A BOUT THIS I SSUE majority—seem to have no real In an earlier issue of Pacific Islands Policy, prospects for full self-reliance. PACIFIC ISLANDS POLICY 7 Francis X. Hezel, SJ, examined the economic Hezel asks what this somber but performance of the Federated States of realistic view of the limits of eco- Micronesia (FSM) and the Republic of the nomic growth in the Pacific might Marshall Islands before and after independ- mean for larger nations with a stake ence. Despite abundant start-up funds from in the Pacific, such as Australia, the United States and advice from consultants Japan, the United States, and China. on how to create future prosperity, self-sus- Foreign aid, he suggests, may not be tainability for these island nations remains as just a stopgap to achieve economic Pacific Island Nations elusive as ever. This report is an attempt to self-sufficiency, but a permanent answer the question: Are FSM and the requirement for nations that will How Viable Are Their Economies? Marshall Islands unusual in this respect or are always come up short of this goal. all small Pacific Island nations waging a losing battle in their attempts to create more self- A BOUT THE A UTHOR supporting economies? Francis X. Hezel, SJ, has lived and Development economists frequently worked in Micronesia since 1963. argue that with the right policies in place and For nearly four decades he served as necessary reforms implemented, any nation, director of the Micronesian Seminar. whatever its limitations, can develop a suc- Hezel is the author of eight books cessful economy. In this report, Hezel looks at about Micronesia, and he has served the record to find out how the Pacific Island as a consultant to government offi- nations have fared in this respect since inde- cials, educators, researchers, and pendence. Having abundant exports doesn’t development specialists. always translate into a strong economy, he finds, since the two mostly richly endowed F O RTHCOMING FRANCIS X. HEZEL, SJ countries in the region are among the poorest Is That the Best You Can Do? A Tale in quantified per capita income. Most of the of Education in Pacific Island States nations in the region, though, are resource- by Victor Levine poor and so have had to turn to other strate- gies for economic development. The pathways to economic development for a small island nation, especially one that is remote and enjoys limited resources, are few and steep. Only one of the Pacific Island nations is close to full economic self-reliance at present, while one or two others may be within striking distance. The rest—and they are the SUBMISSIONS THE EAST-WEST CENTER is an education and research Submissions to Pacific Islands Policy may take the form of a organization established by the US Congress in 1960 to proposal or completed manuscript (ideally, 7,000–11,000 strengthen relations and understanding among the peoples words). and nations of Asia, the Pacific, and the United States. The Center contributes to a peaceful, prosperous, and just Asia A proposal should indicate the issue to be analyzed, its policy Pacific community by serving as a vigorous hub for cooperative significance, the contribution the analysis will provide, and research, education, and dialogue on critical issues of common the date by which the manuscript will be ready. The series co- concern to the Asia Pacific region and the United States. editors and editorial board will review the proposal. If a man- Funding for the Center comes from the US government, with uscript is considered suitable for the series, it will be peer additional support provided by private agencies, individuals, reviewed in accordance with the double-blind process. foundations, corporations, and the governments of the region. A curriculum vitae indicating relevant qualifications and publications should accompany submissions. 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Style author-date system) and accompanied by a complete As a regional organization working across the Pacific, the reference list. Notes should be embedded in the electronic PIDP supports five major activity areas: (1) Secretariat of the file. All artwork should be camera ready. Pacific Islands Conference of Leaders, (2) Policy Research, Send submissions and queries to either of the series co-editors: (3) Education and Training, (4) Secretariat of the United Gerard A. Finin States/Pacific Island Nations Joint Commercial Commis- Resident Co-Director sion, and (5) Pacific Islands Report (pireport.org). In support [email protected] of the East-West Center’s mission to help build a peaceful and prosperous Asia Pacific community, the PIDP serves as Robert C. Kiste a catalyst for development and a link between the Pacific, Adjunct Senior Fellow the United States, and other countries. [email protected] Pacific Islands Development Program East-West Center 1601 East-West Road Honolulu, Hawai‘i 96848 USA Tel: 808.944.7745 Fax: 808.944.7670 EastWestCenter.org/pacificislandspolicy Pacific Island Nations How Viable Are Their Economies? ABOUT THE SERIES Pacific Islands Policy examines critical issues, problems, and opportunities that are relevant to the Pacific Islands region. The series is intended to influence the policy process, affect how people understand a range of contemporary Pacific issues, and help fashion solutions. A central aim of the series is to encourage scholarly analysis of economic, political, social, and cultural issues in a manner that will advance common understanding of current challenges and policy responses. Pacific Islands Policy co-editors and editorial-board members are all affiliated with or on the staff of the Pacific Islands Development Program (PIDP) at the East-West Center. Series Co-Editors Robert C. Kiste Adjunct Senior Fellow, PIDP Professor Emeritus, University of Hawai‘i Gerard A. Finin Resident Co-Director, PIDP Series Copy Editor Susan E. Arritt Editorial Board Sitiveni Halapua Nonresident Co-Director, PIDP Tarcisius Kabutaulaka Adjunct Fellow, PIDP Associate Professor of Pacific Islands Studies, University of Hawai‘i Geoffrey M. White Adjunct Senior Fellow, PIDP Professor of Anthropology, University of Hawai‘i PACIFIC ISLANDS POLICY 7 Pacific Island Nations How Viable Are Their Economies? FRANCIS X. HEZEL, SJ Published by the East-West Center A PDF file and information about this publication can be found on the East-West Center website. To obtain print copies, please contact Publication Sales Office East-West Center 1601 East-West Road Honolulu, Hawai‘i 96848-1601 USA Tel: 808.944.7145 Fax: 808.944.7376 [email protected] EastWestCenter.org/pacificislandspolicy ISSN 1933-1223 (print) and 1933-172X (electronic) ISBN 978-0-86638-224-3 (print) and 978-0-86638-225-0 (electronic) © East-West Center 2012 Table of Contents Preface 1 The Central Question 3 Island Population 4 The Wealth of the Nations 6 The Conventional Economy: Exports and Trade 10 Alternate Pathways to Development 14 » Selling Services 15 » Tourism 16 » Labor Exports: Migration and Remittances 17 Filling the Gaps 20 » Cumulative Strength of the Economies 20 » Foreign Grants 21 Prospects for Self-Reliance 23 Future Options 25 Notes 29 References 31 The Author 33 Pacific Island Nations: How Viable Are Their Economies? 1 Preface As a person who has spent nearly his entire adult life in Micronesia, I am driven to deal with those problems that especially affect the islands of Micronesia. One of those problem areas is surely economic development. In a previous issue of Pacific Islands Policy, I asked myself and my readers why we have been disappointed in the development expectations we held for the islands (Hezel 2006). Perhaps our hopes were too high, I wondered at the end. But then again, if other Pacific Island nations had succeeded where the northern Pacific nations failed, we could possibly chalk up the failure to build strong economies to the disincentives of excessive aid under the Compact of Free Association. This led me to wonder just how the other nations in the Pacific were doing in building their economies. Were they able to generate the economic growth needed to provide the basis of self-support despite all the disadvantages under which they labored? In the course of my work, I had access to monographs and economic studies authored by financial institutions, notably the Asian Development Bank. These resources gave a sophisticated profile of one nation or another, but the type of comparative figures I sought were generally not available. Comparisons may be as odious for Pacific economists as they are for other specialists, but I was hoping to find an overview of the independent island nations and a crude sketch of their economies even at the sacrifice of the finer points that economists, like academics in other fields, hold dear. In the absence of a single work laying out the economies of the Pacific in nontechnical terms, I tried to collect the data needed to construct one. In other words I rashly attempted to do what anyone competent in the field probably would have avoided, no doubt for quite sound reasons.