COUNTRY REPORT
Pacific Islands: Fiji New Caledonia Samoa Solomon Islands Tonga Vanuatu
September 2000
The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 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 our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising conferences and roundtables. The firm is a member of The Economist Group.
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Contents
The region
7 Outlook for 2000-01 7 The political scene 9 Economic policy and the economy
Fiji
12 Political structure 13 Economic structure 13 Annual indicators 14 Quarterly indicators 15 Outlook for 2000-01 17 The political scene 19 Economic policy and the economy
New Caledonia
20 Political structure 21 Economic structure 21 Annual indicators 22 Outlook for 2000-01 23 The political scene 25 Economic policy and the economy
Samoa
29 Political structure 30 Economic structure 30 Annual indicators 31 Quarterly indicators 32 Outlook for 2000-01 33 The political scene 34 Economic policy and the economy
Solomon Islands
36 Political structure 37 Economic structure 37 Annual indicators 38 Quarterly indicators
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39 Outlook for 2000-01 40 The political scene 42 Economic policy and the economy
Tonga
43 Political structure 44 Economic structure 44 Annual indicators 45 Quarterly indicators 46 Outlook for 2000-01 46 The political scene 48 Economic policy and the economy
Vanuatu
51 Political structure 52 Economic structure 52 Annual indicators 53 Quarterly indicators 54 Outlook for 2000-01 55 The political scene 56 Economic policy and the economy
List of figures
17 Fiji: gross domestic product 17 Fiji: Fiji dollar real exchange rates 32 Samoa: gross domestic product 32 Samoa: Tala real exchange rates 40 Solomon Islands: gross domestic product 40 Solomon Islands: Solomon Islands dollar real exchange rates 46 Tonga: gross domestic product 46 Tonga: Tonga real dollar exchange rates 54 Vanuatu: gross domestic product 54 Vanuatu: vatu real exchange rates
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Summary
September 2000
The region
Outlook for 2000-01 The use of force to overthrow elected governments in Fiji and the Solomon Islands is likely to change regional political relationships fundamentally, although it is not yet clear how. The South Pacific Forum members will down- grade relations with the two countries, but will seek to avoid sanctions that affect economic recovery. The economic impact of the crisis will last for many years, and be manifest in various different ways.
The political scene The region’s foreign ministers have condemned events in Fiji and the Solomon Islands. All 14 islands of the Pacific Islands Forum are not members of the ACP (African, Caribbean and Pacific) Group. Tuna fishing has continued to create friction with Japan.
Economic policy and the Negotiations have begun on a regional trade agreement, with a second round economy of talks scheduled for March 2001. Implementation of the agreement is supposed to begin from January 2002, but the economic fall-out from the Fiji and Solomon Islands crises may delay matters. A research paper for the South Pacific Forum Secretariat projects three scenarios for economic recovery in these two countries, the most pessimistic of which predicts five years of economic recession in Fiji and seven to ten years of recession in the Solomon Islands.
Fiji
Outlook for 2000-01 The new interim government projects a GDP contraction of 15% this year. Fiji’s principal trade and development partners have shown a willingness to let the government establish itself before redefining relationships, but some form of sanctions will be imposed. The interim government may, however, never be credible domestically, having little standing with indigenous Fijians. Legal issues are likely to bedevil the government for months to come.
The political scene After the election of a president by the Great Council of Chiefs, attempts to form an interim government resumed, with one appointed in mid-July. George Speight was arrested in late July, and the president, Ratu Josefa Iloilo, broadened slightly the complexion of the government.
Economic policy and the A mini-budget released by the interim government’s finance minister has made economy some dire predictions. Government tax revenue are forecast to fall sharply, but the government has pledged not to raise taxes. Instead it will try to improve tax collection and cut expenditure. Salaries and wages of government employees, operating grants and payments and capital expenditure have all
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been reduced. The Reserve Bank of Fiji (RBF, the central bank) predicts major declines in many sectors, but the sugar harvest offers a glimmer of hope.
New Caledonia
Outlook for 2000-01 French domestic politics has threatened to stall progress on resolving political conflict, due to the resignation of the French overseas minister, Jean-Jack Queyranne. The economic outlook remains dependent on two factors: how much money France is prepared to plough into New Caledonia, and the prospects for nickel prices. Nickel prices are forecast to decline again in 2001, but in the medium term nickel output will increase.
The political scene Jacques Lafleur has said he will resign from the French national assembly, but as yet has shown no signs of actually doing so. The threat raises many uncertainties, including that succession within the Rassemblement pour la Calédonie dans la République. Internal conflict has prompted the Union calédonienne to rethink. Elections for the Loyalty Islands Province have produced no change in the overall political balance.
Economic policy and the An industrial relations plan has been unveiled. Agreement has been reached on economy the transfer to local interest of French government interests in the New Caledonia nickel industry. Exports reached a ten-year high in the first six months of 2000, driven up by the strength of world nickel prices in the first half of the year. Congress has approved new import taxes. Mobile phone services have helped boost Office of Post and Telecom revenue.
Samoa
Outlook for 2000-01 Economic prospects are good, if nature remains benign. Demand for tourist accommodation will refocus the attention of investors and local entrepreneurs. The latest budget projects growth rates of 3-4% in the medium term.
The political scene A change in residency requirement for election candidates has caused controversy, with the government accused of discriminating against overseas Samoans. A post-election challenge for the premiership is possible. The last session of the parliament (Fono) ended with a boycott by the opposition leader.
Economic policy and the Business/government relations appear good, with business pleased with the economy rationalisation and simplification of tariff and income tax schedules. The tourism industry needs more hotel rooms. The shipping corporation has reported another good year. Hopes rest on a new taro variety.
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Solomon Islands
Outlook for 2000-01 The political and economic outlook is extremely poor, with the government considering postponing parliamentary elections. No timetable has yet been set for the peace process. The government’s financial situation is precarious.
The political scene The new prime minister’s election was achieved by intimidation. Fighting broke out again soon afterwards, and the human rights situation has worsened sharply. Peace talks started on September 8th.
Economic policy and the The decision to close the country’s two biggest enterprises, Solomon Islands economy Plantations and the Gold Ridge mining project, will have major ramifications for future investment, but only around 8% of the population is employed in the formal economy.
Tonga
Outook for 2000-01 Political change is possible but will be slow, subtle and well prepared. The government’s statistics department is projecting growth of more than 6% in the current fiscal year, with strong growth in agriculture and many services. This forecast may be over-optimistic.
The political scene The political upheavals in Fiji and Solomon Islands have some uncomfortable resonances for Tonga. There are signs of increased government accountability, including the distribution of a highly critical auditor-general report. A change to the political system has been suggested, whereby the prime minister would appoint his own ministers.
Economic policy and the The 2000/01 budget boosts overall spending by 17%. Health and education economy will gain, and there has been a cost-of-living pay adjustment for public servants. Falling foreign reserves have focussed attention on the level of imports. The National Reserve Bank of Tonga has reported large profits for 1999. An overseas medical insurance scheme will start next year.
Vanuatu
Outlook for 2000-01 Some serious problems have to be faced up to. Primary among them is the state of relations with the Asian Development Bank (ADB) which has been brought to a head by the prime minister’s determination to politicise the public service.
The political scene James Bule has replaced Reginald Stanley as deputy prime minister. The Union of Moderate Parties (UMP) split is unresolved, and the UMP government faction has declined an invitation to change allegiances and form a new government with the Vanua’aku Pati. The supreme court has upheld an action brought by the other UMP faction.
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Economic policy and the New legislation has been introduced to regulate the offshore financial centre. economy Freedom Telecommunications Company will soon start offering telecommunications services on Santo and neighbouring northern islands. Airfield maintenance problems have hit Vanair. A new international airport is planned for Efate. Loggers must now be licensed. A new tuna management regime has been proposed.
Editor: Graham Richardson Editorial closing date September 12th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule
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The region
Outlook for 2000-01
Fiji and Solomons Islands The use of force to overthrow elected governments in Fiji and the Solomon crises will alter regional Islands is likely to change regional political relationships fundamentally, relationships although it is not yet clear how. A meeting in August of the foreign ministers of the South Pacific Forum, the region’s peak political body, faced up to the reality that treating such events as internal matters for the countries concerned was not a principled position and formally condemned them (see The political scene).
In an unusually blunt opening statement at the meeting in Samoa, the host prime minister, Tuilaepa Sailele Malielagaoi, said, in effect, that the absence of any process to provide an effective Forum response to such crises showed that the concept of regional leadership had been an illusion. The recognition of this has been a long time coming, and regional heads of state and heads of government will now have to move on and grapple with the specifics of how to improve matters at their annual Forum meeting in October. The Australian foreign minister, Alexander Downer, described the Samoa meeting as “extraordinarily successful” in demonstrating a sense of shared responsibility that had not been seen in previous regional crises.
The Forum is likely to downgrade political relations with Fiji and the Solomons until democratic government is restored, but it will seek to avoid sanctions that affect economic recovery and employment. It is also expected to look at giving a freer hand to its secretary-general, Noel Levi, to initiate quick responses, from personal diplomacy to the use of third-party mediation and the formation of ad hoc ministerial committees to seek solutions.
Economic impact will last The Forum secretariat in Suva has published some projections of the economic for many years effects of the events in Fiji and the Solomon Islands (see The economy and economic policy) that are grim, but appear overly optimistic to many commentators. All are agreed, however, that the impact will last for many years. This means that hopes of implementing a regional free-trade agreement at the beginning of 2002 could be unfulfilled.
Other areas of economic fallout are bound to emerge. In particular, the crises’ impact on the smaller island countries serviced from Fiji and, to a lesser extent, Solomon Islands, is still far from clear. So is the medium-term reaction of the EU, particularly in relation to its imports of sugar from Fiji, and the US, which is likely to take its lead on sanctions from Australia and New Zealand.
The political scene
Regional foreign ministers South Pacific Forum foreign ministers broke with precedent at their meeting in condemn the use of force August to formally condemn the use of force to overthrow the elected governments of Fiji and the Solomon Islands. At the end of their meeting in
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Apia, Samoa, they also welcomed the arrests of those directly involved in the taking of hostages and other unlawful acts.
Representatives of the new regimes in Fiji and the Solomons attended the meeting and made statements but the final communiqué made no mention of them, urging Fiji to hold elections “within the shortest possible time frame” in order to establish a democratic mandate. The foreign ministers expressed concern about the widespread availability of firearms throughout the region and directed the Forum Secretariat to draft specific control measures for the October meeting of Forum leaders in Tarawa, Kiribati. Other measures are likely to be discussed, all aimed at developing new or improved processes to arrive at effective regional responses to security crises.
As noted above, Samoa’s prime minister, Tuilaepa Sailele Malielegaoi, gave an unusually frank opening speech to the Forum. In a sense, he claimed, the “studied procrastination” of the Forum in not having an effective response mechanism was rooted in a long-held belief that the region was essentially tranquil. Such was the depth of this complacency that the earlier coups in Fiji had been somehow viewed as having a special and palatable Pacific flavour, and were therefore considered merely aberrations from the “underlying peaceful and serene nature of our traditional societies”. He went on to claim that it was incumbent upon the current regional leadership to do everything possible to discourage the emergence in the region of a political culture that encouraged the use of force to achieve political and, consequently, economic and social change. This could not be done by treating unlawful and unconstitutional changes of government as internal matters for the countries concerned.
All islands are now part of All 14 island countries of the Pacific Islands Forum are now members of the the ACP Group ACP (African, Caribbean and Pacific) Group, originally established under the Lomé convention at the beginning of the process of economic union in Europe. Membership of the Cook Islands, Federated States of Micronesia, Marshall Islands, Nauru, Niue and Palau was approved at meetings of the ACP council of ministers and the joint ACP-EU council of ministers in Cotonou, Benin, at the end of June. (Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu were already members by virtue of their historical associations with Britain and, in the case of Vanuatu, France.)
All the island countries are now, in theory, eligible to share the benefits, particularly in aid and trade concessions, of the new partnership agreement between the ACP states and the EU negotiated earlier this year and formally signed in Cotonou. However, the application of the full range of benefits to Fiji and the Solomon Islands remains under a cloud because of the overthrow of their elected governments. Ironically, the signing of the new agreement was originally planned to take place in Fiji.
Tuna fishing creates Fishing continues to be a source of friction in regional relations with Japan, friction with Japan despite the efforts of the Japanese prime minister, Yoshiro Mori, to strengthen ties. Japan agreed last December to closer international monitoring of its trade in southern bluefin tuna (SBT, see 1st quarter 2000, page 10) but is, nevertheless, pressing ahead with a project to take an additional 1,500 tonnes
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of the fish above its agreed quota in each of the next two years for what it describes as an experimental programme.
Japan’s decision follows the failure of a case against it brought by Australia and New Zealand last year. The International Tribunal for the Law of the Sea initially ruled in favour of Australia and New Zealand in August 1999 and issued an injunction to stop the above-quota fishing. The case then moved to the World Bank’s International Centre for the Settlement of Investment Disputes, which found that it was excluded from acting by the Convention for the Conservation of Southern Bluefin Tuna to which all three countries subscribe.
SBT stocks remain at an historic low after extensive over-fishing in the 1950s and 1960s. An agreed annual catch of 11,750 tonnes, divided mostly between Japan and Australia, has been in force since 1989 but Japan began its “experimental programme” in 1997, taking an additional 1,400 tonnes a year. The fish sells for up to US$500/kg in Japan.
Japan presented US$1m to the Forum Secretariat in July to establish a Japan Forum partnership programme, as promised at the summit meeting between Forum leaders and Japan in April (see June 2000, page 10). The funding is additional to Japan’s contribution to the Secretariat’s general budget, which amounted to US$401,000 for 2000, and will be used mostly for student exchanges and training.
Economic policy and the economy
Negotiations begin on a Trade officials from the 16 Forum countries held the first round of negotiations regional trade agreement for the proposed Pacific Regional Trade Agreement in Nadi, Fiji, at the end of August after nearly three years of preparatory work. Each country presented its views on a draft framework agreement, and also tabled schedules of the concessions they were prepared to offer and the issues that concerned them.
The three-day meeting concluded with an agreement that rules of origin procedures needed to be simplified for easy understanding by the private sector, and that the application of the agreement to trade in alcohol and tobacco needed further study. A working party of officials will continue work on outstanding issues before a second round of negotiations in March 2001. That will be followed by a meeting of trade ministers in June 2001 to sign-off on the text before it goes to the annual Forum meeting of heads of government and heads of state for final approval.
Implementation of the agreement is supposed to begin from January 2002. (Although, as noted above, the economic fallout from the Fiji and Solomon Islands’ crises may delay matters.) Forum members categorised as “developing” will have eight years to eliminate tariffs from other Forum island countries. Those in the “least developed” category or the smaller islands group (Cook Islands, Federated States of Micronesia, Kiribati, Nauru, Niue, Marshall Islands, Samoa, Solomon Islands, Tuvalu, Vanuatu) will have ten years to phase out the tariffs.
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Forum study sees both The Forum Secretariat continues to take two lines on the region’s economic gloom and sunlight prospects, one sunny and one gloomy. A research paper for the July meeting of the Forum economic ministers, held in Niue, claims that since 1996 most Forum island countries (FICs) have undergone substantive economic reforms and private-sector development programmes, which will improve economic prospects in the medium term. The paper points to the likely benefits of impending public infrastructure and private projects; improved technological access; the development of intra-regional trading; co-operative arrangements in aviation and shipping; an educated and healthy labour force; co-ordinated policies and approaches to the management of natural resources; and continued co-operation and co-ordination within the region.
But alongside this up-beat assessment (which could be seen more as a wish-list than a statement of fact) there stands a rather grimmer assessment of the likely economic implications of the overthrow of elected governments in elected governments in Fiji and the Solomon Islands. At worst, the Secretariat believes, according to the paper, recession could last for about five years in Fiji and seven to ten years in the Solomon Islands. The report also pointed to serious broader regional effects in terms of increased cost of imports, loss of exports and stoppages in the flow of goods usually trans-shipped in Fiji and, to a lesser extent, the Solomon Islands.
The study considered three possible scenarios. In the first, best case scenario it is assumed that the crises are resolved quickly and no further international action is taken against either country. This would mean the restoration of parliamentary democracy, with any interim administration having no clear links to the parties which instigated violence. Under this scenario, trade flows are not interrupted for long enough to cause irreparable damage to the countries’ industries. The depth and length of the Solomon Islands’ recession is longer than Fiji’s because of the country’s poor economic performance before the crisis.
The second scenario assumes the crises continue, with no clear path to elections under parliamentary democracy and with the parties that instigated the violence still having some influence over events or causing disruption to law and order. The negative reaction of the international community is assumed to be limited to “smart” sanctions (highly targeted, with little direct effect on the populations’ well-being), but there are unofficial trade sanctions imposed by trade unions in export markets. Under this scenario, sustained exposure to unofficial trade sanctions and restrictions on some business activities (such as a downturn in tourism and lack of access to the Solomon Islands in particular) will be extremely detrimental to some industries. The economic difficulties facing both governments under this scenario would require severe budget cuts, could result in higher inflation and, perhaps, currency devaluations.
The third scenario is a worst case outcome, with the crises deepening, no law and order, or administrations dominated by parties that instigated violent overthrow of democratic government, or an administration that does not intend to restore parliamentary democracy in the shorter term. This is assumed to attract official and full economic sanctions by all trading partners, resulting in very bleak economic and social conditions. Unemployment would reach
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extremely high levels as all trade and the majority of domestic business activity was halted, and development assistance removed. The path to recovery would prove long and hard—the Solomon Islands suffering from a poor starting position, and Fiji having difficulty in attracting the foreign investment essential for economic growth, with a track record of three coups and the decimation of at least one thriving industry.
The table below shows how the effects of the scenarios were summarised for the Forum’s economic ministers.
South Pacific Forum Secretariat’s three scenarios Impact Fiji Solomon Islands Scenario 1 Total loss to the economy F$1bn + SI$150m Job losses 5,000 570 Economic recovery period 2 years of recession 3 years of recession (bottoming at –1% to (bottoming at –3% to –2% GDP growth) –4% GDP growth) Scenario 2 Total loss to the economy F$2bn+ SI$500m Job losses 25,000 3,400 Economic recovery period 3 years of recession 5–7 years of recession (bottoming at –2% to (bottoming at –5% to –3% GDP growth) –6% GDP growth) Scenario 3 Total loss to the economy F$4bn + SI$ 1bn + Job losses 40 000 6,800 Economic recovery period 5 years of recession 7–10 years recession (bottoming at –4% to (bottoming at –7% to –5% GDP growth) –9% GDP growth) Source: South Pacific Forum Secretariat.
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Fiji
Political structure
Official name Republic of Fiji Islands
Form of state Usually parliamentary; currently under an interim civil administration appointed under martial law
The executive The president, appointed by the Great Council of Chiefs, with a cabinet appointed by the martial law administration
Head of state The president, Ratu Josefa Iloilo
National legislature Currently inoperative pending the drafting of a new constitution and new elections
Regional government Local administration is on a divisional basis with separate councils for urban areas. There is a separate local government system for the indigenous Fijian population
Legal system Magistrates’ courts, High Court and Court of Appeal with the Supreme Court at the top
National elections May 1999; next elections likely some time between 2001 and 2003
National government The government elected in 1999 and, led by Mahendra Chaudhry of the Fiji Labour Party, was taken hostage by armed gunmen on May 19th and subsequently dismissed by the then president. A martial law government took power on June 5th and an interim civil administration was installed on July 18th.
Prime minister & minister for national reconciliation Laisenia Qarase Deputy prime minister & minister for Fijian affairs Ratu Epeli Nailatikau
Key ministers Agriculture, fisheries, forests & ALTA Apisai Tora Attorney-general & minister for justice Alipate Qetaki Commerce, business development & investment Tomasi Vuetilovoni Education Nelson Delailomaloma Finance & national planning Ratu Jone Kubuabola Foreign affairs, external trade & sugar Kaliopate Tavola Health Pita Nacuva Home affairs & immigration Ratu Talemo Ratakele Information & communication Ratu Inoke Kubuabola Labour & industrial relations Ratu Tevita Momoedonu Lands & mineral resources Mitieli Bulanauca Local government, housing & environment Ratu Tu’uakitau Cokanauto Public enterprises & public sector reform Hector Hatch Regional development & multi-ethnic affairs Ilaitia Tuisese Tourism & transport Jone Koroitamana Women, culture & social welfare Ro Teimumu Kepa Works & energy Joketani Cokanasiga Youth, employment opportunities & sports Keni Dakuidreketi
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Economic structure
Annual indicators
1995 1996 1997 1998 1999 GDP at current pricesa (F$ m; factor cost) 2,404 2,557 2,599 2,711 n/a Real GDP growtha (%) 2.5 3.2 –1.7 –1.3 7.8 Consumer price inflationa (av; %) 2.2 2.4 2.9 5.7 1.7 Populationa (m) 0.77 0.77 0.78 0.79 n/a Exports fobb (US$ m) 519.6 672.2 535.6 393.4 n/a Imports fobb (US$ m) 761.4 839.9 818.9 611.6 n/a Current-account balanceb (US$ m) –112.7 13.5 –34.1 –54.6 n/a Reserves excl goldb (US$ m) 349.0 427.2 360.3 385.4 428.7 Total external debtc (US$ m) 250.4 217.4 213.4 n/a n/a Debt-service ratio, paidc (%) 6.0 3.6 3.1 n/a n/a Exchange rateb (av; F$:US$) 1.406 1.403 1.444 1.987 1.970
September 1st 2000 F$2.1646:US$1
Origins of gross domestic product 1998a % of total Agriculture, forestry & fishing 16.5 Mining & quarrying 2.7 Manufacturing 14.5 Construction 4.5 Electricity & water 4.5 Transport & communications 13.9 Wholesale & retail trade, restaurants & hotels 15.8 Other services 27.5 Total incl imputed service charge 100.0
Principal exports 1998a F$ m Principal imports 1998a F$ m Sugar 244.2 Manufactured goods 391.9 Garments 241.0 Machinery & transport equipment 376.6 Gold 70.5 Food 205.9 Timber 54.8 Miscellaneous manufactured articles 167.7 Fish 49.5 Mineral fuels 159.2 Total incl others 954.5 Total incl others 1,434.2
Main destinations of exports 1998a % of total Main origins of imports 1998a % of total Australia 29.4 Australia 40.1 UK 22.1 US 14.9 US 10.3 New Zealand 14.1 Pacific Islands 9.6 Japan 5.3 Japan 4.4 Singapore 5.1 New Zealand 4.1 Taiwan 3.1 a Reserve Bank of Fiji, Quarterly Review. b IMF, International Financial Statistics. c World Bank, Global Development Finance.
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Quarterly indicators
1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Government finance (F$ m) Total revenue & grants 232.7 519.7 194.5 262.1 274.6 255.3 234.2 n/a Income taxes 144.9 152.1 102.5 127.6 158.5 152.2 134.6 n/a Expenditure 295.2 477.6 228.3 311.7 302.2 359.5 232.4 n/a Balance –62.6 –42.0 –33.8 –49.6 –27.6 –104.2 1.8 n/a Prices Consumer prices (1995=100) 113.6 115.1 115.7 115.3 113.9 114.4 114.8 116.3 % change, year on year 7.1 8.5 5.7 2.8 0.3 –0.6 –0.8 0.9 Financial indicators Exchange rate F$:US$ (av) 2.055 1.981 1.966 1.967 1.971 1.974 2.016 2.095 F$:US$ (end-period) 2.045 1.986 1.998 1.980 1.959 1.966 2.043 2.078 Interest rates (%) Bank (end-period) 2.50 2.50 2.50 2.50 2.50 2.50 2.50 15.00 Deposit (av) 2.15 1.93 1.46 1.23 1.08 1.18 0.98 0.84 Lending (av) 9.50 9.24 9.11 8.82 8.63 8.51 8.37 8.36 Money market (av) 1.42 1.29 1.26 1.25 1.29 1.26 1.35 4.13 Treasury bill (av) 2.06 2.00 2.00 2.00 2.00 2.00 2.00 5.00 M1 (end-period; F$ m) 479.1 493.9 531.7 511.4 539.1 694.5 575.3 529.1 % change, year on year 0.8 10.9 18.9 8.8 12.5 40.6 8.2 3.5 M2 (end-period; F$ m) 1,372.2 1,353.8 1,399.5 1,361.8 1,395.5 1,546.1 1,471.6 1,437.8 % change, year on year –2.2 –0.3 3.0 0.0 1.7 14.2 5.2 5.6 Sectoral trends Sugar exports (‘000 tonnes) 85.9 114.3 47.1 15.6 161.1 144.9 20.4 n/a Tourism Visitor arrivals ('000) 107 93 86 102 119 104 95 n/a Length of stay (av; days) 9.2 7.9 8.1 8.2 9.0 8.0 8.1 n/a Gross earnings (F$ m) 160 112 106 130 170 136 n/a n/a Foreign tradea (US$ m) Exports fobb 138.9 201.2 179.7 149.7 166.3 197.0 190.9 n/a Imports cif –209.2 –221.7 –179.9 –263.0 –297.8 –253.1 –189.0 n/a Trade balance –70.3 –20.5 –0.2 –113.3 –131.5 –56.1 1.9 n/a Foreign payments (US$) Merchandise trade balance –105.6 –66.8 –33.7 –34.2 –26.7 n/a n/a n/a Services balance –16.2 –14.4 –13.2 –7.2 –8.6 n/a n/a n/a Income balance 13.6 0.6 4.5 6.8 15.6 n/a n/a n/a Current-account balance –91.4 –53.8 –17.7 –7.0 6.7 n/a n/a n/a Reserves excl gold (end-period) 340.6 385.4 407.6 385.6 391.6 428.7 412.5 397.4 a DOTS estimates b Includes re-exports.
Sources: ISO, Statistical Bulletin; Fiji, Bureau of Statistics; IMF, International Financial Statistics; IMF, Direction of Trade Statistics; Reserve Bank of Fiji, Quarterly Review.
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Outlook for 2000-01
Turning back the clock by The events that deposed the elected government in May are likely to set the a decade? country back by at least a decade in economic terms, perhaps more in social terms. The new, interim government projects a contraction of the economy this year of 15% (see Economic policy and the economy), an outcome that needs to be considered against the fact that there was robust growth until May 19th, when a gang of armed terrorists led by George Speight, invaded the parliament and took the government hostage (see June 2000). (The South Pacific Forum Secretariat is rather less pessimistic about growth prospects this year—see The region).
Having been released from captivity after seven weeks, the deposed prime minister, Mahendra Chaudhry, leader of the Fiji Labour Party, has visited Australia, New Zealand, India, Britain, the European Parliament and the US seeking support for the early restoration of democracy. Just what form this restoration will take is not yet clear. Fiji’s principal trade and development partners have shown a willingness to let the government establish itself before redefining relationships, including the final shape of sanctions. There is no doubt, though, that relationships will be downgraded and sanctions will be imposed. Those international partners, largely defined by Mr Chaudhry’s itinerary, all seek to minimise the impact of their actions on the ordinary people of Fiji, but pain cannot be avoided entirely, and the level existing already is very high.
The interim government The interim government has struggled to establish credibility since the first struggles for credibility announcement of its creation. The first attempt at assembling it was stymied by Mr Speight and his supporters (see The political scene). Subsequent reviews of the personnel have produced a slightly more rounded ministry (one Indo- Fijian assistant minister, one Euro-Fijian assistant minister and one former minister from the Chaudhry government), but key foreign governments are unimpressed by the government’s make-up and, particularly, its views on a return to democratic government.
Initially, the military and then the interim civilian government spoke of a three-year time frame to draft a new constitution and hold fresh elections. That seems to have been whittled back to two years but Australia and New Zealand have said bluntly that that this is too long. These two countries’ views are important because the US is taking its lead from them quite overtly, and the EU is following them in a more tacit fashion.
The biggest concern with regard to the EU is the sugar trade. Fijian bureaucrats have been working frantically on a submission to the European Commission to try to preserve preferential price and access arrangements. With Australia, the concern is to maintain preferential treatment for the garments industry, which is unlikely. With all of them, investment and tourism are important considerations. The interim government has relaxed most aspects of foreign investment policy, including the grant of work permits and residence permits, to coax investors. The tourism industry, brought to its knees by the long-running crisis, is having some success by slashing travel and accommodation prices.
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The government may never In truth, credibility for the government is almost an impossible goal. It has be credible none with the domestic Indo-Fijian population (44% of the total), for obvious reasons. The interim prime minister, Laisenia Qarase, said publicly that no Indo-Fijian he approached was prepared to serve; and those who might have been considered have denounced the commission set up to draft a new constitution as a racist fraud. (As noted above, a reshuffle of the government has changed this position slightly.) Mr Qarase has stated his belief many times that only indigenous Fijians should be entitled to become president or prime minister.
Perhaps even more seriously, in terms of stability, the government has little standing with indigenous Fijians, who are now riven by traditional and regional animosities that are being fanned by many of their chiefs. Few informed observers regard Mr Speight as an instigator. Rather, he was an eleventh-hour recruit as a front man for other forces. Interesting questions surround the role of the police commissioner, Isikia Savua, who has been the subject of a formal inquiry by chief justice, Sir Timoci Tuivaga, beginning in September. However, Mr Savua has not been placed in custody and has not faced a treason charge—instead he is being investigated for possible breaches of civil service regulations. The outcome of the inquiry will also not be a determination by the judge but a report to the president, who will decide on any further action. It has been alleged that Mr Savua had prior knowledge of plans to destabilise the country, had demonstrated incompetence and ineffective leadership as the police commissioner and had engaged in political activities incompatible with his official duties.
The judiciary is also being asked to decide a fundamental question bearing on the credibility of the government. The People’s Coalition, Mr Chaudhry’s former government, issued proceedings in the High Court in August seeking an order, among others, that its dismissal was illegal. The president, Ratu Josefa Iloilo, former president, Ratu Sir Kamisese Mara, the chief justice, military commander, Commodore Voreqe Bainimarama and attorney-general, Alipate Qetaki, were all named as respondents to a writ filed in Lautoka on August 15th. The writ alleged that Ratu Mara acted unlawfully and unconstitutionally when he prorogued parliament and appointed an acting prime minister after the government was taken hostage; that the abrogation of the 1997 constitution was unlawful; that the military commander had no legal power to usurp the parliament by declaring himself interim head of government when declaring martial law and that laws and decrees he promulgated were invalid; and that Ratu Josefa Iloilo’s appointment as president was invalid. The writ cited the chief justice for breach of statutory duty and claimed a range of damages for wrongful capture, arrest and detention. There has been no indication of when a hearing may proceed.
Legal issues bedevil the Many of these issues will bedevil the government for months (at least) to government come. The legal questions are taken seriously and are likely to involve a host of international advocates when they come to hearing. A crucial point will be the decision of Ratu Mara to decide that his ministers, held hostage, were not able to offer him advice and could therefore be dismissed and replaced. The ranks of the judiciary, especially at appellate level, have been depleted by protest
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resignations and replacements will be difficult in current circumstances. The government, lacking resources and managing what is essentially a holding pattern, is surrounded by issues of far greater import than it can handle. It is composed of a peculiar mix of technocrats and ideologues, with a brief from the military to pursue policies that are demonstrated failures. Above all, it is presiding over a series of communities that are angry or frightened, cynical and, in many cases suffering serious disadvantage. This is the core of the argument for new elections as quickly as possible.
The political scene
First attempt at an interim As discussed in our previous report (June 2000, page 15), armed men seized government is abandoned control of the House of Representatives on May 19th, and their leader, George Speight, attempted to revoke the constitution. With the military commander and head of the interim military government, Commodore Voreqe Bainimarama, having broken off direct negotiations with Mr Speight and his group in June the hostage crisis dragged on. Commodore Bainimarama prepared to hand over to an interim civilian government, that would have the tasks of drafting a new constitution and preparing for fresh elections under it. The Speight group “rejected” an interim civilian government appointed by the military on July 3rd because its nominees were not included. Mr Speight threatened nationwide violence unless his group had its way. The scheduled swearing-in of the government was abandoned without a public explanation.
The military finally decided to remove the hostage issue before moving to the next stage. On July 9th, as head of the interim military government, Commodore Bainimarama signed an agreement with Mr Speight dubbed the Muanikau Accord, providing for the release of the hostages, amnesty for the hostage takers and the reinstatement of rebel soldiers, conditional upon the return of all arms and ammunition to the military, and the convening of the Great Council of Chiefs to elect a president and vice-president.
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The Great Council of Chiefs The remaining 27 hostages (some of the original 38 had been released earlier) elects a president were duly released on July 13th, as the Great Council Chiefs convened. A huge cache of weaponry was handed over but the military confirmed immediately that it was less than had been stolen from their armouries by rebel soldiers in May, thus casting doubt over the amnesty agreement. The chiefs elected as president the former vice-president, Ratu Josefa Iloilo, who had already been endorsed by the Speight group. Ratu Jope Seniloli was elected vice-president.
Efforts to form a civilian government resumed, with the Speight group supporting Adi Samanunu Talakuli Cakobau for prime minister. A descendant of Ratu Seru Cakobau, who ceded Fiji to Great Britain in 1887, she had returned from her post as high commissioner to Malaysia to lobby for the prime ministership. She was not, however, the choice of the new president. On July 18th, Ratu Iloilo announced a 32-member government headed by Laisenia Qarase, a former banker and bureaucrat, who also had been the military’s choice earlier in the month. Though now lacking the leverage provided by holding hostages, a furious Mr Speight denounced the appointments and again “rejected” the government. He predicted widespread civil unrest and violence, possibly a coup. In the following days there were, in fact, many violent incidents around the country, including hostage taking and the takeover of tourist resorts.
Mr Speight is arrested On July 26th, Mr Speight renewed his denunciation of the government, warning this time that the president’s safety could be jeopardised by a violent reaction. The military finally lost patience. That night, Mr Speight’s car was stopped at a military checkpoint near the school well after curfew and he was taken into custody, along with his media adviser, Joe Nata, legal adviser, Tevita Bukarau, and a bodyguard, Ireli Cakau. At dawn next morning troops stormed a school occupied by his supporters and expelled the occupants. One person died from the effects of tear gas and 32 received hospital treatment for injuries. By the end of the day, 369 Speight agitators in the Suva region had been arrested. The number rose next day with the detention of those regarded as the real powers in the Speight exercise—the retired Colonel Ilisoni Ligairi, who organised the supply of arms and the military defections to the Speight group; Metuisela Mua, head of the Intelligence Service, who is believed to have been a key planner; Major Josefa Savua, the police commissioner’s brother and Ratu Timoci Silatolu, an opposition MP who was the initial nominee of the Speight group for prime minister.
To leave no doubt that its “softly-softly” approach had ended, the military issued a statement saying it that its attempts to ensure an environment that was safe and secure had been undermined by the tactics of George Speight and his supporters, and implied again that the initial amnesty decree may have been nullified by the Speight group’s failure to return all military weapons. The statement also suggested for the first time that the threat to the president’s safety could warrant a charge of treason.
President Iloilo changes the The move against Mr Speight coincided with a further review of the make-up government’s composition of the government by President Iloilo. In a national broadcast he said that one reason for further change was the emergence of growing division within the
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indigenous Fijian community. The paramountcy of Fijian interests would always be a guiding principle of governance, he said, but Fiji was a multi- ethnic and multicultural nation that must always have a government that protected the rights and freedoms of all citizens.
The president’s relatively minor changes broadened the complexion of the government a little but ignored a proposal from the People’s Coalition, the four-party group that constituted the previous Chaudhry government. On behalf of the coalition, the former deputy prime minister, Tupeni Baba, said the interim government had no mandate from the people and effectively disenfranchised the Indo-Fijian community, which was about 44% of the population. It was, in effect, an open invitation to the international community to impose further sanctions on Fiji. He said the coalition had submitted a proposal on July 20th for the formation of a government of national unity, as provided for in the 1997 constitution, but had had no response. However, one member of the Chaudhry cabinet, Ratu Tevita Momoedonu, who was minister for labour and industrial relations, joined the interim government with the same portfolio.
Economic policy and the economy
A mini-budget makes dire The finance minister in the interim government, Ratu Jone Kubuabola, a predictions former central banker, released a mini-budget shortly after taking office in which he forecast that the economy would probably contract by 15% in 2000. Such an outcome would take the output back to its 1991 level. The minister said that because of the political crisis, revenue was likely to be F$146m (US$67.5m) less than was projected in the 2000 budget, mainly because of lower income tax payments (since so many people had lost their jobs), and lower import duties because of trade bans. The government would not raise taxes because so many people were already burdened by unemployment or massive pay cuts. Instead, it would seek to improve tax collection mechanisms and cut its expenditure by F$103m. Salaries and wages of government employees have been cut by 12.5%, operating grants by 20%, other operating payments by 30% and capital expenditure by 30%.
Sugar production offers a In its review of events to the first week of August, the Reserve Bank of Fiji (RBF, glimmer of hope the central bank) observed that growth prospects for the domestic economy had “substantially deteriorated” following the onset of the political crisis. Major declines were forecast for the manufacturing, mining and quarrying, electricity, building and construction, trade and hotels, and transport and communications sectors. Nevertheless, the outlook for sugar production remained unchanged. The Fiji Sugar Corporation projected a cane crop of more than 4m tonnes, expected to yield more than 450,000 tonnes of sugar. At July 17th, the cane harvest had reached 433,819 tonnes, sugar production was 39,316 tonnes and molasses production 14,565 tonnes. The bank also noted that preliminary figures for June from Airports Fiji Ltd showed a 67.9% drop in arrivals compared with June 1999.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 20 New Caledonia
New Caledonia
Political structure
Official name New Caledonia
Form of state Largely autonomous territory within the French state, except in such areas as foreign relations, defence, justice, currency and credit. The Nouméa Accords, signed in May 1998, provide for the devolution of power to New Caledonia. They were approved in a referendum in November 1998; a further referendum on complete independence will follow 20 years from that date
The executive The High Commissioner of the French Republic in New Caledonia, Wallis and Futuna, Thierry Lataste
Head of state President of France, Jacques Chirac
Territory legislature The Territorial Congress, comprising the combined elected membership of the three provincial assemblies (15 members from the Northern Province, 32 members from the Southern Province and seven members from the Province of the Loyalty Islands). Members are elected for terms of six years by universal suffrage.
Local government In addition to the three provincial assemblies, there are 32 basic local government units known as communes
Legal system French-pattern, augmented by mandatory consultation with the Advisory Council on Custom (Conseil coutumier territorial, comprising 40 members drawn from the eight custom areas) in matters of customary and land law. Magistrates preside over the decentralised lower courts. The Court of Appeal is based in Nouméa and there is access to the higher appeal court of France in certain matters
National elections July 1995; provincial elections, May 1999
National government The mayor of Nouméa, Jean Leques, became New Caledonia’s first president following the May 1999 provincial elections. The government is dominated by the RCPR, headed by Jacques Lafleur, which won 24 of the 54 seats in Congress and took seven of the 11 cabinet seats. FLNKS, led by Rock Wamytan, took four cabinet posts
Main political organisations The two main groupings are the Rassemblement pour la Calédonie dans la République (RPCR) and the Front de libération nationale kanak socialiste (FLNKS). The RPCR, affiliated with the Rassemblement pour la Calédonie dans la République (RPR) in France, comprises the Centre des démocrates sociaux (CDS) and the Parti républicain (PR). It is allied with the Fédération des comités de coopération indépendantistes (FCCI). FLNKS comprises the Union calédonienne (UC), the Parti de libération kanak (Palika), the Parti socialiste kanak (PSK) and the Union progressiste mélanésienne (UPM). Une nouvelle- Calédonie pour tous (UNCT) has wide support in Nouméa, as does the Union nationale pour l’indépendance. The Rassemblement démocratique océanien (RDO) is strong in Wallis and Futuna, as is the Libération kanak socialiste (LKS) in the Loyalty Islands
President of executive government Jean Leques (RPCR) President of the Northern Province Léopold Jorédié (FCCI) President of the Southern Province Jacques Lafleur (RPCR) President of the Loyalty Islands Nidoïsh Naisseline (LKS) President of the Territorial Congress Pierre Frogier (RPCR) Vice-president Richard Kaloï (UC) Deputies to the French Assemblée nationale Jacques Lafleur (RPCR) Pierre Frogier (RPCR) Representative to the French Senate Simon Loueckhote (RPCR)
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Economic structure
Annual indicatorsa
1994 1995 1996 1997 1998 GDP at current prices (CFPfr m) 306,748 329,296 335,482 343,869 336,992 Real GDP growth (%) 2.6 5.9 0.5 0.5 3.5 Consumer price inflation (av; %) 2.0 1.6 1.7 2.0 1.5 Population (‘000) 187 192 197 200 204 Exports fob (US$ m) 413.2 532.5 533.5 544.7 n/a Imports cif (US$ m) 865.0 902.8 964.2 931.1 n/a Exchange rate (av; CFPfr:$) 100.9 90.7 93.0 106.2 99.9
September 1st 2000 CFPfr133.88:US$1
Origins of gross domestic product 1996 % of total Agriculture 3.5 Mining & metallurgy 10.2 Construction & energy 5.0 Miscellaneous industries 4.0 Transport & communications 6.7 Commerce 43.9 Other services 26.7 GDP at market prices 100.0
Principal exports fob 1996 US$ m Principal imports cif 1996 US$ m Ferro-nickels 212 Machinery, appliances & electrical supplies 180.3 Nickel ore 76 Foodstuffs 179.7 Foodstuffs & animal products 9 Minerals & chemicals 174.0 Metal & metal products 1 Vehicles & spare parts 170.7 Total incl others 502 Total incl others 1,000.9
Main destinations of exports 1997b % of total Main origins of imports 1997b % of total Japan 35.7 France 53.1 France 29.6 Australia 18.9 US 13.6 Singapore 6.6 Taiwan 8.6 New Zealand 5.2 Australia 7.0 Japan 3.8 a Bank of Hawaii, New Caledonia Economic Report, June 1999. b Derived from trading partners’ records; subject to a wide margin of error.
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Outlook for 2000-01
French domestic politics The French government and legislature has made unprecedented efforts, threaten to stall progress including changes to the constitution of France, to provide means to resolve the political conflict that led to a situation approaching civil war in the 1980s. Now, the success of those efforts may depend crucially on the outcome of a change in a junior ministry in the French government, prompted not by events in the Pacific, but by policy on autonomy for Corsica. The departure of Jean-Jack Queyranne from the position of overseas minister in the French government (see The political scene) comes at a crucial time in the implementation of the Nouméa Accord that will decide eventually whether New Caledonia becomes independent or a part of France.
Most major issues now come down to contention between the anti- independence Rassemblement pour la Calédonie dans le République (RPCR), led by Jacques Lafleur, president of the Southern Province, and the pro- independence Front de libération nationale kanak socialiste (FLNKS), a coalition led by Rock Wamytan, and supported by the other two provinces (Northern and Islands). That situation is not helped by the fact that Mr Lafleur’s metropolitan political allegiances are with the French president and Mr Wamytan’s with the French prime minister. In Mr Lafleur’s view, now made public (see The political scene), that means he will be victimised, despite his considerable local power. Mr Lafleur’s decision to spell out in public his grievances against the French government and simultaneously denigrate its local instruments of power is extremely worrying. Mr Lafleur says he is being persecuted through the courts because of the policies of the party he has led for so long. At the same time he has used the situation to emphasise his apparent irreplaceability and his threat to resign from the French national assembly may come to be seen in that context.
On the other side of local politics, Mr Wamytan faces very different problems. Mr Wamytan is a high chief, with accompanying status, but from the Nouméa region, dominated by the Caldoche and Mr Lafleur’s RPCR. In his pro- independence coalition and his own party Mr Wamytan is confronted by a younger generation of activists from the Northern and Islands provinces who want progress towards independence to be sooner rather than later, as prescribed potentially in the Nouméa Accord. Mr Queyranne’s successor, the relatively inexperienced Christian Paul, has a steep learning curve to navigate.
The economic outlook remains dependent on two factors: how much money France is prepared to plough into New Caledonia, in order to function independently, and the prospects for nickel prices. France has already moved to sell its interests in the nickel industry (see Economic policy), transferring the proceeds to a new company owned equally by Southern and Northern and Islands development companies. The delicate question of how to split funds between the constituent parts of New Caledonia is likely to recur. The prospects for nickel prices are mixed: we forecast a price (LME cash) averaging US$4.35/lb in 2000, driven up 60% on the 1999 average by increasing world steel production. Although, the price will fall back in 2001 to an average of US$3.69/lb New Caledonia’s nickel revenue exports should be buoyed up over
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the medium term by the construction of two new nickel mines, Inco’s Goro Nickel in the Southern Province and Falconbridge’s mine in the Northern province.
The political scene
Mr Lafleur says he will The leader of Rassemblement pour la Calédonie dans le République (RPCR), resign assembly seat Jacques Lafleur, caused a stir in local politics when he announced to a press conference on August 23rd that he was resigning his seat in the French national assembly, after losing a court case that he regarded as important to his personal standing. By early September, however, he had not submitted a formal resignation or elaborated on his intentions. In local affairs, at least, he appeared to be working on a business-as-usual basis as president of the Southern Province.
The situation raises many uncertainties, including that of succession within the RPCR. It was not the first time that Mr Lafleur, aged 68, has indicated a hankering to leave front-line politics, where he has been a dominant figure for a quarter of a century, but there is no clear successor in the party. Indeed, nobody claims the role openly for fear of being seen as disloyal. His dominance is such that when he announced his intention to resign, New Caledonia’s other national assembly member, Pierre Frogier, and the sole senator, Simon Loueckhote, both RPCR members, immediately declared that their futures were also in his hands. They would resign if it was necessary and if Mr Lafleur asked them to do so.
Clearly, no successor could inherit Mr Lafleur’s status in politics, which is reinforced by his wealth and vast business interests. The more pertinent question may be whether the RPCR could maintain its status without him. A special meeting of the party, called two weeks after the resignation threat, implored Mr Lafleur to stay on. A succession of high profile speakers declared, in effect, that he was irreplaceable. Mr Lafleur asked for time to consider.
Court case prompts tension Whatever the outcome of the resignation threat, the angry outburst that with Paris produced it revealed some serious tensions between Mr Lafleur, the local administration and the government in Paris. The court case arose from a dispute between Mr Lafleur in his role as provincial president and Bruno van Peteghem, president of a small neighbourhood group in a waterfront suburb of Nouméa. The group opposed provincial government plans to build a residential complex near them and when the project went ahead Mr van Peteghem publicly demanded that it be scrapped and compensation paid to the residents who were affected. In October 1999 Mr Lafleur wrote a letter on the matter, published by two newspapers, in which he denigrated Mr van Peteghem. Mr van Peteghem took successful action for slander and Mr Lafleur was fined CFPfr2m (US$15,000). Mr Lafleur appealed, but the conviction was upheld by the New Caledonia court of appeal on August 22nd and the penalty increased threefold.
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At his press conference next day, Mr Lafleur said the judicial system in New Caledonia was “gravely dysfunctional”. He criticised the judges and talked of intimidation. He widened the target zone by claiming he had resisted various pressures and threats from Alain Christnacht, a former French high commissioner, now special adviser to the French prime minister, Lionel Jospin. He and the former French overseas minister, Jean-Jack Queyranne (see below), have angered the RPCR in private meetings of the parties to the Nouméa Accord by supporting the Front de libération nationale kanak socialiste (FLNKS) position on collegiality (see June 2000, page 26).
Mr Lafleur said that he would call upon Mr Jospin and his government to conduct an inquiry into New Caledonia’s judicial system and implied that his nephew Henri, the deputy mayor of Nouméa, also had suffered judicial bias in a case brought by Mr van Peteghem last year. Henri Lafleur was found guilty of improper interference in the project approval process. He was given a one-year suspended gaol sentence and two years deprivation of civic rights. Mr Frogier accused the French government of attempting to destabilise the RPCR because of its anti-independence stance and dismissed its claims to impartiality. The French high commissioner, Thierry Lataste, defended the government’s position and denied that it had placed any pressure on the party.
Internal conflict prompts The executive committee of New Caledonia’s oldest political party, Union the UC to rethink calédonienne (UC), has embarked on a comprehensive review of its charter and internal processes because of the emergence of serious divisions within it (see June 2000, page 28). The process was initiated at a meeting at the end of July and will be completed at the party congress in November. UC is the largest constituent of the FLNKS coalition and Mr Wamytan is leader of both.
Mr Queyranne will be The French overseas minister, Mr Queyranne, who has been a critical figure in sorely missed political developments for the past three years, has been removed from the scene in a ministerial reshuffle in Paris. The French prime minister, Lionel Jospin, was forced to make the changes at the end of August after his home affairs minister, Jean-Pierre Chevènement, resigned because of their differences over Corsican autonomy. Mr Chevènement was replaced by Daniel Vaillant, who had been minister responsible for relations with the parliament within the home affairs portfolio. He, in turn, was replaced by Mr Queyranne. The new overseas minister is Christian Paul, aged 40, member for the Nièvre department in the east of France, and a protégé of the prime minister. Elected only in 1997, he is having his first experience as a minister after establishing a reputation for expertise in Internet and e-commerce issues.
Loyalty Islands elections New elections on June 25th for the legislature of the Loyalty Islands Province produce no change produced no change in the overall political balance or the province’s representation in the New Caledonia congress. The provincial election held in May last year, along with those for the other provinces, was annulled by the state council in Paris this year on the basis of irregularities in the handling of proxy votes. The province groups the islands of Lifou (8,304 registered voters), Maré (4,806) and Ouvéa (3,441). Three groups of candidates contested the election, reflecting the country’s broader political divisions. In one group,
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RPCR and Fédération des comités de coopération indépendantistes (FCCI) joined with Libération kanak socialiste (LKS) and Front uni de libération kanak (FULK). The other groups were two constituents of the FLNKS, Palika (Parti de libération kanak) presenting one list of candidates and UC/Front libération nationale (FLN) the other. Though standing separately to emphasise their identities, the FLNKS members agreed in advance to work together after the election.
RPCR/FCCI won six seats, UC/FLN won six and Palika won two. The first seven members elected to the provincial assembly also become members of the congress, giving three seats to RPCR/FCCI, three to UC/FLN and one to Palika. With the congressional balance unchanged, Simon Loueckhote, an RPCR member of the French senate, was subsequently re-elected to the chair, defeating the FLNKS nominee, Richard Kaloï, by 33 votes to 18.
Two weeks after the provincial election results were declared, the RPCR-led ticket lodged another complaint to the state council about the handling of proxy votes, seeking another annulment. A ruling is not expected for several months.
Economic policy and the economy
Industrial relations plan In August the government published a 20-page draft document that it called a unveiled “social pact” aimed at reducing the industrial conflicts that marked the first half of this year and addressing some of the social issues associated with them. The document is the product of months of negotiation between the major political parties, employers and unions, and organisations involved in social welfare.
The draft proposes a minimum wage of CFPfr100,000 (US$747) a month to provide a safety net, in terms of living standards, for the “less favoured” and more specific provisions to favour locals in priority for employment. In industrial relations, the draft pact suggests the maintenance of a minimum level of essential services, such as air and sea transport, in the event of strikes, along with proposals for third-party mediation and “preventive dialogue” during a compulsory five-day notice period before strike action begins. Social security authorities estimated that about 20% of workers would benefit from the minimum wage proposal and early responses from unions have been positive.
Agreement on nickel In late July, agreement was finally reached on the transfer to local ownership of interests transfer French government interests in the New Caledonia nickel industry (see June 2000, page 28). The concept was part of the Nouméa Accord and negotiations began in earnest in March 1999 when the French government announced its decision to sell its 54.5% holding in the resources group, Eramet, parent company of New Caledonia’s biggest nickel producer, Société le Nickel (SLN). Funded entirely by France, the deal gives New Caledonian entities 30% of SLN and an 8% interest in Eramet.
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The argument had been over which entities should be transferred and with what level of shareholding—essentially a confrontation between the Front de libération nationale kanak socialiste (FLNKS), on behalf of the Northern and Islands Provinces, and the Rassemblement pour la Calédonie dans la République (RPCR), representing the Southern Province. At a ceremony presided over by Jean-Jack Queyranne, Rock Wamytan and Jacques Lafleur signed an agreement on July 20th to formalise the transfer to a new company, Société territoriale calédonienne de participation industrielle (STCPI). STCPI is owned equally by the Southern Province (RPCR) development company, Promosud, and Nordil, a joint-venture company between the Northern and Islands Provinces (both pro-FLNKS). The agreement is that Nordil provides the STCPI chairman and Promosud the deputy chair, and that the two companies have equal representation on the boards of Eramet and SLN. In accord with the economic rebalancing set out in the Nouméa Accord, the agreement also provides that 75% of STCPI dividends go to Nordil and 25% to Promosud. The original deadline for agreement was extended to September 10th so that the parties could benefit from the latest profit results of Eramet and SLN—FFr135m in the case of Front libération nationale (FLN).
Bank of Hawaii sees good A report published in August by Dr Wali M Osman, the Bank of Hawaii’s vice- economic prospects president and international economist, said that indicators pointed to a slow pick-up in economic growth in 2000, followed by stronger growth in 2001-02 and fast growth in 2003-05. He believes that robust economic growth, 4-5% annually, would come from new infrastructure projects, mainly funded through the Nouméa Accord, and the new nickel mines when they start construction in 2002-04. Dr Osman has highlighted the need for prudent planning and provision of sufficient reserves for unexpected and prolonged nickel price declines.
Exports reach a ten-year The value of exports for the first six months of 2000 reached CFPfr34.5bn high (US$258m), according to Institut territorial de la statistique et des études économique (ITSEE) figures released in August. Driven by the continuing strength of world nickel prices, the export outcome was an astonishing 71.4% higher than for the first half of 1999 and the best for a decade. ITSEE observed that the nickel industry accounted for 90.7% of the total value of exports. Compared with the disastrous first half of 1999, the nickel metal price was 82% higher, ferro nickels were up 71.7% and mattes 90.5%. The fisheries sector contributed 8% of export earnings, with a value of CFPfr1.2bn in the first half. Shrimp exports reached 914 tonnes, beche de mer (sea cucumber) 35 tonnes and trochus shell (used to make buttons) 33 tonnes.
Despite the strong export performance, SLN apologised for a poor first half, caused by recurring industrial troubles at its mines. In early August, the company’s main wharf in Nouméa was paralysed for several days by a strike by workers demanding improved safety conditions and a reduced workload.
Congress approves new In July the congress used its new authority to make “country laws” to approve import taxes tax reform legislation to take effect from September 1st. With the objective of minimising tax avoidance, a new 11% rate of taxe générale à l’importation
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 New Caledonia 27
(TGI) is imposed on imported “luxury” goods such as clothes, shoes, perfumes and toiletries, watches, portable electronic appliances and video games. With the promised rigorous implementation it could generate revenue of CFPfr1.8bn a year, according to local business organisations. They say that Caledonians habitually buy such items when overseas but rarely declare them. An 11% tax also will be applied to imported goods and materials used for cultural and sporting purposes, ranging from musical instruments to gliders, parachutes and bicycles. The proceeds will be used to introduce more young Caledonians to cultural and sporting pursuits.
A 21% TGI will apply to most non-food imports and goods with the potential for both personal and professional use. The maximum rate of 31% will apply to fuels, alcoholic beverages, tobacco products, firearms, cut flowers and jewellery (with the exception of French Polynesian cultured pearls, which are taxed at 6%). Most of these items were previously covered by separate tax and tariff regimes. Most imported foodstuffs are taxed at the 11% TGI rate, but there are two other categories based on local consumption patterns: a 4% rate for “impulse buying” items such as chocolate and confectionery, biscuits and soft drinks; and a 26% rate on fruit juice. There are TGI exemptions for most business inputs, including packaging materials.
Two new taxes protect Two new taxes were introduced to protect local industry—TBI (taxe de base à local industry l’importation) and TCPPL (taxe conjoncturelle pour la protection de la production locale). TBI of 5% replaces a previous “special” tax that was levied at 2.5%. It applies to all imported goods with the exception of milk (including soy milk), rice, wheat and flour, sulphur, vaccines, coal, defence materiel, agricultural machinery, fishing boats and merchant vessels, and any items exempted from the TGI. The TCPPL will be an additional 5% levy on any imported item for which there is a locally produced equivalent.
Mobile phones boost OPT The introduction of new services based on mobile phones helped the Office of revenue Post and Telecom (OPT) to a 14% increase in turnover in the financial year to end of December 1999. Telecommunications turnover rose by more than 18%. OPT announced at the end of June that net profit for the year was CFPfr2.1bn, CFPfr559m (US$4.2m) higher than the previous year. It attributed the strong result to aggressive marketing and tight cost control. It lifted the number of mobile users from 13,040 at the end of 1998 to 21,227 at the end of 1999. OPT said it had invested a further CFPfr5bn in infrastructure and equipment during the year.
OPT signed an agreement with Vodafone New Zealand in July providing compatability between their mobile phone networks. It already had such agreements with the three mobile operators in France and expects to conclude one this year with Australian operators.
Good and bad news for France’s team for the Sydney Olympics began arriving in Nouméa at the end of tourism August for their final preparations. Their two-week presence, along with a large media contingent, was expected to give New Caledonia tourism a big fillip in the French market. Most national teams for the Olympics chose various Australian locales for their final preparations, but the choice of Nouméa was
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 28 New Caledonia
supposed to allow the French athletes to overcome a nine-hour time zone difference in a French-speaking environment only two hours flying time from Sydney. The team used a series of new or upgraded facilities in the beachside suburb of Anse Vata, to which the French Ministry of Sports contributed CFPfr70m in the past three years.
Bad news for tourism was the withdrawal in July of the cruise liner Norwegian Star, which had made regular calls to Nouméa, Lifou to the north and Isle of Pines to the south, for the previous 18 months. The four-star liner, with a capacity for 840 passengers, is being redeployed to Asia, operating from either Singapore or Hong Kong.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Samoa 29
Samoa
Political structure
Official name Independent State of Samoa
Form of state UK-style cabinet government
The executive The prime minister, chosen by a majority in the Fono (parliament), selects 12 ministers to form a cabinet; cabinet decisions can be reviewed by the Executive Council, which consists of the cabinet and the head of state
Head of state HH Malietoa Tanumafili II until his death, when a successor will be elected by the Fono for a five-year period
National legislature Unicameral, 49-member Fono; 47 members are elected by all Samoans aged 21 or over to represent 41 constituencies, while the remaining two are elected from the electoral rolls made up of non-Samoans; elections are held every five years
Legal system System of lower courts leading to Court of Appeal at apex
National elections April 26th 1996; next election due by April 2001
National government The Human Rights Protection Party (HRPP), led by Tuilaepa Sailele Malielegaoi, holds 37 of the 49 seats in the Fono
Main political parties Human Rights Protection Party (HRPP); Samoa National Development Party; Samoa All Peoples’ Party
Prime minister & minister of finance (also responsible for foreign affairs, posts & telecommunications) Tuilaepa Sailele Malielegaoi
Key ministers Audit, internal affairs, government broadcasting & publications Leni Tofaeono Anvamgalo Agriculture, forestry, fisheries & meteorological services Solia Papu Vaai Education Fiame Naomi Mata’afa Health Misa Telefoni Retzlaff Justice Molio’o Teofilo Vaeluaga Labour Polataivao Fosi Schmidt Lands, surveys & environment Tuala Sale Tagaloa Kerslake Public service, inland revenue & customs Gafa Ioelu Elisaia Transport, trade, commerce & industry Hans Joachim Keil Women’s affairs & statistics Leituala Tone Tuuaga II Works, electricity, water & housing Matataualititia Afa Lesa Youth, sport & cultural affairs Leota Lu II
Central Bank governor Papalii Scanlan
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 30 Samoa
Economic structure
Annual indicators
1995 1996 1997 1998 1999 GDP at current pricesa (Tala m) 474.6 542.1 595.1 614.9b n/a Real GDP growtha (av; %) 6.8 6.1 1.6 2.6b 4.0b Consumer price inflationc (av; %) -3 5.4 6.8 2.2 0.3 Populationc (m) 0.17 0.17 0.17 0.17 0.17 Exports fobc (US$ m) 8.75 10.1 14.57 20.33 20.44 Imports fobc (US$ m) 80.22 90.88 99.7 96.59 115.13 Current-account balancec (US$ m) 9.33 12.28 9.13 20.09 n/a Reserves excl goldc (US$ m) 55.31 60.8 64.21 61.42 68.20 Total external debtd (US$ m) 170.4 166.9 156.3 n/a n/a Debt-service ratio, paidd (%) 4.3 4 3.9 n/a n/a Exchange ratec (av; Tala:US$) 2.472 2.462 2.556 2.943 3.012
September 1st 2000 Tala3.0893:US$1
Origins of gross domestic product 1997a % of total Agriculture & fishing 17.3 Food & beverage manufacturing 5.8 Other manufacturing 13.1 Electricity & water 2.5 Construction 5.4 Transportation, restaurants & hotels 13.5 Government & other services 16.5 Nominal GDP 100.0
Principal exports fobe 1997 US$ m Principal importse 1996 % of total Fresh fish 4,822 Intermediate goods 50.5 Coconut oil & cream 4,512 Industrial supplies 26.4 Copra & copra meal 3,295 Consumption goods 38.1 Beer 627 Food & beverages 26.0 Kava 581 Capital goods 11.4 Total incl others 14,652 Transportation equipment 3.8
Main destinations of exports fob 1997e % of total Main origins of imports 1997e % of total American Samoa 32.1 New Zealand 37.9 Australia 23.0 Australia 20.7 New Zealand 15.6 US 15.6 US 9.0 Fiji 15.0 Germany 2.1 Japan 4.5 a IMF, Western Samoa—Recent Economic Developments, Statistical Appendix. b Official estimates. c IMF, International Financial Statistics. d World Bank, Global Development Finance. e IMF, Samoa: Statistical Appendix, April 1999.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Samoa 31
Quarterly indicators
1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Consumer prices (1995=100) 115.7 114.4 n/a n/a n/a n/a n/a n/a % change, year on year 0.0 1.7 n/a n/a n/a n/a n/a n/a Financial indicators Exchange rate Tala:US$ (av) 3.059 2.999 2.951 3.312 3.052 3.055 3.108 3.219 Tala:US$ (end-period) 3.074 3.010 2.989 3.019 3.036 3.018 3.131 3.206 Interest rates (av; %) Deposit 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 Lending 11.5 11.5 11.5 11.5 11.5 11.5 11.5 11.5 M1 (end-period; Tala m) 57.36 66.53 59.30 68.07 73.16 80.32 73.87 81.95 % change, year on year 3.1 –10.7 10.6 26.0 27.5 20.7 24.6 20.4 M2 (end-period; Tala m) 200.04 210.20 206.09 214.77 227.67 236.37 235.79 242.51 % change, year on year 6.0 2.2 7.0 9.1 13.8 12.5 14.4 12.9 Foreign trade (Tala ’000) Exports foba 11,801 10,464 10,437 15,070 20,885 15,303 10,211 9,891 Imports cif –76,551 –87,382 –108,032 –73,995 –75,367 –89,371 –74,517 –73,179 Trade balance –64,750 –76,918 –97,595 –58,925 –54,482 –74,068 –64,306 –63,288 Foreign reserves (US$ m) Reserves excl gold (end-period) 60.84 61.42 55.09 62.24 65.05 68.20 62.51 65.13 a Includes re-exports.
Source: IMF, International Financial Statistics.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 32 Samoa
Outlook for 2000-01
Good economic prospects, Samoa’s economic prospects remain good, if nature remains benign. At the nature permitting beginning of the 1990s the economy was reeling from the effects of devastating cyclones in successive years, indifferent management and a disastrous performance by the national airline. Since then, there has been no natural disaster, governance has improved and Air Polynesia has gone from strength to strength.
In truth, an economy so small needs an element of luck, as well as good management, to prosper. The cyclone damage in 1990 and 1991 was such that international assistance increased substantially, creating new and more productive infrastructure to replace what had been lost. This was particularly so in Apia, the capital.
The process has had a further boost this year from the troubles in Fiji. Among Pacific Island tourism alternatives, Samoa clearly has been the main beneficiary. Demand for tourist accommodation has far out-stripped supply, refocusing the attention of investors and local entrepreneurs to an extent that might not have been possible otherwise.
The latest official budget projects growth rates in the medium term of 3-4%, with low inflation and promises a degree of fiscal discipline to keep the international institutions happy. Foreign-exchange earnings from tourism are likely to reach record highs this year because of Fiji’s misfortune and remittances from Samoans overseas should again exceed Tala100m (US$32m), the record figure of last year. Foreign aid now runs at Tala80m a year, reserves are steady and comfortably cover six months of imports.
The one serious international criticism of the country in recent times was the legislation governing its tax haven operations did not measure up to accepted standards. New laws took effect from June and Samoa was dropped from the latest list of jurisdictions susceptible to money laundering published by the Paris-based Financial Action Task Force.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Samoa 33
The political scene
New election requirement With elections expected in April 2001, there has been lively debate—in the causes controversy community as well as the parliament—over recent changes to the electoral laws. Most interest has centred on the increased residency requirement for candidates (see June 2000, page 36) from one year to three years. This is likely to disqualify some Samoans living overseas who were planning to run in next year’s elections. The prime minister, supporting the change, said some overseas Samoans returning from Australia, New Zealand and other places to run in elections were “arrogant” and “tricky”. The opposition said the change had been introduced because the governing Human Rights Protection Party (HRPP) feared that overseas Samoans did not support it.
The HRPP recruited many of the independents who won seats at the 1996 elections and as a result has a 38-seat majority in the 49-member legislature (Fono). The opposition Samoan National Democratic Party (SNDP) has nine seats and policies so similar to those of the HRPP that if finds difficulty in differentiating itself. Another smattering of independents is likely to emerge from next year’s elections but the HRPP should not be troubled to retain office. Predictions are tempered, however, by uncertainty about the fallout from the sensational murder trial that ended in April (see June 2000, page 37). Two former HRPP ministers were convicted of the murder of a serving minister, Luagalau Levaula Kamu last year after a trial that produced details of long- standing corruption in governments headed by the former prime minister, Tofilau Eti Alesana, who died in March 1999.
The current prime minister appears to have cracked down on such practices but has created some resentment within the ministry as a consequence. He has taken a substantial degree of power into his own hands and is not averse to taking important decisions with little or no consultation. A post-election challenge for the leadership would be no great surprise. The most likely challenger is the health minister, Misa Telefoni Retzlaff, a wealthy former businessman whose political ambitions have been made plain over several years.
The Fono’s budget session The last session of the Fono ended with a boycott by the opposition leader, ends on a lively note Tuiatua Tupua Tamasese Efi, at the end of June. He was angered at being dropped from the speakers’ list for the budget debate and the suspension of one of his members for using language deemed “unparliamentary” by the speaker. The member had described one government member as a “time server” and another as a “carbon copy”. Mr Tuiatua said, perhaps not wholly convincingly, that nowhere else in the world would such words be considered offensive. He said his exclusion from the budget debate, ostensibly because of the pressure of numbers, was at the prime minister’s bidding. If the speaker was not accountable to standing orders, he said, the “law of the jungle” applied.
During the budget debate, two independent members called on the prime minister to resign because of a failure to produce annual reports required by law for the period 1995-99 when he was finance minister. The prime minister rejected the suggestion, pointing out that the reports had now been tabled.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 34 Samoa
Economic policy and the economy
Business/government Much of the government’s recent economic reform emphasis has been on relations appear good expanding and strengthening the private sector and for the first nine months of this year business has enjoyed near-boom conditions. Part of the improvement has resulted from the diversion of tourist business from Fiji and is accepted as short term. However, the chamber of commerce executive secretary, John Boyle, said in August that better understanding between the government and business was an important longer-term factor. Business has been particularly pleased with the rationalisation and simplification of the tariff and income tax schedules.
More hotels are needed More than 60,000 Samoans now live abroad, mostly in Australia, New Zealand and the US and their visits to family and friends are the mainstay of the tourism industry. They constituted more than half of the 85,120 visitor arrivals in 1999, 7,000 more than the previous year. The Samoa visitors bureau estimated that the visitors spent nearly Tala126m (US$40.8m).
The tourism industry’s big problem, however, remains the shortage of hotel rooms. In the entire country there are only about 700 hotel rooms, in two sizeable hotels in Apia, on the island of Upolu, and small upmarket beach resorts elsewhere on the island. A 70-room bungalow resort was opened in September on the country’s largest and most populous island, Savai’i, which has had little attention from tourists in the past. A New Zealand company is developing two smaller resorts on the island and plans two more on Upolu. The government is trying to interest investors in a beachside site for a 300- room hotel, so far without success.
Polynesian Airlines will take delivery of its Boeing 737-800 aircraft (see June 2000, page 39) in November, replacing a smaller 737 that lacked the range for direct flights to Sydney. Air New Zealand is considering replacing 767s with 747s on its Auckland-Samoa-Los Angeles services. The increased capacity will put even greater strain on accommodation at peak times.
Shipping corporation In August the government-owned, Samoa Shipping Corporation (SSC), reports another good year reported a record profit for 1999 of Tala2m and a paid dividend of Tala250,000 (US$81,000) to its owners. It was the fifth consecutive profit after nearly 20 years of losses. SSC runs five ships, including the ferry, Lady Naomi, which operates a weekly service between Apia and Pago Pago, the capital of American Samoa. The ferry, with capacity for 220 passengers, was a US$12m gift from Japan in December 1998. Last year it carried 22,000 passengers and 3,240 tonnes of freight between the two Samoas. SSC ships carried 439,000 passengers and nearly 34,000 vehicles between Upolu and Savai’i. In February the corporation acquired an Apia engineering firm, Bruggers Industries, to expand its servicing capabilities for its own and other ships, and to provide general engineering services.
Education aims for dual The Asian Development Bank (ADB) has approved a US$7m concessional loan literacy to Samoa to support a government plan to improve schools and the education
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Samoa 35
system. An important aim of the government’s education reform proposals is to produce students who are fully literate in both Samoan and English. The education department has conducted a research study, funded by the United Nations Development Programme, to identify where English and Samoan are being used and how they are taught. It produced its report in August and a series of consultations with stakeholders subsequently began on developing guidelines for dual literacy at primary school level. The consultations involve the faculties of education, English and Samoan at the National University of Samoa, as well as the department.
Hopes rest on a new taro The Department of Agriculture released a new variety of taro in July, hoping to variety revive production in what was once a major industry. Samoa was the largest exporter of taro in the South Pacific until the industry was devastated in 1990-91 by the disease taro blight. The department has developed the new variety through its own crop improvement programmes and says it is resistant to blight.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 36 Solomon Islands
Solomon Islands
Political structure
Official name Solomon Islands
Form of state Constitutional monarchy
The executive UK-style cabinet, headed by the prime minister chosen from and by parliament
Head of state Queen Elizabeth II, represented by a governor-general who must be a Solomon Islander; Sir John Ini Lapli currently holds the position
National legislature Unicameral, 50-member national parliament; elected for four-year terms
Local government The islands are divided into eight provinces and one town council (Honiara)
Legal system English-style system; a series of lower courts exists, leading to the Court of Appeal
National elections August 6th 1997; next election due by September 2001
National government Bartholomew Ulufa’alu was forced to resign from the prime ministership in June 2000 after the armed takeover of the capital, Honiara, by elements supporting the opposition parties. Manasseh Sogavare, who had been opposition leader, was elected prime minister at a sitting of the parliament on June 30th.
Main political organisations The coalition that took power from June 30th is known as the Coalition for National Unity, Reconciliation and Peace (CNURP). It comprises members of three parties (Liberal, People’s Alliance, United) and a number of independents. Most opposition members are from the Alliance for Change coalition, the former government.
Members of cabinet Prime minister Manasseh Sogavare Deputy prime minister & minister national unity, reconciliation & peace Allan Kemakeza
Key ministers Agriculture & primary industries Moon Pin Kwan Commerce, employment & trade & indigenous business David Holosivi Culture, tourism & aviation Johnson Koli Defence & national security Vacant Education William Gigini Finance Snyder Rini Fisheries & marine resources George Luilamo Foreign affairs Danny Philip Forestry, environment & conservation Tommy Koh Chan Health & medical services Allan Paul Home affairs & ecclesiastical affairs Robins Mesepitu Lands & housing Albert Laore Mines & energy David Vouza National planning & human resource development Michael Maina Police, justice & legal affairs William Haomae Provincial government & rural development Nathaniel Waena Transport, works & communications Joses Tahua Women, youth & sports Hilda Kari
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Solomon Islands 37
Economic structure
Annual indicators
1995 1996 1997 1998 1999 GDP at current pricesa (SI$ m) 1,093 1,264 1,402 1,434 n/a Real GDP growthb (%) 6.8 0.6 –0.5 –2.2 1.0 Consumer price inflationc (av; %) 9.6 11.8 8.1 12.3 8.0 Populationc (m) 0.38 0.39 0.40 0.42 0.43 Exports fobc (US$ m) 168.3 161.5 156.5 141.8 n/a Imports fobc (US$ m) 154.5 150.6 184.5 159.9 n/a Current-account balancec (US$ m) 8.3 14.6 –37.9 8.1 n/a Reserves excl goldc (US$ m) 15.91 32.58 31.34 49.04 51.14 Total external debtd (US$ m) 157.5 144.9 135.4 n/a n/a Debt-service ratio, paidd (%) 3.8 3.6 2.4 n/a n/a Exchange ratec (av; SI$:US$) 3.406 3.566 3.717 4.816 4.838
September 1st 2000 SI$5.0564:US$1
Origins of gross domestic producte 1995 % of total Agriculture 49.8 Manufacturing 3.5 Construction 6.2 Trade & finance 13.3 Public administration & other 27.2 GDP at constant prices 100.0
Principal exports fobf 1995 US$ m Principal imports ciff 1995 US$ m Timber 83.1 Manufactured goods 51.6 Fish & fish products 42.8 Food 23.5 Palm oil & kernel 21.1 Machinery & transport equipment 14.8 Copra 9.6 Mineral fuels 14.3 Cocoa 3.9 Chemicals 7.8 Marine shells 1.6 Animal & vegetable oils & fats 1.4 Total incl others 168.3 Crude materials 1.4 Total incl others 152.1
Main destinations of exports fob 1995e % of total Main origins of imports cif 1995e % of total Japan 36.2 Australia 41.1 Other Asian countries 32.1 Japan 11.8 UK 22.4 Other Asian countries 11.0 Australia 2.1 Singapore 9.3 US 0.5 New Zealand 9.0 Netherlands 0.3 UK 1.6 a EIU estimates. b ADB, Asian Development Outlook. c IMF, International Financial Statistics. d World Bank, Global Development Finance. e Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries. f Central Bank of Solomon Islands, Quarterly Review.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 38 Solomon Islands
Quarterly indicators
1998 1999 2000 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Prices Consumer prices (1995=100) 135.1 137.9 139.2 143.1 145.5 149.2 149.9 n/a % change, year on year 11.6 13.7 13.4 9.5 7.7 8.2 7.7 n/a Financial indicators Exchange rate SI$:US$ (av) 4.787 4.849 4.851 4.914 4.430 4.947 5.061 5.077 SI$:US$ (end-period) 4.799 4.933 4.859 4.794 4.843 5.063 5.076 5.084 Interest rates (av; %) Deposit rates 2.33 2.67 3.00 3.00 3.00 3.00 2.50 2.50 Lending 14.92 14.75 14.75 14.75 14.42 14.42 14.42 15.19 Treasury bill 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.33 M1 (end-period; SI$ m) 199.24 217.72 212.10 223.75 258.38 257.60 266.54 251.37 % change, year on year –3.0 3.2 –0.2 14.3 29.7 18.3 25.7 12.3 M2 (end-period; SI$ m) 397.62 419.69 430.60 457.50 482.12 465.60 460.62 453.69 % change, year on year –3.6 –0.5 2.5 14.8 21.3 10.9 7.0 –0.8 Foreign tradea (US$ m) Exports fob 45.1 44.9 42.5 48.9 39.9 49.1 35.2 46.8 Imports fob –30.8 –33.0 –34.6 –37.5 –45.2 –40.5 –43.4 –39.4 Trade balance 14.3 11.9 7.9 11.4 –5.3 8.6 –8.2 7.4 Foreign reserves (US$ m) Reserves excl gold (end-period) 32.8 36.3 49.0 50.9 54.4 57.4 51.1 48.5 a DOTS estimates. Includes re-exports.
Sources: IMF, International Financial Statistics; IMF, Direction of Trade Statistics, quarterly.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Solomon Islands 39
Outlook for 2000-01
The political and economic The medium-term outlook for the country. is extremely poor, following the outlook is very poor armed takeover of the capital and subsequent election of a new prime minister on June 30th (see The political scene.) After his election prime minister, Manasseh Sogavare, said his Coalition for National Unity, Reconciliation and Peace (CNURP) would, indeed, be a government of national unity, with a special ministry to deal with ethnic violence, but he added that he would consider postponing, for 12 months, the national elections due next year. This seemed to imply that the constitutional provisions governing terms of office might be dispensed with in the same manner as had been in Bartholomew Ulufa’alu’s prime ministership.
Similarly, Mr Sogavare promised to offer amnesty to the militias once they surrendered their arms, although that, too, is unconstitutional and proved a serious sticking-point in attempts to organise peace talks. Ethnic violence has claimed about 60 lives since late 1998 and created an estimated 30,000-40,000 internal refugees. The government would try to secure peace by the end of this year, Mr Sogavare said, but he declined to set a timetable for the disarming of the Mailata Eagle Force (MEF) and Istabu Freedom Movement (IFM) militias.
Mr Sogavare called on Australia and other aid donors to “put their money where their mouths are” to avert further economic decline but made no specific requests. Australia and New Zealand have, in fact, pledged substantial aid once peace and democratic government is restored but their judgment of the immediate prospects was demonstrated by the evacuation of all their nationals who chose to leave the country.
The new government produced a detailed, wide-ranging plan aimed at producing peace and reconciliation between the MEF and the IFM of Guadalcanal, who have created a situation close to civil war on Guadalcanal island after two years of rising ethnic tensions. However, Mr Sogavare’s government has proved no more capable of escaping the mire of ethnic conflict than was its predecessor. For many people, indeed, the situation has deteriorated.
The government’s financial Outside financial assistance is urgently needed. The country has been situation is desperate effectively bankrupt for some time. About 1000 public servants were sent home on unpaid leave in August as the government acknowledged that revenue was 20% below budget and the trend was expected to continue. The college of higher education in Honiara suspended its first- and second-year programmes in September because of debts and the uncertainty of future government funding. Students brought home from university in Suva when the rioting occurred there in May have been unable to return because the government cannot afford their fares. Two-thirds of the Ministry of Education staff have been sent on unpaid leave. Solomon Islands Broadcasting Corporation has reduced broadcasting hours in all its services and also sent staff on unpaid leave. Many local businesses have failed or are in trouble because of unpaid government bills.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 40 Solomon Islands
The political scene
PM’s election is achieved by The armed takeover of the capital and the security apparatus by members of intimidation the Malaita Eagle Force (MEF) and renegade police (see June 2000, page 44), which had the prime objective of forcing a change of government, succeeded on June 30th. The former opposition leader, Mannasseh Sogavare, was elected prime minister at a special sitting of the national parliament, attended by 44 of the 50 members, defeating Bishop Leslie Boseto, of the Uniting Church, by 23 votes to 21. Bishop Boseto was supported by most members of the former Alliance for Change (AFC) government, led by Bartholomew Ulufa’alu. Mr Ulufa’alu was forced to resign on June 14th after the MEF and most of the country’s paramilitary police staged their takeover of Honiara on June 5th, holding the prime minister and his family at gunpoint.
Mr Sogavare, aged 46, is an accountancy graduate and MP from the western island of Choiseul. He was head of the finance department and then finance minister in the AFC government at the beginning of its term. At least four of the six AFC MPs were absent from the special sitting that elected him stayed away because of intimidation by the MEF militia. Shortly after 6.30am on July 6th four armed militiamen walked into Honiara’s domestic airport terminal and forced Solomon Islands Airlines staff to cancel a charter flight intended to bring MPs to the capital from Western Province, threatening to shoot it down. The previous day, governor-general, Sir Father John Ini Lapli, had cancelled a planned sitting of the parliament when only 22 MPs were present because of an AFC boycott after alleged threats from MEF members.
In the lead-up to the parliamentary vote Mr Ulufa’alu strongly criticised Australia for refusing to send a peacekeeping force to the Solomons to “protect constitutional rule”. The Australian government insisted that without some form of local resolution there was no peace to keep.
Fighting between the IFF In the immediate aftermath of the change of government there was fierce and FEF starts again renewed fighting between the Isatambu Freedom Fighters (IFF) and MEF
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Solomon Islands 41
militias to the east and west of Honiara, causing at least two deaths. One Red Cross report said ten people had been killed but, as has been the case so often, there was no confirmation. Journalists reported seeing an armoured bulldozer equipped with machine guns and being used by the MEF as a tank. It was believed to have been used in an MEF attack on IFF positions at Alligator Creek, near the international airport, where a Red Cross worker claimed to have counted the ten bodies. Some 800 modern infantry-style weapons are thought to be in the hands of the untrained and ill-disciplined MEF members. The IFF, who surround the capital, have greater numbers but their weaponry is mostly of 1940s vintage or homemade.
The human rights situation The June “coup” had already led to a rapidly deteriorating human rights deteriorates rapidly situation. Ethnic Malaitan police officers defecting to the MEF had disempowered the police service, stripping it of guns, cars and equipment. Criminals were let out of prisons and civilians were put at the mercy of undisciplined MEF or IFM supporters and criminal opportunists taking advantage of the situation. Meanwhile, tens of thousands of people were cut off from basic food supplies, medical and other relief. Because of the lack of police protection, women and ethnic minorities appeared particularly vulnerable and had no way of seeking redress. Rival groups were said to have bases where they reportedly torture captured combatants.
Honiara has become even more of a Malaitan stronghold in the heart of Guadalese territory. The MEF has expanded its perimeter in a series of bloody clashes with the IFF but their activities have stopped the delivery of essential supplies and services to rural areas. The so-called “joint operation”—the MEF and their police supporters—have blocked the distribution by World Vision of EU-funded foodstuffs, farming tools and building materials to refugees in western Guadalcanal, saying it doubted they would reach the people for which they were intended. The EU provided SI$3m (US$590,000) for the programme.
Peace talks start High hopes are attached to peace talks that began on September 8th aboard the New Zealand frigate, Te Kaha. The talks followed a string of efforts over previous months that failed for reasons that had become all too familiar. One was the vexed issue of amnesty; key figures did not attend for fear of arrest. That problem was largely overcome by the use of, first, Australian then New Zealand naval ships as “safe” venues. The other issue arose from the structures of the two militia forces, with their lack of genuine central authority. Local commanders from one side or the other (or both) failed to appear, making a credible agreement impossible.
As with previous meetings, the basic topics covered by the peace talks were to be greater devolution of powers, origins of the conflict and a variety of compensation issues. It was hoped to make sufficient progress to warrant a further meeting, which Australia has offered to host in Cairns, north Queensland. This concept borrows from the Bougainville peace process, where a crucial breakthrough was made by flying all the parties to an army base in New Zealand and leaving them to talk through their differences over two weeks.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 42 Solomon Islands
The September 8th opening session was co-chaired by the country’s first prime minister and former governor-general, Sir Peter Kenilorea, and the parliamentary speaker, Paul Tovua. The tone of the formal opening session was civil but the sentiments familiar, with speakers apologising for what had happened, but also talking of the need to rectify perceived injustices. One speaker argued that national unity was not negotiable and ultimately had to be based on trust rather than negotiated agreements. The talks were adjourned after the formal opening.
Amnesty International From its headquarters in London, Amnesty International issued a new report report demands justice on the Solomons at the beginning of September, saying that members of rival armed groups and the police responsible for unlawful killings, torture and abductions must be brought to justice if current peace efforts were to have a lasting effect.
Economic policy and the economy
Plantations and mine The formal economy is haemorrhaging from the closure of the country’s two closures are a major blow biggest enterprises, Solomon Islands Plantations Limited and the Gold Ridge gold mining project, both located on Guadalcanal. Their closure because of the ethnic conflict is also likely to affect foreign and domestic investment for years to come. The underlying subsistence economy provides some insulation for much of the population against the worst effects of economic disruption but on Guadalcanal even that is eroded by the military-style front lines of the militias, which prevent the free movement of transport and goods. Only about 8% of the population is employed in the formal sector of the economy. More than three-quarters of the population are primarily subsistence farmers and cash croppers and almost all export earnings derive from primary products, particularly timber (the country’s single largest industry), fish, palm oil, copra and cocoa. Nevertheless, the mining sector, with only the one mine, was probably the fastest developing area of the economy. Operations at Gold Ridge are regarded as “temporarily” suspended because of the conflict. The mine’s owners, Delta Gold, says all sides are keen it reopen.
All sides apparently want Terry Burgess, the managing director of Delta Gold, which bought the project Gold Ridge to stay open in May, said in the Australian Financial Review in July that both militia groups and all political leaders in the country want the Gold Ridge gold mine to continue operating. He therefore thought that the situation was very different from that on Bougainville more than a decade ago when all local groups wanted the huge Bougainville Copper Limited mine closed. Mr Burgess also said that the company had been talking to the militant groups and claimed that everybody involved agreed that it was in the country’s interests to have the mine reopen. However, he said, there were three preconditions for reopening the mine: a prime minister acceptable to all parties; establishment of a peace process, including the resolution of compensation claims; and restoration of law and order on Guadalcanal, including the return of weapons. All these will be difficult to achieve.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Tonga 43
Tonga
Political structure
Official name Kingdom of Tonga
Form of state Constitutional monarchy, with the monarch retaining significant power
The executive The king appoints a cabinet, headed by a prime minister, comprising the governors of Ha’apai and Vava’u and ministers of the Crown; ministers are appointed permanently until retirement age
Head of state King Taufa’ahau Tupou IV
National legislature Unicameral Legislative Assembly with limited powers, comprising the speaker, the cabinet, nine nobles chosen by the 33 nobles of Tonga, and nine representatives elected by all Tongans aged 21 or over; three of the representatives are elected from Tongatapu, one each from Toputatu Niua and Niua Fa’ou, two from Ha’apai and two from Vava’u; the nobles chosen cover similar areas
Legal system Modelled on the English system, with the Privy Council (consisting of the cabinet headed by the king) sitting as the Court of Appeal
National elections March 1999; next election due by 2003
Main political organisation People’s Party
Prime minister, minister of foreign affairs & defence, minister of agriculture, fisheries & forestry Prince Lavaka Ata Ulukalala
Deputy prime minister & minister of education & civil aviation Langi Kavaliku
Key ministers Finance Tutoatasi Fakafanua Health Viliami Ta’u Tangi Justice & attorney-general Tevita Tupou Labour, commerce & industry, tourism Masaso Paunga Lands, survey & natural resources Honourable Tu’i’afitu Police, prisons & immigration Clive Edwards Public, fire services & prisons Cecil Cocker
Governor of Ha’apai Honourable Fielakepa
Governor of Vava’u Honourable Tuita
Governor of the Reserve Bank Siosiua ‘Utoikamanu
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 44 Tonga
Economic structure
Annual indicators
1995 1996 1997 1998 1999 GDP at current pricesa (T$ m) 212.8 221.0 220.8 228.5b n/a Real GDP growtha (%) 2.7 –3.7 –1.4b 0.1c 2.2c Consumer price inflationd (av; %) 1.4 3.0 2.1 3.3c 4.4c Populatione (‘000) 94.6 97.5 97.6 97.7 n/a Exports foba (US$ m) 14 14 11 8b n/a Imports foba (US$ m) 62 62 60 69b n/a Current-account balancea (US$ m) –9 –4 –3 –19b n/a Reserves excl goldd (US$ m) 28.71 30.62 27.49 28.66 26.15 Total external debtf (US$ m) 70.1 69.6 61.2 n/a n/a Debt-service ratio, paidf (%) 5.2 5.0 7.0 n/a n/a Exchange rated (av; T$:US$) 1.27 1.23 1.26 1.49 1.60
September 1st 2000 T$1.7370:US$1
Origins of gross domestic product 1997ag % of total Agriculture 29.8 Mining 0.2 Manufacturing 3.6 Electricity, gas & water 1.8 Construction 4.2 Trade 11.7 Transport & communications 7.0 Finance 6.9 GDP at current market prices incl others 100.0
Principal exports fob 1997a US$ ‘000 Principal imports cif 1997a US$ ‘000 Squash 5,010 Machinery & transport equipment 14,017 Fish 2,583 Basic manufactures 11,774 Vanilla beans 133 Mineral fuels etc 10,332 Bananas n/a Chemicals 5,283 Total 10,917 Miscellaneous manufactured goods 5,218
Main destinations of exports 1997h % of total Main origins of imports 1997h % of total Japan 52.9 New Zealand 29.7 US 17.6 Australia 18.9 Australia 5.9 US 10.8 New Zealand 5.9 UK 10.8 Japan 2.7 a Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries. b Press reports. c Asian Development Bank, Asian Development Outlook 2000. d IMF, International Financial Statistics. e EIU estimates. f World Bank, Global Development Finance. g Fiscal year ending June 30th. h IMF, Direction of Trade Statistics.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Tonga 45
Quarterly indicators
1998 1999 2000 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Prices Consumer prices (1995=100) 109.0 109.0 109.3 111.8 113.8 113.5 114.9 117.1 % change, year on year 3.2 3.5 3.4 4.4 4.4 4.1 5.1 4.7 Financial indicators Exchange rate T$:US$ (av) 1.449 1.556 1.605 1.593 1.577 1.606 1.622 1.643 T$:US$ (end-period) 1.502 1.613 1.616 1.602 1.593 1.609 1.611 1.658 Interest rates (av; %) Deposit 5.67 5.67 5.50 5.42 5.42 5.42 5.42 5.17 Lending 10.35 10.54 10.46 10.35 10.37 10.22 10.32 10.21 M1 (end-period; T$’000) 22,501 25,017 25,381 22,938 26,133 27,958 30,968 27,662 % change, year on year 3.4 12.9 7.4 6.9 16.1 11.8 22.0 20.6 M2 (end-period; T$’000) 80,714 88,155 94,865 93,067 95,925 103,086 106,479 99,700 % change, year on year 2.0 9.1 13.9 17.9 18.8 16.9 12.2 7.1 Sectoral trends Tourism Receipts (T$’000) 3,597 3,706 3,704 2,626 3,171 4,171 4,639 n/a Cruise visitors (number) 617 177 701 4,503 n/a n/a n/a n/a Air arrivals (number) 6,663 7,879 8,006 4,816 7,008 7,866 11,193 n/a Foreign trade (T$ m) Exports foba 1.8 2.3 6.5 1.7 1.5 1.9 n/a n/a Fish 0.7 0.5 0.7 0.7 0.9 0.7 n/a n/a Imports cif –25.5 –25.5 –26.9 –23.9 –28.7 –29.4 n/a n/a Trade balance –23.7 23.2 –20.4 –22.2 –27.2 –27.5 n/a n/a Foreign payments (T$ m) Merchandise trade balance –21.6 –18.8 –12.5 –19.4 –19.1 –23.2 –19.2 n/a Services balance 2.1 2.9 1.7 2.1 0.9 1.8 0.9 n/a Income balance 1.4 –0.1 3.6 0.7 0.4 –0.6 –1.5 n/a Current-account balance –3.8 –3.0 9.2 –3.3 –3.2 –6.5 –0.2 n/a Reserves excl gold (end-period; US$ m) 19.13 22.53 28.66 28.08 27.21 27.45 26.15 23.45 a Includes re-exports.
Source: IMF, International Financial Statistics. National Reserve Bank of Tonga, Quarterly Bulletin.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 46 Tonga
Outlook for 2000-01
Political change is possible The government has done nothing to suggest a change in the immediate but will be slow political outlook, although insiders detect signs of change in a slightly longer term (see The political scene). Tonga’s constitutional monarchy, more than a century old, tends to stand out in an environment where Fiji and the Solomon Islands have tossed their constitutions aside and pretended to conduct business as usual. Change in Tonga will be subtler and well prepared.
Anecdotal evidence is that nothing much is happening on the economic front, but neither is anything going sour. There has been no recurrence of drought or cyclone, and the problems of Fiji have brought more tourists. The statistics department prediction underlying the 2000/01 budget (see Economic policy and the economy) is for growth at more than 6% in the current fiscal year. The statistics department said the main contributors to such a growth rate would be very strong growth in agriculture, the wholesale and retail trades, hotels and restaurants, transportation and communications, manufacturing and electricity, and water. Very little growth was expected in construction, administration and financial services. The overall growth rate seems barely credible. The kingdom has never grown so fast in the past. It is more likely that the statistical and econometric vagaries of recent years still have not been ironed out.
The political scene
Change is in the air Since Prince Lavaka Ata Ulukalala became prime minister at the beginning of this year he has avoided overt signals of change or even the discussion of it. Change is happening, nevertheless, and this would be unlikely unless he had given at least tacit approval. The political upheavals in Fiji and the Solomon Islands, with international condemnation of the overthrow of democratically elected governments, have some uncomfortable resonances for Tonga, which,
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as the only hereditary kingdom in the region, is far from being a straightforward democracy.
Tonga’s constitution dates from 1875 and contains features that are bound to change in the not-too-distant future. It is a constitutional monarchy in which the government consists of the king in privy council and cabinet, the legislative assembly and the judiciary. The privy council assists the king in the discharge of his functions and is the highest executive authority. It comprises the cabinet and any others the king chooses to appoint. Cabinet consists of the prime minister, ministers and the governors of Tonga’s two provinces, Ha’apai and Vava’u, all appointed by the king. The cabinet is responsible for carrying out the decisions of the privy council. The legislative assembly consists of the ministers and two governors, nine elected representatives of the holders of the 33 hereditary noble titles, and nine elected representatives of the people.
Signs of increased At the last election, in February 1999, most candidates ran on platforms government accountability promising some degree of political change. This certainly reflected a growing public interest in moving towards a more open and accountable form of democratic government, but there is no significant challenge to the authority of the king, and any change will need his imprimatur. The new prime minister has a keen judgment regarding international affairs and appreciates the potential implications of the international response to the Fiji/Solomons debacles.
The Human Rights and pro-Democracy Movement (HRDM) has focused for some time on raising public awareness of the case for reform and on publicising instances of public waste and mismanagement. In August, for example, the HRDM praised the prime minister for sending the auditor- general’s reports to parliament unchanged even though it criticised the government for inadequate book-keeping and improper use of revenue and cash receipts. Lopeti Senituli, the movement’s spokesman, said it was a positive sign that the prince was prepared to be more accountable to the public. Mr Senituli said the prince had also quietly tackled other areas, including immigration, which is under the jurisdiction of the police minister and the cause of many complaints from Tongans overseas.
Should the prime minister Dr Feleti Sevele, a prominent independent member of the Legislative Assembly, select his ministers? a businessman and economist, recently advocated a change to the political system, whereby the king would still appoint the prime minister, but the prime minister would then choose his ministers from the elected members of parliament. In an interview published in the mid-year issue of the quarterly news magazine, Matangi Tonga, he said he did not think it would be a hard change to make. (The former prime minister, Baron Vaea, and Crown Prince Tupouto’a, a former defence minister, had both made strong public criticisms of the present system). Dr Sevele said the concepts of good governance and accountability had always been present in the Tongan system, but in the past the people had tended to leave its practice to their “betters”. They realised now that they had to be part of process.
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Cabinet approves plans for Plans to establish a national university by 2002 were endorsed by cabinet at a national university the end of August. A government statement noted the unrest in Fiji, home of the University of the South Pacific, and said that Tonga could not continue to depend on such regional institutions to meet its higher education needs. The statement said the government was preparing to appoint a research group to make recommendations on the structure of the university. A spokesman said the university would offer quality tertiary education at affordable rates, allowing aid money now spent on sending students overseas to be utilised more effectively within Tonga. The new institution would also offer distance education using computer technology.
Economic policy and the economy
Increased spending on The 2000/01 budget, approved by the parliament in late June, provides for an education and health increase in government spending of about 17% to T$127m (US$73m). The greater part of the increased spending is for health and education, but other significant items include a cost-of-living pay adjustment for public servants and the establishment of a permanent mission to the United Nations in New York. The Ministry of Education receives the largest budget allocation of T$11.4m with the Ministry of Health receiving T$6.3m. The finance minister, Tutoatasi Fakafanua, said the main source of revenue for the government would be customs duties and port and services taxes (66%), and income tax (19%).
Several MPs opposition questioned the 20% pay rise for public servants on the basis that the previous prime minister had said only a few months earlier that the country was on the verge of bankruptcy. The increase is estimated to cost T$4.5m-6m.
Falling foreign reserves Figures from the National Reserve Bank of Tonga showed that foreign reserves focus attention on imports fell by T$2.8m in June to T$26.2m at the end of that month, representing little more than two months import cover. This has prompted suggestions for remedial action from the managing director of the Tonga Development Bank, Afu’alo Matoto. Mr Afu’alo says that the main need is for the government to reduce imports by encouraging greater local production of crops, livestock, fish and manufactured goods. According to Mr Afu’alo, the government has created its own conflict of interest by seeking to increase foreign earnings, yet continuing to import and to rely heavily on taxes and duties on imports.
Imports in 1999 totalled US$109m, of which food accounted for almost one- third. Agriculture, forestry and fisheries account for nearly 40% of GDP but there has been a sharp decline over the past ten years in traditional commercial crops, particularly copra and bananas, as many farmers have switched to the newer export crops, squash pumpkin, vanilla and kava (exports of all of which fell in value last year). Light manufacturing accounts for only about 4% of GDP.
Mr Afu’alo said the government also could borrow from the IMF, but had never done so and probably would continue that policy. IMF conditions would be too harsh for a country like Tonga. The chamber of commerce president, Christine Uta’atu, was more sanguine about the June figures. She argued that
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June historically was a month when squash growers bought seed and chemicals and retail industries geared-up for activity later in the year. The fall in reserves was more likely to be seasonal than a serious negative trend.
Bank of Tonga reports The National Reserve Bank of Tonga (NRBT, the central bank) has reported a strong 1999 result net profit after tax of T$4.3m for the year to the end of December 1999, after the best pre-tax profit in the bank’s 25-year history. NRBT is owned 40% by the government, 30% by the Bank of Hawaii and 30% by Australia’s Westpac Banking Corporation. The result represented a return on equity of 25.8% compared with 21.2% in the previous year. The bank had a monopoly on commercial banking until seven years ago, when two competitors were licensed – the Australia and New Zealand Banking Group and MBf Bank, which is owned 91% by MBf Asia Capital Corporation Holdings, 6.25% by Crown Prince Tupouto’a and 1.25% by the Tonga Co-operatives Federation.
TTI takes over from C&W After 22 years of operation by Britain’s Cable and Wireless plc (C&W), Tonga’s international telecommunications services were taken over in August by Tonga Telecommunications International Limited (TTI), a new company wholly owned by the government. The handover agreement was signed in Nuku’alofa by the prime minister and C&W’s regional representative, Phillip Richard, after TTI presented T$4m as a final payment for C&W assets it acquired. All Tongan nationals employed by C&W transferred to the new company. TTI will operate all services that had been provided by C&W, including Internet services. Domestic telecommunications are provided by the Tonga Telecommunications Commission.
Ha’apai islands to get solar- Remote islands in the Ha’apai group are to be provided with solar-powered powered lighting lighting under a programme funded by the Secretariat of the Pacific Community (SPC) and the Australian agency, AusAID. SPC’s renewable energy adviser, Solomone Fifita, visited the group in July to conduct a feasibility study as the basis for detailed planning.
Overseas medical insurance The government decided in August to establish an overseas medical referral scheme starts next year insurance scheme to take effect from July 1st next year. Medical problems that cannot be managed in Tonga are referred to New Zealand. If a public servant is the patient, costs are covered from the recurrent funds of the Ministry of Health, if approved by cabinet. Costs of patients who are not public servants are covered by the budget-funded New Zealand Medical Treatment Scheme. There has been an increasing trend in recent years for both sources of funding to be exhausted before the end of the financial year, leaving the choice of delaying treatment or taking funds from other services.
Debris poses a threat to The prime minister, Prince Lavaka, told the United Nations Food and fishing grounds Agriculture Organisation’s (FAO) regional conference for Asia and the Pacific, held in Yokohama in September, that decisive action was needed to deal with the vast amount of marine debris and abandoned fishing gear that now contaminate regional fishing grounds. He claimed derelict fishing gear was creating a situation that could ravage Pacific fishing grounds in the 2000s, with
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abandoned nets continuing to trap fish for years. He urged FAO members to mount an international campaign to stop the oceans being used as waste sinks.
UNDP approves funds for a The United Nations Development Program (UNDP) approved funding of greenhouse emissions study US$325,000 at the end of June to help the government meet its obligations under the UN Framework Convention on Climate Change. The project will be carried out by the Ministry of Lands, Survey and Natural Resources over a period of two-and-a-half years. Results will enable the government to prepare its first national communication to the conference of parties to the convention. The components of the project will include an inventory of greenhouse gases following guidelines adopted by the parties; an assessment of potential impacts of climate change in Tonga; an analysis of potential measures to abate the increase in greenhouse gas emissions in the kingdom and to adapt to climate change; the preparation of a national action plan to address climate change and its adverse impacts; and preparation of the national communication.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 Vanuatu 51
Vanuatu
Political structure
Official name Republic of Vanuatu
Form of state Parliamentary, based on the UK model
The executive Council of Ministers, made up of 12 members of parliament chosen by the prime minister, who is in turn elected by parliament from among its members
Head of state The president, John Bani, was elected in March 1999 for a four-year term by an electoral college drawn from members of parliament and heads of local government
National legislature Unicameral parliament, 52 members elected for four-year terms; universal franchise containing an element of proportional representation
Regional legislature The National Council of Chiefs, elected from the district councils of chiefs, exists alongside parliament to discuss and be consulted on matters relating to custom and tradition
Legal system System of magistrates’ courts leading up to the Supreme Court
National elections March 6th 1998; next election due in March 2002
National government Barak Tame Sope, the prime minister, leads a coalition comprising his own MPP, the NUP, the VRP, the John Frum group and one faction of the UMP
Main political organisations Melanesian Progressive Party (MPP); Union of Moderate Parties (UMP, operates as two separate factions); National United Party (NUP); Vanua’aku Pati (VP); Vanuatu Republican Party (VRP); John Frum group
Key members of the Prime minister Barak Tame Sope (MPP) Council of Ministers Deputy prime minister & minister for trade & development James Bule (NUP)
Agriculture Albert Ravutia (MPP) Comprehensive reform programme Sato Kilman (MPP) Education Jacques Sese (UMP) Finance Morkin Steven (NUP) Foreign affairs Serge Rialuth Vohor (UMP) Health Jean Song Keasipai (John Frum) Infrastructure and public utilities Reginald Stanley Internal affairs Barnabas Andy Tabi (NUP) Lands, geology and mines Maxime Carlot Korman (VRP) Ni-Vanuatu business development John Robert Alick (NUP) Youth & sports Willie Posen (UMP)
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 52 Vanuatu
Economic structure
Annual indicators
1995 1996 1997 1998 1999 GDP at current pricesa (Vt m) 26,633 27,679b 28,938b 29,477b n/a Real GDP growtha (%) 3.2 3.0 1.7 0.2 -2.0 Consumer price inflationc (av; %) 2.2 0.9 2.8 3.9a 2.5a Populationb (‘000) 167.9 172.6 177.4 182.4 n/a Exports fobd (US$ m) 28.3 30.2 35.3 33.8 n/a Imports fobd (US$ m) 79.4 81.1 79.0 76.2 n/a Current-account balanced (US$ m) –18.3 –26.9 –19.3 4.5 n/a Reserves excl goldd (US$ m) 48.29 43.92 37.3 44.67 41.35 Total external debtc (US$ m) 48.2 47.1 47.9 n/a n/a Debt-service ratio, paidc (%) 1.5 1.4 1.5 n/a n/a Exchange rated (av; Vt:US$) 112.1 111.7 115.9 127.5 129.1
September 1st 2000 Vt140.15:US$1
Origins of gross domestic product 1996a % of total Components of gross domestic product 1995a % of total Agriculture 22.5 Private consumption 48.0 Manufacturing 6.4 Government consumption 27.0 Electricity, gas & water 1.5 Fixed investment 30.5 Construction 4.4 Stockbuilding 2.1 Trade 31.4 Exports of goods & services 45.2 Transport & communications 6.7 Imports of goods & services –54.8 Finance 7.1 Statistical discrepancy 2.0 Other services 20.0 GDP at market prices 100.0 GDP at constant prices 100.0
Principal exports fob 1997a US$ m Principal imports cif 1997a US$ m Copra 17.2 Machinery & transport equipment 24.2 Timber 3.8 Basic manufactures 14.3 Beef 3.6 Food & live animals 18.5 Cocoa 2.1 Miscellaneous manufactured goods 11.1 Total incl others 35.3 Mineral fuels 10.0 Total incl others 93.9
Main destinations of exports 1997d % of total Main origins of imports 1997d % of total Japan 32.1 Japan 52.3 Germany 22.6 Australia 20.0 Spain 7.5 New Caledonia 1.1 New Caledonia 6.9 Australia 1.9 a Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries. b EIU estimates. c World Bank, Global Development Finance. d IMF, International Financial Statistics.
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Quarterly indicators
1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Consumer prices (1995=100) 109.1 109.4 109.3 109.4 109.1 n/a n/a n/a % change, year on year 4.7 4.1 4.2 3.9 0.0 n/a n/a n/a Financial indicators Exchange rate Vt:US$ (av) 131.0 127.1 128.9 129.3 129.2 129.0 131.4 136.5 Vt:US$ (end-period) 130.9 129.8 130.7 129.9 128.0 128.9 133.2 135.3 Interest rates (av; %) Deposit 4.08 2.25 2.17 1.75 1.25 1.25 1.25 n/a Lending 11.75 12.42 11.75 10.25 9.75 9.42 10.00 n/a Money market 9.97 9.97 9.97 6.00 6.00 6.00 5.83 n/a M1 (end-period; Vt m) 7,286 7,600 7,378 7,412 8,224 7,616 7,654 7,668 % change, year on year 18.7 14.4 –3.0 8.5 12.9 0.2 3.7 3.5 M2 (end-period; Vt m) 34,271 35,226 33,928 34,271 34,386 31,993 32,461 31,559 % change, year on year 15.5 12.6 1.6 7.4 0.3 –9.2 –4.3 –7.9 Foreign trade (Vt m) Exports foba 1,410 1,408 1,112 n/a n/a n/a n/a n/a Imports cif –3,010 –3,170 –2,432 n/a n/a n/a n/a n/a Trade balance –1,600 –1,762 –1,320 n/a n/a n/a n/a n/a Foreign payments (US$ m) Merchandise trade balance –9.12 –10.34 –6.58 n/a n/a n/a n/a n/a Services balance 24.76 21.20 8.79 n/a n/a n/a n/a n/a Income balance –3.45 –3.73 –5.47 n/a n/a n/a n/a n/a Current-account balance 16.99 5.73 –8.67 n/a n/a n/a n/a n/a Reserves excl gold (end-period) 38.90 44.67 44.93 42.19 44.47 41.35 36.10 36.80 a Includes re-exports.
Source: IMF, International Financial Statistics.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 54 Vanuatu
Outlook for 2000-01
Clouds are gathering The government has been running relatively smoothly in recent months but some serious problems will have to be faced in the period ahead. Heading them is the state of relations with the Asian Development Bank (ADB), the main financier of the country’s comprehensive reform programme (CRP), which has been under way since 1997, and, indeed, the future of the programme. The prime minister, Barak Tame Sope, has chosen to slow the implementation of the CRP to achieve what he sees as more equitable distribution of its benefits. The reality is that there will be few benefits until there is more progress.
Politicisation of the public The factor that has brought relations with the ADB to a danger point is the service will cause problems prime minister’s determination to politicise the public service, or at least create the legal framework to make that possible (see June 2000, page 59). The relevant legislation, contained in two bills passed earlier this year, gives the executive government scope to appoint, transfer and dismiss within the public service, and to appoint and dismiss “political advisers” unfettered by the operation of bodies such as the Public Service Commission. This expressly contravenes the CRP agreement with the ADB, which threatened to withhold further funding if the measures were implemented. The bills so worried the president, Father John Bani, when they were sent to him for assent in August, that he referred them to the supreme court. The court struck out some technical provisions that it ruled unconstitutional but directed the president to sign the rest into law. Mr Sope, meantime, announced that he was prepared to stop borrowing from the ADB and implied that he was not happy with the previous government’s borrowings within the CRP framework. It was an ominous note from a government that even now cannot afford to cut the grass on its outer island airfields to make them serviceable (see Economic policy and the economy).
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The political scene
A new deputy prime The public utilities minister, Reginald Stanley, of the National United Party minister (NUP) was forced to resign the deputy prime ministership in August after it seemed certain he would be found in breach of the leadership code over a drunken incident in a Port Vila bar in April (see June 2000, page 60). He was replaced as deputy prime minister by party colleague, trade and development minister, James Bule, but remains in the cabinet.
The change seems to have done the government no harm. Mr Bule is a well regarded minister, a good communicator and one of the better parliamentary performers, while Mr Stanley, despite his off-duty behaviour, is withdrawn and not attracted to the theatre of parliament. Otherwise, the government has been stable and quite productive. As always in Vanuatu politics, however, the undercurrents have continued to run strongly.
UMP split is unresolved After their latest round in court, the two factions of the Union of Moderate Parties (UMP) seem to be back to square one in their contest to control their bifurcated party. The UMP government faction has declined an invitation to change allegiances and form a new government with the Vanua’aku Pati (VP), headed by the opposition leader, Edward Natapei. The invitation was revealed in a letter leaked to the local media in early September. Mr Natapei, already allied to the other UMP faction, proposed the switch as a way to reunite the party and, at the same time, bring together the country’s two biggest political parties in time for the 2002 election. The foreign minister, Serge Vohor, leader of the government UMP faction, said in response that his priority was the stability of the current government.
Earlier, in the UMP dispute, the supreme court’s acting chief justice, Vincent Lunabeck, had comprehensively upheld on June 26th an action brought by Willie Jimmy, leader of the opposition faction of the party. Mr Jimmy said he and his supporters had been suspended illegally from the party last year. The judge said he had considered two basic questions: the first was whether the national council of the UMP could pronounce disciplinary sanctions against members without consulting the party’s national disciplinary committee, he found that it could not; the second was whether decisions taken by an extraordinary meeting of the national council on August 20th last year (the one that suspended Mr Jimmy and his supporters) had no effect and should be quashed, he found that it should. Furthermore, he ruled that all costs in the action should be paid by the government UMP faction. The judge said he had applied the law of the country without regard to the political consequences, which were a matter for the politicians to deal with. He, nevertheless, found that Mr Vohor had acted to suspend Mr Jimmy because he resented Mr Jimmy’s position within the previous government and perceived that he had not been adequately consulted about reunifying the party within that government. The result is bound to keep the factional contention boiling, which is no comfort to the prime minister.
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Economic policy and the economy
New legislation for the In response to international criticism (see June 2000, page 58), the government offshore finance sector introduced new legislation at the end of August to govern the operations of its offshore financial centre (OFC), which is an important source of revenue. Many inter-bank transactions involving entities registered in Vanuatu were banned last year because of suspicions of money laundering. Officers of the OFC visited the US for discussions on tighter controls and American experts subsequently visited Vanuatu to advise on the drafting of the new legislation.
The bill provides for the establishment of a financial intelligence unit to monitor and, if necessary, investigate suspect transactions. There is a requirement to report any foreign currency transaction deemed suspicious and provisions to protect individuals doing so. Failure to report carries penalties for individuals of fines up to Vt25m (US$180,000) and/or five years jail, and for companies, fines up to Vt100m.
The intelligence unit is given wide powers of investigation and authority to pass on reports of suspicious action to the public prosecutor, reserve bank, attorney-general and the police.
FTC starts telecoms services Santo and neighbouring northern islands will be offered new tele- communications services soon with the entry of Freedom Telecommunications Company (FTC), an American company whose regional base is in Auckland. FTC technicians visited Santo in late June to identify potential sites for satellite dishes and antennae. They also met provincial and local government officials to try to ensure that there would be no dispute over land issues once facilities were established. FTC intends to base its operations in Luganville before deciding whether to expand to the rest of the country. Most of the outer islands have only rudimentary telecommunications and the government- owned, sole service provider until now, Telecommunications Vanuatu Limited (TVL), has lacked the resources to improve them. The government hopes to introduce more private-sector investment.
Airfield maintenance The internal airline carrier, Vanair, has admitted to financial problems and four problems hit Vanair of its senior management team have been put on notice to turn the situation around or face dismissal. The airline is government owned, with the prime minister, deputy prime minister and finance minister nominated as the shareholders. They were reported to have pressed the board in July for immediate dismissal of the management team, but the board considered such action could worsen the situation. Vanair lost Vt100m in the 1999 financial year but dismissed suggestions in June that two of its Twin Otter aircraft had been grounded for longer than necessary because it could not afford the necessary repairs and maintenance.
Vanair’s biggest problem is the lack of a unified government approach to aviation. This has created a situation where Vanair is unable to service many islands at various times because of the state of their airfields. Some become water-logged after rain, some lack even such basic equipment as windsocks and some become unusable simply because long grass is not mown. The company
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leased a new Dash 8 aircraft mid-year but there are only three airfields, including Bauerfield, at Port Vila, that it can use.
A new international The government announced in June that it intended to build a new airport on Efate international airport at Teouma, east Efate, capable of handling aircraft of Boeing 747 size. The existing airport, Bauerfield, is currently being upgraded to handle Boeing 767 and Airbus 310 airliners but the site precludes further expansion. The announcement followed a visit to Thailand by the prime minister, sponsored by a Thai businessman, Amarendra Nath Ghosh, who also organised access to senior officials in ministries including defence, civil aviation and foreign affairs. Back in April, the opposition had expressed strong reservations about the award of honorary citizenship to Mr Ghosh after he donated Vt10m to the government to mark Chiefs Day. Mr Sope was accompanied on the trip to Thailand by prominent Port Vila businessman, Dinh Van Than, who is also leader of the National United Party (NUP). The government announcement said that the US$5m cost of the new airport would be financed by Mr Ghosh in return for fishing rights to the same value. It said that funding to a total of US$200m could be possible through Mr Ghosh for further improvements to Bauerfield, Pekoa (on Santo) five airports on outer islands and for completion of the Efate ring road, originally a Japanese aid project but halted with only one-eighth of the work complete. Terms of the funding were still under discussion.
Loggers must now be The forestry department has introduced new licensing arrangements for all licensed logging and sawmilling operations, effective from July 1st. It says that licences will be issued only until December 31st; after that unlicensed operations will become illegal. The acting forestry director, Watson John, said that to be successful, licence applicants would need to demonstrate that they had the required skills and knowledge of the country’s logging code of practice. Licensing was also aimed at increasing safety and reducing environmental damage.
The logging code of practice was one outcome of a five-year, Australian-funded project to study sustainable forest utilisation that ended in July. Vanuatu has extensive forests but development proposals in recent years have been mired in controversy and scams. In 1993 one Asian company produced licences to cut 60,000-70,000 cu metres a year when independent assessment was that sustainable production could not exceed 25,000 cu metres for the whole industry. It is now envisaged that large-scale commercial forestry could be developed using land holding low-quality forest, forests damaged by cyclones or old plantations.
New tuna management The fisheries department began a consultation process at the end of July on a regime is proposed draft national tuna management plan. It covers the status of tuna stocks, proposed changes to the licensing of both foreign and local fishing boats, improved management and enforcement proposals, and plans for development of the local industry. The plan also includes measures for game fishing operations as well as commercial fishing. It was drafted by the department in
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conjunction with the maritime authority, the government law office and the police maritime wing.
Shefa Province signed a joint-venture fishing agreement at the end of June with the Australian group, Arafura. It provides for the sustainable harvest of marine products including fish, deep-sea prawns, trochus and beche de mer (sea cucumber) for both local and export markets. Arafura will provide a semi- processing facility in one of its boats, with the output flown to Australia for final processing and packaging.
EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000