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Strengthening Pacific Fragile States: the Marshall Islands Example Mandaluyong City, Philippines: Asian Development Bank, 2009

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Strengthening Pacific Fragile States: the Marshall Islands Example Mandaluyong City, Philippines: Asian Development Bank, 2009 Pacific Studies Series Strengthening Pacifi c Fragile States THE MARSHALL ISLANDS EXAMPLE Strengthening Pacific Fragile St1 1 04/11/2009 2:13:41 PM i Strengthening Paci\ c Fragile States THE MARSHALL ISLANDS EXAMPLE ii Strengthening Pacifi c Fragile States © 2009 Asian Development Bank All rights reserved. Published 2009. Printed in the Philippines. ISBN 978-971-561-853-3 Publication Stock No. RPS090280 Cataloging-In-Publication Data Asian Development Bank. Strengthening pacific fragile states: The Marshall Islands example Mandaluyong City, Philippines: Asian Development Bank, 2009. 1. Development assistance 2. Marshall Islands I. Asian Development Bank Th e views expressed in this book are those of the authors and do not necessarily refl ect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgements as to the legal or other status of any territory or area. ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgement of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. PHOTO CREDIT: cover on photo by Marshall Islands Visitors Authority NOTES In this report, “$” refers to US dollars. The fiscal year (FY) of the Government of the Marshall Islands ends on 30 September. FY before a calendar year denotes the year in which the fi scal year ends, e.g., FY2008 ends on 30 September 2008. 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel +63 2 632 4444 Fax + 63 2 636 2444 www.adb.org iii Contents Abbreviations iv Foreword v Introduction and Background 1 Strategy and Program 4 Lessons So Far 6 A Growing Demand for Change 9 New Approaches to Building Demand 11 Where Next? 15 iv Strengthening Pacifi c Fragile States Abbreviations ADB Asian Development Bank NGO nongovernment organization RMI Th e Republic of the Marshall Islands v Foreword espite, and possibly because of, high levels of international assistance, the economy of the Republic of the Marshall Islands has failed to grow since independence in 1979, other than in temporary response to aid-assisted Dgovernment expenditure. As a result of the lack of sustained increase in domestic economic activity, Marshall Islands society is now noticeably in decline. Among other lessons of past development assistance described herein, a strong message is that development demanded in the Pacifi c matters as much as development supplied. Development demand consists of building robust constitu- encies which support change and reform to improve their social and economic well-being. Th e development experience of the Marshall Islands also has some important implications for other Pacifi c island countries. While Pacifi c islands countries are diverse, they face common risks. Common approaches, guidelines, and principles can be applied but their eventual application will have to be adapted to the individual circumstances of each country. Whether by family, village, island, ethnic group or wantok (language group), Pacifi c island countries are often highly factionalized and this presents a serious challenge to development. Over the past 5 years, the Asian Development Bank (ADB) has been using a new approach with a view to learning how best to build on the increasing demand for improvement in governance in the Marshall Islands, and also with a view to replicating some of the same approaches elsewhere in the region appropriately modifi ed to their local conditions. Th e approach is based on intensive stakeholder participation and situation analyses, dissemination of information, and confi dential, informal retreats, using highly skilled facilitators and domestic consultants. Positive development results have taken place, indicating success of the approach. However, much remains to be done and the approach needs to be improved cumulatively as more experience is gained in the process of implementation. Signifi cant questions remain. What is the nature of demand for good governance and for better delivery of public and private goods and services? How strong is this demand? Who is driving demand? And can this demand be built on? Building demand takes time and requires a sensitive approach. Overcoming factionalism requires institutionalizing a broad based process of consultation and participation. Strong donor coordination and partnership will be crucial to building demand. S. Hafeez Rahman Director General Pacifi c Department vi Strengthening Pacifi c Fragile States 1 Introduction and Background strong state reinforces investment yield, whether this results from public or private sector investment. Th e development needs of a weak state must diff er from those of a strong state. Th e fragile states of the APacifi c are not the dynamic societies of Asia.1 Th ese may sound like obvious statements but the special needs of Pacifi c fragile states have not been apparent in earlier approaches to development in the Pacifi c region. Current Asian Development Bank (ADB) regional and country strategies and programs diff er from those of earlier years. Emphasis on maintaining project loan port- folios has been lessened and replaced by an emphasis on strengthening state operations, including testing and strengthening the demand for reform, and engaging civil society in development decisions. Th e shift is toward greater participation in development with the aim of building demand for good gov- ernance and reform to support performance-oriented delivery of public and private goods and services. Th e economic performance of the 14 ADB developing member coun- tries in the Pacifi c has been mixed.2 Many are showing social and economic stagnation if not decline.3 Today there is much talk of failed and fragile states in the region, a situation that was not anticipated when these states became independent some 20−30 years ago. 1 Th ere are many defi nitions of fragile states. A fairly common one refers to those states “where the government cannot, or will not, deliver core functions to the majority of its people, including the poor.” Department for International Development. January 2005. Why We Need to Work More Ef- fectively in Fragile States. London. 2 Th e 14 Pacifi c developing member countries are: the Cook Islands, the Fiji Islands, Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu. 3 ADB. 2005. Responding to the Priorities of the Poor: A Pacifi c Strategy for the Asian Development Bank 2005–2009. Manila. 2 Strengthening Pacifi c Fragile States Over the past 8 years, ADB has funded studies of poverty and hardship in the region that included recording “the voices of the poor” (footnote 3). Th ese studies produced very clear and consistent development directions, i.e., for governments to (i) improve access to and quality of delivery of essential public services, (ii) create an environment in which the private sector can ex- pand commercial activities and jobs, and (iii) boost standards of governance.4 Th ese priorities amount to the development of modern state institutions and private markets, but are still being cited some 20–30 years after independence. Combined, the priorities amount to a strategy to strengthen fragile states. ADB’s current Pacifi c Strategy (footnote 3) embraced these same priorities and its midterm review reaffi rmed them.5 In comparing ADB’s regional strategy with those of other major regional development partners, the midterm review concluded that “there is now broad alignment between the Pacifi c Plan (of the Pacifi c Forum) and the regional plans of ADB, AusAID [Australian Agency for International Development], NZAID [New Zealand Agency for International Development] and the World Bank.” Th e Pacifi c needs a development-partner response to the needs of fragile states. Pacifi c states appear to be remarkably resistant to reform and institu- tional improvement. Some states have for decades repeatedly received the same advice on tax reform, land registration, improving the business environment, merit-based public sector–personnel management, improving foreign invest- ment regimes, and state-owned enterprise reform. Th e struggle to develop modern states in the Pacifi c has, therefore, also led some development partners to question not only priority needs but also approaches to development as- sistance.6 How can the small, closely knit societies and polities of the Pacifi c adapt and adopt the required reforms to strengthen state operations? After 20–30 years of repeated development assistance, the issue is now not so much what is best policy and best institutional arrangements but how can the Pacifi c reform and redress evident decline? And how can any concerned, external, development agency best assist change? Th e Republic of the Marshall Islands (RMI) joined ADB in 1990. Since then it has received 12 loans for 11 projects, totaling $78.1 million, and 49 technical assistance programs and projects totaling $18.8 million. Eight of the 11 projects were project loans (education, fi sheries, health, water, and transport) while three were policy-based program loans in support of public sector reform and structural adjustment. Th e other loan was for emergency typhoon rehabilitation. Th e technical assistance has covered a wide range of sectors and thematic issues, including building capacity in development bank- ing, tourism management, environmental protection, and economic policy 4 Abbott, D. and S. Pollard. 2004. Hardship and Poverty in the Pacifi c. Manila: ADB. 5 ADB. 2008. Working in Fragile Environments: A Midterm Review of the Pacifi c Strategy (2005–2009).
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