of 1989 and almost 8,000 by the end of 1994.

Shipping International shipping services are operated by a number of major lines provided by the trading companies Burns Philp, Ballande and Vanua Navigation. Cruise ships operated by Royal Viking Line, Sitmar and P&O Cruises also call at Vanuatu. There were 397 ships registered under the Vanuatu flag at the end of 1994, and the offshore shipping register is a valuable source of government revenue.

Telecommunications Overseas radio telephone links exist with Australia, Fiji, New Caledonia and Hong Kong. These, like the telex links to the same countries, may be extended to most parts of the world by satellite contact. There are automatic telephone exchanges in Port Vila and Santo. Digital telephone exchanges began operating in Port Vila in 1990 and in Luganville in the following year, with a digital radio link between them. Vanuatu was the first country in the Pacific to have such a system, which will allow international direct dialling. The digital exchanges are part of a major telecommunications project developed by CIT Alcatel and Telecom Vanuatu, in which the government has a 51% stake. Work has also started on the follow-up rural telephone network, which will be extended from the urban exchanges. The first satellite link with Australia opened at the end of 1992.

Mass media Radio Vanuatu broadcasts in English, French and Bislama. Vanuatu’s first tele- vision station opened in Port Vila in July 1992, in cooperation with Télédiffusion de France. It broadcasts programmes imported from New Zealand and France.

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There are two weekly newspapers, The Vanuatu Weekly, produced in three languages by the government information office, and the Trading Post, a pri- vately run publication. There is also a monthly general-interest magazine known as Pacific Island Profile, published in English and French.

Finance

Public finance Current expenditure has consistently consumed almost all government dom- estic revenue, therefore official development expenditure has traditionally been heavily dependent on foreign cash grants, mainly from the UK and France and, especially in recent years, Australia and New Zealand. The propor- tion of total development expenditure financed by such grants, however, fell from 51% in 1986 to only 28% in 1993.

In order to compensate for the fall in foreign assistance over the years the government has attempted to increase tax revenue, about half of which comes from import duties, but has been unsuccessful. According to preliminary esti- mates, the proportion of total domestic revenue accounted for by tax revenue in 1994 was no greater than in 1987. Neither personal nor corporate incomes are taxed, and direct tax collections remain nil.

In 1994 total domestic revenue, both tax and non-tax, amounted to Vt5.77bn (US$52m), against total current expenditure of Vt5.43bn, resulting in a small, Vt334m, surplus on the recurrent account. The 1995 budget forecast a 2.9% nominal increase in revenue, a 9.4% increase in current spending and, there- fore, a balanced recurrent account.

The political instability that Vanuatu has experienced in early 1996 has meant that a budget has still not been put before parliament.

Money and banking An offshore tax haven finance centre was created by UK legislation in 1971, and many banks were set up. Attractive incentives were created for foreign business: no income tax, company tax, withholding tax or capital gains tax, no estate or death duties and no exchange controls. In 1985 the government introduced new legislation relaxing the original regulations so that, for example, exempted companies need not submit audited accounts or disclose beneficial ownership. The Companies Act of 1986 further simplified and liber- alised the provisions. In the late 1980s, earnings from the offshore financial centre contributed an estimated 12% to GDP.

At the end of September 1994 nearly 2,000 companies were registered in Vanuatu, of which about 400 were foreign-owned and about 160 tax-exempt. The rest are other financial institutions, and accounting, insurance, legal and trust companies. Company registration fees were worth Vt268m (US$2.4m) in 1994, representing 4.6% of total government domestic revenue.

Local banks require no minimum deposit for vatu accounts and a minimum of US$5,000, or the equivalent in major specified currencies, for foreign currency holdings. Vanuatu has no double taxation agreements with other countries, ensuring maximum confidentiality for international financial transactions.

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Money and credit (Vt m unless otherwise indicated; year-end) 1989 1990 1991 1992 1993 1994 Currency in circulation 1,037 934 1,148 901 1,224 1,351 Demand deposits 3,270 2,918 3,209 4,119 4,448 4,339 Money (M1) 4,369 3,894 4,377 5,056 5,679 5,728 M1 growth (%) 24.3 –10.9 12.4 15.5 12.3 0.9 Quasi-money 18,460 20,203 19,560 18,248 18,778 19,443 Money (M2) 22,829 24,097 23,937 23,304 24,457 25,171 M2 growth (%) 47.6 5.6 –0.7 –2.6 4.9 2.9 Domestic credit 3,289 4,537 4,133 5,803 5,963 6,853 Claims on central government –1,541 –1,446 –2,108 –2,137 –2,087 –1,831 Claims on public sector 27 15 11 20 6 105 Claims on private sector 4,799 5,966 6,226 7,914 7,944 8,540 Claims on other financial institutions 3 3 4 6 100 38 Net foreign assets 21,494 22,755 22,152 20,549 21,003 19,710 Source: IMF, International Financial Statistics.

Foreign trade

Vanuatu’s foreign trade balance is heavily dependent on world commodity prices, particularly for copra, beef, cocoa and timber, the four major export items. Year-on-year fluctuations in exports therefore tend to be large. In 1992 total exports, including re-exports, grew by 31.5% in vatu terms as copra unit values doubled. In 1994 export earnings grew by 5.5%, partly as a result of a 20% rise in the unit value of cocoa.

Foreign trade (Vt m; fob) 1989 1990 1991 1992 1993 1994 Exports 1,590 1,606 1,516 2,027 2,140 2,402 Re-exports 970 596 519 650 618 509 Total exports 2,560 2,202 2,035 2,677 2,758 2,911 Imports for home consumption –8,014 –10,691 –8,605 –8,609 –8,524 n/a Imports for re-export –336 –520 –611 –667 –643 n/a Total imports –8,350 –11,211 –9,216 –9,276 –9,167 –10,404 Balance –5,790 –9,009 –7,181 –6,599 –6,409 –7,493 Sources: Vanuatu Statistics Office, Statistical Indicators; IMF, International Financial Statistics.

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Main exports (Vt m; fob) 1989 1990 1991 1992 1993 1994 Copra 750 598 528 829 706 894 Beef & veal 262 368 340 336 457 452 Cocoa 174 248 258 165 154 226 Sawn timber 204 91 86 90 267 308 Total incl othersa 1,590 1,606 1,595 2,027 2,140 2,402

a Excluding re-exports.

Sources: Vanuatu Statistics Office, Statistical Indicators; Reserve Bank of Vanuatu, Quarterly Economic Review.

Main imports for home consumption (Vt m; fob) 1988 1989 1990 1991 1992 1993 Machinery & transport equipment 1,797 2,470 3,815 2,285 2,521 2,463 Food & live animals 1,263 1,237 1,312 1,296 1,606 1,407 Basic manufactures 1,430 1,492 1,911 1,621 1,378 1,498 Mineral fuels 584 663 863 938 835 819 Chemicals 421 550 642 593 566 558 Beverages & tobacco 368 360 335 374 374 349 Raw materials excl fuel 88 69 135 136 74 84 Total incl others 7,066 8,013 10,691 8,605 8,609 8,524 Source: Vanuatu Statistics Office, Statistical Indicators.

Imports have consistently been two to three times larger than export earnings. In 1990, when a record Vt3.82bn (US$34m) was spent on the import of capital goods, total expenditure on imports was more than five times export earnings, resulting in a trade deficit of Vt9bn, 50% of GDP. By 1994 the trade deficit had declined to Vt7.5bn, 32% of GDP.

Main trading partners (% of total value) 1989 1990 1991 1992 1993 1994 Exportsa to: EU 57 50 48 50 32 32 Japan 181822192924 Australia 10 12 13 12 11 8 New Caledonia 7 8 5 6 7 6 South Korea 3 4 7 5 4 3 Importsb from: Australia 39 37 38 41 n/a n/a New Zealand 13 10 12 11 n/a n/a Japan 12 12 9 9 n/a n/a France 6888n/an/a New Caledonia 3 3 5 7 n/a n/a Fiji 9996n/an/a Hong Kong 4 4 4 4 n/a n/a Singapore 3 4 4 3 n/a n/a

a Domestic exports. b Imports for home consumption.

Source: Vanuatu Statistics Office, Statistical Indicators.

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External payments and debt

Current account Earnings from the tourism sector and the offshore financial centre together with private and official transfers have partly offset the large deficits on the visible trade account, although a deficit on the current account is usually recorded. In 1990 increased imports pushed the trade balance further into the , although strong growth in earnings from tourism and financial services, which increased inflows on the services account by 50% compared with 1989, limited the impact on the current account. The current-account deficit re- mained steady, just below $14m, in 1991-93, as merchandise imports fell back and services credits continued to rise. In 1994 merchandise exports rose 19%, but 29% growth in imports in US dollar terms led to a deterioration in the trade balance. Although services exports grew strongly, the current account more than doubled to $28.3m.

Capital account The largest items on the capital account are the reinvested earnings of foreign subsidiaries and branches, and foreign borrowing by private enterprises net of repayments. This is the result of the location of foreign banks and holding companies in Vanuatu.

Balance of payments, IMF estimates (US$ m) 1989 1990 1991 1992 1993 1994 Exports of goods fob 13.7 13.7 14.9 17.8 17.4 20.7 Imports of goods fob –57.9 –79.3 –74.0 –66.8 –64.7 –83.5 Trade balance –44.2 –65.6 –59.2 –49.0 –47.3 –62.8 Exports of services 40.3 60.2 66.1 69.9 69.6 79.9 Imports of services –19.1 –23.9 –27.0 –26.8 –26.9 –33.6 Income credit 23.4 31.9 24.9 17.6 17.6 12.6 Income debit –29.2 –33.3 –49.2 –47.6 –48.2 –51.8 Transfers credit 20.4 25.0 31.1 23.3 23.4 28.2 Transfers debit –3.9 –0.5 –0.5 –0.6 –0.6 –0.7 Current-account balance –12.3 –6.2 –13.7 –13.1 –12.4 –28.3 Direct investment abroad 0.0 0.0 0.0 0.0 0.0 0.0 Direct investment in Vanuatu 9.2 13.1 25.5 26.5 26.7 29.8 Portfolio investment assets 0.0 0.0 0.0 0.0 0.0 0.0 Portfolio investment liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Other investment assets –0.8 –0.9 15.3 –8.6 –26.6 –47.0 Other investment liabilities 15.8 1.6 –68.6 5.8 16.1 7.0 Financial balance 24.2 13.8 –27.8 23.7 16.1 –10.2 Capital account nie credit 8.9 16.5 19.3 26.6 25.9 30.2 Capital account nie debit –0.1 –0.04 –0.2 –9.4 –5.7 –4.2 Capital-account nie balance 8.8 16.5 19.1 17.2 20.2 26.0 Capital-account balance 33.0 30.3 –8.7 40.9 36.3 15.8 Net errors & omissions –13.0 –19.4 19.3 –27.1 –20.4 6.3 Overall balance 7.8 4.7 –3.1 0.8 3.5 –6.1 Memorandum item Total change in reserve assets (–indicates inflow) –7.8 –4.7 –0.4 –4.2 –6.7 4.9 Source: IMF, International Financial Statistics.

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In 1991 capital flight in the wake of the political turmoil led to a deficit of US$8.7m on the capital account. The capital account returned to surplus in 1992, with a positive balance of US$40.9m. The capital-account surplus in 1994 was $15.8m.

Reserves Since the delinking of the vatu from the SDR in 1988 and its linking to an undisclosed basket of currencies, foreign exchange reserves have grown at a modest pace in all but one year. The exception was 1989, when they fell sharply because of the withdrawal of the Hongkong Bank from Vanuatu. The flows are still predominantly speculative, a function of Vanuatu’s role as a financial centre. Foreign exchange reserves in 1994 were sufficient to provide over 5.7% of import cover.

International liquidity ($ m; end-period) 1990 1991 1992 1993 1994 1995 Foreign exchange 34.69 36.69 39.31 41.96 39.63 n/a SDRs 0.71 0.84 0.94 0.21 0.31 0.43 Reserve position in the IMF 2.29 2.30 2.21 3.42 3.63 3.70 Total reserves excl gold 37.69 39.84 42.46 45.59 43.58 n/a Source: IMF, International Financial Statistics.

Aid Net aid receipts rose until 1988. Most of the aid was bilateral, the UK, France, Australia and New Zealand being the major donors. UK development and technical assistance has continued, although budget aid has ceased. Australia and the EU have both become increasingly important sources of grant aid and Japan is now also a major donor. Stabex payments from the EU have contrib- uted to stabilising earnings on the current account in the face of fluctuating prices of copra and cocoa.

The Asian Development Bank lends funds for development projects on infra- structure and to assist the government’s revenue collection. Grants from China have enabled improvements to be made to the parliament building in Port Vila. In 1995 Australia and France pledged about US$8m each in aid for the priority areas of health, education and the environment.

Debt The proportion of concessional loans in the total debt stock has been falling from a high of 93.2% in 1992 to 86.3% in 1994, as the proportion of short-term debt has risen and now stands at 10.7%. The ratio of total external debt to GNP has remained over 20% since 1988.

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External debt (US$ m unless otherwise indicated; debt stocks as at end-period) 1989 1990 1991 1992 1993 1994 Total external debt 30.3 40.2 39.3 40.4 42.4 46.5 Long-term debt 20.8 30.6 38.1 39.6 39.4 41.5 Short-term debt 9.5 9.6 1.2 0.8 3.0 5.0 Use of IMF credit 0.0 0.0 0.0 0.0 0.0 0.0 Public & publicly guaranteed long-term debt 20.8 30.6 38.1 39.6 39.4 41.5 Official creditors 19.1 29.1 36.8 38.6 38.6 40.9 Multilateral 12.7 16.7 25.4 27.1 27.6 30.6 Bilateral 6.5 12.4 11.4 11.6 11.0 10.3 Private creditors 1.7 1.5 1.3 1.0 0.8 0.6 of which: banks 0.0 0.0 0.0 0.0 0.0 0.0 bonds 0.0 0.0 0.0 0.0 0.0 0.0 Total debt service 2.0 2.4 1.6 1.5 1.5 1.9 Principal 0.6 1.0 0.8 0.9 0.9 1.0 Interest 1.4 1.5 0.8 0.6 0.5 0.7 Ratios (%) Total external debt/GNP 20.8 24.6 22.8 23.2 24.8 24.7 Debt-service ratioa 2.3 2.1 1.4 1.4 1.5 n/a Short-term debt/total external debt 31.3 23.9 3.2 2.1 7.1 10.7 Concessional loans/total external debt 59.9 70.0 91.2 93.2 89.1 86.3

Note. Long-term debt is defined as having original maturity of more than one year. a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, World Debt Tables.

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Tonga

Basic data

Land area 748 sq km

Population 94,649 (November 1986 census); 98,300 (mid-1995 estimate)

Major Islands group, Ha’apai group, Vava’u group

Capital Nuku’alofa (population 21,383 at 1986 census)

Climate Tropical

Weather in Nuku’alofa Average annual temperature of 21°C and an average rainfall of 150-170 cm

Languages English official language and local dialect of Polynesian

Measures Imperial and metric

Currency Pa’anga or Tongan dollar. Exchange rate average 1994: T$1.320:US$1. Exchange rate end-July, 1996: T$1.2694:US$1

Time 11 hours behind GMT

Public holidays June 4, Independence Day; July 4, HM the King’s birthday; November 4, Constitution Day; December 4, Tupou 1 Day; December 25, Christmas Day; December 26, Boxing Day; January 1, 1997, New Year’s Day; March 28-31, Easter; April 25, Anzac Day; , HRH Prince’s birthday

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Political background

History Archaeological evidence indicates that Tonga was inhabited some 3,000 years ago. The Tongan Islands had developed a structured social and political system long before the arrival of the first European explorers. The structure revolved around the ruler, the Tu’i Tonga, who held spiritual sway over the islands. The islands were discovered by European explorers in 1616 and were subject to intermittent European contact over the next 180 years. Members of the London Missionary Society were among the earlier European settlers in 1797. Christianity was adopted by one political faction in the islands and there followed almost constant wars between the and the other factions. Siaosi Toupo emerged as the most powerful chief and introduced a code of laws in the 1850s. In 1875 the Kingdom of Tonga adopted its first constitution under the reign of King George Tupou I, who had reunited the islands.

Under a Treaty of Friendship in 1900, Tonga agreed that the islands’ foreign affairs would be a British responsibility. A new treaty in 1958 between Tonga and the UK preceded the complete independence of the islands, which took place in 1970. The country has been governed since 1970 in accordance with the provisions of the 1875 constitution as amended, although there has been growing pressure of late to increase democracy and accountability. The present monarch is King Taufa’ahau Tupou IV who succeeded his mother, Queen Salote Tupou III, upon her death in December 1965.

The constitution Tonga is an independent whose government consists of the king, the privy council, the cabinet, the Legislative Assembly and the . The constitution dates from 1875 when the king voluntarily relin- quished some of his powers. He nevertheless continues to exert considerable influence on affairs of state. The legislature is a single-chamber assembly whose members are the speaker and the cabinet appointed by the king, nine nobles elected by the 33 nobles of the kingdom, and nine people’s representatives elected by universal suffrage of all Tongans aged 21 and over; three of the commoners are elected from Tongatapu, two from Ninas, two from Ha’apai and two from Vava’u. The nobles are elected to cover similar areas. The king appoints a cabinet comprising governors of Ha’apai and Vava’u and ministers of the Crown. The cabinet is headed by the prime minister who is in charge of several ministries and, like the other ministers appointed by the king, holds office until retirement. When the cabinet is presided over by the king it be- comes the privy council. With the participation of the chief justice the privy council becomes the court of appeal.

Political forces Elections cannot result in a change of government or the removal of the prime minister, but they nevertheless attract a great deal of attention. There have been signs of fundamental changes in attitudes to traditional authority since the unprecedented turnover of elected representatives in the 1987 elections. In 1989 the members of parliament representing commoners were able to force the finance minister to review the budget and, later in the year, they boycotted parliament in protest at their colleagues’ conduct. In elections to the parlia- mentary seats for commoners in February 1990 there was strong popular sup- port for those representatives seeking greater democracy. The leader of the

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people’s representatives, Akilisi Pohiva, has been an effective advocate of greater accountability and democracy in the government. His challenges both within the assembly and in court have criticised the government on issues such as passport sales and financial management. In 1991 there was unprecedented public protest in the capital, Nuku’alofa, over the passport issue with increas- ing criticism of the government. In 1992 a well-attended democracy confer- ence was held in Nuku’alofa in the run-up to the February 1993 general elections which witnessed the pro-democracy movement winning six of the nine commoners’ seats. In 1994 the movement consolidated its success by forming the kingdom’s first ever political party, the People’s Party. Mr Pohiva was elected the party’s vice-president.

In the 1996 elections the pro-democracy movement represented by the People’s Party succeeded in winning four of the nine seats available to com- moners. Mr Pohila won twice as many votes as his nearest rival in the Ton- gatapu constituency. The People’s Party will continue to campaign for democratic reforms and greater parliamentary representation for Tongans, but these moves are likely to be resisted by the monarchy.

International relations Tonga is a member of the Commonwealth and has treaties of friendship with and defence Germany and France. The Tongan Defence Force is small consisting of fewer than 200 soldiers in four divisions.

Population and society

Tonga consists of three main groups of islands: the Tongatapu group in the south, Ha’apai in the centre and Vava’u in the north. All inclusive, there are about 150 islands, of which about 36 are inhabited. The total land area is 748 sq km.

In the middle of 1995 the population of Tonga was officially estimated at 98,300. This is 4% up on the 94,649 recorded in the 1986 census. There is a regular flow of emigrants, mainly to New Zealand, Australia and the USA. About two-thirds of the population live on the largest island, Tongatapu, on which Nuku’alofa is situated. The population of the capital was 21,383 in 1986. The distribution of the population among the other main island groups is approximately as follows: ’Eua, 4,000; Ha’apai, 8,550; and Vava’u, 15,000.

The government operates four hospitals. At the end of 1988 there was one doctor for every 1,649 inhabitants. According to the World Bank, average life expectancy at birth in 1992 was 68 years.

The people of Tonga are Polynesians. They have their own Polynesian language but many also speak English which is the official language. Education is free and compulsory between the ages of five and 14.

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Currency

The currency is the Tonga dollar (T$) or pa’anga, equal to 100 seniti (cents). There is a fixed parity between the Tonga dollar and the Australian dollar. At the end of July 1996, the exchange rate was T$1.2694:US$1.

The National Reserve Bank of Tonga was established in 1989 and assumed responsibility from the Bank of Tonga for the issuance of currency. It also has responsibility for the management of international transactions and foreign exchange reserves, and acts as the country’s central bank. The Bank of Tonga has, as a result, been forced to concentrate on its commercial banking business.

Exchange rate of the Tonga dollar (T$:US$; period averages) 1988 1989 1990 1991 1992 1993 1994 1995 1.2750 1.2612 1.2800 1.2961 1.3471 1.3841 1.3202 1.2709 Source: IMF, International Financial Statistics.

The economy

The subsistence sector dominates the economy, but a money sector is steadily developing. Tonga’s resources are limited, but it has fertile land and could be self-sufficient in many basic items. The manufacturing sector is small. Foreign exchange income, mainly from squash (pumpkin) exports to Japan and trans- fers from Tongans resident abroad, is inadequate to pay for imports. The country is therefore heavily dependent on foreign aid.

Tonga’s five-year development plans aim to diversify the economy through the expansion of industry, exports and tourism, and by the promotion of the country as an offshore banking centre.

National accounts

GDP growth in Tonga has fluctuated with changes in weather conditions and commodity prices. In the fiscal year beginning July 1, 1993, the economy contracted by 0.2%. In 1994/95 there was some recovery, with growth of 2.5%, followed by an estimated 2% in 1995/96.

Gross domestic producta (T$ m) 1990 1991 1992 1993 1994 1995 At current market prices 193.2 198.2 201.0 214.8 222.6b 230.0b Real GDP growth 5.9 –6.2 –3.8 –0.2 2.5b 2.0b

a Fiscal year beginning July 1. b EIU estimate.

Sources: IMF, Economic Development in Seven Pacific Island Countries; International Financial Statistics.

Levels of squash exports to Japan in the 1994/95 season were disappointing: the supply from Tonga exceeded quota levels, and with the quota down by

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2,000 tons to 15,000 tons, the prospect is for sluggish sales. In the fiscal year 1995/96, GDP growth was supported by expansion of the tourism sector and of agricultural products.

Gross domestic product by sector (%) 1983/84 1986/87 1989/90 1991/92 1992/93 Agriculture, forestry & fishing 35.2 34.4 35.8 37.1 38.6 Manufacturing 5.6 5.7 5.1 4.8 5.1 Construction, electricity & water 8.0 8.6 7.1 7.0 7.7 Wholesale & retail trade 13.3 13.3 14.2 13.9 14.7 Services & other 37.9 38.0 37.8 37.2 33.9 Total 100.0 100.0 100.0 100.0 100.0 Source: Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries, 1995.

Employment

The labour force was estimated at 32,013 in 1990, with 30,670 in formal em- ployment, up by around 42% on the total employed in 1986 of 21,604. As a result of emigration the labour market is tight, with a shortage of skills and high labour costs. The percentage of the formal labour force primarily engaged in agriculture has declined in the past 25 years from 80% to less than 50%.

In response to the number of unfilled vacancies in the private sector, the government has announced plans to set up an employment centre to provide such services as registering job seekers, publicising vacancies and careers advice.

Agriculture, forestry and fishing

Agriculture The land in Tonga is generally fertile. However, land is entirely the property of the Crown, although large estates have been allotted to the nobles. By law, every Tongan, on reaching the age of 16 and becoming a taxpayer, is nomi- nally entitled to 3 ha of bush land and a town site of about 0.16 ha at a very low annual rent. However, there is a shortage of land and many male taxpayers have no allotment. Shortage of land is leading to an increase in unemployment and encouraging emigration. There continue to be calls, particularly from the pro-democracy movement, for the reform of the land-tenure system, which is seen as a bastion of the establishment.

An estimated 70% of the population depend at least in part on agriculture for their livelihood. Coconut is an important domestic and export industry, and an estimated 57% of Tonga’s total land area is planted with coconut palms. Exports of copra ceased in 1982, since when it has been processed into cattle cake and oil. As the sector has declined farmers have switched to more profit- able crops such as squash and vanilla. In the 1980s copra provided about 14% of the country’s export revenue but the slump in world prices and a succession of droughts and hurricanes has brought the industry to its knees. This in turn led to the government-owned Tonga Investments closing down the country’s

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only copra mill. A wide range of fruits and vegetables is grown, of which over 90% are consumed locally.

Tonga has exploited a shortfall in Japan in the market for squash in November, when the Japanese demand cannot be satisfied by domestic production or sup- plies from New Zealand or the USA. From 970 tons in 1988, Tonga produced around 17,000 tons in 1994, representing about 50% of the country’s exports. The growing dependence on one export crop is causing concern among govern- ment officials. An over-supply of squash in the 1994 season, which was 3,000 tons above the export quota to Japan, led to a 40-50% fall in farmgate prices. Losses on unsold squash were estimated at T$1.2m (US$945,000), and many squash farmers failed to make a profit for the season.

Ownership of the estimated 10,000 head of cattle is spread widely. The pig and cattle industries are the largest meat producers. Poultry farming has increased and the country is self-sufficient in egg production. There were 10,000 pigs in the country in 1987. Only 34% of total meat consumed, however, is produced domestically.

Forestry The forestry industry contributes less than 0.2% to GDP and there is only limited potential for growth. The government is investigating the possibility of using coconut trees as a source of timber to replace the US$2m of wood the country currently imports each year. There are an estimated 5 million coconut palms in the kingdom but because they are an important source of food the government restricts felling to a maximum of 35,000 palms a year.

Fishing There are large fishing resources, which are considerably underdeveloped given that Tonga has potential access to a 720,000-sq km fishing zone. Fisheries’ contribution to GDP has been around 5% since 1975 and in 1992 accounted for 8.3% of exports. A recent government report has warned that the near-shore fishing stocks are rapidly decreasing, owing to the introduction of more sophis- ticated fishing methods and the development of lucrative overseas niche mar- kets for certain fish such as red snapper. The report warns that unless there is proper fisheries management in Tonga, stocks will diminish to a level that will endanger the food security of fishing communities.

Japan and the USA have both made contributions to help develop the industry. Japan funded a major project on aquaculture development and the USA a four-year project investigating the potential for the development of small-scale long line fishing.

Mining

No oil or other minerals are produced although the government wishes to encourage exploration and prospecting. US surveys suggest that large undersea sediment-filled basins could be oil-rich, but so far oil exploration onshore has not been successful. Precious coral is found deep in Tongan waters. Large quantities of certain coral species used to replace damaged human bones have been exported, a practice which has led to environmental concerns. Coral harvesting degrades the reefs, to greater coastal erosion and affects the

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fish catch. In 1994 the government finally enforced a ban on coral exports which had originally been approved in 1987. Prospecting for manganese is being conducted. Copper and zinc deposits have been discovered near the islands. Mining accounted for only 0.3% of GDP in 1992/93.

Energy

Around 80% of households have access to electricity but over half of Tonga’s total energy consumption comes from wood, the only indigenous fuel. As there is only a limited supply of fuel wood, imports of petroleum products are in- creasing. Alternative sources of energy, such as solar energy and wave power, are under consideration.

Energy balance, 1995 (m tons oil equivalent) Elec- Oil Gas Coal tricity Other Total Primary production 0.000 0.00 0.000 0.000 0.00 0.000 Imports 0.035 0.00 0.000 0.000 0.00 0.035 Exports 0.000 0.00 0.000 0.000 0.00 0.000 Primary supply 0.035 0.00 0.000 0.000 0.00 0.035 Net transformationa 0.010 0.00 0.000 –-0.002 0.00 0.008 Final consumption 0.025 0.00 0.000 0.002b 0.00 0.027

a Net transformation comprises transformation input and output, plus energy industry fuel and losses. b Output basis.

Source: Energy Data Associates.

Manufacturing

Manufacturing accounted for 5.1% of GDP in 1992/93, and employed 15.1% of the labour force in 1990. The main manufactured outputs in the past have been coconut oil and desiccated coconut plants, but there has recently been consid- erable diversification. Outside the capital there is the Small Industries Centre (SIC) in which 21 manufacturers employing around 400 people are located. Products manufactured or assembled include refrigerators, jewellery, garments, black coral objects, handbags, toys, bicycles, mini-excavators, tubular furniture and paint. They are intended for the local market and for export to neighbour- ing countries. Beer is now brewed locally in a joint venture with the Swedish Pripps brewery.

Tonga’s manufacturing export sector, which a few years ago showed promise, has since contracted. In 1988 manufacturing exports from Tonga were US$2.5m but had fallen to under US$600,000 by 1993. Reasons cited for the failure include recession in Australia and New Zealand, the principal markets, as well as increased competition from Asia. Another factor has been the success of the domestic squash industry that pays higher wages and attracts most of the available labour.

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Construction

Activity in the construction sector is on a very small scale, accounting for 5.7% of GDP in 1992/93. A road construction programme is in hand and there are projects for the expansion and improvement of various port and airport facili- ties. The Tonga Construction Company, run by the Ministry of Works and the Commodities Board, is the main provider of construction services.

Tourism

The government is keen to promote Tonga as an international tourist destina- tion and to develop the tourism industry. Income from tourism contributed about 5.8% to GDP in 1992/93 and the trade sector, which includes hotels and restaurants, for 14.2%. The industry provides full-time employment for some 500 people.

A 1990-95 development plan was prepared by the Tonga Visitors Bureau to tackle the constraints existing in the industry: inadequate airline services, a shortage of hotel rooms, and a lack of outdoor activities and recreational sites. In 1982 there were 350 hotel rooms, of which 170 were of high quality. By 1990 the number had increased to 600. There are plans to expand hotel accommod- ation in Vava’u. According to the Tonga Visitors Bureau, Tonga’s air arrivals grew by 11.3% in 1994 to about 28,500 with most visitors coming from Austra- lia, New Zealand and the USA. Estimated foreign exchange earnings from tour- ism in 1995 were US$9.7m, a slight increase on the US$9.3m recorded in 1994.

Transport and communications

Transport There are 1,790 km of roads in Tonga of which about 100 km have a bitumen surface. In 1990 there were 2,430 commercial vehicles, 1,009 private vehicles and 421 motorcycles.

The main airport is Fua’amotu International Airport on Tongatapu, which has been upgraded with Japanese assistance to international standards. Five inter- national airlines serve the kingdom: Hawaiian Airlines, Air Marshall Islands, Royal Tonga Airlines, Air Pacific and Air New Zealand. Internal air services are run by Tongair, which is owned by the Tonga Tourist Development Company. A new national airline, Friendly Islands Airways, began operations with a small 28-seater aircraft in 1985, renaming itself Royal Tonga Airlines. The airline took a US company as a joint shareholder in 1989 and developed its first inter- national air service linking Nuku’alofa with Auckland from mid-1991. Under a seat-sharing agreement with Air Marshall Islands, Royal Tongan Airlines has launched its first domestic flight from Nadi to Vava’u. The airline has also started a weekly flight to Niue. Tonga’s second airport, Lupepau’u, is also being upgraded to promote tourism.

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Two good harbours, at Nuku’alofa and at Neiafu on Vava’u Island, can handle ocean-going ships. Extensions and improvements to harbours and wharves at several places in the country are planned.

Communications In 1991, 5,000 telephone lines were estimated to be in use and there is an international radio telephone link. Telecom Australia International is helping to develop digital telephone in Tonga.

Tongasat was formed in 1987 as the kingdom’s telecommunications operation. The company has registered interests in seven orbital satellite sets through the International Telecommunications Union’s International Frequency Registra- tion Board. Tongasat must have satellites in all of its seven slots by the end of the century or run the risk of their being assigned to other countries.

Radio broadcasting is run by the Tonga Broadcasting Commission. There is a government-controlled weekly newspaper, Chronicle, an independent bi- monthly magazine, Matangi Tonga, and a monthly news magazine, Kele’a.

Finance

Tonga’s fiscal policy has traditionally been cautious, with taxation and expend- iture measures balancing in the recurrent budget and the development budget being financed mainly through grants and soft loans. However, since 1990 the budget deficit has widened, mainly as a result of a 50% pay rise for civil servants. A large increase in domestic and overseas borrowing has been used to finance the deficit. The 1995/96 government budget puts total expenditure at T$75m (US$59m), an increase of more than 6% over the 1994/95 level.

Legislation to set up a central bank was passed in late 1988 and the National Reserve Bank came into existence the following year. The Ministry of Finance, the Board of Currency Commissioners, the Board of Coinage Commissioners and the islands’ only commercial bank, the Bank of Tonga, had until then jointly performed central bank functions. The Bank of Tonga is owned by the government (40%) and the Bank of Hawaii, Westpac and the Bank of New Zealand (20% each). A second commercial bank, MBF Bank, was launched in late 1993.

Government finance (T$ m) 1987/88 1988/89 1989/90 1990/91a 1991/92 1992/93 Revenue 34.4 33.7 40.7 47.6 45.7 51.9 Taxation 24.3 24.7 27.4 33.7 30.6 36.9 Non-tax 10.1 9.0 13.3 13.8 15.1 15.0 Current expenditure 33.9 34.8 44.5 47.7 51.0 49.8 Current balance 0.5 –1.1 –3.8 –0.1 –5.3 2.1 Capital receipts 6.4 9.8 10.4 14.5 7.4 n/a Capital expenditure 6.4 6.3 11.2 14.1 6.2 n/a Capital-account balance 0.0a 3.5 –0.9 0.4 1.2 n/a Overall balance 0.5 2.3 –4.6 0.3 –4.1 n/a a Actual figure is 0.01.

Sources: ADB, Key Indicators of Developing Asian and Pacific Countries, 1995.

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The government (90%) and the Bank of Tonga (10%) own the long-term lend- ing institution, the Development Bank of Tonga (DBT), which has been receiv- ing lines of credit from the World Bank, the Asian Development Bank and the European Investment Bank. The DBT is shifting the emphasis of its lending from agriculture mainly towards manufacturing and tourism.

Since 1990 there has been very little growth in demand for private-sector credit, and the government has switched from a net lender of funds to a borrower from the domestic banking system. The slow growth in private-sector credit demand is primarily a result of the removal of interest rate ceilings which resulted in positive real interest rates for the first time in over a decade. How- ever, the regulated interest rates discouraged domestic personal savings, and instead encouraged investment in more competitive regimes overseas, princi- pally in Australia and New Zealand.

Legislation has been passed to enable Tonga to become an international bank- ing centre. The legislation permits up to four foreign banks to establish oper- ations in the capital.

Money and credit (T$ m unless otherwise indicated; year-end) 1989 1990 1991 1992 1993 1994 Currency in circulation 5.97 6.77 7.17 7.13 8.05 8.90 Demand deposits 11.20 15.53 18.51 15.29 19.71 18.61 Money (M1) 17.17 22.30 25.67 22.41 27.76 27.51 M1 growth (%) 9.4 29.9 15.1 –12.7 24.1 –1.1 Quasi money 23.73 27.02 29.56 30.73 33.97 42.73 Money (M2) 40.90 49.31 55.23 53.14 61.73 70.24 M2 growth (%) 7.0 20.6 12.0 –3.8 16.2 13.8 Domestic credit 29.79 33.48 39.88 37.67 34.05 49.48 Claims on central government (net) –6.21 –1.58 4.96 5.86 2.30 –1.70 Claims on public sector 2.09 1.44 1.19 0.41 0.05 0.15 Claims on private sector 33.56 33.27 32.73 31.05 31.35 47.17 Claims on financial institutions 0.35 0.35 1.00 0.35 0.35 3.85 Net foreign assets 43.64 39.26 41.82 43.78 50.44 42.49 Source: IMF, International Financial Statistics.

Foreign trade

The foreign trade account is regularly in deficit as the country cannot produce and sell enough abroad to pay for its imports.

Foreign trade (T$ m) 1989 1990 1991 1992 1993 1994 Exports fob 11.63 14.46 17.45 16.62 23.43 18.37 Imports cif –68.34 –78.99 –76.82 –84.29 –84.93 –91.21 Balance –56.71 –64.53 –59.37 –67.67 –61.50 –72.84 Source: IMF, International Financial Statistics.

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The composition of Tonga’s exports has changed markedly since the mid-1980s as a result of diversification and private-sector development, combined with a decline in some traditional island products. The export of squash to the lucra- tive Japanese market has been particularly successful. In 1992 squash exports earned US$6.3m, and Japan is now the country’s leading export market.

Main trading partners (%) Exports to: 1988 1994 Imports from: 1988 1994 New Zealand 28.9 5.3 New Zealand 26.7 44.8 USA 20.6 19.1 Australia 25.1 24.5 Australia 15.5 4.1 USA 7.1 8.1 Japan 7.2 52.3 Fiji 9.1 7.7 Fiji 4.1 1.4 Japan 6.8 6.7 Sources: Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries, 1995; Statistics Department, Government of Tonga, Annual Foreign Trade Report, 1994.

External payments and debt

Balance of payments The deficit on the visible trade account is offset partly by income from services (primarily tourism) and, more significantly, by transfers composed mainly of foreign grants and money repatriated by Tongans working abroad. The current- account balance fluctuates from surplus to deficit.

Balance of payments, IMF estimates (US$ m) 1988 1989 1990 1991 1992 1993 Exports of goods fob 6.4 9.4 11.9 13.4 12.3 16.1 Imports of goods fob –44.1 –49.7 –50.8 –49.5 –51.3 –56.6 Trade balance –37.6 –40.3 –38.9 –36.0 –39.0 –40.5 Exports of services 18.4 27.1 26.4 20.4 16.6 16.0 Imports of services –23.9 –21.0 –23.4 –22.4 –22.3 –21.1 Income credit 6.3 3.9 5.2 3.6 4.2 5.6 Income debit –1.5 –1.1 –0.9 –1.1 –1.2 –2.4 Transfers credit 33.1 44.1 43.5 41.8 50.6 49.7 Transfers debit –6.0 –5.1 –6.2 –6.3 –9.4 –13.1 Current-account balance –11.2 7.4 5.8 –0.1 –0.5 –5.9 Direct investment abroad 0.0 0.0 0.0 0.02 0.0 0.0 Direct investment in Tonga 0.1 0.2 0.2 0.4 1.2 2.2 Portfolio investment assets 0.0 0.0 0.03 0.1 0.0 0.0 Portfolio investment liabilities 0.0 –9.4 –8.2 –2.4 –0.1 –0.0a Other investment assets 0.3 0.7 4.8 4.8 0.8 0.0 Other investment liabilities 4.6 0.3 1.4 0.1 2.5 1.1 Financial balance 4.9 –8.2 –1.7 3.0 4.4 3.2 Capital account nie credit 0.3 0.1 0.2 0.5 0.7 1.3 Capital account nie debit –0.5 –0.4 –0.4 –0.4 –0.2 –0.7 continued

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1988 1989 1990 1991 1992 1993 Capital-account nie balance –0.1 –0.2 –0.1 0.1 0.6 0.6 Capital-account balance 4.8 –8.4 –1.8 3.1 5.0 3.8 Net errors & omissions 7.24 –4.6 2.4 –2.1 –3.4 –0.3 Overall balance 0.7 –5.6 6.4 0.9 1.1 –2.4 Memorandum item Total change in reserve assets (–indicates inflow) –0.7 5.6 –6.4 –0.9 –1.1 2.4

a Actual figure is 0.06.

Source: IMF, International Financial Statistics.

Reserves International reserves have been rising in recent years, reflecting surpluses on payments and also funds received from sales of Tonga Protected Persons Passports. As of March 30, 1991, this revenue stood at T$30.7m (US$24.2m) and was invested in a trust fund to support the kingdom’s general reserves. At the end of 1994, there were sufficient foreign exchange reserves to provide over four months of import cover (based on 1994 imports). At the end of 1995, import cover fell to three and a half months (based on 1994 imports). Australia, Japan and New Zealand are the main providers of bilateral aid.

International liquidity (US$ m; end-period) 1990 1991 1992 1993 1994 1995 Foreign exchange 30.04 30.17 29.62 34.82 33.07 26.85 SDRs 0.24 1.06 0.52 0.60 0.71 0.06 Reserve position in the IMF 1.05 1.06 1.62 1.64 1.76 1.80 Total reserves excl gold 31.34 32.28 31.77 37.06 35.54 28.71 Source: IMF, International Financial Statistics.

Disbursements of gross development assistance (US$ m) 1988 1989 1990 1991 1992 1993 Bilateral 14.8 19.9 24.6 14.9 20.4 24.8 of which: Australia 6.9 9.3 8.6 7.6 8.7 7.1 Japan 3.5 5.4 10.1 3.4 5.9 12.1 New Zealand 2.8 2.7 3.8 2.8 3.4 4.6 Germany 0.9 1.1 0.9 0.3 1.4 0.2 Multilateral 5.4 5.2 6.0 5.4 4.3 8.2 of which: Asian Development Bank 1.5 1.7 2.6 2.2 1.6 2.8 Total 20.2 25.1 30.6 20.2 24.7 33.0 Source: OECD, Geographical Distribution of Financial Flows to Developing Countries.

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External debt (US$ m unless otherwise indicated; debt stocks as at year-end) 1989 1990 1991 1992 1993 1994 Total external debt 39.1 53.7 45.0 43.5 44.2 64.4 Long-term debt 37.7 44.0 43.8 42.6 43.7 63.4 Short-term debt 1.1 9.2 0.8 0.8 0.6 1.0 Use of IMF credit 0.0 0.0 0.0 0.0 0.0 0.0 Public & publicly guaranteed long-term debt 38.1 44.5 44.2 42.6 43.7 63.4 Official creditors 38.1 44.4 44.2 42.6 43.7 53.3 Multilateral 18.5 22.7 23.5 24.1 26.9 36.1 Bilateral 19.6 21.7 20.7 18.5 16.8 17.2 Private creditors 0.0 0.0 0.0 0.0 0.0 0.0 Total debt service 1.2 1.5 1.6 1.6 1.7 2.7 Principal 0.8 1.0 1.1 1.0 1.2 2.1 Interest 0.5 0.9 0.5 0.6 0.6 0.6 Ratios (%) Total external debt/GNP 34.2 45.8 32.3 30.3 30.5 40.5 Debt-service ratioa 2.7 3.2 2.8 3.0 3.3 n/a Short-term debt/total external debt (%) 2.7 17.3 1.7 2.0 1.3 1.6 Concessional long-term loans/ total long-term loans 94.4 81.0 96.6 96.8 97.8 82.3

Note. Long-term debt is defined as having original maturity of more than one year. a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, World Debt Tables.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 108 New Caledonia

New Caledonia

Basic data

Land area 19,103 sq km

Population 164,173 (1989 census); 182,200 (mid-1995 estimate)

Major islands New Caledonia, the Loyalty and the Huan groups

Capital Nouméa (population 65,110 at 1989 census)

Climate Tropical

Weather Average annual temperature of 23°C with little variation. Cyclones can occur during the wet season, December to March. Average rainfall in Nouméa of 100 cm

Languages French (official language); many local languages also in use

Measures Metric

Currency CFPfr (the French Pacific franc—Communauté Française du Pacifique—CFP). Exchange rate end-July, 1996: CFPfr91.1199:US$1

Time 11 hours ahead of GMT

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 New Caledonia 109

Political background

History New Caledonia was annexed by France in 1853 and was designated a penal settlement in 1864, a status that lasted for 40 years. It remains an overseas territory of France although for some years there has been pressure for inde- pendence, which at times has spilled over into violence. Although (Kanaks), who want independence constitute the largest single community, they are outnumbered by the combined group of Europeans and people of other origins, most of whom wish to retain the existing relationship with France. In 1985 the Socialist government in France put forward a plan for a referendum on independence in association with France. The new conservative French government, elected in 1986, produced proposals to reduce the power of the regional assemblies and hold a referendum on outright independence. A referendum took place in September 1987 and resulted in an overwhelming rejection of independence, because the Melanesian community, at the urging of the Kanak Socialist Liberation Front (FLNKS), boycotted the poll. After the referendum communal tensions intensified.

The acquittal in October 1987 of seven French settlers accused of having am- bushed and killed ten supporters of the FLNKS, and an apparent shift by the authorities to heavier policing in Kanak areas, convinced elements of the FLNKS to abandon its commitment to non-violence. Its militancy was evident during the run-up to the first round of combined presidential and territorial elections in April 1988, when the FLNKS called for a boycott and some of its members were involved in a series of violent acts including the killing of a number of gendarmes, apparently in the hope of provoking a state of emergency.

This was followed by an incident on the island of Ouvéa in early May in the dying days of the Chirac government, when a group of Kanaks killed four gendarmes and took 23 others hostage. Two French paratroopers and 19 of the Kanaks were killed in the operation to release the hostages. The ensuing shock resulted in a meeting organised by the newly elected Socialist prime minister, Michel Rocard, from which emerged the Matignon Accord between the FLNKS, under the leadership of Jean-Marie Tjibaou, and the anti-independence Rally for Caledonia in the Republic or Rassemblement pour la Calédonie dans la République (RPCR), under Jacques Lafleur. The accord sets a timetable leading up to a referendum on the independence issue, to be held in 1998.

The most recent provincial elections took place in July 1995 and resulted in a hung Territorial Congress. Jacques Lafleur’s right wing RPCR, which was the territory’s largest political party and held power in the congress with 27 of the 54 seats, lost ground to the newly formed Une Nouvelle Calédonie pour Tous (UNCT) led by Didier Leroux. The RPCR now holds only 22 seats and, even with the support of some of the smaller groups such as Jean Marie le Pen’s National Front, will need either to win over some of the independents or to make concessions to Mr Leroux in forming an administration.

The first talks with the French government on the independence referendum began in early 1996 and attendance was limited to the RPCR and the FLNKS. Despite representing almost one-fifth of the electorate the UNCT were ex- cluded from the talks on the grounds that it lacked the relevant political

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 110 New Caledonia

experience. With significant differences of opinion between the groups the talks are expected to go on throughout the year.

Population and society

The territory consists of one large island and several smaller ones. The total area is 19,103 sq km.

The total population according to the census of 1983 was 145,368; it had risen to 164,173 by the census of 1989 and by mid-1995 stood at 182,200. In 1985-92 the growth rate averaged 2.1% per year. About 45% of the population are Melanesians (73,598 in 1989). Most of the remaining population is of Euro- pean origin, mainly French. The capital, Nouméa, has a population of 65,110.

The economically active population in 1989 totalled 55,425, of which 7,763 are in agriculture. About 22,016 are engaged in community, social and personal services.

Currency

The currency is the Franc des Compairs français du Pacifique or Pacific franc (CFPfr). At the end of July 1996, the exchange rate was CFPfr91.1199:$1.

The economy

New Caledonia is the world’s third largest producer of nickel. Exports are overwhelmingly dominated by nickel which accounted for 77% of exports by value in 1993. Some agricultural products are also exported. Reliance on nickel has led to slumps in the economy from time to time when world demand has been weak. Strong growth in demand for nickel boosted the economy between 1987 and 1991, with GDP growth reaching 33.4% in 1988. As nickel con- sumption declined in 1992, in line with the economic slowdown in the indus- trialised countries, the economy contracted and exports fell by 17%. GDP began to recover in 1993 and 1994, as nickel consumption pushed up, buoyed by strong demand from Asian economies. In 1995 the economy is thought to have benefited from the favourable world market conditions and high prices for nickel, up 29.9% over 1994.

Attempts are being made to diversify the economy through the development of agriculture, forestry, fishing and tourism. Particular attention is being paid under the Matignon Accord to increasing equity within the country by pro- moting more even economic development, directed particularly at the Kanak population.

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National accounts

The latest available national accounts figures relate to 1990. The violence of 1984 and 1985 caused a severe setback to the economy, with a substantial reduction in mining, and a dramatic drop in tourism, both important sectors of the economy. Since the second flare-up of violence in 1988, the economy is reported to have performed well after a strengthening in nickel prices in 1989 and a recovery in tourist numbers. Official figures indicate that in 1990, GDP contracted by 2.6% in real terms compared with the previous year as a result of depressed activity in the mining and metallurgy sectors which contracted by 8% in volume terms and 56.6% in value terms. Growth in household con- sumption slowed in 1990 to 9.2%, after it had surged in 1989 by 29.5%. The household savings rate rose in consequence of the slowdown in private con- sumption to around 17%.

Gross domestic product by expenditure (CFPfr m; current market prices) 1987 % of total 1990 % of total Government consumption 62,868 38.7 79,554 31.8 Private consumption 92,845 57.1 146,148 58.4 Increase in stocks 794 0.5 –2,759 –1.1 Gross fixed capital formation 39,794 24.5 61,074 24.4 Exports of goods & services 28,547 17.6 54,976 21.9 Imports of goods & services –62,524 –38.4 –88,567 –35.4 GDPa 162,627 100.0 250,427 100.0

a Including statistical discrepancies.

Source: Institut Territorial de la Statistique et des Etudes Economiques, New Caledonia Facts and Figures.

All other sectors of the economy recorded growth, including 22.2% growth in the construction sector and 37.8% growth in the industrial sector. Agriculture continues to contribute only 2% to GDP while employing around 28% of the population.

Gross domestic product by sector (CFPfr m; at current market prices) 1987 % of total 1990 % of total Agriculture, forestry & fishing 3,156 1.9 5,032 2.0 Mining & quarrying 11,445 7.0 25,977 10.4 Manufacturing 8,599 5.3 15,933 6.4 Public utilities 4,363 2.7 6,357 2.5 Construction 6,982 4.3 14,151 5.6 Wholesale & retail trade, hotels etc 43,167 26.5 57,566 23.0 Transport, storage & communications 7,502 4.6 13,957 5.6 Other (finance, insurance, government services etc) 77,413 47.6 111,453 44.5 Total 162,627 100.0 250,427 100.0 Source: Institut Territorial de la Statistique et des Etudes Economiques, New Caledonia Facts and Figures.

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Prices

In 1993 inflation (year on year) was 2.9%, rising from 2.5% in 1992. This rise in inflation was caused mainly by increases in the prices of general foodstuffs (3.9%) and manufactured goods (1.7%). The inflation rate is below the levels recorded in 1988 and 1989.

Consumer prices ( % change, year-on-year) 1988 1989 1990 1991 1992 1993 3.5 4.1 1.4 4.4 2.5 2.9 Source: Institut Territorial de la Statistique et des Etudes Economiques, New Caledonia Facts and Figures.

Agriculture, forestry and fishing

Agriculture contributes less than 2% of GDP and is thus much less important in New Caledonia than in other Pacific islands. The only agricultural exports are small amounts of copra and coffee. Maize, wheat, sorghum, fruit and vegetables are grown for local consumption. In 1993, total fruit, vegetable and cereal production increased by 4.3% in volume and 19.7% in value compared with 1992. High levels of imports are required to supplement domestic production.

It is estimated that in 1991 there were 125,461 head of cattle, 38,252 pigs, 10,000 horses and 1 million poultry. In 1993 local production of meat covered 88% of domestic demand compared with 79% in 1992, which necessitated imports of 506 tons of cattle meat, a 42% decrease compared with the previous year. There are about 3,750 sq km of forest. Timber production has been on the decline, and fell 37.2% from 1,983 tons in 1992 to 1,246 tons in 1993. A programme of reafforestation is in hand.

The total fish catch in 1992 was 5,852.3 tons with a total first sale price of CFPfr776.9m (US$8m). There were 338 vessels suitable for commercial fishing in 1993. New Caledonia participates in the South Pacific Commission’s deep- sea fishing programme, and intends to develop the sector further.

Mining

New Caledonia is the world’s third largest producer of nickel ore and has an estimated 30% of the world’s nickel deposits. The industry suffered from weak world demand in the early 1980s and, more recently, from disruption and interruption of production due to social and political unrest. In 1988 and early 1989 there was a tightening of nickel supplies and consequently much stronger producer prices. However, prices then fell steadily as demand in the major economies declined and supply increased with the price in 1993 at US$2.40/lb. The fall in prices was not fully offset by the rise in New Caledonia’s production. In 1993 demand began to recover, and world consumption of refined rose by 2.2%. Boosted, in particular, by strong demand from Asia, consumption

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continued to be strong in both 1994 and 1995, growing by 10.1% and 8.4% respectively. As stocks ran down, prices remained high, rising by 20.1% in 1994 to $2.88/lb and by 29.9% in 1995 to $3.74/lb.

Nickel production is in the hands of a French company, Société Métallurgique de Nickel (SMN), which is largely owned by the French government. In 1985 ownership of all operations in New Caledonia was transferred to a newly cre- ated subsidiary based there. Private nickel mines also operate. In 1990 Jacques Lafleur, leader of the RPCR, sold his 85% shareholding in the largest of these, Société Minière du Sud Pacifique (SMSP), to one of the regional councils con- trolled by the FLNKS for a price reported to be one-third of the holding’s current market value at the time. The country also has deposits of chromium, cobalt, iron, manganese, lead and zinc.

Manufacturing

Until the late 1970s, the economy was almost entirely dependent on the nickel industry, but processing industries have grown in importance. Official figures indicate that there were 176 small to medium-sized businesses in 1994 (com- pared with 27 in 1977), which were benefiting from special taxation measures, such as reduced duties on raw material imports for processing or packaging.

These businesses, which almost exclusively supply the domestic market, in- clude brewing, cement, soft drinks, building materials, clothing, detergents, plastic products and furniture. Around 20 companies are now involved in exporting products, particularly foodstuffs.

Tourism

Tourism is the second most important sector of the economy after nickel mining. Around 40,000 cruise ship passengers come to the country every year, although the number can fluctuate considerably. The political troubles had a damaging effect on tourism. The number of tourists in 1985 fell by 44%, to 51,190 and the French government subsidised hotels which would have had to close. Thereafter, the French government agreed to provide funds for large- scale investment to improve tourist facilities. With the return of political calm there was a 36% increase in visitor arrivals in 1989 compared with 1988, and a further 6% in 1990 to 86,870.

There was a marked decrease in Australian visitors following the political un- rest in 1984. Since 1989, the largest proportion of visitors have been Japanese, who accounted for 33.8% of tourist arrivals in 1993.

In 1994 tourism was given a boost by the decision of the French minister for transport to allow two French operators to fly from Paris to Nouméa. This ends Air France’s long-standing air monopoly over the territory. In 1996 the ripple effect of the nuclear tests on Muroroa , resulted in a large number of holiday cancellations from Australia and New Zealand with Nouméa’s luxury hotels being the hardest hit.

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Following a decade of substantial investment in the hotel sector, there were 62 hotels in New Caledonia with a total of around 1,700 rooms in 1993. Invest- ment has also been directed at bringing hotels up to international standards.

Tourist arrivals, 1993

Country of origin No of visitors % of total Japan 27,278 33.8 Australia 13,727 17.0 New Zealand 6,962 8.6 French 24,747 30.6 Other 8,039 10.0 Total 80,753 100.0 Source: Tourism Council of the South Pacific.

Transport and communications

Overseas air services out of Tontouta International Airport are provided by Air Cáledonie International, Air France, Air New Zealand, Qantas and Air Vanuatu; domestic flights are run by Air Calédonie, which has also taken over the land- ing rights of Air France throughout the French Pacific territories. The main port is Nouméa and there are good shipping services.

In 1993 the total number of motor vehicles was 65,244, of which 47,500 were cars. The territory has 5,980 km of roads; 766 km are bitumen-surfaced. International telecommunications services are good. In 1981 there were 28,200 telephone sub- scribers, of whom 23,000 were in Nouméa. Television and almost all radio stations are government-controlled and much of the material used comes from France. There are three daily newspapers, a fortnightly and a monthly magazine.

Finance

The Territorial Congress approved a $750m budget in 1996 but threw out the highly unpopular 3% sales tax introduced in 1995. Total revenue in 1993 (the last date for which figures are available) amounted to CFPfr64.2bn (US$705m) a 9.1% increase on the previous year. Improved direct and indirect tax collec- tion contributed to the increase; taxation revenue accounted for 81% of the operating budget. French government aid amounted to 10% of the budget, which included grants for primary school education and health.

Foreign trade

Exports rose strongly in 1988 and 1989 but fell 16.5% between 1990 and 1993 as nickel prices fell. In 1993, nickel ore and ferro-nickels accounted for 99.2% of exports by volume and 76.7% by value. Exports of manufactured products acc- ount for 27% of export value if mining and smelter production are not included.

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Import levels vary due to fluctuations in prices of mineral resources, which make up 70% of total import volumes. Food imports account for over 17% of total imports.

New Caledonia has regularly recorded a deficit on the balance of trade. In 1995 export earnings rose strongly, by 20% in the first seven months of the year to reach CFPfr24bn ($263m), mainly as a result of higher nickel prices on world markets. Over the same period imports fell by 3% which led to a narrowing of the trade gap, from CFPfr29.9bn in 1994 to CFPfr24.5bn. As nickel prices are unlikely to fall much below current levels throughout 1996, the prospect is for a continuing improvement in the external balance.

Over half of nickel exports go to France. Nearly half of imports come from France; Australia, Japan, the USA, New Zealand and Germany each supply between 5% and 10% of imports.

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Cook Islands

Basic data

Land area 237 sq km

Population 18,552 (December 1991 census); 19,100 (mid-1995 estimate)

Major islands Rarotonga (65 sq km), Mangaia (51 sq km)

Capital , on Rarotonga (population on Rarotonga 10,918 at 1991 census)

Climate Tropical; warm and humid from December to March with the possibility of serious tropical storms; mild and equable in the south from April to November

Weather in Avarua The mean annual temperature in the capital is 23.9°C and the average yearly rainfall is 203 cm

Languages English official language and a Polynesian dialect

Measures Imperial and metric

Currency New Zealand dollar=100 cents. There are also Cook Island coins for $1 and 50, 20, 10, 5 and 2 cents and for 1 in silver, and for $100 in gold. Exchange rate average 1994: NZ$1.6844:US$1. Exchange rate end-July, 1996: NZ$1.4353:US$1

Time 10 hours behind GMT

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Political background

History The southern islands of what are now known as the Cook Islands were declared a in 1888; before then individual islands were autonomous. New Zealand annexed the islands in 1901, and in 1965 the Cook Islands became self-governing in free association with New Zealand. In 1973 an ex- change of letters between New Zealand and the Cook Islands defined the nature of the relationship, which is formally stated as being internal self- government, but in practice allows the Cook Islands government to pursue its own policies on external relations.

The constitution The Cook Islands’ constitution allows for full sovereign rights; the country has its own parliament, controls its own constitution, is responsible for the admin- istration of the and internal security and makes its own laws. The parlia- ment has 24 members elected every five years by universal suffrage. The executive is the cabinet comprising a prime minister and six other ministers chosen by the prime minister. The head of state is the British monarch. The constitution provides that the House of Ariki (paramount chiefs), which has no legislative powers, can be called upon to advise the Parliament on traditional issues relating to custom and land tenure.

Local government includes the island councils, vake (district councils) and village committees on every inhabited island.

The Cook Islanders are British subjects and New Zealand citizens.

Political forces The prime minister and leader of the Democratic Party, Sir Thomas Davis, was removed from office in July 1987 after a vote of no confidence and replaced by his deputy, Dr Pupuke Robati. A general election in early 1989 resulted in a defeat for the Democrats and the election of Geoffrey Henry, leader of the Cook Islands Party, as prime minister. He was returned to power with an increased majority (20 seats in Parliament) in elections in early 1994. A third party, the Alliance Party, which was formed in a breakaway from the Democratic Party, also contested the election, winning two seats. In 1995 Henry’s administration became embroiled in the “Letters of Guarantee Affair” in which the govern- ment in Rarotonga issued 12 letters guaranteeing a total of US$1.2bn which the government believed would earn financial commissions for the country. How- ever, a review into the affair conducted by the Reserve Bank of New Zealand concluded that the Cook Islands’ authorities had been the victims of a fraud.

International relations New Zealand has a statutory responsibility for external relations and defence in consultation with the prime minister of the Cook Islands. In practice the Cook Islands pursue their own policies and interests through their own diplomatic channels and have separate membership of the South Pacific Forum as well as of other regional bodies, including the Asian Development Bank.

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Population and society

The total land area is 237 sq km. The main island is Rarotonga. The 1986 census recorded a population of 17,610. By the time of the census in 1991 the popul- ation had increased to 18,552, indicating a population growth rate of approxi- mately 1% per year. The mid-1995 population estimate of 19,100 indicates a slower annual population growth rate since the 1991 census of less than 1%. More than half of the population live on Rarotonga where the capital, Avarua, is located.

Currency

Since the country has operated a dual-currency system in which the has enjoyed parity with the NZ dollar. However following the “Letters of Guarantee Affair” in June 1995 the government, in an attempt to restore business confidence, has withdrawn the currency from circulation. The NZ$ is now the only currency in use. At the end of July 1996, the exchange rate was NZ$1.4353:US$1.

The economy

The Cook Islands has good agricultural and marine resources, and its tourism industry is growing. The processing of agricultural products for export as well as for the domestic market has begun to develop, and recent years have seen the growth of an offshore banking sector. The manufacturing sector, which makes a small contribution to GDP, is focused on agricultural processing, small-scale manufacturing and the assembly of imported mutuals for re-export. The link with New Zealand is beneficial in many respects. The country remains heavily dependent on aid to cover its budget deficit.

The government launched a package of economic reforms on July 1, 1996, after defaulting on debt and rescheduling loans owed to the Asian Development Bank. The national debt currently stands at around US$141m. The reform package includes privatisation of state-owned industries and a drastic reduc- tion of the public service. The government has also warned that GDP is likely to contract by 12% in 1996/97, as the government cuts spending on adminis- tration from 27% of GDP in 1995/96.

National accounts

Between 1982 and 1985 GDP grew at an annual average rate of 8% and then slowed to an average of 4.5% in 1986-90. The average rate would have been much higher had it not been for the near stagnation of the economy in 1987 when the country was struck by Cyclone Sally. Since 1990, GDP growth has slowed further, averaging 1.8% in the period 1991-94. During the same period

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growth in GDP per head has deteriorated. From a recent high of 5.5% growth in 1989, GDP per head grew by only 0.4% in 1994. Government services, including tourism, together with trade and agriculture, are the dominant sec- tors. Finance has become increasingly important since the establishment of offshore banking in 1982.

Gross domestic product (market prices) 1989 1990 1991 1992 1993 1994 Total (NZ$ ’000) At current prices 102,422 106,891 116,732 126,871 137,009 147,148 At constant (1990) prices 105,073 106,891 109,095 111,290 113,231 114,959 Real change (%) 6.7 1.7 2.1 2.0 1.7 1.5 Per head (NZ$) At current prices 5,722 5,809 6,310 6,785 7,248 7,701 At constant (1990) prices 5,870 5,809 5,897 5,951 5,990 6,017 Real change (%) 5.5 –1.0 1.5 0.9 0.6 0.4 Source: Asian Development Bank (ADB), Key Indicators of Developing Asian and Pacific Countries, 1995.

Gross domestic product by sector (NZ$ ‘000; current market prices) 1990 % of total 1994 % of total Agriculture 18,891 17.7 26,643 18.1 Mining 404 0.4 187 0.1 Manufacturing 3,046 2.8 6,102 4.1 Electricity, gas & water 1,086 1.0 1,657 1.1 Construction 2,485 2.3 5,756 3.9 Trade 23,409 21.9 33,493 22.7 Transport & communications 12,652 11.8 16,863 11.5 Finance 12,679 11.9 14,086 9.6 Public administration 28,242 26.4 35,329 24.0 Others 3,997 3.7 7,032 4.8 GDP 106,891 100.0 147,148 100.0 Source: ADB, Key Indicators of Developing Asian and Pacific Countries, 1995.

Employment

The Cook Islands has an estimated formal labour force of around 6,500. Some 42% are employed in the public service, about 9% in construction, 6% in agriculture, 5% in manufacturing, 8% in transport and communications, 3% in electricity, gas and water, and 24% in commercial sectors. There is a large informal labour force engaged in agricultural production, particularly in the outer islands. There is a labour shortage, particularly of skilled workers.

Wages and prices

The minimum wage is set by the government, usually at the end of each calendar year.

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The rate of consumer price inflation declined from a peak of 12.6% in 1985 to 5.3% in 1990 and, after a temporary rise in 1993, to 2.6% in 1994.

Index of consumer pricesa (% change, year on year) 1990 1991 1992 1993 1994 5.3 5.8 3.5 7.3 2.6

a Data for Rarotonga only.

Source: ADB, Key Indicators of Developing Asian and Pacific Countries, 1995.

Agriculture, forestry and fishing

Crops are grown for local consumption, and copra, citrus, pineapples, bananas and fresh fruit are exported. Fruit and vegetables account for about one-third of total exports.

Citrus has long been one of the major commercial crops. At one stage the Cook Islands was New Zealand’s principal supplier of fresh oranges. Pineapple prod- uction was concentrated on the southern islands of Mangaia and Atiu, but the pineapple export business on Mangaia has collapsed. Greco Foods (Cook Islands), a subsidiary of a dried-fruit company, established a pineapple process- ing factory in 1982. Although small quantities of bananas are grown for local consumption, all produce for export is now centred on Aitutaki. The Cook Islands has a guaranteed market for bananas in New Zealand. Quantities sold there, however, are limited by the refrigeration capacity of available ships. Lychee, avocado, macadamia, , coffee, guava and pawpaw are also grown. A vanilla plantation is being set up.

Copra is produced in the northern Cook Islands, where it is of paramount importance. It remains, apart from revenue from , the main source of cash income. Vegetables are grown for domestic consumption as well as for export.

Agricultural production, 1991a (’000 tons) Cassava 4 Coconuts 4 Mangoes 2 Vegetables & melons 2 Copra 1 Banana 1 Pawpaw 1 Pineapples 1

a Estimates.

Source: UN Food and Agriculture Organisation, Production Yearbook.

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Livestock, 1991a (’000) Pigs Goats Poultryb Horsesc 17,000 5,000 45,000 9,000

a Estimates. b 1988. c 1989.

Source: UN Food and Agriculture Organisation, Production Yearbook.

Forestry is not important. Several small sawmills have operated on different islands, milling local timbers such as old coconut palms.

The Cook Islands has started to license distant-water fishing nations to fish in its 200-mile . It is a party to the South Pacific Regional Fisheries Treaty. Agreements have also been signed with South Korean, Taiwan- ese and Norwegian interests, but in 1989 the government cancelled its agree- ment with Japan, claiming violations of its terms. The government estimates that unregistered foreign vessels have poached fish on a large scale. Tougher legislation and the acceptance of a donated Australian patrol vessel are in- tended to counter this.

In a joint venture with the Cook Islands government, a French Polynesian company, Bougal Marine, is investing US$680,000 to build a fish-processing centre and market in the capital, Avarna. In 1995 the Asian Development Bank announced plans to invest US$1.37m in the Cook Islands industry, most of which will go towards establishing the Cook Islands Pearl Authority. The authority will provide the industry with its marketing and disseminate new production technologies.

Mining

No minerals are being exploited. Manganese nodules containing nickel, cobalt, copper and other metals are present in large quantities over an extensive area of seabed.

Energy

The only indigenous energy source is wood. Electricity is produced by small diesel generators. Total electricity generated in 1993 was estimated to have been 19m kwh.

Manufacturing

Some 280 people, about 5% of the total labour force in formal employment, work in the manufacturing and processing sector. In view of the absence of raw materials, the restricted size of the domestic market, the remoteness of foreign markets and the lack of investment capital, the potential for growth is very limited.

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There are small clothing, footwear, citrus processing and fruit canning factories which are export-oriented. Around half of the Cook Islands’ exports come from three small clothing factories. Other manufacturing set-ups include a bakery, a brewery and a soft drinks plant for the domestic market. Plans to expand and diversify processing of local products are being explored. These include fruit (guava and pawpaw), purées and nectars.

Construction

The value of building permits for new home construction was NZ$1.63m (US$1.1m) in 1986. After a lull in 1987 due to the impact of Cyclone Sally in the early part of the year, the value of permits increased again in 1988, to NZ$2.94m. Construction has been a growing sector of the economy, employ- ing about 9% of the formal labour force.

Tourism

Tourism is a key sector for expansion in the economy, in terms of both employ- ment and revenue. In 1995 gross earnings from tourism are estimated to be US$50m, making it by far the biggest revenue earner. The number of visitors (virtually all arrivals by air) rose from 19,500 in 1983 to 52,868 in 1993. The largest proportion of visitors, around 33%, is from New Zealand but trips has declined as the Cook Islands has become a more popular holiday destination for travellers from other countries. There is a luxury hotel in Rarotonga. A private company has opened the Akitua Resort Hotel, a NZ$750,000 (US$520,000) development for Aitutaki. A 200-room hotel has been con- structed in Rarotonga, in a government-funded development.

Tourist arrivals, 1992

Country of origin No of visitors New Zealand 16,600 Europe 13,702 USA 5,969 Australia 5,691 3,747 Pacific Islands 3,631 Other 669 Total 50,009 Source: Tourism Council of the South Pacific.

Transport and communications

Air New Zealand runs a service between Rarotonga and Auckland and there are also services by Hawaiian Airlines and Air Nauru. In 1993 LAN-, Chile’s national airline, entered an agreement to open air links between Chile and the

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Cook Islands. Cook Islands Airways and operate inter-island services.

There are two harbours on Rarotonga and improvements are in hand. The Shipping Corporation of New Zealand runs a fortnightly cargo service to Auckland.

The government terminated its telecommunications contract with Cable & Wireless in 1991 and gave the business to a joint-venture company, Telecom Network International, whose shareholders are the Cook Islands government, New Zealand Telecom, Ameritech and Bell International.

There is a local radio and television service, and a government-owned news- paper is published daily. There are two weekly newspapers.

Taxis and buses are available on the Cook Islands and there is a surfaced road around the Rarotonga coast.

Finance

Public finance In recent years over 50% of current revenue has been financed by tax receipts, mainly in the form of income and turnover taxes. The balance is provided by grants, with any surplus on the current budget available for capital expend- iture. New Zealand is the chief source of aid providing NZ$10.0m in develop- ment assistance in 1994/95. As part of the reform package introduced in July 1996, the government has pledged to reduce the public sector workforce and to sell off state-owned assets.

In an attempt to encourage development on the outer islands the government phased out company tax for businesses outside the main island of Rarotonga from the start of January 1995.

Government revenue and expenditurea (NZ$ ’000) 1989 1990 1991 1992 1993 1994 Current revenue 55,080 60,253 79,745 67,507 72,940 96,861 Taxes 29,126 32,942 40,037 45,841 n/a n/a Non-taxes 25,954 27,311 39,708 21,666 n/a n/a Current expenditure 55,829 58,205 76,918 63,787 70,788 95,728 Current balance –749 2,048 2,827 3,720 2,152 1,133 Capital expenditure 1,233 1,947 2,647 3,859 4,052 6,256 Overall balance –1,982 101 180 –140 –1,900 –5,123

a Fiscal years beginning April 1.

Source: Asian Development Bank (ADB), Key Indicators of Developing Asian and Pacific Countries, 1995.

Banking There are branches of the National Bank of New Zealand, Westpac and, the Australia and New Zealand Banking Group in Avarua, the commercial and administrative centre. Transfers are subject to New Zealand Reserve Bank regul- ations. The Cook Island Development Bank was established in 1978 primarily to lend for fixed-asset acquisitions by the industrial, commercial and agricul- tural sectors.

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Offshore banking facilities came into existence with the enactment of the Offshore Banking Act 1981 and other legislation. Foreign banks operating un- der the act do not pay income or other taxes earned on their international transactions. As well as offshore banking, tax haven facilities have been devel- oped. An International Companies Act was passed in 1982 allowing for the establishment and regulation of offshore international companies. Companies registered under this act do not pay taxes but are not entitled to establish an office or permanent presence in the country. They are entitled to act through a trust company, established under the Trustee Companies Act 1982, as their agent. Any company of which the beneficial ownership is in New Zealand or the Cook Islands is not permitted to register under this act.

The laws are regarded as placing the Cook Islands at the forefront of modern legal regimes designed to enhance offshore activities. This has been recognised by the listing of Cook Islands companies on the Hong Kong Stock Exchange. This has been granted to only two other offshore jurisdictions. Nevertheless, an inquiry has begun in New Zealand into the abuse of the scheme by New Zealand companies.

The Australian government, wishing to discourage the use of offshore tax havens, has introduced legislation making tax payable when profits are earned rather than on their repatriation.

Foreign trade

In 1994 imports were more than 20 times exports. The most important growth item in exports had been clothing, until the departure of a major manufacturer in 1988, which was reflected in a fall in exports earnings in 1988 and 1989. Other important items are citrus juice, copra and bananas, all of which are vulnerable to weather conditions. Imports rose by 71.3% between 1990 and 1994. The main imports are food and live animals, machinery and transport equipment.

New Zealand is the principal trading partner, although Japan and Hong Kong have become more important.

Remittances from overseas workers form an important proportion of Cook Islands’ income.

Balance of trade (NZ$ m) 1989 1990 1991 1992 1993 1994 Exports fob 4.7 8.2 9.4 6.0 7.2 7.0 Imports cif –73.1 –83.4 –94.5 –109.2 –124.2 –142.9 Trade balance –68.4 –75.2 –85.1 –103.1 117.1 135.9 Source: ADB, Key Indicators of Developing Asian and Pacific Countries, 1995.

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Kiribati

Basic data

Land area 811 sq km

Population 72,335 (November 1990 census); 78,400 (mid-1995 estimate)

Major islands Three main groups: the Gilberts, Phoenix and Line Islands with Island. (Christmas) Island is the largest and the most populous island

Capital The official residence of the beretitenti (president) and the main maneaba (meet- ing place) are on Bairiki on Tarawa atoll

Climate Tropical

Weather Temperature varies between 22°C and 37°C in the shade. Rainfall varies be- tween the islands and from year to year. Season of rains and westerly gales (October-March). In an average year, annual rainfall at Tarawa is over 150 cm

Languages English (official language) and a Micronesian dialect

Measures Imperial and metric

Currency Australian currency is legal tender; sterling coins are accepted but circulate at par with Australian coins. It is expected that Kiribati will, eventually, have its own currency. Exchange rate end-July, 1996: A$1.2694:US$1

Time 12 hours ahead of GMT

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Political background

History Before the first European contact at the beginning of the 17th century there was a diverse social structure in Kiribati; paramount chiefs ruled in the north- ern islands and councils of elders held authority in the south. The islands suffered during the 19th century from labour recruiters and by the second half of the century 9,000 i-Kiribati (Gilbertese) worked overseas. The phosphate- rich Ocean Island (Banaba) was annexed by Britain in 1900 and in 1915 the Gilberts were annexed as part of the British colony of the Gilbert and Ellice Islands. (The Ellice Islands became on independence.)

The were occupied by Japan during the Second World War, and were the site of some of the Pacific war’s fiercest fighting. In 1957 the UK detonated three hydrogen bombs in the vicinity of Kiritimati (), as part of the British atmospheric testing programme.

Internal self-government was given to the Gilbert Islands, renamed Kiribati (pronounced “Kiribass”) on January 1, 1977. Independence from the UK was attained on July 12, 1979.

The main resource of Kiribati was formerly phosphate, mined on the island of Banaba, also known as Ocean Island. The phosphate was exhausted in 1979, the year of independence. As a result of phosphate mining and the Pacific war, Banaba became almost uninhabitable and its population was moved to the Fijian island of Rabi. This led to complex international litigation to secure compensation for the Banabans from the companies and countries which had benefited from phosphate mining. The Banabans have certain special rights under the constitution, including a seat in the Maneaba ni Maungatabu, or House of Assembly, and there is also provision for a Banaba Island Council.

The constitution The constitution, promulgated in 1979, created a sovereign democratic repub- lic with a president who is both head of state and . The 36-seat legislature, the Maneabu ni Maungataba, is unicameral. The cabinet consists of the president, his vice-president and not more than eight other ministers. Voting rights are held by all persons over the age of 18.

Political forces The National Progressive Party government of Teatao Teannaki stepped down in May 1994 after losing a vote of no confidence amid claims of corruption. The outgoing National Progressive Party (NPP) had been in power since Kiribati gained independence from the UK in 1979. A general election was held in July 1994, resulting in 18 new members in Parliament. A new president, Teburoro Tito, leader of the Maneaban te Mauri Party (MTM), was elected in September 1994.

International relations Although Kiribati was heavily dependent on foreign aid until 1986 to cover its and defence budget and for economic development, it adopts a fiercely independent stance in its foreign relations. Kiribati is strongly committed to Western values and democratic principles, but is ready to assert itself in its relations with the West and its larger neighbours. Kiribati strongly condemned the resumption of French nuclear testing in the South Pacific, having signed the South Pacific Nuclear Free Zone Treaty in 1985. Kiribati was anxious to cease its reliance on

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UK budgetary aid, which amounted to 24% of the recurring budget at the time of independence, and achieved this at the beginning of 1986. The most promi- nent example of Kiribati’s self-assertion was the 1986 treaty signed with the then USSR to grant for a fee one year’s fishing rights within the Kiribati 200- mile exclusive economic zone. The treaty was not renewed in 1987. Relations with the USA have improved since the South Pacific Regional Fisheries Treaty came into effect in mid-1988. Under the treaty access by US fishing boats is permitted to the 200-mile exclusive economic zone in return for a fee.

The country has no diplomatic representation overseas. It is a member of the South Pacific Forum, the South Pacific Commission, the Economic and Social Commission for Asia and the Pacific, the Asian Development Bank, the Lomé Convention, the Commonwealth and the UN.

Population and society

The total land area is 811 sq km, including 103 sq km of uninhabited islands. Of the 33 islands that make up Kiribati, the most populous island is , where more than one-third of the people live and where the adminis- trative centre, Bairiki, is situated.

The 1978 census recorded a population of 56,213 residents and a total popul- ation of 58,212, including nationals working overseas. The number of residents had increased to 72,335 by November 1990, representing a population growth rate of 2.5% since 1985. By 1993 Kiribati had a population of 77,100 and the island’s population growth averaged 2.1% per year in 1985-92.

With just over 1 ha of land per person (a population density of 95 per sq km), there are considerable population pressures. These have been partly relieved by migration to countries such as the Solomon Islands. Government policy is to decentralise economic activity and institutions and to develop alternatives to the main islands, such as Kiritimati and the other islands of the Northern Line Group. The government’s resettlement programme to transfer 4,720 people from the crowded western to the Line Islands got under way in 1989 when the first group, of 560 settlers, moved.

The poor state of health services in Kiribati is reflected in its average life expec- tancy at birth, which was only 56 years in 1992. This is low even by South Pacific standards.

Currency

The Australian dollar (A$) is legal tender. However, the Australian authorities do not regard Kiribati as part of the Australian currency area and payments from Australia to Kiribati are subject to normal controls. At the end of July 1996 the exchange rate was A$1.2694:US$1.

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The economy

Three months after independence in 1979, phosphate mining, the mainstay of the country’s economy, came to an end. Receipts from phosphates had ac- counted for around 85% of total export earnings and 45% of government taxation revenue. In addition to job losses and general disruption, this meant that the trade surplus disappeared, the public-sector deficit expanded and there was no other product or sector which could be developed quickly to replace this lost resource. The country was classified as a Least Developed Country by the UN in 1987.

Agriculture is mainly of the subsistence variety; the chief cash generators are copra and other coconut products. Fisheries offer the greatest potential and are the most quickly exploitable resource. Tourism and manufacturing activities are limited.

National accounts

There was a drastic 36% drop in gross domestic product in 1980 due to the cessation of phosphate mining, and GDP per head, estimated at US$500 in 1993, is still considerably below pre-1980 levels. Public administration is the largest component of GDP, followed by agriculture and fishing. Manufacturing is of little significance, at 2% of GDP.

Gross domestic product (A$ m; current market prices) 1987 1988 1989 1990 1991 1992 GDP 35.6 39.7 41.0 41.2 43.8 46.3 GDP at constant prices 35.2 38.5 36.9 37.1 37.3 38.8 Real change (%) 0.4 9.4 –4.2 0.5 0.5 4.0 Source: ADB, Key Indicators of Developing Asian and Pacific Countries, 1995.

Gross domestic product by expenditure (A$ m; current market prices) 1987 % of total 1992 % of total Private consumption 24.0 67.4 31.6 68.3 Government consumption 17.3 48.6 25.0 54.0 Gross fixed capital formation 24.7 69.4 25.8 55.7 Increase in stocks 0.3 0.8 0.3 0.6 Exports of goods & services 3.3 9.3 5.8 12.5 Imports of goods & services –40.8 –114.6 –52.6 –113.6 Totala 35.6 100.0 46.3 100.0

a Including statistical discrepancy.

Source: Asian Deveopment Bank (ADB), Key Indicators of Developing Asian and Pacific Countries, 1995.

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Gross domestic product by sector (current factor cost) 1987 1992 A$ m % of total A$ m % of total Agriculture & fishing 8.63 25.1 11.02 25.1 Manufacturing 0.76 2.2 0.92 2.1 Electricity, gas & water 0.87 2.5 0.80 1.8 Construction 1.98 5.8 2.30 5.2 Trade & hotels 5.00 14.5 6.53 14.9 Transport & communications 5.75 16.7 7.13 16.3 Finance & insurance 2.88 8.4 3.21 7.3 Public administration 8.42 24.5 12.2 27.8 Total incl others 34.39 100.0 43.85 100.0 Source: ADB, Key Indicators of Developing Asian and Pacific Countries, 1995.

Employment

According to the 1990 census 10,972 persons aged 15 or over were employed in the formal sector compared with 6,991 in 1985, an annual average increase of almost 4%. But considering the minimal growth in GDP this implies wide- spread underemployment. There are 38,790 people in the labour force, with almost 70% categorised as being employed in “village work” or “home duties”. Overseas employment is also a vital element to the economy. Crewmen on foreign ships and workers in the phosphate mines in Nauru represent about 15% of total formal employment.

Prices

Since 1980 retail prices have risen by an average of just under 5% a year. Prices are largely determined by import costs and hence by prices in Australia, Japan and Fiji, the main sources of supply.

Consumer prices (% change year on year; period averages) 1989 1990 1991 1992 1993 1994 5.4 3.8 5.7 4.0 6.1 5.1 Sources: Kiribati Ministry of Finance, Balance of Payments Statistics, 1985-94.

Agriculture, forestry and fishing

Most of Kiribati’s atolls are coral, sand and rock with little or no soil, and rainfall is variable except in the north, resulting in limited opportunities for agricultural development. Agriculture and fisheries together accounted for around 20% of GDP in 1980. This had changed little by 1992, with a contrib- ution of 25% to GDP, although there have been considerable fluctuations in the intervening years.

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Agriculture Copra is an important source of income, accounting for up to 70% of total cash income for the rural population. The Kiribati Copra Co-operation Society, the sole buyer of copra, endeavours to stabilise prices to producers. It receives financial aid through the EU’s Stabex primary-product price stabilisation pro- gramme. Copra production has varied in response to weather and world prices, but was at a record 14,406 tons in 1988, when 11,790 tons (worth A$3.3m; US$2.6m was exported. Production of copra had fallen to 9,907 tons in 1992, earning A$4.4m, 77% of total export earnings for the year. A coconut milling scheme is in operation on Nonouti Island, having attracted interest from aid donors. Apart from copra the other main products are essentially for subsis- tence: root crops, tropical fruits and small livestock. Attempts are being made to plant timber, but so far with little success.

Fishing The greatest development potential lies in the exploitation of marine resources within Kiribati’s 200-mile exclusive fishing zone. Covering approximately 3m sq km, it is one of the world’s largest fishing zones. The country’s fishing industry has been developed through the government-run Te Mautari (Kiribati National Fishing Company) which was established in 1981. In 1990 the com- pany made a US$1.2m loss as catches declined to 600 tons from 2,300 tons in 1988 and operations were suspended for six months during a restructuring. In 1992, fish exports earned A$0.4m (US$0.3m), contributing only 6.4% to export earnings. The company has signed a cooperation agreement with the Solomon Islands’ company, National Fisheries Development.

The granting of licences to Japan and South Korea to fish in Kiribati’s waters provides another source of income. In 1988 the government received A$1.4m from licensing of fishing operations. The agreement on fishing rights with the then USSR in 1985, which provided Kiribati with an income of US$1.5m for the first year of its operation, lapsed at the end of 1986. Kiribati is being partly compensated for this loss by its share of the annual revenues that the USA agreed to pay members of the Forum Fisheries Agency under the 1988 South Pacific Regional Fisheries Treaty (US$5.7m in 1992) and by the 1990 agreement with South Korea on fishery access for which a fee of US$960,000 will be paid.

New Zealand assistance has helped to establish seaweed farming in the islands. The product is exported for use in the manufacture of and ice cream. In 1991, 798 tons of seaweed were exported following an agreement with a Danish company to purchase the entire production. Exports of seaweed de- clined in 1992, accounting for 5.1% of export earnings.

Mining

Phosphate mining on Banaba was once the dominant sector in the economy, but the viable reserves were exhausted and operations ceased in 1979. Kiribati thus lost 418 jobs, representing a decline in total employment of 6%. Revenue from phosphate mining had accounted for 85% of total exports in 1972-78 and contributed about 45% of GDP.

Manganese nodules have been discovered under the sea around the Line Group, but exploitation of this potential resource is only a remote possibility.

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On Kiritimati, which is the largest coral atoll in the world, salt can be extracted from salt-water inland lakes and this is being developed.

Manufacturing

Manufacturing represents about 2% of GDP, employs around 600 people and consists mainly of boat building, cement/coral block making, and a coconut timber sawmill. Handicraft products are the only manufactured export, al- though salt produced on Kiritimati and garments made from materials im- ported from Fiji, may have export potential. Most of the industries are government-owned.

Construction

Most construction is handled by the Ministry of Works. The sector contributes about 5% of GDP.

Tourism and other services

Tourism remains underdeveloped with only around 3,000-4,000 non-residents visiting Kiribati each year. The country is served daily by two international airlines with flights from , Fiji, Nauru and the Marshall Islands by Air Tungaru. Kiritimati, because of its unique wildlife and other attractions, has been singled out for development and an air-conditioned 24-room hotel, the Captain Cook, is in operation on the island. War relics are a source of interest to tourists on Tarawa and , where major battles took place during the Second World War. There is also a hotel on Abemama, the island in the central Gilberts group where the author Robert Louis Stevenson lived briefly.

Transport and communications

Ships of the Kiribati Shipping Corporation visit each island approximately once a month for the collection of copra, delivery of cargo and transport of passengers. The Pacific Forum Line provides a feeder service linking Tarawa with other routes. The main port is Betio on Tarawa and this is being expanded.

All inhabited Kiribati islands have airports; Tarawa is the main international airport and there are five international airports altogether. Domestic travel has been greatly improved in recent years. International air services are provided by Air Marshall Islands and Air Tungaru, which flies from Fiji to Hawaii via Tarawa. In 1990 it was decided to upgrade the airport on Kiritimati.

A statutory body, the Broadcasting and Publications Authority, runs a radio service and a weekly newspaper.

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Kiribati is being integrated within the Cooperative Telecommun- ications Network by Australia’s Overseas Telecommunications Corporation. This will improve the national and international telecommunications network serving the islands.

There are about 2,000 vehicles, of which nearly three-quarters are motorcycles.

Finance

Public finance The budgetary position of the government is very difficult. The large inflow of revenue from phosphate enabled it in the past to balance its recurrent budget and also build up the Phosphate Revenue Equalisation Fund (PREF). The cess- ation of mining meant a move from a budgetary surplus of A$4.1m (US$3.3m) in 1979 to a precarious balance and increased dependence on foreign grants.

Substantial aid is provided by Japan, the European Development Fund, New Zealand and Australia. The UK continued to be the main source of grant aid until 1984, but by 1986 UK assistance was confined to project aid and technical assistance. In early 1986 the European Investment Bank signed a A$5m aid package which gives priority to fisheries and communications. The UN con- tributed A$315,000 to fund projects in Kiribati’s 1987-91 national develop- ment plan.

In the 1992 budget personal and corporate tax rates were made more progres- sive and a rebate system was introduced for the low paid. To compensate for the lost revenue and no doubt to promote domestic production, duty rates were increased on a range of imported luxury goods and on imports with local substitutes.

The government has estimated its budget for 1996 at US$44m, an increase of 1.7% over last year. Revenue receipts are forecast to be only US$22m so the resulting budget deficit will have to be financed by aid flows and borrowing. At the end of 1991, the value of the PREF was A$260m and in 1993 interest payments from the PREF were equal to 30% of GDP.

Banking The country’s financial system comprises the Bank of Kiribati—jointly owned by the Kiribati government (49%) and Westpac Bank (51%)—the Development Bank of Kiribati, the Kiribati Prudent Fund and also the Kiribati Insurance Corporation. But the shallow financial system and the use of the Australian dollar as legal tender give little scope for a distinct monetary policy.

Foreign trade and external payments

Exports and imports In 1994 exports were A$7.1m (US$5.6m), 67% lower than the level in 1979, the last year of phosphate mining. Copra and fish are now almost the only exports, accounting for 63% and 22% of export earnings in 1994, respectively. Copra exports are volatile, owing to production and world price fluctuations. Imports have continued to rise, totalling A$36.1m in 1994. Import levels tend to be affected by development projects with high components of imported

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equipment, as was the case in 1992, when imports leapt 52% to A$50.5m. Kiribati has recorded a widening trade deficit since 1979 although the deficit fell 22% in 1994, compared with 1993 to A$29m. The USA, Australia and Japan are the main suppliers of imports. The main export markets are the USA and Bangladesh.

Following the trend of a number of other Pacific Island countries, the pres- ident, Mr Tito announced plans in 1996 to raise about US$2m a year through the sale of Kiribati passports to Chinese, Hong Kong and Taiwanese investors. The passports would cost about US$10,000 each and would be valid for two years, but would not entitle holders to become Kiribati citizens.

Foreign trade (A$ m; fob) 1989 1990 1991 1992 1993 1994 Exports 6.44 3.68 3.70 6.51 5.07 7.11 Imports –28.60 –34.45 –33.22 –50.53 –42.37 –36.12 Trade balance –22.16 –30.77 –29.53 –44.02 –37.30 –29.01 Sources: Kiribati Ministry of Finance, International Trade, 1994.

Exports (A$ ’000) 1989 1990 1991 1992 1993 1994 Copra 3,127 1,023 1,625 4,350 2,348 4,480 Handicrafts 4 3 1 8 5 2 Shark fins 42 32 24 118 123 175 Seaweed 85 723 676 286 217 297 Fish 2,600 964 613 621 1,731 1,578 Other 115 264 11 262 38 266 Domestic exports 5,973 3,009 2,950 5,645 4,462 6,798 Re-exports 462 672 748 868 607 313 Total 6,435 3,681 3,698 6,513 5,069 7,111 Source: Kiribati Ministry of Finance, International Trade, 1994.

Imports by SITC section (A$ ’000; fob) 1989 1990 1991 1992 1993 1994 Food 8,669 9,147 9,953 10,654 11,923 11,415 Beverages & tobacco 1,506 1,530 2,285 2,534 2,641 3,153 Raw materials 451 954 503 626 891 751 Mineral fuels, etc 3,201 3,694 3,631 3,951 3,032 3,356 Animal, vegetable oil & fat 126 149 83 95 119 125 Chemicals 2,389 1,754 1,838 1,746 2,645 2,323 Basic manufactured goods 2,949 4,074 4,113 4,051 5,016 4,825 Machinery &transport equipment 6,585 6,566 8,241 23,885 10,089 6,271 Miscellaneous manufactured goods 2,406 6,381 2,382 2,788 4,290 3,602 Miscellaneous commodities 314 197 197 200 228 293 Total 28,596 34,446 33,226 50,530 40,874 36,114 Source: Kiribati Ministry of Finance, International Trade, 1994.

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Balance of payments Kiribati relies on earnings from services (notably from seamen working on foreign ships, although considered as Kiribati residents), interest income on PREF investments, and official transfers (equal to more than 50% of GDP) to maintain a surplus on the current account.

Balance of payments (US$ m) 1989 1990 1991 1992 1993 1994 Exports of goods fob 6,435 3,681 3,697 6,513 5,069 7,110 Imports of goods fob –28,596 –34,446 –33,226 –50,530 –42,373 –36,115 Trade balance –22,161 –30,765 –29,529 –44,017 –37,304 –29,005 Net repair on goods –1,152 –923 –497 –439 –700 –1,100 Net goods procured imports 464 542 902 922 1,148 1,210 Exports of services 8,109 9,923 16,235 18,886 21,379 24,016 Imports of services –19,764 –23,927 –22,501 –26,102 –28,204 –23,565 Income credit 21,356 24,657 26,387 26,272 24,114 23,324 Income debit –1,303 –3,167 –1,981 –1,716 –2,533 –3,106 Transfers credit 15,325 14,278 19,392 16,943 18,986 12,247 Transfers debit –2,818 –2,387 –2,905 –3,182 –2,983 –2,200 Current-account balance –1,944 –11,769 5,503 –12,433 –6,097 1,821 Direct investment abroad 0 0 0 0 0 –38 Direct investment in Kiribati 228 384 549 554 –1,132 590 Portfolio investment assets –8,095 –10,708 –16,768 –24,115 –9,839 –9,032 Portfolio investment liabilities 0 0 0 0 0 0 Other investment assets 0 0 0 0 0 0 Other investment liabilities 1,018 3,877 1,059 3,220 0 1,934 Financial balance –6,849 –6,447 –15,160 –20,341 –10,971 –6,546 Capital account nie credit 8,294 15,973 7,865 22,337 8,401 3,478 Caital account nie debit 0 0 0 0 0 0 Capital-account nie balance 8,294 15,973 7,865 22,337 8,401 3,478 Net errors & omissions –5,975 –6,417 –12,372 –12,183 1,192 –6,923 Overall balance –6,474 –8,660 –14,164 –22,620 –7,475 –8,170 Source: Kiribati Ministry of Finance, Balance of Payments Statistics, 1985-94.

Aid Most aid is bilateral aid, now mainly from Japan and to a lesser extent Australia and the UK.

Disbursements of gross development assistance (US$ m) 1988 1989 1990 1991 1992 1993 Bilateral 12.2 15.1 17.7 15.9 22.0 11.2 Japan 5.3 5.3 9.4 7.3 13.9 5.4 Australia 1.8 5.4 3.7 3.2 4.4 3.1 UK 3.4 2.7 3.0 3.2 2.3 1.2 New Zealand 1.7 1.7 1.7 2.1 1.4 1.6 Multilateral 4.1 2.4 2.8 4.3 4.8 4.7 EU 2.8 0.6 0.6 2.2 n/a n/a UNDP 0.7 0.9 1.0 0.9 0.5 0.4 Total 16.3 17.5 20.5 20.1 26.8 16.0 Source: OECD, Geographical Distribution of Financial Flows to Developing Countries.

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Nauru

Basic data

Land area 21.3 sq km

Population 9,919 (1992 census); 10,500 (mid-1995 estimate)

Major island Nauru

Capital The town centre is situated between the airport and the main government offices

Climate Tropical, tempered by sea breezes. Average temperature of 30°C. Rainfall is extremely variable. The wettest period is from November to February

Languages English and Nauruan (both official languages)

Measures Imperial and metric

Currency Australian currency is used. Exchange rate average 1994: A$1.3667:US$1. Exchange rate end-July, 1996: A$1.694:US$1

Time 11.5 hours ahead of GMT

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 136 Nauru

Political background

History Nauru had little contact with Europeans until the 1830s when whalers arrived on the island looking for food and water. The island was brought into the German Marshall Islands Protectorate in 1888. In 1898 the Pacific Islands Company realised that the island (like Ocean Island) was composed largely of very high-quality phosphates. Following an agreement with Germany in 1906 the Pacific Phosphate Company started to exploit the reserves. The island came under the joint administration of Australia, New Zealand and the UK as a League of Nations’ mandate after the First World War, and the rights to phos- phate mining were taken over by the UK Phosphates Commissioners.

The islands were occupied by the Japanese during the Second World War and some 1,200 Nauruans were deported to work as labourers. About 500 did not survive and only 737 were returned to the island in 1946. The island became a UN Trust Territory after the Second World War and remained so until inde- pendence in 1967.

A century of phosphate mining has left four-fifths of Nauru’s 21.3 sq km total land area stripped and barren. At the Small Island States Conference on Sustainable Development in 1994 the Nauru government announced plans to “recreate the Garden of Eden that was once Nauru”. A joint feasibility study by the Australian and Nauru governments estimates that it would cost up to A$170m to rehabilitate the island and take about three decades to complete. It has been suggested that the former phosphate commissioners (Australia, New Zealand and the UK) should be responsible for one-third of the cost.

The constitution The constitution was adopted in January 1968 by a Constitutional Convention of 36 members, with the approval of the UN and the governments of Australia, New Zealand and the UK. A presidential system was established. The president is both head of state and head of the executive. The cabinet consists of the president and four or five members of the legislature, as chosen by the pres- ident. Parliament consists of 18 members elected for three-year terms from eight constituencies, seven of which each return two members; Ubenide, a multi-district constituency, returns four. Voting is compulsory for all Nauruans over the age of 20.

The Nauru Local Government Council functions in two major areas. In tradi- tional local government the council is responsible for matters relating to land ownership and for the provision of public services. Its second major role is in business and involves the management of the Nauru Corporation, the Nauru Pacific Line, the Nauru Insurance Corporation, the Nauru Fishing Corporation, the Menang Hotel on Nauru, and a number of other hotels and commercial buildings. It is also responsible for investments overseas and general planning and development.

The president and most of the cabinet members are also councillors. The two- tier government structure has resulted in responsibility for some matters being divided between the government and the Local Government Council.

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Political forces In 1995, Lagumot Harris, a long-serving parliamentarian, narrowly defeated the incumbent, Bernard Dowiyogo, in the country’s presidential elections by nine to eight votes in the 18-member parliament. Mr Harris was first elected to Nauru’s parliament in 1968 and held the office of president for a brief period in 1978. There are no political parties in Nauru and voting is usually along the clan lines.

International relations The country’s relations with Australia were strained by a claim filed at the and defence International Court of Justice (ICJ) in The Hague that Australia (together with the UK and New Zealand) should contribute US$72m towards the rehabilit- ation of the rapidly depleting phosphate mining areas. Nauru’s position was supported by the recommendations of a Commission of Inquiry appointed by the government in 1987. Australia rejected these findings and the claims filed at The Hague. The ICJ ruled in 1992 that it had jurisdiction in this matter and gave Australia time to file a counter-claim. But in July 1993 Australia agreed to pay compensation in return for Nauru dropping the case. The UK and New Zealand also subsequently pledged contributions of US$8m each to the com- pensation package.

Environmental concerns dominated the agenda at the annual South Pacific Forum summit held in Nauru in August 1993, and again at the meeting in in August 1994.

Population and society

The country consists of a single island, 21.3 sq km in area. The first full census since independence was carried out in January 1977 and registered a popul- ation of 7,254, of whom 57% were Nauruan, 26% other Pacific islanders, 9% Chinese and 8% European. Determining a rate of increase for the population is difficult as ethnic groups other than Nauruans are not permanent residents and their numbers fluctuate according to the labour requirements of the central and local government and the Nauru Phosphate Corporation. The 1992 census gave a population of 9,919 and this is estimated to have increased to 10,500 by mid-1995.

Currency

The Australian dollar (A$) is legal tender. At the end of July 1996 the exchange rate was A$1.694:US$1.

The economy and national accounts

The economy is dependent on phosphate mining. It is estimated that phos- phate production has provided A$100m-120m (US$80m-95m) annually since independence, although revenue is vulnerable to fluctuations in prices and demand. There is a small amount of agricultural production for domestic

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consumption but most food, like all other necessities, has to be imported. No national accounts are published, but in 1994 GNP per head was estimated to be $16,700, one of the highest in the Pacific Islands.

Income from phosphate mining is being invested, particularly in foreign real estate in the hope of providing future revenue when phosphate reserves are exhausted, possibly in the late 1990s. The Nauru Phosphate Royalties Trust (NPRT) fund was reported to be worth A$190m in 1987. The book value of investments made by the Trust is estimated at A$1,000m with returns of 14% per year. But over US$8m of the Trust’s funds was lost because of corrupt dealings by its former administrative manager.

Employment

About 3,000 overseas workers (principally Chinese, Filipinos, i-Kiribati and Tuvaluans) are employed in the phosphate industry. Most other employment is in public administration, education and transport.

Wages and prices

A consumer price index is maintained, against which wages are assessed. There are no administrative price controls.

Agriculture, forestry and fishing

The only parts of the island suitable for agriculture are the narrow coastal strip and the area surrounding . Coconut and palms grow reasonably well on the coastal strip, while various tropical fruits can be grown around Buada Lagoon. Due to porous soil and uncertain rainfall, production is limited to small quantities grown by individuals for home consumption. A few food crops are grown on the inland plateau. These include guavas, limes, and bananas. Fishing is a popular sport and provides a limited amount of food.

Mining

The economy is based on phosphate, the export of which provides the main source of income, apart from investments overseas.

Phosphate is mined and marketed by the Nauru Phosphate Corporation (a government body). Nauruan phosphate is the highest-grade phosphate in the world, 84% BPL (bone phosphate of lime) guaranteed. The rock treated in Nauru’s modern calcination plant can be as high as 91% BPL. Production has run at around 2m tons a year on average. Australia is the principal destination for phosphate exports. A problem affecting the sale of Nauru phosphate to new

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Nauru 139

markets has been the presence of small amounts of carbon and cadmium. Gases from the calcination process can be converted into a useful by-product. The revenue from phosphate exports is divided among the government (taking 50%), the Nauruan landowners, the Nauruan Phosphate Royalties Trust (NPRT) and the Nauru local government council.

Energy

Full electricity services are supplied by the generators of the Nauru Phosphate Corporation.

Manufacturing and construction

There is no manufacturing in Nauru.

When the phosphate reserves are exhausted, some of the infrastructure used for the extraction, storage and transport of this material could prove valuable as a base for other industries. The heavy equipment used for the extraction of phosphate and operation of the industry provides Nauru with capacity to handle a wide range of major earth-moving and construction projects.

Tourism and other services

There is virtually no tourism. A number of small service businesses including restaurants and a hotel exist. However, with phosphate mining coming to an end, the government is emphasising development of the island’s tourism infra- structure. In 1994 the government completed a US$8.7m expansion of the Menem hotel to 125 rooms in an attempt to capitalise on the island’s central Pacific location and make it a stopover for tourists travelling between Asia and the South Pacific.

Transport and communications

The Nauru Pacific Line (NPL) operates vessels which provide commercial cargo services. It owns six ships and has three on charter. The line is owned by the Nauru Local Government Council. The Nauru Phosphate Corporation also charters vessels to meet its special requirements. The main shipping links are with Australia and New Zealand, but include Japan, the Philippines, and Kiribati. These routes are served by freighters loading phosphate and by NPL. Nauru is a partner in the Pacific Forum Line.

The country has its own airline, Air Nauru, which had developed an extensive Pacific network by the end of 1988. Although the airline ran at a heavy loss this could be subsidised by phosphate revenue. For most of 1989 the airline was grounded following the withdrawal of air certification by the New Zealand

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Civil Aviation Authority at the end of 1988. The airline has now re-established itself on a commercial footing with a rationalised route network and a smaller fleet, having set up its own civil aviation division to certify airworthiness.

International telephone communication via satellite is in operation and there is a modern internal telephone service and telex communication.

Finance

Until the 1990s the budget was balanced and income more than sufficient to cover expenditure. Surpluses were invested abroad with the intention of pro- viding sources of income in the future when the phosphate industry closes, but an audit of the Nauru Phosphate Royalties Trust (NPRT) in March 1994 found that large sums were unaccounted for; a reported US$8.5m had been lost through an investment (notably in real estate in Australia) that had foundered. Subsequently, a former administration manager of the NPRT pleaded guilty to charges of corruption.

In recent years, the government has incurred large budget deficits which have led to a build-up of external debt. The 1996/97 budget attempted to deal with the growing financial difficulties: expenditure was cut from A$89m (US$70m) in 1995/96 to A$46m. Revenue was estimated at A$24m, leaving a deficit of A$24m. The government is now considering a series of asset sales in order to meet external debts of around A$200m.

The Bank of Nauru, owned and guaranteed by the government, was established in 1976 and took over the Nauru operations of the Bank of New South .

Foreign trade, external payments and debt

Phosphate is the only significant export. During the mid-1970s phosphate exports declined with the downturn in the world economy.

The principal markets for phosphates exports are Australia, New Zealand and Japan. In 1988 phosphates comprised 99% or A$92.7m (US$73m) of total exports to Australia and New Zealand. In 1989 Nauru’s exports to Australia and New Zealand amounted to A$101.3m, and imports from the two countries totalled A$17.6m, creating a trade surplus of A$83.7m. Trade statistics, which used to be compiled by the Australian administration, have not been published systematically since independence and trade data is derived from the trade statistics of New Zealand and Australia.

Nauru is heavily dependent on imports for its basic necessities. Government departments are major buyers, the largest being the Department of Civil Avia- tion. The Nauru Phosphate Commission and the Nauru Local Government Council are also significant importers. Balance-of-payments statistics and data on foreign reserves are not available.

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Niue

Basic data

Land area 262.7 sq km

Population 2,321 (provisional at October 1994 census); 2,000 (mid-1995 estimate)

Capital

Climate Tropical; temperature range: 24°C to 28°C; subject to cyclones, December to April

Weather in Alofi Average annual temperature around 20°C; average annual rainfall around 150 cm

Languages English and a Polynesian dialect

Measures Imperial and metric

Fiscal year April 1-March 31

Currency New Zealand dollar=100 cents. Exchange rate average 1994: NZ$1.6844:US$1. Exchange rate end-July 1996: NZ$1.4353:US$1

Time 12 hours ahead of GMT

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 142 Niue

Political background

Niue was administered by the London Missionary Society from 1846 until 1900, when it became a British Protectorate. It was later annexed to New Zealand and remained a dependency until it became self-governing in free association with New Zealand in October 1974. There is a Legislative Assembly of 20 members and a four-member cabinet. Although the results of the general election held in January 1996 have yet to be finalised, it is expected that the incumbent, Frank Lui, will retain the premiership.

Population and society

Niue is a single island, 263 sq km in area. The population according to the 1986 census was 2,531; in 1969 it had been 5,300. The number has continued to fall and was estimated at 2,321 in October 1994, and 2,000 in mid-1995. The fall reflects both a downturn in natural growth rates and emigration, primarily to New Zealand. More than 14,000 Niueans lived in New Zealand in 1991.

Under the 1974 constitution the people are British subjects and citizens of New Zealand.

Currency

The New Zealand dollar (NZ$) is used. At the end of July 1996 the exchange rate was NZ$1.4353:US$1.

The economy and employment

The country is entirely dependent on New Zealand aid and transfers of funds from Niueans living there. Exports are tiny and unlikely to expand. The decline in the population brings into question the future viability of the economy and suggests that its degree of dependence on aid will increase. The Economic Review of Niue in 1996 concluded that there were no signs of a recovery in the country’s stagnant economy. New Zealand has raised concerns about the han- dling of its aid funds, and has reduced the island’s annual subsidy under its Concerted Action Plan over the past few years.

National accounts are not published. GDP per head was estimated at US$1,333 in 1988.

The reduction in Niue’s workforce caused by migration has had a major eco- nomic impact and has led the government to consider promoting immigra- tion. The stabilisation of the population was an important goal in Niue’s first five-year development plan (1980-85) and the government has since consid- ered promoting a return-home scheme.

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Some 600 of the island’s total resident population were paid public servants, but around 150 of these were made redundant as the result of New Zealand’s decision in 1992 to cut back its aid.

Agriculture, forestry and fishing

The Agriculture Department and the Niue Development Board have attempted to expand agricultural production and encourage new ventures. The board itself produces lime juice, passion fruit pulp and juice, and reconstituted milk. The main livestock are poultry and pigs, and cattle herds are being increased with grazing in coconut plantations.

Several hundred cu metres of timber for use in construction are produced annually by the government-owned sawmill.

There is some subsistence fishing but Niue must still import fish.

Manufacturing

The only manufacturing in Niue involves the processing of fruits into juice and pulp, together with sawmilling and artisanal production of handicrafts.

Tourism

There is one hotel, with 40 beds. About 1,600 tourists visited the country in 1992, of whom about 70% were from New Zealand. This represented a big increase on the 1991 figure of just under 1,000.

At the end of 1994 the New Zealand government granted Niue US$2m to extend the runway of the island’s international airport to allow direct flights to New Zealand.

Although the main hopes for Niue’s economic development lie in its tourist industry, the number of tourists in 1995 was reported to be at an all-time low. This is having a knock-on effect on the rest of the economy. The tourism industry was further shaken at the end of 1995 by the imposition of a tax on airline tickets, only months after air fares to the island doubled. Although the tax is to be used to develop the airport’s facilities and support the Niue tourism office, it has been badly received by local hoteliers.

Transport and communications

There are about 128 km of all-weather roads as well as 1,100 registered motor vehicles in Niue.

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International air services are provided by Niue Airways, Polynesian Airlines and Air Nauru.

The New Zealand Shipping Corporation operates a four-weekly shipping serv- ice to New Zealand and Nauru. The service has to be heavily subsidised. The port of Alofi has no berthing facilities: ships offshore and are served by launches and lighters.

There is a local radio station and a weekly newspaper. A proposal to set up a cable television service is under study.

Finance

In 1992/93 government expenditure was estimated to be NZ$13.3m (US$9.3m), while estimated revenue was NZ$12.9m, including NZ$6.6m of New Zealand aid. The government expected to record a small deficit of NZ$362,900. Grants have routinely been relied on to enable Niue to cover necessary expenditure. New Zealand’s NZ$33m three-year Concerted Action Plan, which began in 1988, was succeeded by a smaller aid programme of NZ$10m a year, reduced to NZ$9m in 1992 and NZ$7.5m in 1993. In 1994 New Zealand aid totalled NZ$7m, NZ$5m of which went directly towards Niue government support. The Australian International Development Assistance Bureau (AIDAB) also contributed A$600,000 (US$470,000).

Remittances from the estimated 12,000 Niueans living in New Zealand are also vital to the economy. Until 1987 there was no commercial bank, and banking business was handled by the Treasury Department and the Post Office. The first bank, Westpac Niue, was opened in early 1987.

At the end of 1994 the Legislative Assembly passed legislation allowing the island to become an offshore financial centre. The government expects to raise US$11.5m per year from the registration of foreign companies, helping the country to become less dependent on New Zealand aid.

Foreign trade

Niue regularly records a large trade deficit. Exports were valued at NZ$80,000 (US$55,700) in 1990 and imports at NZ$7m creating a trade deficit of NZ$6.9m. The chief imports are foodstuffs, machinery and transport equip- ment, fuels and general manufactures, while exports are fruits, honey and fish. New Zealand is Niue’s principal trade partner, receiving 90% of Niue’s exports and providing 60% of Niue’s imports.

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Tuvalu

Basic data

Land area 26 sq km

Population 9,043 (1991 census); 9,500 (mid-1995 estimate)

Major islands , , and . The majority of the population lives on Funafuti

Capital Funafuti (population 3,839 at 1991 census)

Climate Tropical

Weather The temperature varies from 22°C to 38°C. The season of rain and westerly gales is between November and February. Rainfall varies considerably. In an average year the annual rainfall can reach 300 cm in the south

Languages English, Tuvaluan (both official) languages and a Gilbertese dialect spoken on Nui

Measures Imperial and metric

Currency Australian currency is legal tender but Tuvalu coins are also in circulation. Exchange rate average 1994: A$1.3667:US$1. Exchange rate end-Ju;y, 1996: A$1.2694:US$1

Time 11 hours behind GMT

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Political background

History Tuvalu, formerly known as the Ellice Islands, had been of little interest to European explorers. Between about 1850 and 1875 many of its inhabitants were abducted by slave-traders. The island group was formally brought under British protection as part of the Gilbert and Ellice Islands Protectorate in 1892. (The Gilbert Islands are now known as Kiribati.) The protectorate became a colony in 1916. At their own request, the Ellice islanders separated from the Gilberts in 1975 prior to independence. Independence was granted to Tuvalu in 1978.

The constitution Tuvalu is a constitutional monarchy with the British sovereign as head of state. Its is based on the Westminster model with free elections and cabinet government. The Parliament consists of a single chamber with 12 members and the cabinet comprises the prime minister and four other ministers. There are elected councils on each of the individual islands.

Political forces The eight-year-old government of Dr Tomasi Puapua was defeated in the 1989 elections when Paeniu became prime minister. Mr Paeniu was sub- sequently succeeded by Kamuta Latasi in December 1993.

International relations A treaty of friendship between Tuvalu and the USA was ratified in 1983 and and defence provides for consultation on security and marine resource matters. The USA renounced its claims on four of Tuvalu’s nine islands as part of the treaty. Tuvalu is an associate member of the Commonwealth and is associated with the European Union under the Lomé Convention.

Population and society

Tuvalu consists of nine scattered atolls, all less than 6 metres above sea level and at risk as global warming drives up sea levels. Their total area is 25.9 sq km. The capital and main island is Funafuti.

The population was 9,043 in the 1991 census and in mid-1995 was estimated to be 9,500. A further 1,000 work temporarily abroad, mainly in phosphate mining on Nauru or as seamen on foreign ships. Population growth will be high as phosphate mining activity in Nauru declines and Tuvaluans employed there return home.

Currency

The Australian dollar (A$) is legal tender. At the end of July 1996 the exchange rate was A$1.2694:US$1.

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The economy and national accounts

The majority of the population is supported by subsistence farming and by fishing.

Tuvalu has only one export crop, copra, and its resources are extremely limited. The manufacturing sector is tiny consisting mainly of handicraft and garment production; there is little tourism and no mining. Some revenue comes from the sale of licences to fish in Tuvalu waters and from transfers from Tuvaluans working abroad. The country is sustained by foreign grants. There is great disparity in income between people on the main island, Funafuti, and on the outer islands.

National accounts are not prepared, but in 1990 GDP per head was estimated at US$1,009.

Employment Tuvalu has an excess of skilled manpower in an economy with a low resource endowment. The country’s heavy dependence on subsistence farming means that the formal sector is small. Around 1,000 people are in paid employment, 50% in government service. There is estimated to be over 1,000 workers over- , in Nauru or on foreign ships.

Agriculture, forestry and fishing

Agriculture and forestry Agriculture is essentially of the subsistence variety employing around 80% of the population. In 1990, 21% of GDP is estimated to have come from agricul- ture and it is the major money earner for people in the outer islands, who amount to 70% of the population as the surplus can be sold for cash. Copra is the only product exported. Soil quality is generally poor.

Coconut palms, a basic source of food and of cash income, regenerate naturally on Tuvalu. A crop development programme aims to achieve self-sufficiency in food production and to introduce new crops with import-substitution and export potential. Only a small number of crops are successful and some, such as tomatoes, require hand pollination.

Experimental work in producing poultry, pigs and goats has been carried out on Vaitupu, and on domestic rabbits on Funafuti. The aims of livestock devel- opment are to improve the quality and quantity of poultry and pigmeat, and to increase the local production of eggs.

Tuvalu has no forest resources but it can produce timber and other wood and energy products from old coconut trees.

Fishing Tuvalu can claim 900,000 sq km of ocean as an exclusive fisheries zone al- though fishing is still largely at the subsistence level. A fishing boat was given to Tuvalu in 1982 under Japanese aid and in 1988 a A$1.3m (US$1m) grant for further fisheries development was provided from the same source. The National Fishing Corporation of Tuvalu (NAFICOT), involving the Tuvalu government and the Fiji-based Ika Corporation, fishes for tuna in Fiji and

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Tuvalu waters. Vessels from Taiwan and South Korea fish in Tuvalu waters under licence. In total about 40 ships are allowed to fish in the country’s waters, producing a revenue for the government of about A$80,000 a year. Tuvalu benefits from its membership of the Forum Fisheries Agency, and par- ticularly as a party to the US-South Pacific Regional Fisheries Treaty. Although marine resources are one of the country’s major assets, they are as yet under-ex- ploited and contribute only 6% on average to GDP.

Mining

There are no known commercially exploitable mineral deposits. It has been suggested that seabed mineral deposits might exist in commercial quantities. These are likely to be phosphate or manganese nodules.

Energy

The only indigenous energy source is wood. The government is studying alter- native energy sources. Supply of electricity is inadequate for demand and there is a public supply only on the main island.

Manufacturing and construction

There is no manufacturing industry of any significance. Three small local con- cerns carry out small-scale construction work and one of these also builds small boats. There is a very small coconut oil mill with a potential annual capacity of 100 tons of oil and 50 tons of pressed cake. Some handicrafts are exported. Other industries include baking, boat building and soap making.

The Ministry of Works is responsible for most construction. Any sizeable pro- ject requires outside assistance.

Tourism

Tourism is virtually non-existent due to Tuvalu’s small size and rather isolated location, which means high air fares and an infrequent air service. Hotel capac- ity is very limited and there is a small number of private guest houses. Despite these constraints, the Tourism Council of the South Pacific has submitted plans to the government for the development of tourism in the country.

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Tourist arrivals, 1992

Country of origin No of visitors USA 143 Australia 100 New Zealand 73 UK 45 Japan 42 Pacific Islands 257 Other 202 Total 862 Source: Tourism Council of the South Pacific.

Transport and communications

A feeder shipping service links Tuvalu every six weeks with the regionally owned network of the Pacific Forum Line. There is a service of about the same frequency by the Karlander Line. Tuvalu itself has only one small freighter.

The isolated geographical position of Tuvalu and the considerable distance between its islands make all forms of transport difficult and costly. Mainten- ance of frequent and regular air services between Tuvalu, Fiji and Kiribati is a priority concern. Fiji Air runs a service to Fiji, Air Tungaru flies to Kiribati and Air Marshall operates a once-weekly flight to the Marshall Islands. Tuvalu’s few roads tend to be little more than tracks surfaced with crushed coral. There are few vehicles save the odd minibus.

There is a limited local radio service and a government newspaper is published fortnightly. International telephone and telex services are in operation.

Finance

The government has regularly recorded a substantial deficit which has been financed by aid. In 1993 expenditure was budgeted at A$8.4m (US$6.6m), an increase of 30% over the previous year. However, revenue was A$9.9m, creating a budget surplus of A$1.5m. Government revenue comes from taxes, import duties, fishing licences and philatelic sales. The government also relies on official development assistance for development and recurrent expenses. Aid has been provided by Australia, New Zealand, the UK, the European Develop- ment Fund and the Development Programme (UNDP). The UK, Australia and New Zealand have contributed A$8.5m, A$8m and A$8.3m, re- spectively, towards a fund, the which, it is hoped, will produce revenue to cover about half the country’s annual operating budget. Japan and South Korea also made small contributions. Drawdowns from the fund occur when major domestic revenues fall below expectations. Balance-of- payments deficits are financed by aid funds.

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In 1995 the government bought Westpac’s 40% shareholding in the National Bank of Tuvalu and now owns the bank outright. Westpac has managed the bank since it was established in 1980 and is expected to continue to provide an advisory support service.

Foreign trade and external payments

The overall trend of exports has been downward. In 1984 exports stood at A$1.4m (US$1.1m). Sharp declines in the value of exported copra, from A$307,000 in 1984 to A$16,000 in 1987, of stamps, from A$665,000 to A$92,200, and of fish, from A$421,000 to nil, resulted in the total value of exports falling to A$112,000 in 1987. Exports were estimated to have picked up to A$261,000 in 1989 and to A$312,000 in 1990.

The country depends on imports for almost all domestic consumption items, materials and equipment. Imports (cif) increased from A$2.6m in 1980 to A$5.17 in 1990. It is estimated that transfers—external aid and remittances— more than offset the large visible trade deficit estimated to be A$4.9m in 1990. In 1994 the balance of payments was estimated to be in surplus by A$4.6m.

Aid The main aid donors are now Australia and New Zealand. In 1995 the Austra- lian government pledged A$3m (US$2.4m) to assist Tuvalu in filling what has become known as the “burrow pits” on Funafuti. The pits are a result of the UK government’s decision during the Second World War to allow the US army to dig up one-third of Funafuti’s service area to build the island’s airstrip.

Disbursements of gross development assistance (US$ m) 1988 1989 1990 1991 1992 1993 Bilateral 13.3 5.7 4.8 4.4 7.5 3.3 Australia 1.6 1.0 1.7 1.6 2.5 1.8 New Zealand 1.2 1.1 1.1 1.4 1.0 1.1 UK 10.1 0.6 0.9 0.8 0.4 0.1 Japan 0.3 3.0 1.0 0.5 3.5 0.2 Multilateral 0.7 1.2 0.2 1.0 0.9 0.9 of which: UNDP 0.4 1.0 0.0 0.8 0.7 0.3 Total 14.0 6.9 5.0 5.4 8.4 4.2 Source: OECD, Geographical Distribution of Financial Flows to Developing Countries.

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Former US Trust Territories

Basic data (Federated States of Micronesia, Marshall Islands, Northern Mariana Islands, Palau)

Land area 1,846 sq km

Population Federated States of Micronesia 104,724 (September 1994 census); Marshall Islands 54,000 (1994 estimate); Northern Mariana Islands 52,900 (1992 cen- sus); Palau 16,200 (mid-1993 official estimate)

Main towns Federated States of Micronesia: Kolonia, Moen

Marshall Islands:

Palau: Koror

Climate Tropical. In the hurricane zone

Weather Mean annual rainfall: Ponape 470 cm; Yap 320 cm

Languages English, numerous Polynesian, Micronesian and

Measures American

Currency US dollar

Time Federated States of Micronesia: 11 hours ahead of GMT; Marshall Islands: 12 hours ahead of GMT; Northern Mariana Islands: 11 hours ahead of GMT; Palau: 9 hours ahead of GMT

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Political background

History The (Palau and the Federated States of Micronesia) and the Mariana Islands were under the influence and rule of until the late 19th century. Spain had acquired the islands in the course of colonising the Philippines. The Marshall Islands became a German Protectorate in 1886, and in 1889, after the Spanish-American war, Spain sold the Caroline and the Mariana Islands (with the exception of Guam which had been captured by the Americans) to Germany.

Japan was quick to take the islands from Germany in the First World War and they were mandated to Japan by the League of Nations in 1920 and 1921. The period of Japanese administration resulted in considerable Japanese colonis- ation and development in the islands, and then military fortification.

After the Second World War the islands were grouped together, with separate administrative arrangements, as the Trust Territory of the Pacific Islands, a UN trusteeship administered by the USA. The original territories in the trusteeship were split into four jurisdictions: the Federated States of Micronesia, the Marshall Islands, the Northern Mariana Islands and Palau.

The USA signed Compacts of Free Association with the Federated States of Micronesia, the Marshall Islands and Palau in 1982 and 1983. Free association, although not precisely defined under international law, is taken to mean autonomy in all spheres except defence, control of which will remain with the USA. The trusteeship ended once the compacts had been ratified by the US Congress, the UN Security Council, the respective and by plebi- scites. Last to ratify the compact was Palau, in November 1993. Palau gained full independence from the USA on October 1, 1994 and has now become the 185th member of the UN.

The Northern Mariana Islands formally entered political union with the USA in 1986. Its residents are now US citizens.

The constitution In 1995 the country’s congress unanimously re-elected Bailey Olter for a sec- ond term as president along with his vice-president, Jacos Nena. Mr Olter was first elected in 1991. Each of the four states (Yap, Kosrae, Pohnpei and Chuuk) has its own elected legislature and governor, as well as executive and judicial branches.

The Marshall Islands has an elected president (currently Amata Kabua) who is both head of state and chief of the executive; he is head of the cabinet, which he appoints. There is a 33-seat legislature and a council of chiefs which fulfils a mainly consultative role.

The Commonwealth of the Northern Mariana Islands has an elected governor (currently Larry de Leon Guerrero) and lieutenant-governor who head the executive branch of government. The legislative branch consists of a Senate and a House of Representatives with popularly elected members.

The Republic of Palau has a directly elected president (currently Kuniwo Nakamura) and vice-president and a bicameral legislature.

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International relations Defence of the islands is the responsibility of the USA under the agreed prin- and defence ciples of free association. This compact is for 15 years, and can be extended by agreement. In the case of Palau the compact is for 50 years.

In 1985 the USA provided the Marshall Islands with a US$150m trust fund to compensate islanders for nuclear bomb damage, provided the Marshallese government did not go to court to seek additional compensation. In the 1940s and 1950s the USA detonated a series of nuclear devices on Bikini and Eniwetak atolls. Another atoll, Kwajalein, continues to be used as a target for inter- continental missiles under test. In 1994 the US Department of Energy disclosed that Marshall Islanders were deliberately used as human guinea-pigs to study the effects of high radioactivity. Since the announcement the Marshalls government has pushed for further increases in their compensation claims. The government is also petitioning the US government to reveal more details on the 67 nuclear tests that were carried out in the Marshall Islands between 1946 and 1958.

Population and society

The former Trust Territories include a total of over 2,000 islands, of which 84 are inhabited. The total land area is 1,846 sq km; the islands are spread over an area of 7.5m sq km of ocean. The Federated States of Micronesia has a popul- ation of about 105,000 according to the official 1991 estimate. Average life expectancy at birth was 63 years in 1992. Total land area is just over 700 sq km, comprising hundreds of islands spread across hundreds of thousands of square kilometres of ocean.

The population of the Marshall Islands in 1994 was estimated at about 54,000, living on 171 sq km of atolls scattered through 2m sq km of ocean. Kwajalein is the largest and best known of the islands; others include Rongelap, Eniwetak and Maloelap.

The Northern Mariana Islands, as a commonwealth territory of the USA, had a population of 52,900 at the time of the 1992 census. The islands, which in- clude , have a total area of 474 sq km. The majority of Palau’s population of 16,000 or so live on the capital island of Koror and on the largest island, Babeldaop, which comprises 397 sq km of the total area of 500 sq km.

Currency

The currency is the US dollar. Banking services are provided by the National Development Bank of Palau, the Bank of Guam, the Bank of Hawaii and the Bank of the Marshall Islands.

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The economy

Federated States of The economy is heavily dependent on foreign aid, mainly from the USA. GDP Micronesia per head in 1993 was US$1,764. Virtually the only employer is the government and most of the population live by subsistence farming and fishing. The government has drawn up plans for the development of agriculture and aquaculture, and places great hopes in the encouragement of foreign invest- ment and tourism. Transshipment facilities and a tuna processing plant have been built in Pohnpei. Imports, mainly of food and manufactured goods, in 1993 were US$148.1m and exports, of copra, bananas and fish were US$25.6m.

Marshall Islands The government is concentrating on developing infrastructure with the hope of stimulating private-sector investment. It intends to cut public-service ex- penditure significantly over the next few years; in 1992 the public service employed 34% of the total workforce of 100,000. The transport links with the outer islands are being improved and airstrips are being built. The agricultural sector is dominated by the copra industry. In 1994 4,836 tons were produced, virtually the same as a decade earlier. The economy remains heavily dependent on revenue from the US base at Kwajalein Atoll which contributes some US$25m a year. The government is seeking possible means of economic diver- sification and an agreement has been signed for 50 Chinese long-line fishing boats to be based at Majuro, the capital. Proposals to dump non-toxic US waste in the lagoons of the low-lying atolls have received preliminary approval from Amata Kabua, the president, but have been strongly rejected by the people of Bikini atoll, one of the radiation-contaminated islands. However, the nuclear storage option is still regarded by many as a means to reverse the country’s economic fortunes. Although tuna exports have risen, they have not been able to keep up with the decline in US aid. The situation is now likely to worsen: since October 1995 funding from the compact agreement with the USA has begun to decline by US$35m per year until it expires in 2001. In 1994 exports were US$23.4m and imports US$71.4m, resulting in a trade deficit of US$48m.

Northern Mariana Islands The major export is garments and a large number of the non-US citizens are foreign workers in the industry. Garments made up the bulk of the US$204m export earnings in 1990 with the “export” of tourism services making up the balance. Recent years have seen a rapid increase in the importance of tourism. By 1991 tourist arrivals had risen by 128% since 1987 to reach 424,458. Imports in 1990 stood at US$342m. Reliance on imports is increasing, as local food production declines and the demands of the tourist industry increase.

Palau Priority is being given to the development of natural resources and agriculture. Fishing has been greatly expanded with the provision by Japan of US$1.3m of fishing equipment, including ice plants and 11 boats. Tourism facilities are being improved with the building of new hotels. There were 11 hotels in operation in 1985, providing 254 rooms. By 1992 there were 21 hotels with 481 hotel rooms. Visitor arrivals rose 189% between 1986 and 1992, and tourism has become an important source of revenue in the economy. Palau’s exports are tiny, consisting of fish. In 1990 exports were estimated to be US$464,000,

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while imports, of food and consumer goods from the USA and Japan, were an estimated US$254m.

Transport

The former Trust Territories and Palau are at various stages in the development of their transport systems. Air services are provided by Air Micronesia within the islands and the Airline of the Marshall Islands provides a service to the Federated States of Micronesia and internationally. International air services are provided by Continental Air Micronesia, Air Nauru and Japan Airlines. Japan Airlines flies to the tourist areas of the Northern Marianas and to Palau.

The quality of roads varies from good on the Northern Marianas, with an estimated one vehicle for every three people in Saipan, the capital, to generally poor in the Federated States. In 1992 there were 2,945 registered motor vehicles in Palau and 1,488 private vehicles in the Marshall Islands in 1991.

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Regional institutions

The South Pacific The South Pacific Commission (SPC), founded in 1947, provides technical Commission advice, training assistance and information in economic, social and cultural fields to 22 countries and territories in the Pacific region. Its role is essentially advisory and consultative. Its activities are concentrated on agriculture and plant protection, marine resources, rural development, rural technology, com- munity health, statistics, economics, demography, women’s programmes and activities, community education training, youth and adult education, infor- mation services, awards and grants, cultural conservation and exchange.

The 22 countries and territories in which programmes of the South Pacific Commission are implemented are: American Samoa, Cook Islands, Fiji, French Polynesia, Guam, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, New Caledonia, Niue, Northern Mariana Islands, Palau, Papua New Guinea, Islands, Solomon Islands, , Tonga, Tuvalu, Vanuatu, and Futuna, and Western Samoa.

The work of the commission is reviewed and approved by its 27 members at the annual South Pacific Conference. The 27 members of the South Pacific Com- mission and the South Pacific Conference include, in addition to the 22 coun- tries and territories where programmes are being implemented, Australia, France, New Zealand, the UK and the USA. In October 1994 the UK announced that it would withdraw its membership with effect from January 1, 1996.

The headquarters of the permanent secretariat are in Nouméa, New Caledonia. The SPC is a bilingual organisation: its official languages are English and French.

South Pacific Forum and The South Pacific Forum (SPF) is an organisation of independent and self- South Pacific Forum governing countries which was set up in 1971. It grew out of a commercial Secretariat pressure group, the Pacific Islands Producers’ Association, in which Fiji, Tonga and Western Samoa were prime movers. Its broad objectives are political and economic cooperation. It is an organisation which brings together heads of government and has plenary powers, membership being restricted to inde- pendent and self-governing countries of the south Pacific, including Australia and New Zealand. Membership of the forum consists of the following 16 coun- tries: Australia, Cook Islands, Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Solomon Islands, Tonga, Tuvalu, Vanuatu and Western Samoa. The SPF meets annually. The 26th Forum, which was held in September 1995, focused on the decision of the French government to resume nuclear testing in the Pacific region.

In 1973 the SPF set up the South Pacific Bureau for Economic Cooperation (SPEC), which became its secretariat. This was reorganised in 1989 and

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renamed the South Pacific Forum Secretariat (SPFS) with an extended role as coordinator of development efforts in the region. The SPF also cooperates with the South Pacific Commission through SPFS.

SPFS has been active in trade matters, trade promotion, fisheries and regional transport. It has set up: a Regional Fisheries Agency, with headquarters in the Solomon Islands; the South Pacific Trade Commission in Australia to provide, among other things, a showroom for exporters; a Regional Shipping Council; and a Regional Civil Aviation Council. The Pacific Forum Line has been estab- lished as a regional shipping venture and it set up the South Pacific Maritime Development Programme to oversee the development of a shipping service in the region. SPFS is also responsible for the coordination of regional aid projects funded by the European Union (EU) under the Lomé Convention.

The SPFS Energy Unit provides regional coordination in the field of energy, with special emphasis on alternative energy sources.

South Pacific Applied The South Pacific Applied Geoscience Commission (SOPAC) was established in Geoscience Commission 1989. It grew out of the UN-funded Coordinating Committee for Mineral Prospecting in South Pacific Offshore Areas (CCOP/SOPAC). SOPAC is based in Suva and has similar standing to that of other independent regional inter- governmental organisations. SOPAC aims to help member countries assess their natural resources and to become self-sufficient in geoscience capabilities.

South Pacific Regional The South Pacific Regional Trade and Economic Cooperation Agreement Trade and Economic (SPARTECA) was signed in January 1981 between Australia and New Zealand Cooperation Agreement and the other members of the South Pacific Forum. SPARTECA eases import restrictions in Australia and New Zealand for goods from SPF countries with the aim of reducing the trade deficit of South Pacific countries with Australia and New Zealand.

South Pacific Regional The South Pacific Regional Environmental Programme (SPREP) was established Environmental with a permanent staff in Western Samoa in 1993 after receiving funding from Programme the United Nations’ Development and Environmental Programmes (UNDP and UNEP) and the New Zealand government. SPREP advises on environmental planning and administration and has programmes for the identification and establishment of conservation areas, the establishment of biodiversity pro- grammes and the promotion of conservation awareness in the entire region.

University of the South The University of the South Pacific has two campuses, located in Fiji and Pacific Western Samoa and is run by 12 Pacific island governments.

Pacific Islands’ The Pacific Islands Association of Chambers of Commerce (PIACC) was set up Association of Chambers in 1984 to coordinate the work of ten national chambers of commerce and of Commerce generally strengthen the services available to private-sector industry and busi- ness in the region, and to engage in liaison work with governments and inter- governmental agencies both within and outside the region. It is provisionally located in the Papua New Guinea Chamber of Commerce in .

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 158 Regional institutions

Melanesian Spearhead The “agreed principles of cooperation” of the Melanesian Spearhead Group Group (MSG) were signed at a meeting of the members, Papua New Guinea, the Solomon Islands and Vanuatu, on March 14, 1988. New Caledonia’s Kanak Socialist National Liberation Front (FLNKS) is an associate member, and Fiji has recently joined as a full member. The main aim of the MSG is to align the views of the participating countries in order to enable more effective lobbying on issues of joint interest in, for instance, South Pacific Forum meetings.

The Melanesian Free Trade Agreement between the three countries came into effect in late 1994. Under the agreement no duties will be levied on trade in tea from Papua New Guinea, canned tuna from the Solomon Islands and beef from Vanuatu. In 1995 the three countries agreed to increase the number of goods traded freely to about 30 including vegetables, coffee, animal feed and bread.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 Membership of international organisations 159

Membership of international organisations

United Nations Fiji, Marshall Islands, Federated States of Micronesia, Palau, Papua New Guinea, Solomon Islands, Vanuatu, Western Samoa.

UN Economic and Social Members: Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Commission for Papua New Guinea, Solomon Islands, Tonga, Tuvalu, Vanuatu, Western Sa- Asia—ESCAP moa.

Associate Members: American Samoa, Cook Islands, French Polynesia, New Caledonia, Niue, Northern Mariana Islands, Palau.

World Bank—IBRD Fiji, Kiribati, Marshall Islands, Papua New Guinea, Solomon Islands, Tonga, Western Samoa.

International Monetary Fiji, Kiribati, Marshall Islands, Papua New Guinea, Solomon Islands, Tonga, Fund—IMF Vanuatu, Western Samoa.

Asian Development Cook Islands, Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Bank—ADB Nauru, Papua New Guinea, Solomon Islands, Tonga, Tuvalu, Vanuatu, Western Samoa.

The Commonwealth Members: Kiribati, Papua New Guinea, Solomon Islands, Tonga, Vanuatu, Western Samoa.

Special Members: Nauru, Tuvalu.

Dependencies and Associated States: New Zealand—Cook Islands, Niue, Tokelau; Australia— Islands, ; UK—.

Lomé Convention African, Caribbean and Pacific (ACP) states associated with the EU; signatories: Fiji, Kiribati, Papua New Guinea, Solomon Islands, Tonga, Tuvalu, Vanuatu, Western Samoa.

French overseas territories in the Pacific—French Polynesia, New Caledonia, and —are eligible for benefits under the Lomé Convention on the same terms as the eight independent countries. The only independent state (as recognised by the UN) in the South Pacific which is not a member of the Lomé Convention is Nauru, which is one of the richer countries in the world in terms of income per head.

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996 160 Select bibliography

Select bibliography

Fiji AIDAB, The , Performance Management and Prospects Australian Government Publishing Service, Dwyer Leslie Pty Ltd

Bureau of Statistics, Current Economic Statistics (quarterly), Suva

Energy Data Associates, 1 Regent Street, London SW1Y 4NR

Foreign & Commonwealth Office, Fiji Annual Report, HMSO, London

Ministry of Finance, Budget Speech (annual), Suva

Reserve Bank, Annual Report, Suva

Reserve Bank, Quarterly Review, Suva

Solomon Islands AIDAB, The Solomon Islands Economy, Prospects for Stabilisation and Sustainable Growth, Australian Government Publishing Service, PDP Australia Ltd

Central Bank, Annual Report, Honiara

Central Bank, Economic Indicators (quarterly), Honiara

Central Bank, Quarterly Review, Honiara

Statistics Office, Statistical Bulletin (monthly), Honiara

Statistics Office, Statistical Yearbook, Honiara

Western Samoa AIDAB, The Western Samoan Economy, International Development Issues No 35

Central Bank of Western Samoa, Annual Report, Apia

Central Bank of Western Samoa, Bulletin (quarterly), Apia

Vanuatu Central Bank, Annual Report, Port Vila

Ministry of Finance, Budget Speech, 1991

National Planning and Statistics Office (NPSO), Statistical Indicators, Port Vila, January-March 1995

Tonga AIDAB, The Tongan Economy, Setting the Stage for Accelerated Growth, Australian Government Publishing Service, Unisearch Ltd

Bank of Tonga, Annual Report, Nuku’alofa

Bank of Tonga, Economic & Financial Outlook, (quarterly)

Statistics Department, Foreign Trade Report (quarterly), Nuku’alofa

Statistics Department, Statistical Abstract (occasional), Nuku’alofa

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Cook Islands Statistics Office, Statistical Bulletin, Rarotonga

General Asian Development Bank, Asian Development Outlook 1993, Manila, 1993

Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries 1995, Manila, 1995

IMF, Economic Development in Seven Pacific Island Countries, Washington DC, 1989

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World Bank, Pacific Island Economies: Towards Higher Growth in the 1990s, 1991

Editor: Sophie Lewisohn All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Profile 1996-97 © The Economist Intelligence Unit Limited 1996