COUNTRY REPORT
Pacific Islands: Fiji New Caledonia Samoa Solomon Islands Tonga Vanuatu
December 2001
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 seminars and presentations. The firm is a member of The Economist Group.
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Contents
3 Summary
The region
6 Outlook for 2002-03 7 The political scene 8 Economic policy and the economy
Fiji
10 Political structure 11 Economic structure 11 Annual indicators 12 Quarterly indicators 13 Outlook for 2002-03 14 The political scene 16 Economic policy and the economy
New Caledonia
19 Political structure 20 Economic structure 20 Annual indicators 21 Outlook for 2002-03 21 The political scene 23 Economic policy and the economy
Samoa
25 Political structure 26 Economic structure 26 Annual indicators 27 Quarterly indicators 28 Outlook for 2002-03 28 The political scene 30 Economic policy and the economy
Solomon Islands
32 Political structure 33 Economic structure 33 Annual indicators
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34 Quarterly indicators 35 Outlook for 2002-03 36 The political scene 37 Economic policy and the economy
Tonga
39 Political structure 40 Economic structure 40 Annual indicators 41 Quarterly indicators 42 Outlook for 2002-03 43 The political scene 44 Economic policy and the economy
Vanuatu
46 Political structure 47 Economic structure 47 Annual indicators 48 Quarterly indicators 49 Outlook for 2002-03 50 The political scene 50 Economic policy and the economy
List of figures
14 Fiji: gross domestic product 14 Fiji: Fiji dollar real exchange rates 27 Samoa: foreign trade 27 Samoa: consumer prices 28 Samoa: gross domestic product 28 Samoa: Tala real exchange rates 34 Solomon Islands: foreign trade 34 Solomon Islands: foreign reserves 36 Solomon Islands: gross domestic product 36 Solomon Islands: Solomon Islands dollar real exchange rates 42 Tonga: gross domestic product 42 Tonga: Tonga dollar real exchange rates 49 Vanuatu: gross domestic product 49 Vanuatu: vatu real exchange rates
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Summary
December 2001
The region
Outlook for 2002-03 External risks are dominating regional prospects. The most immediate concern is the effect on the region of the September 11th terrorist attacks on the US. The outlook for regional economic growth is poor. The Asian Development Bank issued a forecast, before September 11th, for regional growth of 1.2% in 2001.
The political scene The Australian government’s “Pacific solution” to its problem of dealing with people-smuggling is testing regional relationships. The secretary-general of the Pacific Islands Forum (PIF), Noel Levi, has expressed concern over the lack of action on security co-operation. New analysis has shown unusual warming in the region.
Economic policy and the Recent attempts to agree on global bluefin tuna quotas has failed. Japan has economy opposed the new Pacific fisheries convention. A regional sugar supply agreement has been revived. A PIF trade office has been opened in Beijing.
Fiji
Outlook for 2002-03 The future stability of the government is again in the hands of the courts. George Speight, awaiting trail for treason, lost his parliamentary seat for failing to attend two consecutive sessions. The uncertainty surrounding the legitimacy of the government is weighing heavily on the economy. The focus of international relations may move north.
The political scene The president, Josefa Iloilo, has attacked Fijian support of sanctions. Mahendra Chaudhry has declined the offer to lead the opposition and the government is supporting his party’s legal challenge to its composition. Political leaders have agreed on the need for some changes. Australia has lifted its sanctions to mixed reactions but New Zealand has deferred its sanctions decision.
Economic policy and the Moderate growth is expected in 2002, when tax rates will be reduced. Poverty economy alleviation is a priority. Tate & Lyle has warned that sugar quality must improve. Tourist arrivals are recovering.
New Caledonia
Outlook for 2002-03 The economy and polity face testing times . The impact of a fall in nickel prices will be immediate as the economy is dominated by this single commodity. The pro-independence coalition, Front de libération national kanak socialiste (FLNKS), is in disarray.
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The political scene FLNKS has left the government after claims it was “under-represented”. The new leadership of Union calédonienne (UC, Caledonian Union) has alarmed other FLNKS members. FLNKS has deferred the leadership issue until December 22nd. The Palika leader has called for unity.
Economic policy and the The latest economic statistics point to hard times. Export earnings have fallen economy by nearly 20%, year on year, for the first eight months of 2002. Société minière de sud Pacifique (SMSP), the country’s northern nickel company plans to cut production by half. SMSP/Falconbridge has entered operational planning for their joint venture on the Koniambo mountain range.
Samoa
Outlook for 2002-03 The government of the Human Rights Protection Party is secure. The central bank governor believes the economy can survive the current global downturn, but the external risks are not so clear-cut.
The political scene The results of the post-election legal actions have favoured the government. American Samoa’s US congressman has called for a maritime boundary treaty with Samoa. US marines will visit Samoa to reaffirm America’s commitment to the island state. Directors of the Robert Louis Stevenson Museum may have broken US law.
Economic policy and the The central bank governor is gloomy about economic prospects but is also economy confident that problems can be overcome. Tourist numbers have increased. Polynesian Airlines has received a new aircraft. The chief auditor has detailed serious irregularities in the management of the country’s National Provident Fund. The electricity supplier has announced pricing changes. The government plans to expand small businesses.
Solomon Islands
Outlook for 2002-03 The outlook for a new government is grim. The economy has all but ground to a halt. Voters appear to have opted for a clean-up of parliament.
The political scene Most international election observers were satisfied with the conduct of the election. Law and order will be the top priority for Mr Ulufa’alu if he is re-elected. Protests over compensation payouts blockaded the outgoing prime minister in November. Australia and New Zealand rejected calls for armed intervention in October.
Economic policy and the Government debt now exceeds SI$1.1bn (US$200m). Agriculture and fisheries economy production is below that of 2000. Solomon Airlines has encountered operational problems.
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Tonga
Outlook for 2002-03 The state of the government’s main investment vehicle, the Tonga Trust Fund, is problematic and expected losses cloud the financial outlook. The trust fund affair will be a severe test for the prime minister.
The political scene Rumours and speculation over the state of the royal family have upset the establishment. Ministers on the trust’s board of trustees have had their appointments terminated. The king’s health has been the subject of speculation.
Economic policy and the The MP for Ha’apai, Teisina Fuko, questioned the management of the trust economy fund in August. Losses could total over US$46m. The IMF estimates a 3% GDP growth rate for 2000/01. Employment creation is now a top priority. Tonga hopes for full WTO membership in 2001.
Vanuatu
Outlook for 2002-03 The government may face a financial crisis but details have yet to emerge publicly. Much depends on the outcome of the general elections in the first quarter of 2002.
The political scene The former prime minister, Barak Sope, has been charged with forging two letters of guarantee with face values of US$18m and US$5m. A Thai-Indian businessman, Amarendra Nath Ghosh, has denied receiving short-term government bonds. The opposition boycotted the Comprehensive Reform Programme (CRP) summit in November.
Economic policy and the The prime minister has sought to simplify CRP goals. The government is economy aiming to widen its revenue base. Borrowing is to be strictly controlled. The trade minister has announced a back-down over WTO entry. Vanair, the domestic airline, has re-emerged as a separate entity. Tourism may be recovering from a slump.
Editors: Danny Richards (editor); Graham Richardson (consulting editor) Editorial closing date: December 11th 2001 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 2002-03
External risks dominate The current period emphasises the region’s vulnerability to external events, regional prospects particularly with regard to the prospect of a sustained global economic downturn. Samoa and Tonga, especially, would be affected by a lengthy recession in the US because of the impact on remittances sent home by nationals or former nationals living there. The most immediate concern is the effect on the region of the September 11th terrorist attacks on the US. Official statistics have not yet been published but there is evidence of a sharp reduction in American overseas tourism; new impediments to entry to the US market for air-transported foodstuffs such as fish; discouragement of investment; and an accelerated decline in the air transport industry, which is so crucial to all the island countries. The so-called “war” against terrorism has agitated the island communities for a variety of reasons. US authorities floated the idea that prominent terrorists might be tried by military courts in American territories such as Guam; and Australia lobbied most island governments to accept its illegal arrivals seeking asylum in Australia for formal processing (see The political scene). But the island states, especially the smallest, remain understandably concerned with the issues of climate change and potentially rising sea levels, which could wipe out some of them. As a result, their view of the US tends to be shaped more by the Bush administration’s dismissal of the Kyoto protocol than on terrorism and events in Afghanistan.
The outlook for regional Attempts at forecasting short-term economic developments in the region have growth is poor been hampered by the events of September 11th. The Asian Development Bank (ADB) issued an updated forecast of prospects shortly before the terrorist attacks for economic growth of 1.2% during 2001 for its 11 Pacific islands developing country members. Whether the forecast is right or wrong, that level of growth would have little impact in the countries concerned. Moreover, the ADB forecast appeared excessively optimistic in its assessments of Fiji and the Solomon Islands, which have achieved greater international respectability through elections but are torpid economically. In some countries there has been a sharp turn away from the belief that global economic integration is the only way ahead. Vanuatu’s last-minute back-down from its bid to join the World Trade Organisation (WTO) will be examined seriously by others. Events of 2001 have probably reinforced the view that collective positions are essential on key issues and that existing institutions such as the Pacific Islands Forum (PIF) are best placed to represent them. The institutions have been working for some time to cultivate that view.
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The political scene
Australia tests regional The Australian government introduced a new view of communal Pacific relationships interests in October when it produced a “Pacific solution” to its problem of dealing with people-smuggling. The smuggling of people from the Middle East and the Asian sub-continent through Indonesia into remote areas of north- western Australia had become big business for entrepreneurs in Jakarta by 2000. The dealers were mostly Iraqis and Pakistanis dealing with people from their own countries who had contested claims to asylum-seeker status. Dubious or not, the claims had been pursued through the courts to the point where an illegal arrival who had actually reached Australia had a much greater chance of being allowed to stay than one who had been assessed offshore by the UN agencies. Unable to curb the flow of asylum-seekers, the Australian government opted to take the problem offshore, diverting all the smuggled clients to non-Australian assessment centres, where international rules would apply, rather than those of the Australian courts. Nauru and Papua New Guinea agreed to such arrangements; Fiji, Kiribati and Palau did not.
Lack of action on security The secretary-general of the Pacific Islands Forum, Noel Levi, told a meeting of co-operation causes regional law officers in Fiji in October that the regional security environment is concern becoming more complex and precarious by the day. He expressed his concern that new forms of threat were emerging, such as drug trafficking, money laundering, people-smuggling, cyber crimes and terrorism, and that there was a risk of them becoming endemic if not dealt with effectively. Mr Levi said that PIF leaders had made a far-sighted declaration in 1992, known as the Honiara declaration, to promote peace and security through law-enforcement co- operation, but its implementation had been disappointingly slow. Only five island countries had enacted most of the required legislation, whereas the aim had been to have full implementation by the end of 2000. Critical from the outset of Australia’s latest response to people-smuggling, Mr Levi said that the emerging refugees market in the region, where governments “leased” out their territories for quarantine and processing services, carried unknown risks and was evolving rapidly without the legal and policy framework needed to ensure proper regulation.
Analysis shows unusual Detailed analysis of Pacific weather records for the past 50 years have showed warming in the region that many parts of the region have warmed much faster than the global average. Daily temperature records showed that in Australia, the Cook Islands, Fiji, French Polynesia, New Caledonia, the Solomon Islands and Vanuatu temperatures rose 0.5-1oC in the second half of the 20th century. Elsewhere in the Pacific warming was similar to the global average, which was 0.6oC for whole of the century. The analysis was presented at a meeting of meteorologists at a joint event of New Zealand’s National Institute of Water and Atmospheric Research and the Asia-Pacific Network for Global Change Research. The convenor, Jim Salinger, said the degree of detail used in the analysis of the period 1950-2000 had not been available before and the results had surprised scientists. He said the study also revealed a significant reduction
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in rainfall in many parts of the Pacific. It was not as widespread as the unusual warming but was further evidence of long-term climate change.
Economic policy and the economy
Attempt to agree on global The latest meeting of the Commission for the Conservation of the Southern bluefin tuna quota fails Bluefin Tuna has failed in an attempt to reach an agreement on a global quota for the species, which is the region’s most important commercial fish. The effort foundered on Japan’s insistence that it be given a higher quota on the basis that the stock had “recovered”. The commission was established in 1993 with the primary goal of restoring the “parental biomass” to the 1980 level by 2020. Australia and New Zealand, the other founding members with Japan, rejected the claim for the additional quota, saying that the scientific evidence did not support the claim of recovery. Greenpeace Australia said that the scientific evidence made Japan’s claim untenable. The meeting was held in Japan in October against a background of continuing strong pressure from a struggling Japanese fishing industry for greater access to fish stocks.
A positive outcome of the meeting was that South Korea joined the commission and Taiwan, under threat of trade sanctions from the members, agreed to do so by the end of 2001. The enlarged membership could increase the commission’s conservation clout significantly. Both new members are major fishing nations, with Taiwanese fishing companies controlling the mainland China industry and most of the Indonesian long-line fishers that work the tuna spawning grounds in the Java Sea.
Japan is opposing the new Japan has also been campaigning strongly in 2001 against a wider-ranging Pacific fisheries convention treaty concluded in September 2000 after several years of tough negotiation. Called the Convention for the Conservation and Management of Highly Migratory Fish Stocks in the Western and Central Pacific Ocean, the agreement is unlikely to be fully operational for about five years as it goes through the ratification process and as operational machinery is established. Pacific islands governments regard it as essential to protect the fish stocks for the long term and all PIF members, except Tonga (which abstained), supported it. The convention would introduce a much more regulated regime, including a requirement that all commercial fishing boats in the region be equipped with the vessel monitoring system (VMS) equipment already demanded by member governments of the Forum Fisheries Agency (FFA) as a licensing requirement. Japan bitterly opposed it then and is doing so again under pressure from the domestic industry. Boats operating under the convention would also have to use prescribed fishing equipment, accept random inspection and search, and the possibility of arrest in the event of breaches. Japan’s ministry of agriculture, forestry and fisheries has published a paper saying the convention is riddled with faults, was negotiated undemocratically and violates the United Nations Law of the Sea Convention.
A regional sugar supply A regional sugar supply agreement between Fiji and five neighbouring island agreement is revived countries—Kiribati, Samoa, Solomon Islands, Tonga and Tuvalu—was revived
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at meetings in Suva in October after a lapse of two years. The agreement took effect from November 1st and runs to the end of May 2005 when it will be reviewed. In the first six months of the agreement, Fiji is committed to supply 7,800 tonnes to the five importers, then at least 17,600 tonnes a year to a maximum of 20,000 tonnes. The director of trade and investment division of the PIF secretariat, Jaindra Kumar, said that under the previous agreement the sugar had been supplied through an appointed agent. Under the new one it would be supplied directly by the Fiji Sugar Marketing Company, ensuring a better price for the importers. The sugar agreement had been operating for 25 years before it lapsed two years ago.
A PIF trade office has The Pacific Islands Forum (PIF) trade office in Beijing became fully operational opened in Beijing from December 1st. It is headed by Rohan Ellis, who has the title trade representative. Mr Ellis was previously chief executive officer of the Cook Islands Trade and Investment Board. Operations of the Beijing office are funded by the Chinese government but it will operate in the same way as existing Forum offices in Sydney, Auckland and Tokyo. The PIF secretary- general, Noel Levi, said it would help to raise the profile of the private sectors in island countries and seek to increase the benefits of increased trade with China. It also marked an important step in developing the already excellent relations between the Forum and China.
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Fiji
Political structure
Official name Republic of Fiji Islands
Form of state Parliamentary
The executive The president, appointed by the Great Council of Chiefs (Bose Levu Vakaturaga), appoints the prime minister, who selects the cabinet
Head of state The president, Ratu Josefa Iloilo
National legislature Bicameral parliament comprising an appointed upper house, or Senate (34 members), and an elected House of Representatives (71 members). The 1997 constitution prevented the dominance of parliament by indigenous Fijians and abolished the requirement that the prime minister be an indigenous Fijian. There is universal suffrage for all citizens aged over 21. Voting is compulsory and preferential
Regional government Local administration is on a divisional basis with separate councils for urban areas. There is a separate local government system for the indigenous Fijian population
Legal system Magistrates’ courts, High Court and Court of Appeal, presided over by the Supreme Court
National elections August 25th to September 1st 2001
Main political parties Soqosoqo Duavata ni Lewenivanua (SDL); Fiji Labour Party (FLP); Matanitu Vanua (MV, Conservative Alliance); National Labour Unity Party (NLUP); National Federation Party (NFP); United General Party (UGP)
National government Laisenia Qarase, the leader of the SDL, was appointed prime minister on September 10th. The cabinet comprises 15 SDL members, two from the MV, two from the NLUP and one independent. Mr Qarase defied the constitution and named a cabinet that does not include any members of the FLP. The legality of the new cabinet will be challenged in the high court
Prime minister & minister for Fijian affairs Laisenia Qarase
Key ministers Agriculture, sugar & land resettlement Jonetani Galuinadi Commerce, business development & investment Tomasi Vuetilovoni Education Ro Teimumu Kepa Finance & national planning Ratu Jone Kubuabola Foreign affairs Kaliopate Tavola Home affairs & immigration Joketani Cokanasiga Labour & industrial relations Kenneth Zinck Lands & mineral resources Ratu Naiqama Lalabalavu Public enterprises & public-sector reform Irami Matairavula Regional development & multi-ethnic affairs George Shiu Raj National reconciliation and information Josefa Vosanibola Tourism & civil aviation Konisi Yabaki Women, social welfare & poverty alleviation Adi Asenaca Caucau
Central bank governor Savenaca Narube
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Economic structure
Annual indicators
1996 1997 1998 1999 2000 GDP at current pricesa (F$ m; factor cost) 2,553 2,616 2,805 3,139 3,085 Real GDP growtha (%) 3.1 –0.9 1.4 9.7 –2.8 Consumer price inflationa (av; %) 2.4 2.9 8.1 0.2 3.0 Populationa (m) 0.78 0.79 0.80 0.81 0.81 Exports fobb (US$ m) 672.2 535.6 428.9 537.7 n/a Imports fobb (US$ m) 839.9 818.9 614.6 653.3 n/a Current-account balanceb (US$ m) 13.5 –34.1 –59.9 12.7 n/a Reserves excl goldb (US$ m) 427.2 360.3 385.4 428.7 409.7 Total external debtc (US$ m) 218.1 219.1 192.9 162.7 n/a Debt-service ratio, paidc (%) 3.6 2.8 3.5 3.5 n/a Exchange rateb (av; F$:US$) 1.403 1.444 1.987 1.970 2.129
December 7th 2001 F$2.272:US$1
Origins of gross domestic product 2000a % of total Components of gross domestic product 2000a % of total Agriculture, forestry & fishing 16.8 Private consumption 62.0 Mining & quarrying 2.5 Government consumption 17.9 Manufacturing 14.6 Fixed investment 11.2 Construction 4.3 Stockbuilding 1.2 Electricity & water 4.3 Exports of goods & services 59.6 Transport & communications 13.3 Imports of goods & services –52.9 Wholesale & retail trade, restaurants & hotels 18.8 Statistical discrepancy 1.0 Other services 25.4 Total 100 Total incl imputed service charge 100.0
Principal exports 2000a F$ m Principal imports 2000a F$ m Garments 346.7 Machinery & transport equipment 345.5 Sugar 237.5 Manufactured goods 486.4 Gold 75.7 Mineral fuels 298.1 Fish 88.8 Miscellaneous manufactured articles 239.2 Timber 44.9 Food 220.7 Total incl others 1,217.2 Total incl others 1,772.3
Main destinations of exports 2000d % of total Main origins of imports 2000d % of total Australia 34.2 Australia 38.9 US 19.6 New Zealand 16.4 UK 14.3 Singapore 5.7 Pacific Islands 11.4 Japan 4.5 New Zealand 4.8 US 4.5 Japan 3.8 a Reserve Bank of Fiji, Quarterly Review. b IMF, International Financial Statistics. c World Bank, Global Development Finance. d IMF, Direction of Trade Statistics (derived from trading partners’ records).
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Quarterly indicators
1999 2000 2001 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Government finance (F$ m) Total revenue & grants 255.3 234.2 220.1 207.4 249.2 189.5 260.8 194.4 Income taxes 152.2 134.6 117.2 118.0 117.7 60.5 63.7 70.0 Expenditure 359.5 232.4 245.5 264.5 388.8 236.7 326.4 310.7 Balance –104.2 1.8 –25.4 –57.1 –139.6 –47.3 –65.6 –116.4 Prices Consumer prices (1995=100) 114.4 114.8 116.3 116.4 116.7 120.9 121.3 120.5 % change, year on year –0.6 –0.8 0.9 2.2 2.0 5.3 4.3 3.5 Financial indicators Exchange rate F$:US$ (av) 1.974 2.016 2.095 2.152 2.252 2.230 2.298 2.285 F$:US$ (end-period) 1.966 2.043 2.078 2.224 2.186 2.333 2.333 2.334 Interest rates (%) Bank (end-period) 2.50 2.50 15.00 10.00 8.00 6.00 6.00 6.00 Deposit (av) 1.18 0.98 0.84 0.92 0.85 0.80 0.76 n/a Lending (av) 8.51 8.37 8.39 8.43 8.40 8.48 8.36 n/a Money market (av) 1.26 1.35 4.13 3.70 1.14 0.97 0.80 0.57 Treasury bill (av) 2.00 2.00 5.00 5.00 2.53 1.69 1.43 1.35 M1 (end-period; F$ m) 694.5 575.3 529.1 570.8 593.7 618.9 598.1 n/a % change, year on year 40.6 8.2 3.5 5.9 –14.5 7.6 13.0 n/a M2 (end-period; F$ m) 1,546.1 1,471.6 1,437.8 1,487.2 1,513.8 1,504.2 1,466.0 n/a % change, year on year 14.2 5.2 5.6 6.6 –2.1 2.2 2.0 n/a Sectoral trends Sugar exports (‘000 tonnes) 144.9 20.4 27.0 106.5 176.3 0.0 34.0 n/a Tourism Visitor arrivals (‘000) 104 95 79 45 74 70 83 103 Length of stay (av; days) 8.0 8.1 9.2 9.1 8.4 8.3 8.5 n/a Gross earnings (F$ m) 139.6 123.3 126.2 66.2 97.8 99.9 116.7 n/a Foreign trade (F$ m) Exports foba 340.8 261.5 243.7 365.9 372.6 228.7 261.4 n/a Imports cif –586.8 –462.4 –438.3 –391.3 –464.3 –411.0 –417.0 n/a Trade balance –246.0 –200.9 –194.6 –25.4 –91.7 –182.3 –155.6 n/a Foreign reserves(US$ m) Reserves excl gold (end-period) 428.7 412.5 397.4 373.4 409.7 347.3 333.1 333.9 a 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 2002-03
Future stability is again in The business of government has proceeded reasonably smoothly since the the hands of the courts elections in August-September but with an acute level of uncertainty about both the short-and long-erm future. The elections gave a qualified democratic mandate to the government of the prime minister, Laisenia Qarase, and his new party, Soqosoqo Duavata ni Lewenivanua (SDL, People’s Unity Party). For its own reasons, the Australian government accepted the election outcome almost immediately as a sufficient restoration of democracy to justify the removal of sanctions. Others, including New Zealand and the London-based Commonwealth secretariat, were more cautious. Mr Qarase has refused to include ministers from the Fiji Labour Party (FLP) in his government despite the constitutional provision giving them an entitlement in proportion to their numbers in the new House of Representatives. The FLP claimed the right to eight seats in the cabinet but Mr Qarase, formerly the caretaker prime minister installed by the military, said such a government would be unworkable because of the depth of policy differences. As a result, the FLP has begun legal action challenging the constitutionality of the government and a hearing is expected to begin in February 2002. Mr Qarase says he will accept the result. Whether other leaders of the indigenous Fijian community will accept an outcome unfavourable to their interests is not so certain.
George Speight’s trial will The situation will be underscored also by the recurring legal wrangles over start soon George Speight, the former businessman who was the public face of the group that carried out the hostage taking in 2000. Since July 2000 Mr Speight and some of his key co-conspirators have been held in a special prison on Nukulau island in Suva Bay on charges of treason. Mr Speight, under his Fijian name Ilikini Natini, was also elected to the House of Representatives for his home territory of Tailevu as a member of the Matanitu Vanua (MV, Conservative Alliance), whose membership includes most of the publicly identified leaders of the project to topple the Chaudhry government. His eligibility was unchallenged since he had been convicted of no offence at the time, but in early December, under section 71 of the constitution, he lost his seat. Despite pressure from Mr Speight’s legal team for special dispensation, he was disqualified from parliament for failing to attend two consecutive sessions without approval from the speaker, In the longer term Mr Speight’s treason trial will not start before February 2002 and is likely to run for many weeks. Who it may implicate—or impugn—is unclear, but a matter of intense, constant speculation since nothing has been published from the several public inquiries that have been pursuing various aspects of that issue.
Uncertainty weighs heavily The uncertainty is a huge dampener on the economy. Investment, never a on the economy strong point in recent years, has stalled, despite the range of government incentives on offer. The 2002 budget introduced in November extends the range of investment incentives and contains provisions for government direct investment in joint ventures. Unemployment remains extremely high and the exodus of well-educated citizens, especially those of Indian background, continues apace. Government ministers cited such emigration as additional
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justification for the extensive range of affirmative action programmes for indigenous Fijians in the budget. Through the programmes outlined in the budget, there will be a significant increase in capital spending to foster economic growth and in spending overall. The government expects a deficit equivalent to 6% of GDP in 2002 but considers it warranted by the exceptional circumstances. It also projects growth for the year of 3.5%, which may prove hard to achieve. There has been some scepticism about official economic data. The year 2000 was regarded as a disaster for virtually every area of business but the contraction in the economy was progressively revised downward from more than 8% to the latest official government estimate of just 2.8%. But a UN study in October suggested the contraction could have been nearer 12.5%.
The focus of international The outlook for international relations is also uncertain. Australia’s quick relations may move north decision after the elections to normalise relations clearly came as a great relief and morale-booster to the Fiji government, while the decisions not to do so by New Zealand and the Commonwealth group had the opposite effect. Fiji has also featured in the Australian government’s concept of a “Pacific solution” to its growing problem of dealing with people-smuggling (see The region). The Fiji government was offered A$20m (US$10m) to establish a facility to accommodate about 1,000 asylum-seekers. The newly elected Qarase government, composed of more technocrats than politicians, was strongly attracted to the proposition but it was condemned from both sides of the communal divide and finally rejected in late November.
The political scene
The president attacks Fijian In his speech at the formal opening of the parliament on October 2nd the support of sanctions president, Josefa Iloilo, strongly attacked critics of the government at home and indirectly criticised Australia and New Zealand for their imposition of sanctions against Fiji. He said that many thousands of Fijians had lost their jobs because of non-government trade sanctions imposed by the Australian and New Zealand trade union movements at the request of Fiji’s union
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movement, which is closely aligned with the FLP. In the speech, prepared for him by the government, the president said that such action clearly was not a demonstration of love of country or faith in its ability to resolve problems peacefully and amicably. Nevertheless, he referred later to the “illegal and unwarranted forcible removal of a democratically elected government” as having brought about widespread suffering. He said it was the duty of parliamentarians to deal decisively and comprehensively with the root causes of insecurity and instability in all sections of Fijian society.
He said the constitution would be reviewed to ensure that it truly reflected the wishes of the people but the government gave a firm assurance that no rights it currently provides to any community would be removed or reduced. The government would also establish a land claims tribunal to deal with the long- standing grievances of indigenous landowners. It would find a fair and equitable solution to the problems arising from the expiry and non-renewal of thousands of farm leases of mainly Indian sugar-cane producers. At the same time, the government would give urgent attention to the decline in cane production and in productivity of the country’s sugar mills.
Mr Chaudhry declines The president appointed Mahendra Chaudhry leader of the opposition on opposition leadership October 4th, exercising the deliberative judgment provided to him in the constitution. He made it clear that he was aware of the FLP’s legal challenge to the make-up of the government. Mr Chaudhry said he was unable to accept the appointment in light of the clear position he and his party had taken with respect to their entitlement to cabinet positions. He informed the president “with great respect” that he could not see how he (Iloilo) could have reached the conclusion that such an appointment would be acceptable to a majority of non-government members of parliament.
The president immediately appointed the sole parliamentary representative of the National Federation Party (NFP), Prem Singh, as leader of the opposition. Mr Singh had no qualms about taking the job, saying he looked forward to the challenge that lay ahead of him.
The government supports The attorney-general, Senator Qoriniasi Bale, announced on October 4th that legal challenge the government would support the FLP challenge to the composition of the cabinet because of the need for clarification of the constitution. He said that Mr Chaudhry and the prime minister had a clear disagreement that could be resolved only by the courts. According to the attorney-general, the constitution was unrealistic, confusing and hard to interpret in some respects, even in the spirit within which it was written. In those respects, it should be tested and, where necessary, amended. The government believed it was in the national interest to do so.
Political leaders agree on Despite their sharp political exchanges, Mr Chaudhry and Mr Qarase were the need for some changes among 17 political leaders from across the spectrum who reached a series of broad agreements at an informal and closed dialogue session known as a Talanoa, held in early November. It was the fourth Talanoa, aimed at promoting national unity, harmony and stability “through a process of
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 16 Fiji
conciliatory dialogue and action”. A communiqué at the end of the event stated that it was agreed that there was a need:
• for more constructive dialogue at all levels; • to foster respect for the law across the broad spectrum of society; and • for affirmative action to help disadvantaged communities and the needy, and to help indigenous Fijians develop their resources.
It was also agreed that the constitution was a living document that might need to be changed after “an inclusive consultative process with the people”.
Australia lifts sanctions to Australia announced its decision to lift sanctions at the beginning of October mixed reactions to mixed reactions in Fiji. Mr Chaudhry said Australia had acted prematurely. He was disappointed by the decision which, he believed, set a poor example for regional security and suggested Australia did not keep its word. However, the minister for reconciliation, Josefa Vosanibola, said it was obviously a vote of confidence in the Qarase government and would help the reconciliation process. In announcing the decision, Australia’s foreign minister, Alexander Downer, stressed the positive implications of holding the elections rather than the aftermath. He said he was encouraged by developments since the crisis that began in May 2000, and especially by reports from UN and Commonwealth observer teams that the general elections truly reflected the will of the people. The Australian decision meant the resumption of wide-ranging Australian aid and training programmes, both civil and military, reinstatement of the bilateral trade and economic relations agreement and the removal of any restrictions on Fijian participation in sporting events in Australia.
New Zealand defers New Zealand’s foreign minister, Phil Goff, told his Fiji counterpart, Kaliopate sanctions decision Tavola, at the end of October that New Zealand, like the Commonwealth, would defer a decision on the lifting of sanctions until the court of appeal ruled on the constitutionality of the new government. Hearing of the case is expected to begin in February 2002. Mr Goff said the Commonwealth clearly believed that an important constitutional issue remained unresolved and New Zealand would “act collectively” with the Commonwealth. He said New Zealand accepted and welcomed the restoration of democracy in Fiji. It also accepted that Mr Qarase had the confidence of the majority of the House of Representatives and was properly prime minister. However, the constitutionality of his cabinet was unresolved, a fact accepted even by his chief justice, Sir Timoci Tuivaga. Mr Goff said he had told Mr Tavola that New Zealand was keen to see Fiji return to full participation in the activities of the Commonwealth so that targeted sanctions could be lifted and relations normalized.
Economic policy and the economy
Moderate growth is In his budget speech to parliament on November 9th, the finance minister, expected in 2002 Ratu Jone Kubuabola, stated his expectation that growth would reach 1.5% for 2001 after the contraction of 2.8% officially estimated for 2000. He forecast
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growth of 3.5% for 2002, with inflation remaining at about 3%. The minister described the budget as a first step in rebuilding the country and setting it on a new course. The government would act on three fronts. First, in the current climate, it considered it necessary to take a more active and interventionist role in rebuilding the economy. Second, in the short term, it would aggressively pursue a strong redistributive spending policy to address the basic needs of the people. Third, it would make its business operations more efficient and competitive for a globally integrated market. He said the government aimed for a net deficit of 6% of GDP in 2002 in an attempt to kick-start investment, provide basic needs for the people and cover commitments made during the election campaign. Total debt would reach about 46% of GDP in 2002, but the government had a long-term strategy to bring both the deficit and debt back to “very moderate” levels.
Tax rates will be reduced in On the revenue side, Ratu Kubuabola said the government planned to collect 2002 F$50m (US$22m) of F$130m of taxation arrears, and to strengthen compliance capability, which should yield a further F$40m. Corporate and personal income tax rates would be reduced from 34% to 32%; the 100% deductibility of export profits would be extended to the end of 2002; and non-residents would no longer pay tax on any profit derived from the sale of land that had been acquired purely for investment purposes. The tax laws would be overhauled to bring them into line with the double taxation treaty legislation. The minister announced a special tax package aimed at attracting investment to the gold-mining industry. It includes waiving the 3% export tax, allowing the carry forward of losses for eight years, duty-free import of capital plant and equipment and reduction of the corporate tax rate from 32% to 30% in 2003.
Poverty alleviation is a The F$1.12bn budget provides a total of F$157m for poverty alleviation and priority rural development in 2002 compared with F$101m in 2001, with the emphasis on housing and emergency shelter. A budget of F$28m is provided for various affirmative-action schemes for indigenous Fijians and Rotumans, most of them aimed at improving education and business development. There are allocations of F$217m for education, F$107m for health and F$193m for infrastructure. The government sees the tourism industry as the leading element in stronger economic growth and will provide the Fiji Visitors Bureau with F$11m towards its marketing programme in 2002.
Tate & Lyle warns that A key player in the international sugar trade, the British firm Tate & Lyle, has sugar quality must improve warned the Fiji industry that it will be at risk unless sugar quality is improved. The warning came from the company’s managing director for the EU, John Walker, during a visit in November to emphasise concerns about the quality of sugar exported last season. Mr Walker said Tate & Lyle had had to spend about F$1.5m on additional refining to procure the quality needed. The high dextrin level of the sugar made it the worst the company had received from Fiji. Under the sugar protocol of the Cotonou (formerly Lomé) convention Fiji has an annual quota of 165,350 tonnes of white sugar, worth about F$400m, for preferential entry to the EU. Tate & Lyle has contracted with the Fiji Sugar Corporation (FSC) since 1975 to buy the product. The present contract expires in 2006 and Mr Walker said that at that time there would be at least a dozen
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new suppliers competing with Fiji. If the quality of the Fijian product did not improve his company would have no choice but to deal with other suppliers. The FSC has proposed a differential payment system to cane growers to encourage improved quality but the scheme has yet to be endorsed by the various stakeholders.
Tourist arrivals are on the Tourist arrivals for the first six months of 2001 totalled 152,983 (around 25,500 rebound a month) compared with 187,534 in the first half of 1999, according to statistics from the National Tourism Council in October. The director of tourism, Eroni Luveniyali, said the industry was doing well, given that the country was still recovering from the political and social upheaval in 2000. Visitor arrivals from January to April 2000 fluctuated between 30,000 and 38,000 a month. In June 2000 they slumped to 12,066, following the coup attempt and showed little improvement until October, when they reached 24,275.
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 19 New Caledonia
New Caledonia
Political structure
Official name New Caledonia
Form of state A largely autonomous territory within the French state, except in areas such 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 The 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 Three provincial assemblies plus 32 basic local government units known as communes
Legal system The French system, 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 first president, Jean Lèques, resigned in March 2001 and was replaced by Pierre Frogier. Both are members of the RPCR, which holds 24 of the 54 seats in the congress. In coalition with the FCCI, it commands a majority with seven of the 11 executive positions in the government. The FLNKS and its affiliate party UC hold the other four places
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 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 the executive government Pierre Frogier (RPCR) President of the Northern Province Paul Néaoutyine (FLNKS) President of the Southern Province Jacques Lafleur (RPCR) President of the Loyalty Islands Robert Xowie (FLNKS) Vice-president Déwé Gorodey (FLNKS) Deputies to the French Assemblée nationale Jacques Lafleur (RPCR) Pierre Frogier (RPCR) Representative to the French Senate Simon Loueckhote (RPCR) 20 New Caledonia
Economic structure
Annual indicatorsa
1996 1997 1998 1999 2000 GDP at current prices (CFPfr m) 335,482 349,260 338,782 342,170 n/a Real GDP growth (%) 0.5 2.0 –3.2 0.9 n/a Consumer price inflation (av; %) 1.7 2.1 0.2 0.1 n/a Population (‘000) 196 199 203 206 n/a Exports fob (US$ m) 553.6 542.4 406.6 399.7 n/a Imports cif (US$ m) 1,000.9 928.1 996.3 1,007.9 n/a Exchange rate (av; CFPfr:US$) 93.0 106.2 99.9 112.0 129.4
December 7th 2001 CFPfr133.75:US$1
Origins of gross domestic product 1997 % of total Agriculture 3.7 Mining & metallurgy 10.7 Construction & energy 4.0 Miscellaneous industries 5.0 Transport & communications 6.7 Commerce 43.7 Other services 26.2 GDP at market prices 100.0
Principal exports fob 1996 US$ 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 1999b % of total Main origins of imports 1999b % of total Japan 25.8 France 50.2 France 18.8 Australia 15.1 Taiwan 12.0 Singapore 5.9 Australia 8.2 New Zealand 5.2 US 3.0 Japan 3.7 a Bank of Hawaii, An Update on New Caledonia, August 2000. b IMF, Direction of Trade Statistics (derived from trading partners’ records).
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 New Caledonia 21
Outlook for 2002-03
The economy and polity The economic and political outlook has become clouded in recent months. face testing times Nickel prices have been sliding and there has been disarray in the ranks of the pro-independence coalition, Front de libération nationale kanak socialiste (FLNKS). Some decline in the price of nickel had been expected but the impact has been severe in a small economy dominated by this single commodity (see Economic policy and the economy). The fall has also been exacerbated by some recent weakening of the US dollar, which has further reduced local currency receipts from nickel exports. On the latest official statistics, which pre-date the events of September 11th, the tourist industry was also ailing, while the numbers of mainly young people looking for jobs had reached a record high. On the political side, the FLNKS has finally withdrawn from the government and its leader, Roch Wamytan, has been deposed from the presidency of Union calédonienne (UC, Caledonian Union), the largest constituent party of the FLNKS. The situation is a considerable embarrassment to the FLNKS. Mr Wamytan is by far its best-known representative in regional affairs and is the current chairman of the Melanesian Spearhead Group (MSG, also embracing Papua New Guinea, Solomon Islands, Fiji and Vanuatu).
The political scene
FLNKS leaves the The FLNKS withdrawal from the government followed a decision by France’s government Conseil d’état (Council of State) on the composition of the executive government, which is effectively a cabinet. When the executive was elected by the country’s congress in April, six places were won by the anti-independence party, Rassemblement pour la Calédonie dans la République (RPCR), one by its pro-independence junior partner, Fédération des comités de coopération indépendandistes (FCCI), three by the FLNKS and one by the “UC group”. There was a tie for the final, 11th seat between the FLNKS and FCCI, which was resolved in favour of the FLNK’s candidate, Augustino Manuohalolo (see June 2001, page 21). However, on October 1st the Conseil d’état, in its role as interpreter of the constitution and related laws, reversed that ruling, giving the final seat to the FCCI’s candidate, Raphaël Mapou. The issue rested on interpretation of the electoral law and its definition of parties, and the FLNKS was torpedoed by its acceptance of the “UC group” earlier in 2001 (see June 2001, page 22). The group of six members, elected under the FLNKS banner at the local government elections in March, insisted on using their UC identity within the congress. It is the group’s belief that the party, the country’s oldest and largest political organisation, should have direct recognition, apart from its membership of the FLNKS. The UC annual conference agreed, rather than risk a split, and the FLNKS subsequently did the same for the same reason. The Conseil d’état effectively ruled that the law viewed the “UC group” as a political entity distinct from the FLNKS.
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FLNKS is “under- At a news conference held on October 22nd to announce the FLNKS represented” withdrawal from the executive government, Mr Wamytan, who was executive member for custom affairs and relations with the custom senate, said the new situation was totally unacceptable. The FLNKS had drawn 30-40% of the popular vote at elections but the Conseil d’état ruling had reduced its representation in the government to about 15%. Mr Wamytan had no doubt that the RPCR had engineered the situation to destabilise the FLNKS and to hinder its dissemination of ideas. He hinted at the possibility of total withdrawal from the current system to force new elections but said that for the time being there would be a graduated response: the position of the FLNKS vice president in the executive, Déwé Gorodey, for example, was not immediately affected. At the same time, however, he acknowledged that all the problems flowed from the internal divisions of the UC. These had halted the long- awaited moves towards genuine power-sharing—collegiality, as it is called in the organic law—under the new president, Pierre Frogier, (see June 2001, page 21) and had now dealt the independence forces “another blow”.
UC’s new leadership alarms The problems will not be solved easily. At the UC annual conference on other FLNKS members November 3rd, it was the leader of the “UC group”, Pascal Naouna, who defeated Mr Wamytan for the presidency of the party. Until then, most observers had seen him as the leader of a dissident group, distinct from the party’s mainstream. Yet he had shown strong support earlier in 2001 by being elected vice-president and then resigning from the position in protest at criticism by Mr Wamytan of his group’s activities. Now, it is clear that he represents not only a very strong, but probably majority, view within UC. Mr Naouna listed as his priorities all the issues supported by the other pro- independence parties, including what he called the “reactivation” of relations with regional allies—an area where Mr Wamytan has been notably successful. He said the turbulent reshaping of UC would “restore” the impact of the independence movement. Some speakers at the UC conference expressed the view that Mr Wamytan’s role as FLNKS leader lessened the effectiveness of his UC presidency. However, the conference resolved to continue to support him as FLNKS leader and noted the value of his work in regional networking on behalf of the independence movement.
Other parties in the coalition took the more down-to-earth political view that Mr Wamytan had lost the confidence of his own party and, with it, his power base. They also saw the new leadership of UC as one seeking a stranglehold on the positions available to the independence movement in the new system of government and the new institutions being created by the progressive transfer of powers from France to the local government.
FLNKS defers the leadership An FLNKS conference on November 17th deferred the leadership problem until issue until December 22nd a special meeting on December 22nd, hoping to find a resolution. The UC delegation declared its support for Mr Wamytan continuing as FLNKS leader. The coalition’s second largest constituent, Palika (Parti de libération Kanak), nominated its president, Paul Néaoutyine. The decision to defer the matter bought time for an effort to avoid a direct clash between the two parties. Mr Néaoutyine was FLNKS president until Mr Wamytan took over six years ago. In
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 New Caledonia 23
his opening speech to the conference, Mr Wamytan reviewed those six years, saying it had been a challenge to protect the organisation against external and internal pressures, including power struggles between UC and Palika. He said his actions had put the interest of the FLNKS first, often to the detriment of his own party, which was now blaming him for doing so. There was a real danger of the liberation movement splitting and losing its privileged link to the people.
Palika leader urges unity Palika also held its annual congress on November 3rd, with Mr Néaoutyine questioning whether UC should be left to make decisions in the name of the pro-independence movement. He asked, but did not answer, the question: “Or should we, too, act?” What was certain, he said, was that the movement would lose ground if it went to the next elections divided and that independence supporters must have a clear vision of the movement’s objectives and a will to bring them to fruition. In Palika’s view, those objectives were emancipation of the country and transition to sovereignty and independence.
Economic policy and the economy
Latest economic statistics The latest round-up of statistics from ITSEE (Institut territorial de la statistique point to hard times et des études économiques) at the end of October tended to bear out the gloomy sentiments expressed by businesses in most sectors of the economy in recent months. Nickel production was down, tourism languishing and unemployment at record levels. Nickel ore exports for August were 632,000 tonnes compared with 700,000 tonnes in August 2000. For the first eight months of 2001, mineral production was down 2% to 4.64m tonnes. ITSEE said the figures directly reflected lower nickel prices on the London Metals Exchange and a weaker US dollar. Production from the Doniambo smelter of Société Le Nickel in the first eight months of 2001 has however reached 39,027 tonnes, 5.8% higher than in the corresponding period of 2000.
ITSEE reported that the number of tourist arrivals in the first eight months was down 4% on 2000 and likely to decline further. The main reason was the increasing reluctance of French people to take their summer holidays in New Caledonia. Arrivals from France in July were more than 30% lower than a year earlier. Major factors in the change were the cessation of flights by the charter line AOM (Air Outre Mer) and higher fares. Despite the decline in international tourism, ITSEE said a survey of Nouméa hotels showed they had 73,812 clients in the first seven months of 2001, compared with 66,912 in the same period of 2000, apparently as a result of increased domestic travel.
Export earnings fall The institute said that lower nickel prices and a weaker US dollar, with no significant change in imports, had caused export earnings to fall by 19.3%, year on year, in the first eight months of 2001, emphasising again the basic vulnerability of the local economy to basic externalities. In 2000 the concern was about high oil prices and the strong US dollar producing a double-impact effect on New Caledonia prices. A bright spot in the statistics was the small
EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001 24 New Caledonia
housing construction sector, where activity was almost double the level of a year ago. Inflation at the end of August was 2%, as against 1.7% a year earlier.
SMSP plans to cut Société minière de sud Pacifique (SMSP), the country’s northern nickel production by half company, announced in November that working hours for about 600 of its employees would be reduced because of falling demand in the weakening global economic circumstances. The company said that world nickel prices had fallen by close to 50% in the space of a year and it was selling its product at a loss. SMSP, owned by the FLNKS Northern Province government, proposes to reduce operations by about 50% from December 1st for an unspecified period. The chairman of SMSP, André Dang, said he was asking for the understanding of the workers, who would receive 83% of their regular salaries during the cutback. Unions initially opposed the plan strongly but seemed likely to accept it in preference to retrenchments.
SMSP/Falconbridge enters SMSP and a Canadian nickel company, Falconbridge, have begun work on a operational planning pilot mining project for their joint venture on the Koniambo mountain range near Voh, in the north of the main island (see June 2001, page 23). The joint venture aims to have an integrated mining and smelting operation with a production capacity of about 60,000 tonnes of nickel a year by early 2006. The pilot mine, employing about 30 people, is to establish a mathematical model to govern mining operations to ensure maximum ore recovery (and, therefore, maximum life of the project). It aims to define the boundaries of the resource, the variations of ore grades, and the best way to extract them to maintain quality and cost effectiveness. This detailed information will help to validate the pre-feasibility study that led to the go-ahead for the project, which on current estimates should have a working life of about 25 years. It will also assist planning of logistical operations such as water supply and waste disposal.
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 Samoa 25
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 electoral rolls made up of non-Samoans; elections are held every five years
Legal system System of lower courts leading to the Court of Appeal at its apex
National elections March 2001
National government The Human Rights Protection Party (HRPP), led by Tuilaepa Sailele Malielegaoi, holds 28 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 foreign affairs & public service, immigration, police and prisons Tuilaepa Sailele Malielegaoi
Deputy prime minister & minister of finance Misa Telefoni Retzlaff
Key ministers Agriculture Tuisugaletaua Sofara Aveau Customs Faina Tino Education Fiame Naomi Mata’afa Health Mulitalo Siafausa Justice Seumanu Aita Ah Wa Lands, survey & environment Tuala Sale Tagaloa Kerslake Works Faumuina Liuga Sports & culture Ulu Vaomalo Kini Trade & industry Hans Joachim Keil Transport Palusalue Faapo II Women’s affairs Tuala Ainiu Iuisitino
Central bank governor Papali’i Scanlan 26 Samoa
Economic structure
Annual indicators
1996 1997 1998 1999 2000 GDP at current pricesa (Tala m) 555.5 625.3 659.4 703.0 773.7 Real GDP growtha (av; %) 11.6 0.8 2.5 3.1 7.3 Consumer price inflationb (av; %) 5.4 6.8 2.2 0.3 1.0 Populationb (m) 0.17 0.17 0.17 0.17 0.17 Exports fobb (US$ m) 10.08 14.63 20.40 18.15 n/a Imports fobb (US$ m) 90.76 100.11 96.91 115.66 n/a Current-account balanceb (US$ m) 12.28 9.13 20.09 –18.79 n/a Reserves excl goldb (US$ m) 60.8 64.21 61.42 68.20 63.58 Total external debtc (US$ m) 166.9 156.4 180.1 192.3 n/a Debt-service ratio, paidc (%) 4.1 3.8 4.0 5.1 n/a Exchange rateb (av; Tala:US$) 2.462 2.556 2.943 3.012 3.271
December 6th 2001 Tala3.584:US$1
Origins of gross domestic product 2000a % of total Agriculture & fishing 16.2 Manufacturing 15.2 Electricity & water 2.2 Construction 0.9 Trade, transport & communications 31.4 Government & other services 34.1 GDP at constant prices 100.0
Principal exports fob 2000a Tala m Principal imports 1996d % of total Fresh fish 24.7 Intermediate goods 50.5 Coconut oil & cream 4.7 Industrial supplies 26.4 Copra & copra meal 2.3 Consumption goods 38.1 Beer 2.7 Food & beverages 26.0 Taro 0.7 Capital goods 11.4 Total incl others 45.1 Transportation equipment 3.8
Main destinations of exports fob 2000e % of total Main origins of imports 1999e % of total Australia 69.6 Australia 28.2 US 13.0 US 27.0 Germany 3.0 New Zealand 13.1 New Zealand 3.0 Fiji 11.5 American Samoa 2.6 Japan 8.9 a Asian Development Bank. b IMF, International Financial Statistics. c World Bank, Global Development Finance. d IMF, Samoa: Statistical Appendix. e IMF, Direction of Trade Statistics (derived from trading partners’ records).
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 Samoa 27
Quarterly indicators
1999 2000 2001 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Prices Consumer prices (1995=100) 114.1 115.4 116.4 119.4 115.0 116.8 118.9 127.4 % change, year on year –0.3 0.3 –0.4 3.4 0.8 1.2 2.1 6.8 Financial indicators Exchange rate Tala:US$ (av) 3.055 3.108 3.219 3.311 3.467 3.407 3.486 3.471 Tala:US$ (end-period) 3.018 3.131 3.206 3.439 3.341 3.560 3.519 3.531 Interest rates (av; %) Deposit 6.5 6.5 6.5 6.4 6.4 6.4 5.5 5.1 Lending 11.5 11.5 11.5 10.7 10.3 10.3 9.9 9.8 M1 (end-period; Tala m) 80.32 73.87 80.60 85.43 93.28 99.59 88.67 88.65 % change, year on year 20.7 24.6 18.4 16.8 16.1 34.8 10.0 3.8 M2 (end-period; Tala m) 249.24 249.47 256.60 273.07 289.93 300.47 308.27 310.65 % change, year on year 15.7 18.0 13.4 14.2 16.3 20.4 20.1 13.8 Foreign trade (Tala ‘000) Exports foba 15,303 10,211 9,891 14,234 12,497 9,362 15,783 17,215 Imports cif –89,371 –74,517 –73,179 –96,007 –104,904 –101,827 –110,199 –111,669 Trade balance –74,068 –64,306 –63,288 –81,773 –117,401 –92,465 –94,416 –94,454 Foreign reserves (US$ m) Reserves excl gold (end-period) 68.20 62.51 65.13 57.70 63.58 62.90 59.27 55.27 a Includes re-exports.
Source: IMF, International Financial Statistics.
EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001 28 Samoa
Outlook for 2002-03
The government is secure, The position of the prime minister, Tuilaepa Sailele Malielegaoi, and his party, but faces external risks the Human Rights Protection Party (HRPP), has strengthened significantly since the elections in March 2001. Through a combination of by-elections ordered by the courts and the usual process of recruiting independents, the government has a comfortable majority that should see it through any issue of parliamentary confidence for the rest of its term. The central bank governor, Papali’i Scanlan, believes the economy can survive in good shape until the expected upturn in the US in late 2002, but the external environment is not so clear-cut. Mr Tuilaepa is a firm believer in keeping the political atmosphere as calm as possible and should be able to do this in the first year of a new parliamentary term. At the same time, the government must press on with the economic reform programme that has ensured the present resilience in the face of adverse externalities.
The facts revealed by the chief auditor, Tamaseu Leni Warren, about the situation of some key government agencies (see Economic policy and the economy) should give the prime minister cause for considerable concern. The fraught situation of the international airline industry is of even greater concern. The financial problems of Samoa’s national airline, Air Polynesia, seem to have increased with the delivery of a second Boeing 737 aircraft, while the outcome of the troubles of Air New Zealand, upon which the country relies so heavily, is not easy to predict, even after the New Zealand government’s effective repurchase of the airline. The long-standing issues of smallness and vulnerability are very much in play.
The political scene
Post-election legal actions After the usual round of legal challenges following the March general elections, favour the government the HRPP has strengthened its position. Two of its candidates, along with two from the opposition, were stripped of their seats for improper conduct during the election campaign but the HRPP won all four subsequent by-elections to
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 Samoa 29
hold 30 of the 49 parliamentary seats. The Samoan National Development Party, with 13 members, heads a parliamentary opposition supported by independents. However, the legal fallout from the elections still may not be over. The legality of the action of the attorney-general, Brenda Heather-Latu, terminating private prosecutions arising from the elections (see September 2001, page 29) was upheld by the supreme court in September but then taken to the court of appeal. At issue was the question whether, if the attorney- general had power to order that private actions be discontinued, that order was subject to judicial review. The supreme court had declined to consider the question but the court of appeal found it was an important constitutional matter. It ruled on December 2nd that the attorney-general’s discontinuation of private prosecutions could be reviewed, but only on the grounds of “flagrant impropriety”, which would have to be proved by the appellant. On the basis of the information before the court, it said, the establishment of such proof seemed unlikely.
US congressman calls for American Samoa’s congressman, Faleomavaega Eni Hunkin, has urged the US definition of border State Department to negotiate a maritime boundary treaty with Samoa. Mr Faleomavaega, said the boundary treaties executed by the US with Cook Islands, New Zealand (for Tokelau) and Niue had been instrumental in establishing equidistant boundaries for their exclusive economic zones and had significantly reduced misunderstanding and conflict over competing claims to fishery and marine resources. The need for definition of the border with Samoa was particularly pressing because of Samoa’s local fishing fleet of more than 200 boats. The US Coast Guard has had to apprehend Samoan vessels fishing illegally in US waters off American Samoa. Mr Faleomavaega said poaching had adversely affected the American Samoa fishing industry, which has about 50 boats, and there was serious concern about continuing violations.
US marines will visit to Mr Faleomavaega announced on November 30th that he would accompany a reaffirm US commitment contingent of more than 50 US marines on a visit to Samoa to “reaffirm” American commitment to the Pacific island state. Dates for the visit have yet to be fixed, but the marines will undertake community service and civic works and conduct aircrew training. It will be the biggest marine contingent to visit Samoa and members will meet the prime minister and deputy prime minister.
Museum directors may The Samoa Observer newspaper published correspondence in December have broken US law suggesting that the American directors of the Robert Louis Stevenson Museum had broken US law by supporting the 1991 re-election campaign of the then prime minister, Tofilau Eti Alesana, of the HRPP. The newspaper published a letter from Mr Tofilau to the directors saying “My electoral success could not have been achieved had it not been for your support in many forms.” The museum is run by a foundation incorporated in Arizona as a tax-exempt, not- for-profit organisation. According to its own statement of financial policy, the foundation is precluded from funding political or business activities at home or abroad. The Samoa Observer said, however, that ten months before his “thank you” letter Mr Tofilau had written to the directors advising them of cabinet approval for their proposal to restore and preserve the RLS estate on certain conditions. He also pointed out that the consent of the head of state was
EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001 30 Samoa
necessary for their proposal and that he would be personally responsible for seeking it.
Economic policy and the economy
The central bank governor The central bank governor, Papali’i Scanlan, believes the terrorist attacks on the is gloomy but confident US in September and associated economic developments will be distinctly negative for Samoa. However, he said the local economy is in good enough shape to stand up to the looming challenge. Speaking a few weeks after the attacks, he pointed first to the consequences of smallness. Security measures stopped all flights between Samoa and the US for five days after the attacks. This meant the loss of five days of exports from the booming fisheries sector. Fish are now the country’s biggest export item. Exporters would also feel some “discomfort”, he said, from increased Air New Zealand freight rates. Mr Papali’i said that economic growth would be lower than the forecast 4% in 2001 and the inflation target of 3% would be under pressure. Foreign-exchange earnings are expected to be lower than expected following a downturn in tourism and a decline in remittances from overseas because of weaker economic activity in Australia and New Zealand. The slowdown in the American and global economies would also affect tourism, as would the financial problems of Air New Zealand and the collapse of its subsidiary, Ansett Airlines of Australia.
Tourist numbers increase The tourism sector performed strongly around mid-year, with visitor arrivals of 3,292 in July 30% more than those in June. For the first seven months of 2001 the total was 50,650, nearly 8% above that for the year-earlier period. This was despite big falls in the numbers of visitors involved in sporting events and business-related conferences compared with 2000. (Several big events were moved from Fiji during this period in 2000 because of the security concerns there.) There was also a big fall in the number of visitors from the US, even though the figures pre-date the terrorist attacks. There were marginal falls in numbers from Australia and New Zealand but a promising increase of more than 18% in the number of tourists from Japan in July.
Polynesian Airlines receives The government-owned Polynesian Airlines’ new Boeing 737-800 aircraft a new aircraft arrived at the end of September. It was formally named Island of Savaii by the prime minister at a ceremony at Faleolo international airport. The aircraft went into service immediately, replacing its sister craft, Island of Upolu, which was withdrawn for a month to be fitted with fuel-saving “winglets” at the Boeing plant in Phoenix, Arizona. At the naming ceremony, the prime minister, who is also chairman of Polynesian, said the airline would obtain part of its working capital for the current financial year through a Tala7m loan facility from the National Provident Fund (NPF), based on a recommendation from the treasury. The facility would be treated as a purely commercial arrangement.
The chief auditor finds The finance controller and chief auditor, Tamaseu Leni Warren, in his first alarming financial news report to parliament, detailed serious irregularities in the management of the NPF. The fund wrote off bad debts of Tala200,000 (US$56,000) in 1998 and Tala72,000 in 1999 when it had no power to do so. Only parliament could
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 Samoa 31
approve such action, he said. The report stated that the NPF increased its lending by 33% in the four years to the end of 1999 to Tala119m and that loans had been processed and funds released without proper security documents being completed. Mr Tamaseu said this was poor financial management control, likely to lead to irregularity and fraudulent practices. He said that at the end of 1995 the NPF had “doubtful” loans of Tala3.4m. The figure had risen to nearly Tala8.7m by the end of 1999. This substantial increase, he said, required a thorough review of the fund’s lending policies as the unpaid debts significantly deprived fund members of benefits from their contributions.
The audit report also revealed that the Public Trust Office had issued loans totaling Tala8.9m by June 30th 1999, of which 66% were considered doubtful. More than half the outstanding loans were classified as unsecured because repayment arrears exceeded the value of security available. At the end of 1999 the office owed Tala4.7m to the NPF and Tala3.6m to the treasury. Without taxpayer funding it would not be able to pay its debts. The government has yet to make a formal response to the report.
Electricity supplier From mid-November, the Electric Power Corporation introduced a new pricing announces pricing changes policy to try to counter the effects of the big fluctuations in the past two years in the cost of fuel used to produce electricity. There will be automatic reviews of prices every six months, with adjustment up or down if fuel costs have varied by more than 3%. To help low-income households, the minimum charge of Tala15 was abolished and customers are now charged for actual consumption, on the basis of 50 sene per kilowatt hour (kwh) for consumption up to 50 kwh, 60 sene per kwh for consumption of 51-200 kwh and 72 sene per unit beyond that level. Non-domestic users, including industrial and commercial consumers, religious organisations, schools and hospitals will be charged a flat 60 sene per unit. The finance minister, Misa Telefoni, had earlier urged taxi owners to reduce fares following the fall in fuel prices, which saw petrol prices fall by 11.53 sene per litre, diesel fuel by 2.82 sene per litre and kerosene by 2.53 sene per litre. Taxi fares were increased earlier in the year because of higher fuel costs caused by the rising price of crude oil.
The government plans to The government has launched a finance guarantee scheme to encourage the expand small businesses growth of small businesses lacking real-estate assets against which to borrow. Commercial banks have become less and less interested in lending for growth against assets such as equipment but many growing businesses are located on customary land with no prospect of freehold. The national guarantee scheme is being developed from a pilot programme run through the small business enterprise centre. Despite the government’s very orthodox views on most issues of economic management it will involve judgments of business plans and prospects rather than asset backing or location.
EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001 32 Solomon Islands
Solomon Islands
Political structure
Official name Solomon Islands
Form of state Constitutional monarchy
The executive UK-style cabinet, led 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; December 5th 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 parliament on June 30th 2000.
The formation of the new government following the general election on December 5th is expected to be announced in late December. Solomon Islands 33
Economic structure
Annual indicators
1996 1997 1998 1999 2000 GDP at current pricesa (SI$ m) 1,226 1,391 1,449 1,376 1,239 Real GDP growtha (%) 2.4 –1.0 0.8 –1.5 –14.5 Consumer price inflationa (av; %) 9.6 11.7 8.1 12.3 8.3 Populationb (m) 0.39 0.40 0.42 0.43 0.45 Exports fobb (US$ m) 161.5 156.5 141.8 164.6 n/a Imports fobb (US$ m) 150.6 184.5 159.9 110.0 n/a Current-account balanceb (US$ m) 14.6 –37.9 8.1 21.5 n/a Reserves excl goldb (US$ m) 32.58 31.34 49.04 51.14 31.30 Total external debtc (US$ m) 145.1 135.4 149.3 160.2 n/a Debt-service ratio, paidc (%) 3.9 2.5 6.0 4.7 n/a Exchange rateb (av; SI$:US$) 3.566 3.717 4.816 4.838 5.089
December 7th 2001 SI$5.559:US$1
Origins of gross domestic producta 2000 % of total Agriculture 42.1 Mining 3.1 Manufacturing 4.9 Electricity, gas & water 1.3 Construction 2.8 Trade, finance & transport 21.1 Public administration & others 24.7 GDP at constant prices 100.0
Principal exports fob 2000a SI$ m Principal imports cif 1997a SI$ m Timber 224.4 Machinery & transport equipment 258.6 Fish & fish products 41.2 Manufactured goods 138.4 Copra 34.7 Food 95.0 Cocoa 9.3 Mineral fuels 59.0 Palm oil & kernel 6.6 Chemicals 33.7 Total incl others 352.6 Crude materials 6.7 Total incl others 685.9
Main destinations of exports fob 2000d % of total Main origins of imports fob 2000d % of total Japan 22.3 Australia 25.3 China 14.9 Singapore 23.7 Philippines 13.2 Japan 6.2 UK 12.3 New Zealand 5.4 South Korea 11.8 US 4.8 Thailand 4.7 UK 3.1 a Asian Development Bank. b IMF, International Financial Statistics. c World Bank, Global Development Finance. d IMF, Direction of Trade Statistics (derived from trading partners’ records).
EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001 34 Solomon Islands
Quarterly indicators
1999 2000 2001 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Consumer prices (1995=100) 149.2 149.9 n/a n/a n/a n/a n/a n/a % change, year on year 8.2 7.7 n/a n/a n/a n/a n/a n/a Financial indicators Exchange rate SI$:US$ (av) 4.947 5.061 5.077 5.088 5.094 5.097 5.118 5.237 SI$:US$ (end-period) 5.063 5.076 5.084 5.094 5.094 5.099 5.181 5.285 Interest rates (av; %) Deposit rates 3.00 2.50 2.67 2.50 2.50 n/a n/a n/a Lending 14.42 14.42 15.19 15.58 15.58 n/a n/a n/a Treasury bill 6.00 6.00 6.33 7.00 7.17 n/a n/a n/a
M1 (end-period; SI$ m) 257.60 266.54 251.37 240.23 242.80 n/a n/a n/a % change, year on year 18.3 25.7 12.3 –7.0 –5.7 n/a n/a n/a M2 (end-period; SI$ m) 465.60 460.62 453.69 442.94 462.37 n/a n/a n/a % change, year on year 10.9 7.0 –0.8 –8.1 –0.7 n/a n/a n/a Foreign tradea (US$ m) Exports fobb 40.7 37.5 26.4 24.4 33.3 21.2 18.4 23.9 Imports fob –42.4 –47.5 –41.8 –32.6 –21.6 –29.1 –30.1 –24.0 Trade balance –1.7 –10.0 –15.4 –8.2 11.7 –7.9 –11.7 –0.1 Foreign reserves (US$ m) Reserves excl gold (end-period) 57.4 51.1 48.7 39.8 38.3 31.3 23.9 22.3 a IMF estimates. b Includes re-exports.
Sources: IMF, International Financial Statistics; IMF, Direction of Trade Statistics.
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 Solomon Islands 35
Outlook for 2002-03
The outlook for the new Solomon Islanders voted on December 5th to elect a new 50-member government is grim parliament. From it will emerge a new government to replace that led since June 2000 by Manasseh Sogavare. The outgoing government, the Coalition for National Unity, Reconciliation and Peace, failed to achieve the objectives contained in its title and the incoming administration faces a rebuilding task of enormous proportions. The government has been so short of money for most of 2001 that it has been unable to pay teachers, hospital employees and many other government workers. Health services have been restricted and many schools and colleges closed for the year in October. The government is deeply in debt (see Economic policy and the economy) and sinking further into arrears.
The economy has all but ground to a halt, as all the major companies that contribute to exports are closed because of security concerns. The economy contracted by about 14% in 2000 according to the Asian Development Bank and is likely to have shrunk by a further 12-14% in 2001. Demands for “danger money” have become a new form of extortion, causing more businesses to close. The main communities in the country are, in proportion to their size, awash with high-powered weapons that should have been surrendered many months ago in accordance with the peace agreement signed in October 2000 in Townsville, northern Australia. The law-and-order situation has improved marginally through the year but there have been frequent shooting incidents, most recently to intimidate voters and international election monitors.
Voters opted for a clean up The election, paid for by the governments of Australia, New Zealand and of parliament Taiwan, was contested by 328 candidates, many from the seven formal parties. The composition of a new government was far from clear in the immediate aftermath of the election. The most decisive outcome was to demonstrate voter disillusionment with most politicians. Thirty-one members of the previous parliament lost their seats, although four of the replacements have previous experience as MPs, including one who was a leader of one of the Malaitan militia groups. Mr Sogavare and the man he replaced as prime minister, Bartholomew Ulufa’alu, were re-elected with comfortable margins. Mr Ulufa’alu was forced to resign after the armed takeover of Honiara in 2000 by Malaitan militia and the paramilitary police field force. Most of the new MPs are independents and many of them have already aligned with a new grouping called the Association of Independent Members, which could have support from as many as 28 members. In a rather unusual procedure, the parliamentary speaker and chairman of the electoral commission, Paul Tovua, proposed to call a brief sitting before Christmas to swear-in members and elect a prime minister, then adjourn to allow him (there are now no women in the parliament) time to form a government.
EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001 36 Solomon Islands
The political scene
Most international election The aid donors who financed the elections also funded the deployment of observers were satisfied several international observer groups, most of which found the poll to be credible. Samoa’s ombudsman, Maiava Iulai Toma, who chaired a Pacific Islands Forum delegation, said indications were that the elections were peaceful and conducted successfully. His group covered numerous polling stations in 15 constituencies. Mr Maiava said that transport and logistics were often difficult for both voters and officials but arrangements proceeded smoothly. He said there was room to improve the accuracy and comprehensiveness of voter registration and the new government may wish to make it possible for more electoral officials to vote. At present, they can only do so if they are rostered to work at the place where they registered as a voter.
The leader of the Commonwealth observer group, Bowen Wells, said results in some constituencies may be unreliable as reflections of voters’ wishes. He said his group was not clear whether the possession of arms and militant reputations of some candidates had actually influenced voters.
Protests over compensation On November 8th an angry crowd prevented Mr Sogavare from leaving his blockaded the PM office in Honiara as they protested over news that the government had paid out SI$17.4m (US$3m) to former Malaita Eagle Force (MEF) militia members for claims for lost and damaged property. The protesters said that they had submitted similar claims for property lost or damaged on Guadalcanal but had not been paid. Protesters had surrounded the prime minister’s office as he prepared to leave for the airport on his way to New York to attend the United Nations General Assembly. As one of their leaders addressed the crowd urging a peaceful wait for the prime minister’s appearance, a group of armed men arrived on the scene firing into the air and forcing the crowd, which included women and children, to disperse. They attacked the speaker, who was subsequently taken to hospital.
The minister for national unity, reconciliation and peace, William Haomae, had announced that in addition to the compensation payments SI$2m was
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 Solomon Islands 37
paid to police special constables, most of whom are also former militiamen, SI$2.6m was paid for other government expenses and SI$550,000 to displaced people of Temotu province. Solomon Islands Broadcasting Corporation reported that eight former MEF leaders, commanders and their relatives had received more than SI$2m from “lost property” funds. The broadcaster said it had confirmed that only SI$12m of the SI$35m second tranche of the lost property loan (from the Exim Bank of Taiwan) was spent on compensation claims; the rest was directed to other areas of spending. Next day, Mr Haomae’s home was fired upon and ransacked.
Mr Ulufa’alu loses a legal Mr Ulufa’alu’s legal action challenging the legality of the installation of the challenge Sogavare government (see September 2001, page 37) was dismissed by Justice Albert Palmer in the supreme court in November, but he did not immediately publish his reasons. Mr Ulufa’alu said later he respected the impartiality and integrity of the judiciary but, on legal advice, had lodged an appeal. After the election Mr Ulufa’alu said that if his former government, Solomon Islands Alliance for Change (SIAC), was returned to power, its first priority would be the restoration of law and order. Other priority areas would be economic reform and reconstruction.
Australia and New Zealand In late October, with the elections approaching and the security situation at a reject armed intervention low point, the government appealed to Australia and New Zealand for an armed force to help disarm former militia fighters. Both countries resisted the suggestion on the basis that it was more likely to inflame the situation than improve it. They have jointly maintained a military presence offshore at Honiara with a naval frigate on station since the crisis began in June 2000. However, the situation on the ground has been adjudged one that can only be addressed effectively through local resources. Nevertheless, the difficulties at local level are well appreciated. Effective policing has been largely neutered by the alliance in 2000 between the Malaitan militia and the police. Militiamen remain armed with both their weapons and police uniforms. The cost of paying them has wrecked the police budget and the police commissioner, Morton Sireheti, says the force is no longer able to operate in a disciplined, integrated manner. The Australian and New Zealand decisions followed a study by a joint, high-level delegation of officials that consulted widely with community organisations, most of which urged armed intervention. However, the Australian foreign minister, Alexander Downer, said his government was prepared to respond generously to an incoming government prepared to tackle the country’s grave problems.
Economic policy and the economy
Government debt now The central bank reported in its economic bulletin for September that exceeds SI$1.1bn government debt rose by SI$51.5m (US$9m) during the month to a total of SI$1,101.4m. This was SI$201.2m higher than the total at the end of September 2000. Domestic debts amounted to SI$430.8m. The bank said the government had fallen further behind in its debt servicing during the month, with arrears increasing by SI$1.2m to SI$86.5m. The currency declined against
EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001 38 Solomon Islands
all major currencies for the sixth consecutive month and foreign reserves fell by 6% to SI$126.5m, equivalent to a little more than one month’s import cover. The bank’s provisional estimates of the balance of payments showed a further deterioration of 5.8% during the month, which it called unsustainable. The problem lay with the current account, which was suffering from sluggish production activity, weak investor confidence, stagnant economic activity, a fragile law-and-order situation and the unfavourable movements in prices of the country’s main export commodities. The bank was pessimistic about prospects for any early return to a sustainable balance-of-payments performance.
Agriculture and fisheries Production statistics available to the central bank covered only the period to production falls August and were limited to logs, fish, cocoa and copra. Log production for the first eight months of 2001 was 350,486 cubic metres, as against 363,787 cubic metres in 2000. But copra production for the eight months was down from 15,054 tonnes in 2000 to just 1,199 tonnes in 2001, apparently because of poor prices. The average monthly fish catch to the end of August was 999 tonnes compared with 2,491 tonnes in the corresponding period in 2000. Cocoa production to the end of August was 1,888 tonnes, 25.7% below 2000’s figure.
Solomon Airlines Solomon Airlines (SA) was briefly grounded by Australian and Fijian aviation encounters problems safety authorities in October because of a range of safety and training failures, and concerns about management. SA was forced in early December to cancel all domestic services, and referred to unavailability of fuel. It was not clear whether the company had failed to pay its fuel bill or whether there were delivery difficulties.
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 39 Tonga
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, led 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 are chosen to represent similar areas
Legal system Modelled on the English system, with the Privy Council (consisting of the cabinet presided over by the king) sitting as the Court of Appeal
National elections March 1999; the next election is due around March 2002
Main political organisation Tonga Human Rights and Democracy Movement (HRDM, formerly the People’s Party)
Prime minister, minister of foreign affairs & defence, minister of agriculture, fisheries & forestry Prince ‘Ulukalala Lavaka Ata
Deputy prime minister & minister for communications and civil aviation, minister for works and disaster relief Cecil Cocker
Key ministers Education vacant Finance Siosiua ‘Utoikamanu Health Viliami Ta’u Tangi Justice and attorney-general vacant Labour, commerce & industry, tourism Masaso Paunga Lands, survey & natural resources Honourable Fielakepa Police, fire services, prisons & immigration Clive Edwards
Governor of Ha’apai Honourable Malupo
Governor of Vava’u Honourable Tuita
Governor of the National Reserve Bank Siosiua ‘Utoikamanu 40 Tonga
Economic structure
Annual indicators
1996 1997 1998 1999 2000 GDP at current pricesab (T$ m) 209.8 210.2 221.4 242.6 251.1 Real GDP growthab (%) –0.2 0.6 2.5 4.6 6.2 Consumer price inflationc (av; %) 3.0 2.1 3.2 4.5 5.9 Populationc (m) 0.1 0.1 0.1 0.1 0.1 Exports fobc (US$ m) 13 10 8 13 n/a Imports fobc (US$ m) 75 73 69 73 n/a Current-account balanceab (US$ m) –47 –13 –26 n/a n/a Reserves excl goldc (US$ m) 30.62 27.49 28.66 26.15 26.99 Total external debtd (US$ m) 63.8 57.3 61.5 63.6 n/a Debt-service ratio, paidd (%) 3.9 7.7 7.3 10.8 n/a Exchange ratec (av; T$:US$) 1.23 1.26 1.49 1.60 1.76
December 7th 2001 T$2.21:US$1
Origins of gross domestic product 2000ab % of total Agriculture 28.5 Mining 0.4 Manufacturing 5.5 Electricity, gas & water 1.7 Construction 7.5 Trade 14.6 Transport & communications 8.6 Finance 9.8 GDP at current prices incl others 100.0
Principal exports fob 2000a T$ ‘000 Principal imports cif 1999a T$ ‘000 Squash 5,162 Machinery & transport equipment 20,434 Fish 4,986 Basic manufactures 19,936 Vanilla beans 580 Mineral fuels, etc 14,839 Total incl others 16,373 Miscellaneous manufactured goods 9,184 Chemicals 8,938 Total incl others 116,466
Main destinations of exports 2000e % of total Main origins of imports 2000e % of total Japan 50.4 New Zealand 29.8 US 31.6 Japan 18.6 New Zealand 4.1 Australia 12.7 Australia 2.1 US 12.7 Fiji 1.7 Fiji 12.2 a Asian Development Bank. b Fiscal year ending June 30th. c IMF, International Financial Statistics. d World Bank, Global Development Finance. e IMF, Direction of Trade Statistics.
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 Tonga 41
Quarterly indicators
1999 2000 2001 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Prices Consumer prices (1995=100) 115.7 117.1 120.3 121.9 123.3 126.1 128.3 132.0 % change, year on year 5.9 4.7 5.7 6.6 6.6 7.7 6.7 8.3 Financial indicators Exchange rate T$:US$ (av) 1.621 1.640 1.689 1.757 1.948 2.016 2.108 2.172 T$:US$ (end-period) 1.608 1.656 1.688 1.874 1.968 2.083 2.151 2.230 Interest rates (av; %) Deposit 5.42 5.33 5.30 5.30 5.47 5.47 5.47 5.47 Lending 10.32 10.21 10.34 10.17 10.69 10.33 10.45 14.68 M1 (end-period; T$’000) 29,915 26,615 27,901 31,542 33,072 29,878 32,998 34,275 % change, year on year 22.1 21.3 13.1 18.1 10.6 12.3 18.3 8.7 M2 (end-period; T$’000) 102,769 96,096 98,564 116,900 122,114 117,755 124,083 134,975 % change, year on year 11.9 9.2 8.3 17.5 18.8 22.5 25.9 15.5 Sectoral trends Tourism Receipts (T$’000) 4,749 3,403 4,585 n/a n/a n/a n/a n/a Cruise visitors (number) 2,879 872 0 n/a n/a n/a n/a n/a Air arrivals (number) 11,211 6,578 7,289 n/a n/a n/a n/a n/a Foreign trade (T$ m) Exports foba 14.9 3.9 n/a n/a n/a n/a n/a n/a Fish 3.6 2.4 n/a n/a n/a n/a n/a n/a Imports cif –34.6 –25.1 n/a n/a n/a n/a n/a n/a Trade balance –19.7 –21.2 n/a n/a n/a n/a n/a n/a Balance of payments (T$ m) Merchandise trade balance fob-fob –19.0 –20.0 –24.0 n/a n/a n/a n/a n/a Services balance 0.9 –1.3 –0.1 n/a n/a n/a n/a n/a Income balance –1.5 0.4 0.4 n/a n/a n/a n/a n/a Current-account balance 0.0 –6.2 –7.7 n/a n/a n/a n/a n/a Reserves excl gold (end-period; US$ m) 26.78 23.91 21.30 23.55 26.99 22.91 23.92 23.33 a Includes re-exports. Source: IMF, International Financial Statistics; National Reserve Bank of Tonga, Quarterly Bulletin.
EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001 42 Tonga
Outlook for 2002-03
Trust fund losses cloud the The state of the government’s main investment vehicle, also the country’s financial outlook largest financial asset, the Tonga Trust Fund, is problematic and likely to remain so for some time. It is clear that there have been losses from the fund but their size remains unclear; at worst it could be all of more than US$46m that had been invested in the US. The problem has been blamed on the American chief adviser to the trustees of the fund, Jesse Dean Bogdonoff, a friend of King Taufa’ahau Tupou IV, who appointed him his court jester in a royal decree in July 1999. Mr Bogdonoff is the founder of a California company called Wellness Technologies. Although it is clear that there have been many irregularities in the handling of Tonga’s funds and that Mr Bogdonoff has misled the trustees and the government, it is not clear what has happened to the money.
The trust fund affair will The country’s auditor-general went to the US in October to try to track the test the prime minister funds through a complex—and in some respects false—paper trail relating to suspect transactions in 1999. The two members who remained on the board of trustees from that time were forced to resign from the cabinet at the end of September: deputy prime minister and minister for justice and attorney- general, Tevita Poasi Tupou, and education minister, Kinikinilau Tutoatasi Fakafanua. The police minister, Clive Edwards, who was briefly acting deputy prime minister, made a statement to parliament in October in which he apologised to the nation for the publication of misleading information on the status of the trust fund. He said it was clear now that Mr Bogdonoff had given the government wrong and contradictory advice to protect himself. The trust fund affair has deeply unsettled the establishment and its fallout will be a severe test for the prime minister, Prince ‘Ulukalala Lavaka Ata, who has kept clear of any direct role in the proceedings but has been in no hurry to fill the vacant cabinet positions. The situation is adding particular zest to the parliamentary elections due around March 2002.
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001 Tonga 43
The political scene
The Princess Regent plays The princess regent, Salote Pilolevu Tuita, exercising the royal powers in the hard ball absence of the king and the prime minister, demanded the resignations of Mr Tupou and Mr Fakafanua after impeachment motions were foreshadowed in parliament, despite their seniority in the cabinet and length of service. Even in a less tradition-bound society this demand could have be seen as unreasonable, given that the issue was unresolved. For Tongans it was ruthless in the extreme, and Mr Tupou, a traditionalist of the old school, made it clear he would not go quietly. His account of events and the current state of affairs with the trust fund put the king’s friend Mr Bogdonoff in a far more favourable light than that given on the government’s behalf by Mr Edwards, whom Princess Pilolevu appointed acting deputy prime minister. When the king returned from his medical check-up in New Zealand in late October he promptly installed his close friend Cecil Cocker as deputy prime minister.
Ministerial appointments Mr Tupou issued a statement in October saying he was surprised, overwhelmed are terminated and disappointed with the demand for him to resign after his 33 years of loyal and dedicated service. He did not expect his service to end in such an unfair and unjust manner but accepted that the regent had the full constitutional power to appoint ministers and terminate their appointments. She had decided that the trustees had broken the law with investments they authorised in 1999 and that a major part of the trust fund had been lost through those investments. She had also taken into account that the whole country was disturbed and there was a great public outcry. Mr Tupou stressed that at no time did any trustee receive benefit, financial or otherwise, from the fund and believed they were acting in its best interests. Dr Fakafanua made no public comment but the government issued a formal statement announcing his resignation and saying it had been accepted with “heartfelt” appreciation for his nearly 11 years of cabinet service.
Rumours and speculation Despite growing evidence, problems with the fund had been consistently upset the establishment denied over many weeks, apparently for fear of embarrassing the king because of his previous, jocular endorsement of Jesse Bogdonoff as court jester. When a confession became inescapable it was made in a way that seems to have been incomprehensible to most citizens. It took the form of a cryptic ministerial statement, supported by an unprecedented mass of official documents that even senior officials have difficulty in interpreting. The main objective was to distance the monarchy and its institutions from a debacle. Yet it may have misfired. At the time, the king and the prime minister (his younger son) were both overseas. Exercising the royal powers as regent was Princess Salote Pilolevu Tuita, the king’s daughter. The situation reminded even commoners of the deep split within the royal family. Prince Lavaka is prime minister because his brother, Crown Prince Tupouto’a, heir to the throne, would not take on the job unless he was allowed to choose his own ministers. The king’s appointment of his daughter as regent reminded the kingdom that the crown prince remained out of favour. Moreover, the crown prince, the princess and the state all run competing telecommunications businesses. In light of the king’s advanced age and deteriorating health, rumours abound.
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The king’s health has been The government information office issued rebuttals in October and November the subject of speculation to a series of news reports that the king’s health had deteriorated sharply. The first was while the king was in hospital in Auckland and the media reported that he had suffered a serious heart attack. The information office said this was not true; the king had had an uncomfortable time briefly while his medication regime was changed. On November 2nd, however, a number of MPs commented publicly on the 83-year-old monarch’s appearance to close formally the latest session of the parliament a few days after his return from New Zealand. For the first time, he made his appearance in a wheelchair. His words were hard to hear as he delivered a speech he had written himself. Several MPs said he had aged noticeably since they had last seen him. However, an information office statement on November 7th said he was in good health and maintaining his weekly exercise regime. The royal physician reported that his medical tests in New Zealand confirmed that his health was stable.
Economic policy and the economy
MP questions management Disquiet about the trust fund became public in August through Teisina Fuko, of the trust fund the MP for Ha‘apai. Mr Fuko suggested that some T$20m (US$9m) could be at risk and asked the finance minister and governor of the National Reserve Bank of Tonga, Siosiua ‘Utoikamanu, for a report on the status of the fund, its management, recent investments and the involvement of the trustees. He also asked for a report on a visit by the minister to the US earlier in 2001, apparently to check on the status of the fund. Mr Fuko had earlier complained that parliament had not been receiving timely audit reports as required by the Trust Fund Act and raised allegations that bad investments may have threatened the capital of the fund. Parliament had not received reports for the past three financial years (which end in March). The trust fund was established in 1988 to receive funds from the controversial scheme for the sale of passports, mainly to Hong Kong Chinese who were worried about their future under Chinese control. It was intended to finance major projects and to provide a buffer against natural disasters, such as cyclones.
Losses could total over Mr Edwards, as the acting deputy prime minister, confirmed in his statement to US$46m parliament that there had been a loss but said it was not yet possible to determine its extent. He tabled a financial report for the trust fund to March 31st 2000 showing that with accrued interest it totalled US$46.5m, held in a fixed-term deposit at Wellness Technology. But, he said, Wellness Technology was a private company, not a bank where a fixed-term deposit could be held. The report showed no loss but losses did not become known until June 6th 2001. He produced a document from Mr Bogdonoff purporting to be a promissory note to the value of US$26m but expressed doubt about its value. He said the auditor-general was in the US in a “last attempt” to find out what remaining funds, if any, could be salvaged. A realistic expectation was that there might be about US$6m. The minister said the people in the invested US company, Millennium Asset Management Services, had lied to the trustees and he described the situation as a tragedy. He said the country now faced economic difficulties because of the fall in the value of the currency and the inevitable rise
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in the price of imports it would cause, and because of the uncertainties about cash reserves and securities, and deteriorating economic conditions abroad.
IMF estimates 3% growth Estimates by the IMF in September suggested that economic growth in the for 2000/01 2000/01 fiscal year (July-June) was about 3%. However, Mr ‘Utoikamanu told parliament that official statistics were not yet available to provide a definite figure. In particular, statistics on agriculture were out of date and it was hoped to overcome this with an agricultural census to be conducted in October and November. Current statistics were based on a 1984 census, yet agriculture accounted for about 30% of the country’s GDP. The deputy director of agriculture, Dr Viliami Fakava, said the new census had also been prompted by the damage caused by cyclones in recent years and the effect on the country’s food security of the shift towards export in the agriculture sector.
Employment creation is Mr ‘Utoikamanu told the official Tonga Chronicle in September that the now a top priority government had identified employment creation, especially for young people, as its primary goal. Research suggested that of 2,000 school leavers each year only 500 were able to find jobs. The official estimate of unemployment is 13.3% but unofficial estimates put it much higher, especially among the young. The minister said the problem had become more urgent because the option of emigration had become less easy in recent years. Statistics show there are 30,000 Tongans in New Zealand, 40,000 in the US and 15,000 in Australia. Mr ‘Utoikamanu said the large numbers who had left to work overseas had had a major impact on the structure of the economy. Around 50% of total cash receipts of the country were remittances from Tongans overseas. They were currently around T$80m a year compared with exports of about T$20m. He said the government needed policies that would generate long-term, sustainable employment opportunities. That required foreign investment and overseas markets for goods and services. For this, the country needed a strong private sector and the government was examining its policies to identify any that hindered private sector growth.
Tonga hopes for full WTO The labour, commerce and industry minister, Dr Masaso Paunga, told the membership by end-2001 Tonga Chronicle in September that the government had hoped to see Tonga move from observer status in the World Trade Organisation (WTO) to full membership by the end of the year. Dr Paunga led a six-member delegation to a WTO meeting in Geneva in April where the country’s memorandum of understanding on its economy was approved. The minister said this indicated that the organisation was satisfied with the general shape of the economy and the various government policies governing trade and economic reforms. Dr Paunga said the biggest problem in creating conditions to compete internationally was to protect Tongan social, cultural and religious values.
Co-operative federation Tonga Co-operative Federation Limited, which has 172 member retail stores, earns T$363,105 reported a net profit after tax of T$363,105 for the financial year to March 31st 2001. The previous year’s profit was T$193,793. It approved a dividend payout of T$71,648 and a bonus of T$2,500 for any of its member stores that bought more than T$50,000 worth of goods from the federation in 1999-2001. The company reported that it paid more than T$20m in duties and taxes in the past two years.
EIU Country Report December 2001 © The Economist Intelligence Unit Limited 2001 46 Vanuatu
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 on a 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 A system of magistrates’ courts leading up to the Supreme Court
National elections March 6th 1998; the next election is due in March 2002
National government Edward Nipake Natapei, the prime minister, has since April 2001 led a coalition comprising his own Vanua’aku Pati and the Union of Moderate Parties
Main political organisations Melanesian Progressive Party (MPP); Union of Moderate Parties (UMP); National United Party (NUP); Vanua’aku Pati (VP); Vanuatu Republican Party (VRP); John Frum group
Key members of the Prime minister Edward Natapei (VP) Council of Ministers Deputy prime minister Serge Vohor (UMP)
Agriculture, forestry & fisheries Willy Posen (UMP) Comprehensive reform programme Willie Ollie (VP) Education Jacques Sese (UMP) Finance Joe Carlo Bomal (VP) Foreign affairs Alain Mahe (UMP) Health Clement Leo (VP) Infrastructure & public utilities Jacklyn Rueben Titek (VP) Internal affairs Joe Natuman (VP) Land & mineral resources Sela Molisa (VP) Ni-Vanuatu business development Danial Bangtor (VP) Youth & sports Henry Taga (UMP)
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Economic structure
Annual indicators
1996 1997 1998 1999 2000 GDP at current pricesa (Vt m) 26,711 27,565 29,289 29,206 n/a Real GDP growtha (%) 2.5 1.5 2.2 –2.5 2.8 Consumer price inflationa (av; %) 1.1 3.3 3.3 2.2 2.7 Populationb (m) 0.17 0.18 0.18 0.19 0.20 Exports fobb (US$ m) 30.2 35.3 33.8 24.9 n/a Imports fobb (US$ m) 81.1 79.0 76.2 76.4 n/a Current-account balanceb (US$ m) –26.9 –19.3 14.7 –3.1 n/a Reserves excl goldb (US$ m) 43.92 37.30 44.67 41.35 38.92 Total external debtc (US$ m) 47.2 47.9 63.2 64.6 n/a Debt-service ratio, paidc (%) 1.4 1.6 0.9 1.1 n/a Exchange rateb (av; Vt:US$) 111.7 115.9 127.5 129.1 137.6
December 7th 2001 Vt145.3:US$1
Origins of gross domestic product 1999a % of total Components of gross domestic product 1999a % of total Agriculture 25.6 Private consumption 61.3 Manufacturing 6.3 Government consumption 29.0 Electricity, gas & water 1.7 Fixed investment 22.4 Construction 5.9 Stockbuilding –0.2 Trade 30.8 Exports of goods & services 48.4 Transport & communications 6.9 Imports of goods & services –62.7 Finance 6.6 Statistical discrepancy 1.8 Other services 16.2 GDP at market prices 100.0 GDP at constant prices 100.0
Principal exports fob 2000a Vt m Principal imports cif 2000a Vt m Copra 1,497 Machinery & transport equipment 3,371 Beef 448 Food & live animals 2,102 Timber 393 Mineral fuels 1,799 Cocoa 165 Basic manufactures 1,710 Total incl others 3,644 Miscellaneous manufactured goods 1,238 Total incl others 12,205
Main destinations of exports 2000d % of total Main origins of imports 2000d % of total Japan 32.2 Australia 28.5 US 17.2 Singapore 13.7 Belgium 16.8 New Zealand 7.9 Germany 8.5 Japan 3.8 US 1.4 a Asian Development Bank. b IMF, International Financial Statistics. c World Bank, Global Development Finance. d IMF, Direction of Trade Statistics.
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Quarterly indicators
1999 2000 2001 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Prices Consumer prices (1995=100) 109.4 n/a n/a n/a n/a n/a n/a n/a % change, year on year 0.0 n/a n/a n/a n/a n/a n/a n/a Financial indicators Exchange rate Vt:US$ (av) 129.0 131.4 136.5 139.0 143.7 142.9 146.6 145.6 Vt:US$ (end-period) 128.9 133.2 135.3 141.6 142.8 149.8 146.8 148.8 Interest rates (av; %) Deposit 1.25 1.25 1.25 1.25 1.33 1.25 1.25 1.25 Lending 9.42 10.00 9.92 9.75 9.75 8.58 9.00 9.33 Money market 6.00 5.83 5.50 5.50 5.50 5.50 5.50 5.50 M1 (end-period; Vt m) 7,616 7,654 7,668 7,821 8,082 8,236 8,906 8,060 % change, year on year 0.2 3.7 3.5 –4.9 6.1 7.6 16.1 3.1 M2 (end-period; Vt m) 31,993 32,461 31,559 31,541 33,768 33,619 35,403 35,190 % change, year on year –9.2 –4.3 –7.9 –8.3 5.5 3.6 12.2 11.6 Foreign trade (Vt m) Exports foba 547 669 n/a n/a n/a n/a n/a n/a Imports cif –3,023 –2,563 n/a n/a n/a n/a n/a n/a Trade balance –2,476 –1,894 n/a n/a n/a n/a n/a n/a Balance of payments (US$ m) Merchandise trade balance fob-fob –15.42 –12.10 –10.54 n/a n/a n/a n/a n/a Services balance 15.47 18.10 20.46 n/a n/a n/a n/a n/a Income balance –4.05 –3.17 –4.43 n/a n/a n/a n/a n/a Net transfer payments 0.46 2.60 2.59 n/a n/a n/a n/a n/a Current-account balance –3.54 5.43 8.09 n/a n/a n/a n/a n/a Reserves excl gold (end-period) 41.35 36.10 36.80 33.91 38.92 34.74 41.83 n/a a Includes re-exports.
Source: IMF, International Financial Statistics.
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Outlook for 2002-03
The government may face a The government may be facing a financial crisis but full details have yet to financial crisis emerge publicly. The problem for the prime minister, Edward Natapei, stems from the activities of his predecessor, Barak Sope, and his relationship with Thai-Indian businessman, Amarendra Nath Ghosh (see March 2001, page 50). Mr Natapei replaced Mr Sope in April through a parliamentary no-confidence motion. In the last weeks of the Sope government, local media reported that the cabinet had agreed to issue government bonds to the value of US$50m to Mr Ghosh on the security of what was said to be the world’s largest ruby. However, there was no official announcement nor any indication of whether the proposal had proceeded. Then, in October, the government called in fraud investigators from New Zealand to examine the issuing of letters of guarantee by the Sope government to four people, including Mr Ghosh, who had been appointed a “roving ambassador”. The news agency, Agence France-Press, reported that the face value of the letters of guarantee was at least US$100m, substantially more than the government’s annual revenues. The letters are effectively equivalent to government cheques, redeemable for cash.
Much depends on the All of this creates a number of uncertainties for the period ahead, not least outcome of the elections regarding the general election in the first quarter of 2002. The prime minister performed well at the November national consultation—the so-called summit meeting—on the comprehensive reform programme (CRP) sponsored by the Asian Development Bank and international aid donors. Mr Natapei made the point there that critics of the CRP and the pain it caused should think back to the period before it was accepted, when incompetent politicians lost the equivalent of the entire aid budget to the purveyors of crooked get-rich-quick schemes. Some politicians in Vanuatu remain peculiarly susceptible to these scams and it remains to be seen how well his message has been accepted in the electorate. If, however, he can retain office with a coalition prepared to stick with the proposed 2002 budget, it would be a significant step forward. Investor and aid donor confidence would be boosted substantially. Political stability might be increased through the time-honoured factor of defection to the winners and economic circumstances could improve. If the government is able to achieve its objective of three years of growth averaging 3%, it would at last outstrip the population growth rate and start to increase income per head and employment.
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The political scene
Mr Sope has been charged On November 6th Mr Sope was charged with forging two letters of guarantee with face values of US$18m and US$5m. It seemed likely he would face further charges for refusing to allow police to execute a search warrant at his home on the island of Ifira a few days earlier. Mr Sope had said publicly that he had no intention of allowing a search unless he was told what the police were searching for. He said the police were being used in a political witch hunt. Ifira supporters of Mr Sope, armed with knives and axes, chased police away from his house. The Port Vila Trading Post newspaper reported that its sources said the police were looking for the originals of documents of which they had copies. It said Vanuatu law required that government guarantees be signed by the finance minister be formally approved by the Council of Ministers (cabinet) and a majority of the parliament, then be signed off by the attorney- general (a statutory officer, not a politician) and the director-general of finance. The guarantees which were the subject of the summons were allegedly signed by Mr Sope, not the then finance minister, Morkin Steven. Mr Sope was expected to face a preliminary hearing before the end of 2001 but there is no indication of when the case might be finally resolved.
Mr Ghosh denies receiving Mr Ghosh issued a statement on November 14th denying press reports in bonds Australia and Vanuatu that he had received short-term government bonds. He said the suggestion was totally false and he would take legal action if it was repeated. The Trading Post reported a few days later that the police task force investigating allegations of fraud involving the use of illegal government guarantees were studying the activities of associates of Mr Sope.
Opposition boycotts CRP Mr Sope and most opposition members of parliament boycotted the annual summit CRP summit meeting in November because of what Mr Sope called the unconstitutional and illegal actions of the Natapei government. Francophone opposition members, led by Maxime Karlot Korman, said their non-attendance was in protest at the lack of documentation in French and absence of translation services. Mr Sope alluded to the legal action against him but referred specifically to the sedition charges against his close colleague the former speaker, Ren Tari, and his two deputy speakers. The three took part in a protracted tactical battle to prevent the parliament voting on the no- confidence motion that eventually brought down the Sope government (see September 2001, page 51).
Economic policy and the economy
Mr Natapei seeks to At the fourth CRP summit meeting in November the prime minister defined simplify CRP goals five priorities for the next phase of reform: improving the lives of people in rural areas, addressing obstacles to private sector growth, restoring good governance, improving participation by the civil society, and closing the gap between the rich and the poor and other disadvantaged groups. Mr Natapei accepted that the multi-layered official CRP documents were too complex for
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most people to understand and sought to redefine them with simply stated details in each of the priority areas. He acknowledged that there were still many doubters about the CRP but he challenged them to spell out an alternative. The claim that the CRP would achieve nothing and should be abandoned was, according Mr Natapei, the “empty political rhetoric of those who want to return Vanuatu to the bigman” (that is, the politics of powerful individuals dispensing patronage on the basis of personal or geographical support).
The government aims to As part of the CRP implementation, the government has established a revenue widen its revenue base strategy committee to look at ways to widen the revenue base. The measure was endorsed by the first CRP summit in 1997, with the long-term objective of increasing revenue from 22-23% of GDP to 27%. The project was announced in the budget policy statement for 2002, issued in November by the finance minister, Joe Carlo Bomal, and director-general of the finance ministry, Jeffery Wilfred. It said a sound and wide revenue base, accompanied by a high degree of voluntary compliance, would enhance the government’s ability to encourage and promote private sector-driven growth and to meet its social policy targets.
Over the next three years the government is aiming for real economic growth averaging 3% a year and inflation averaging no more than 3%. It aims to maintain competitive real effective exchange rates and keep the average, overall budget deficit to no more than 2% of GDP.
Borrowing is to be strictly The budget statement said the long-term objective for the overall budget deficit controlled was to ensure that borrowing was limited to financing development expenditure. Even borrowing for development projects would be the exception rather than the rule since 95% of development projects were financed by cash grants and aid-in-kind. The government would not undertake new borrowing to finance recurrent expenditure and would budget for deficits only when loans had been arranged to cover them. If borrowing was necessary, the government would decide case-by-case whether it would be made domestically or from overseas. When borrowing overseas the government would only consider concessional loans.
The trade minister The last-minute ack-down on accession to the WTO was announced by the announces WTO back- deputy prime minister and trade minister, Serge Vohor, on November 12th. He down said his ministry was terminating all processes connected with accession, which had been expected to be complete by the end of 2001. Mr Vohor said the country must make the CRP its top priority since too little progress had been made in its implementation. He said he had been the minister to initiate the negotiations for membership but he had now come to realise the risks that might be involved. These included specific conditions that had been applied to Vanuatu under US pressure, but which were inappropriate for a country officially categorised as “least developed”.
The government baulked particularly at two conditions. One was a requirement to open the retailing sector to foreign competition. This has long been an area reserved for ni-Vanuatu as a way into the formal economy. In the entire country there is one very small “shopping centre” in Port Vila and one
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miniscule centre in Luganville. The sector is so small that a well-funded foreign retailer could wipe out dozens of local businesses. For that reason the issue is highly sensitive politically. The second condition was the opening to competition of the telecommunications sector. Consumers would like to see this as much as the government, but Telecom Vanuatu has a legally binding contract providing that the government will not introduce competition before 2012. The government was not prepared to risk the cost and uncertainties of protracted litigation.
Looming elections sharpen These considerations have been constants throughout the six years of the focus on WTO negotiation with WTO under six ministers, but they take on particular significance when accession could be followed within three months by national elections. When he returned from the WTO meeting in Qatar, the director of the trade department, Roy Mickey Joy, said on November 24th that “with elections around the corner, leaders have to cover their backsides”. Nevertheless, he acknowledged the practical realities of the government’s concerns and even the fact that the cash-strapped government had not budgeted for the Vt8m (US$55,000) cash cost of accession and did not have the money. However, he said the decision not to take the final step with WTO would have other, potentially serious, implications. The reaction of international aid donors was uncertain. At one level, the main donors— Australia, New Zealand and the European Union (EU)—had spent Vt5-6m covering negotiating costs including the hiring of consultants and two delegations to Geneva, with staff, translations and other add-on costs. At another level, major donors tended to demand stable and predictable economic environments, such as those provided by adherence to WTO rules.
Vanair re-emerges as a Vanair was relaunched as the country’s domestic air carrier in November, eight separate entity months after its merger with the international airline Air Vanuatu at the behest of the previous government (see March 2001, page 52). The prime minister presided at a ceremony during which the airline was presented with its operating certificates, approved after an independent audit conducted by Air Fiji. Mr Natapei recalled that he had been present at the ceremony in 1989 when Vanair was first launched after its acquisition from Air Melanesia. However, he noted that the carrier was almost free of debt then: now, its debts could total as much as Vt300m. This, plus operational and technical issues, had made the de-merger exceptionally difficult. The process also caused friction between the boards of the two airlines. Mr Natapei urged them to co-operate, reminding them that they had only one owner, the people of Vanuatu through the government.
Tourism may be recovering The tourism industry has picked up in recent months after a marked slump at from a slump the beginning of the year. Third-quarter statistics issued by the National Statistics Office in November put the number of visitor arrivals at 15,145, which was 20% higher than the figure for the first quarter of 2001, but still 6.4% below that for the third quarter of 2000. The number of visitors in the first quarter was 16% below the previous quarter.
EIU Country Report 4th quarter 2001 © The Economist Intelligence Unit Limited 2001