Fiji New Caledonia Samoa Solomon Islands Tonga Vanuatu

COUNTRY REPORT

Pacific Islands: Fiji New Caledonia Samoa Solomon Islands Tonga Vanuatu

1st quarter 1999

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Contents

3 Summary

The region 5 Outlook for 1999-2000 6 Review

Fiji 10 Political structure 11 Economic structure 12 Outlook for 1999-2000 13 Review

New Caledonia 18 Political structure 19 Economic structure 20 Outlook for 1999-2000 21 Review

Samoa 25 Political structure 26 Economic structure 27 Outlook for 1999-2000 27 Review

Solomon Islands 31 Political structure 32 Economic structure 33 Outlook for 1999-2000 34 Review

Tonga 38 Political structure 39 Economic structure 40 Outlook for 1999-2000 41 Review

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Vanuatu 46 Political structure 47 Economic structure 48 Outlook for 1999-2000 48 Review

Other island countries 53 Federated States of Micronesia 53 Marshall Islands 54 Tuvalu 55 Nauru

56 Quarterly indicators and trade data

List of tables 44 Tonga: foreign-exchange reserves, 1998 56 Fiji: quarterly indicators of economic activity 57 Samoa: quarterly indicators of economic activity 57 Solomon Islands: quarterly indicators of economic activity 58 Tonga: quarterly indicators of economic activity 58 Vanuatu: quarterly indicators of economic activity 59 Pacific Islands: direction of trade 59 Pacific Islands: main commodities exported

List of figures 13 Fiji: gross domestic product 13 Fiji: Fiji dollar real exchange rates 27 Samoa: gross domestic product 27 Samoa: Tala real exchange rates 33 Solomon Islands: gross domestic product 33 Solomon Islands: Solomon Islands dollar real exchange rates 40 Tonga: gross domestic product 40 Tonga: Tonga dollar real exchange rates 48 Vanuatu: gross domestic product 48 Vanuatu: vatu real exchange rates

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March 5th 1999 Summary

1st quarter 1999

The region Outlook for 1999-2000: Further contractions are expected in many economies in the Pacific region, despite the prospect of a return to positive growth rates in several South-east Asian economies in 2000. More effective policy formulation and a greater degree of cohesion will be required from key regional organisations in the Pacific, as crucial issues such as the renegotiation of the Lomé Convention and accession to the WTO are tackled.

Review: The fourth annual meeting of the South Pacific Forum Fisheries Agency (SPFFA) was held in February in Honolulu, Hawaii. Consensus has been reached among most island countries about the implementation of the vessel monitoring system (VSM), but the introduction of legislation in the Solomon Islands has provoked a diplomatic row with Japan. An OECD report has highlighted the rise of organised crime in the region. China and Taiwan have continued to engage in tit-for-tat politics in the region, vying for diplomatic recognition. A regional tourism body has been established.

Fiji Outlook for 1999-2000: A devastating cyclone in January, which followed the worst drought in recorded history, has plunged the economy further into recession and destroyed much of the 1999 sugar crop. The government is banking on the tourism sector to help reverse the economic decline, but widespread damage to infrastructure will take time to repair. Meanwhile, although the government has responded quickly to emergency requirements and has issued international appeals for food aid and relief assistance, its attention will increasingly be absorbed by the national election due in May.

Review: Major-General Rabuka has set May 8th-15th as the date for the first national election. Fiji’s worst-ever drought was followed by Cyclone Dani, which brought torrential rains to the archipelago, causing widespread flooding. The economy contracted by 4% in 1998, according to the Bank of Hawaii. Foreign-exchange controls were relaxed on January 1st 1999. The structure of duties on imports has been simplified.

New Caledonia Outlook for 1999-2000: The overwhelming “yes” vote in the referendum on the Nouméa Accords on November 8th has been welcomed in the territory and the métropole. Political parties are now engaged in an urgent scramble in the run-up to New Caledonia’s first provincial elections in May. The transfer of powers from France to New Caledonia will begin in 2000 and end 15 years later, when the territory will opt either for full independence or a form of associated statehood.

Review: The legislation to implement the Nouméa Accords was approved by the French legislature. Both the “yes” and the “no” camps welcomed the decisive referendum result. The prospects for the nickel sector have deteriorated considerably, and a committee has been formed at the suggestion of the High Commissioner to provide financing for embattled companies. Tourist arrivals fell in November 1998. Inflation has remained minimal.

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Samoa Outlook for 1999-2000: Little, if any, political instability is expected following the resignation of the prime minister, Tofilau Eti Alesana. His replacement, Tuilaepa Sailele Malielegaoi, the former deputy prime minister, will press ahead with economic reforms, and progress can be expected on privatisation.

Review: Mr Tuilaepa was sworn in as prime minister on November 23rd. The government will concentrate on boosting private-sector competitiveness. There have been further skirmishes between the government and the Samoa Observer. A local journalist has won the Commonwealth Astor prize. American Samoa has visited Apia, calling for closer ties between the two nations.

Solomon Islands Outlook for 1999-2000: Latent political tensions have returned to the fore, particularly over the issue of land ownership, which have further destabilised the embattled Alliance for Change coalition. The prime minister, Bartholomew Ulufa’alu, will come under increasing pressure to approve a large one-off monetary compensation to Guadalcanal province, but is unlikely to acquiesce.

Review: There has been a spate of violence in Guadalcanal province which has forced the government to revisit the issue of land ownership. The 1999 budget has been approved, featuring massive expenditure cuts. Wood exports fell in 1998. The Gold Ridge mine should produce 100,000 oz of gold and silver in 1999. Solomon Islands has implemented the vessel monitoring system.

Tonga Outlook for 1999-2000: The economy will descend deeper into crisis in the wake of a devastating cyclone in January, which has compounded the effects of the prolonged drought in 1998. King Taufa’ahau Tupou IV will come under increasing pressure to announce the current prime minister’s replacement.

Review: Candidates have been registered for parliamentary elections. Tonga has officially recognised the Beijing government, severing links with Taiwan. Illegal aliens, mostly of Chinese origin, have been expelled from Tonga amid rising ethnic tensions. Sales of Tongan passports have been suspended. Foreign-exchange reserves have fallen further.

Vanuatu Outlook for 1999-2000: Despite the dissolution of the VP-NUP coalition, the government has reaffirmed its commitment to the comprehensive reform programme (CRP).

Review: The UMP has replaced the NUP in the ruling coalition. The possible withdrawal of British diplomatic representation has caused widespread concern. The 1999 budget has been approved, while the 1998 budget deficit was much smaller than anticipated because of the introduction of VAT.

Other Pacific islands So far 27 politicians have submitted their candidacy for national elections in Federated States of Micronesia. The 1998/99 budget has been approved in the Marshall Islands. The two main banks of Tuvalu are to be merged. The government of Nauru has signed an agreement with the Asian Development Bank, which will underwrite a major reform programme.

Editor: Noah Beckwith All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 The region 5

The region

Outlook for 1999-2000

Economic recovery will Although there is a growing consensus that the Asian financial and economic elude the region downturn has begun to bottom out—positive growth rates are projected for several South-east Asian economies in 2000—the small island economies (SIEs) of the Pacific region are unlikely to the reap benefits from the recovery in the forecast period, with further economic contractions projected for many countries in the region. The fact that the four economies on which the Pacific Islands depend most for aid and commerce—Japan, Australia, New Zealand and the US—remain committed to providing development assistance and protecting vital trade relationships will help to insulate some islands from the global economic slowdown, particularly those for which the US represents the main export market. However, this will be insufficient to rekindle many of the stagnating or contracting economies in the region. Moreover, the Pacific Islands are likely to suffer further adverse weather conditions associated with the El Niño oceanic current and the ensuing La Niña phenomenon, denting the economic prospects of many SIEs because of their extreme dependence on commodity exports. Indeed, extensive damage caused by cyclones in Fiji and Tonga will exacerbate resource constraints, thwarting any significant increases in real GDP growth. The revival of the Fijian sugar industry, which was devastated by drought in 1998, has been hampered by extensive flooding in early 1999, while emergency food supplies will be required in Tonga at least until mid-1999.

The region’s diplomatic Several issues of vital economic and environmental importance will require skills will be put to diplomatic acumen and political stealth in 1999-2000 from bilateral govern- the test ments and regional organisations, notably the South Pacific Forum (SPF) and the South Pacific Regional Environment Programme (SPREP). On the top of the agenda will be accession to the World Trade Organisation (WTO); the negotiation of a successor agreement to Lomé IV; ensuring that climate change remains at the forefront of the global environmental debate; and combating rising levels of organised crime. Such issues will necessitate considerable unity and cohesion from regional organisations in the field of policy formulation, although this has often eluded bodies like the SPF in the past.

Moreover, familiar obstacles such as geographical remoteness, poor communications and limited administrative and logistical capacity will hamper negotiations on thorny matters between SIEs and some of the region’s economic giants, notably Japan. For example, it will be difficult to reverse the staunch opposition of the Japanese authorities to the establishment of a regional vessel monitoring system (VMS), which would facilitate the observation of foreign fishing vessels’ activities in the 200-mile exclusive economic zones of the SIEs.

Where combating organised crime is concerned, the rising incidence of which was recently highlighted in a report prepared by the Organisation for Economic Co-operation and Development (OECD), common action will be thwarted by

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intense competition between SIEs’ offshore banking sectors, with many local financial institutions encouraging secretive and questionable practices in a bid to solicit much-needed business.

Review

The fourth SPFFA Member states of the South Pacific Forum Fisheries Agency (SPFFA) and repre- conference is held on sentatives from the group of distant waters fishing nations (DWFNs) met in conservation— Honolulu, Hawaii, in February for the fourth multilateral high-level conference, known as MHLC4, on the conservation and management of migratory fish stocks in the western and central Pacific. The conference was attended by 27 Pacific island and Pacific rim nations, whose primary objective is to implement a treaty on the conservation and management of regional fisheries resources by June 2000. The main issues were the contours of the planned conservation area, monitoring, control and surveillance of fish schools, and the distribution of resources among members of the new commission that will be created once the treaty is ratified. The commission will have to strike a delicate balance between respecting the rights of sovereign states under the Law of the Sea Convention, managing the exploitation of resources in exclusive economic zones (EEZs), and the exigencies of DWFNs.

—and VMS equipment is At a meeting in December in Majuro, Marshall Islands, the eight Pacific nations to be mandatory for which are party to the Nauru agreement on fisheries management and conserv- foreign fishing vessels— ation—Nauru, Federated States of Micronesia, Papua New Guinea, Solomon Islands, Kiribati, Tuvalu, Palau and Marshall Islands—agreed on two key priorities: the adequate monitoring of fishing activities in the region and the need to manage so-called enclaves—areas that are surrounded by high seas. It was also agreed that before licences were granted to operate in the countries’ EEZs, all foreign vessels should have a satellite-based vessel monitoring system (VMS). The VMSs will provide SIEs with the precise co-ordinates of fishing vessels in their waters and show where tuna is being caught. Given that 5% of the landed value of fish caught in countries’ EEZs accrues to local governments, VMSs would help to boost revenue by enhancing compliance with local legislation.

—although there is a Legislation introducing the VMS requirement, which has already been ap- diplomatic price to pay proved in the Solomon Islands and Papua New Guinea, has proved controversial with some governments in the region. In January negotiations between the Solomon Islands and Japanese authorities on the renewal of their bilateral fishing accord broke down over the issue. Despite concern among some SIEs about the potential consequences of disaffecting important sources of development assistance, such as Japan, the Papua New Guinea minister of fisheries, Sir Mekere Morauta, indicated that regional environmental commitments should take precedence over bilateral relationships, and that the requirement should not be dropped. On the question of enclaves, it was acknowledged in Majuro that all nations had equal rights to fish the high seas. However, it was agreed that SIEs whose EEZs border such areas would monitor fishing activities in them and use licensing procedures to prevent illegal fishing.

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Organised crime is on the According to a recent OECD report, a “heavy concentration” of dubious finan- rise in the Pacific region— cial activity related to Russian organised crime has been discovered in Samoa, Nauru, Vanuatu and the Cook Islands. The document was put together by a group of experts in the OECD’s Financial Action Task Force (FATF) on money- laundering. The report indicates that an increasingly common scheme for laundering money in the region involves the use of middlemen of less con- spicuous nationalities, such as US citizens, to open accounts or establish banks in the islands concerned. The task force also estimates that Internet gambling activities in the region generate approximately US$1.5m in revenue per month, representing a growing industry and source of income in Samoa, Niue, Vanuatu, Tonga and Fiji. The report announced the establishment of an Asia Pacific Group (APG) within the OECD task force, which held its first meeting in October 1998 in Wellington, New Zealand.

According to a submission from the APG to the FATF, illegal activities in the region include drug-trafficking, gambling, kidnapping, arms smuggling, hijacking, extortion and corruption, terrorism and tax evasion. Where money-laundering is concerned, APG experts argue that offshore financial centres are increasingly being abused, while local professionals, notably solicitors and accountants, are being enlisted to set up ghost businesses and to facilitate the administration of accounts to launder money. Dubiously structured transactions, the purchases of monetary instruments such as bank drafts and cheques and the removal of currency and monetary instruments have also been observed in the region. Such funds are apparently moved through the region electronically and via alternative remittance systems. In view of the advances being made in payment technology that facilitates evasion, the APG is concentrating on monitoring underground banking activities and suspicious alternative remittance systems. The group is to meet annually, with the first meeting to be held in Tokyo in March.

—and the SPF launches a The Secretariat of the South Pacific Forum (SPF) has launched a five-year pro- five-year programme to gramme to assist 14 member SIEs to combat crossborder criminal activities such combat crime as money-laundering, financial fraud and drug and contraband trafficking. At a cost of F$1.9m (US$966,000), the SPF training programme will aim to strengthen co-operation between regional law enforcement bodies, improve the operational and investigation skills of law enforcement officers, and assist countries in the formulation of national anti-drug policies, based on the model provided in the 1988 UN convention against the illicit trafficking of narcotic drugs and psychotropic substances.

Several economic Economic ministers and senior officials from island governments attended a conferences are held in meeting in February in Apia, Samoa, co-hosted by the regional office of the IMF the region for Asia-Pacific in Tokyo and the IMF’s Pacific Financial Technical Assistance Centre (PFTAC) based in Suva, Fiji. The meeting, which was attended by representatives of the foreign donor community and international financial institutions, discussed the enhancement of fiscal management in the region and the development of a disciplined and feasible approach to fiscal reform.

Delegates of Pacific Islands governments attended a seminar in Suva in late January to co-ordinate policies and priorities for the meetings of the World

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Trade Organisation (WTO) and the Commission on Sustainable Development (CSD) in 2000, when negotiations are scheduled to commence under the WTO agreement on several areas of trade and development, including agriculture. The need to strike a careful balance between the exigencies of economic growth and the preservation of the environment was underlined by the Fijian minister for foreign affairs and external trade, Berenado Vunibobo, who opened the session.

The Council of Micronesian Chief Executives (CMCE), which was formed in 1995 and comprises American Samoa, the Federated States of Micronesia, Guam, the Marshall Islands, the Northern Mariana Islands and Palau, has scheduled its first economic conference for March 1999 in the Marshall Islands. According to the governor of Guam, the idea of holding an economic conference emanated from the interest expressed by other SIEs in Guam’s Vision 2001 plan. The plan, prepared jointly by local businesses and the government, envisages the establishment of a regulatory framework to enable Guam to become a financial services centre in the Pacific region. In addition, the island aims to become one of the hubs of a worldwide fibre-optic cable network that would dramatically lower the costs of Internet use and long-distance telephone calls.

Shipments of nuclear Environmental concerns have remained high on the regional agenda (4th material cause outrage— quarter 1998, page 7), with vociferous opposition to the transshipment of nuclear material in the Pacific region gathering momentum. A recent announcement by the UK government that material from the Sellafield nuclear plant in Britain is to be transported to Japan under armed guard has raised concerns that the shipments will entail the transportation of mixed oxide (MOX) nuclear material, which can be used to build nuclear weapons. The exact route has not been revealed, but the British energy secretary, John Battle, confirmed that two ships operated by Pacific Nuclear Transport would be equipped with armaments for defensive use only, to “prevent the proliferation of sensitive nuclear materials”. To ensure maximum security, the ships are to travel under the control of specially trained officers of the UK Atomic Energy Authority constabulary.

The shipments have not escaped the attention of environmental pressure groups. In mid-January the international environmental watchdog, Green- peace, argued that the plan to move MOX to Japan was ill-conceived, environmentally precarious, and could spawn political instability in the region. Greenpeace added that the proposed security measures were woefully inade- quate and failed to guarantee the safety of the nuclear material, citing an instance in 1992 when the US required Japan to use a gunboat to escort a shipment of plutonium from France to Japan. Greenpeace activists began to lobby regional governments in January to protest against any movement of nuclear material in the region.

—while climate change The director of the intergovernmental South Pacific Regional Environment dominates the Programme (SPREP), Tamari’í Tutangata, has reiterated the importance of reduc- environmental agenda ing greenhouse gas emissions in order to safeguard the survival of the world’s estimated 10,000 small islands. According to Mr Tutangata, pledges of logistical assistance to Pacific islands made at the conference on global climate change held in Buenos Aires, Argentina, in November were encouraging. However, the

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region’s SIEs remain concerned that the crucial next step, the reduction of emissions by developed nations, has yet to be taken. While governments are far from agreeing to the 60-80% reduction in emissions (which is the amount needed to arrest global warming, according to estimates by the intergovernmental panel on climate change), Pacific island countries are left with little option but to keep environmental concerns high on the international agenda through environmental pressure groups and other international forums.

The so-called “Pacific Addressing the Fiji-Australia Business Council in Suva in mid-December, the paradox” is dismissed Australian minister for foreign affairs, Alexander Downer, dismissed sugges- tions that Pacific island countries received too much foreign development assistance, arguing that there was widespread misunderstanding about aid flows in the region. Mr Downer denied the existence of the so-called “Pacific paradox”—low GDP growth rates despite high aid inflows—and rejected the notion that donors were planning to reduce assistance to the region because of it. In response to common misperceptions about economic development in the Pacific region, Mr Downer emphasised the importance of economic policy and management as a crucial factor in determining growth prospects; he rejected the assertion that many islands were in a position of “subsistence affluence” as a misrepresentation of the nature of poverty in the region. Although abject poverty is infrequent in most Pacific island countries, Mr Downer insisted that development assistance was required to improve the limited access to basic services such as education, primary healthcare and clean water and sanitation. The vulnerability of the region to exogenous shocks, both climatic and economic, also necessitated further donor involvement.

China and Taiwan make There were further developments in the ongoing global diplomatic “chess further moves on the match” between China and Taiwan in the last quarter of 1998. On November 1st regional chessboard Tonga abandoned its long-standing allegiance to Taiwan and officially recognised the Beijing government, admitting that the decision was purely political. In return for recognising Beijing, China has pledged to facilitate Tonga’s bid for UN membership. Beijing’s apparent diplomatic victory was effectively nullified later that month, when diplomatic relations were established between the Marshall Islands and Taiwan, a move which came largely as a surprise to the region. According to local news agencies, the Marshall Islands received cash and investment pledges from Taiwan worth “hundreds of millions of dollars” in exchange for recognition. The president, Imata Kabua, subsequently denied that nuclear waste from Taiwan was to be stored in the Marshall Islands. In response, China severed relations with the Marshall Islands on December 11th.

The regional tourism The South Pacific Tourism Council (SPTC) is being restructured to allow for council is being private-sector participation in the body. It will be renamed the South Pacific restructured Tourism Organisation (SPTO). At the ninth SPTC meeting in Suva in October 1998, tourism ministers reaffirmed the importance of the tourism industry for the long-term development of Pacific island economies. The SPTC expressed its gratitude to the EU for its continued assistance in developing the region’s tourism sector. The EU has in principle agreed to provide funding for an 18-month extension to its current tourism assistance programme.

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Fiji

Political structure

Official name Republic of Fiji

Form of state Parliamentary

The executive The president, chosen by the Great Council of Chiefs, appoints the prime minister, who selects the cabinet

Head of state The president, Ratu Sir Kamisese Mara

National legislature Bicameral parliament comprising the appointed upper house or Senate (34 members) and an elected House of Representatives (70 members); the 1990 constitution ensures an indigenous Fijian majority in parliament. There is universal suffrage for all citizens aged over 21. Recent constitutional changes will alter the composition of the legislature following an election in 1999, removing the guarantee of a Fijian majority

Regional government Local administration is on a divisional basis with separate councils for urban areas. There is a separate local government system for the indigenous Fijian population

Legal system Magistrates’ courts, High Court and Court of Appeal with the Supreme Court at the apex

National elections February 1994; next election due in May 1999

National government Major-General Sitiveni Rabuka became prime minister in June 1992 and formed a coalition government comprising the Soqosoqo ni Vakavulewa ni Taukei and the General Voters’ Party; re-elected in February 1994

Main political parties Fijian Political Party (Soqosoqo ni Vakavulewa ni Taukei, SVT); Christian Fellowship Party (Veitokani ni Lewenivanua Vakarisito Party, VLVP); National Federation Party (NFP); Fiji Labour Party (FLP); General Voters’ Party (GVP); Fijian Association Party (FAP); United General Party (UGP)

Prime minister & minister with special responsibility for constitutional reform & multi-ethnic affairs & regional development & Fijian affairs Major-General Sitiveni Rabuka Deputy prime minister & minister of education & technology Taufa Vakatale

Key ministers Agriculture, fisheries & forests Militoni Teweniqila Commerce, industry & public enterprises Isimeli Bose Communications, work & energy Ratu Inoke Kubuabola Finance Jim Ah Koy Foreign affairs & external trade Berenado Vunibobo Health Leo Smith Immigration, women & culture Seruwaia Hong Tiy Labour & industrial relations Vincent Lobendahn Lands & mineral resources Ratu Timoci Vesikula Local government & environment Vilisoni Cagimaivei National planning Filipe Bole Transport & tourism David Pickering Youth, employment opportunities & sport Jonetani Kaukimoce

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Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997 GDP at current pricesa (F$ m; factor cost) 2,171 2,269 2,351 2,524 2,568b Real GDP growtha (%) 1.6 3.9 2.1 3.1 –1.8c Consumer price inflation (av; %) 5.2 0.6 2.2 3.1 3.4 Population (m) 0.77 0.78 0.80 0.82b 0.83b Exports fobd (US$ m) 370.9 490.2 519.6 655.2 n/a Imports fobd (US$ m) 652.8 719.7 761.4 837.7 n/a Current-account balanced (US$ m) –138.1 –112.8 –112.7 10.2 n/a Reserves excl gold (US$ m) 269.5 273.1 349.0 427.2 360.3 Total external debt (US$ m) 330.0 283.9 250.4 217.4 n/a Debt-service ratio, paid (%) 8.7 8.6 6.0 3.6 n/a Exchange rate (av; F$:US$) 1.542 1.464 1.406 1.403 1.444

February 26th 1998 F$1.991:US$1

Origins of gross domestic product 1996 % of total Components of gross domestic product 1994 % of total Agriculture, forestry & fishing 19.4 Private consumption 65.3 Mining 3.3 Government consumption 16.6 Manufacturing 14.8 Gross investment 10.7 Construction 4.5 Change in stocks/statistical discrepancy 6.1 Electricity & water 4.1 Exports of goods & services 58.9 Transport & communications 12.6 Imports of goods & services –57.5 Wholesale & retail trade, restaurants & hotels 16.5 GDP at market prices 100.0 Other services 32.3 Total incl imputed service charge 100.0

Principal exports fob 1996a US$ m Principal imports cif 1996a US$ m Sugar 215.1 Manufactured goods 255.0 Garments 135.4 Machinery 235.6 Gold 58.1 Food 139.0 Fish 37.6 Mineral fuels 132.0 Timber 32.5 Total incl others 986.2 Total domestic exports incl others 585.2

Main destinations of exports 1996a % of total Main origins of imports 1996a % of total Australia 27.0 Australia 44.3 UK 14.0 New Zealand 14.7 New Zealand 12.1 US 9.3 Pacific Islands 9.3 Japan 5.2 US 8.2 Singapore 5.0 a National figures. b EIU estimate. c Official estimate. d IMF balance-of-payments figures.

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Outlook for 1999-2000

January’s cyclone adds to Politics remains relatively muted against the background of natural disasters the nation’s that have beset Fiji in recent months. With the economy dragged into recession economic woes— by the drought-stricken sugar industry last year, Fiji now has the effects of January’s Cyclone Dani and subsequent flooding to deal with. Much of the new season’s sugarcane crop has been destroyed or damaged, and there will be serious delays to the farm rehabilitation programme planned with the aid of Australian agricultural experts. The provision of emergency food and shelter and repairs to infrastructure will entail significant additional costs. Farmers affected by the floods will have their loans to the Sugarcane Growers’ Fund rescheduled.

—and will curb otherwise At the beginning of February the Reserve Bank of Fiji (RBF, the central bank) healthy growth produced a surprisingly optimistic forecast of 2-3% growth for 1999, despite two successive years of economic contraction. According to RBF officials, the economy was “almost certainly” emerging from recession—although it would take time to see confirmation of this in the official data—and the floods in the cane-growing areas would only “moderate” growth.

The tourist industry, the most important sector for Fiji, is the most likely candidate to bring the economy out of recession. It has been booming and will continue to hit record highs, with a new resort planned and the national airline increasing capacity this year. The garment export industry is also per- forming strongly, and the domestic timber processing industry will be supported by higher duties on timber imports this year. Furthermore, domestic demand will be boosted by falling interest rates, more favourable tax exemptions and continued stimulus from the currency devaluation of early 1998.

May’s election result will Many developments in the year ahead will depend on the performance of the determine many outcomes new government emerging from the election scheduled for May. While the in 1999 major party alliances are now clear, the issues and style of the campaign are not. It would be surprising if the three-party coalition—made up of the governing Soqosoqo ni Vakavulewa ni Taukei (SVT), the main opposition party, the National Federation Party (NFP), and the smaller United General Party (UGP)— did not win a majority and form the core of the government. SVT is the main party of indigenous Fijians, the NFP’s support comes mainly from people of Indian background and the UGP represents minority races. Other parties, however, will also be able to claim a share of government if they reach the voting threshold. How this will work in practice and in terms of policymaking is difficult to judge; at workshops on the new constitutional arrangements in January the prime minister, Major-General Sitiveni Rabuka, stressed the need for both a united cabinet and a strong and effective opposition. How to achieve those ends within a system that is meant to be markedly less adversarial will not become clear until after the votes are in.

A revamped financial Recently relaxed foreign-exchange controls and government plans for more sector will emerge competition in the pension funds market should translate into a more diversi- this year fied financial sector this year, including provision for more foreign investment. At the same time the three state-run financial institutions, the National Bank

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of Fiji, the Fiji Development Bank and the Fiji Housing Authority, will become more streamlined as they are restructured to concentrate on their core businesses. In addition, it is hoped that the acquisition of the National Bank of Fiji by the an Australian financial services company will provide more competition in the sector. A commission may be set up to deal with foreign banks which have been criticised for their anti-competitive practices, but this will probably not happen until after the election.

Fiji: gross domestic product Fiji: Fiji dollar real exchange rates (c) % change, year on year 1980=100

10 Fiji (a) 160 Asia excl Japan F$:DM 8 140

6 120

4 100 2 F$:US$ 80 0

-2 60 1993 94 95 96 97(b) F$:¥ (a) National sources. (b) Official estimate. (c) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic 1980. . . . 85 . . . . 90 . . . . 95 . . Outlook.

Review

The general election is On December 7th the electoral commission confirmed that Fiji’s first general now in May election under the new constitution will be held on May 8th-15th. The commission apparently managed to persuade the prime minister, Major-General Sitiveni Rabuka, who had previously designated April 24th as polling day (4th quarter 1998, page 15), that the commission required additional time to complete the vast administrative and educational tasks associated with the implementation of new electoral boundaries and a compulsory, preferential voting system. The electoral supervisor, Walter Rigamoto, indicated that by early February 415,000 voters had been registered, representing over 99% of the eligible population. Fifteen political parties had enrolled to contest the elections, with additional registrations being processed.

Shortly after the announcement of an initial co-operation agreement in early December, the ruling Soqosoqo ni Vakavulewa ni Taukei (SVT) officially formed a coalition with the National Federation Party (NFP), led by Jai Ram Reddy, and the United General Party (UGP), led by David Pickering, who is also the minister for tourism, civil aviation and transport. The SVT-NFP-UGP coalition has appointed a committee to organise an election campaign and formulate a strategy for the post-election period. The leader of the Fijian Association Party (FAP), Adi Kuini Vuikaba Speed, declined Major-General Rabuka’s invita- tion to join the coalition, indicating that the FAP would join forces with the Fiji Labour Party (FLP) and the Party of National Unity (PNU). The current parliament will be dissolved on March 21st.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 14 Fiji

A devastating drought is After the worst drought in recorded history plunged the Fijian economy into followed by recession in late 1998 (4th quarter 1998, page 13), hopes of an early economic torrential floods recovery were dashed when torrential rains brought by tropical Cyclone Dani flooded the archipelago in mid-January 1999. Over 20,000 homes were devastated by a combination of high-speed winds and persistent rainfall in the western district of the main island, Viti Levu. Water levels reached up to two metres in some western villages, and 16 people drowned in the floods. The capital, Nadi, suffered intermittent power failures, while many tourists were delayed at the airport. Many governments in the Pacific region provided im- mediate disaster relief, financial aid and emergency supplies to Fiji, but any rehabilitation of the agricultural sector in the wake of the drought was undone and much of the 1999 sugar crop destroyed. By the end of January around 40,000 islanders remained dependent on emergency food supplies, and nearly 1,000 people were sheltered in 18 evacuation centres. As the floodwaters began to recede there were growing concerns about the spread of disease, with hospi- tals treating around 30 cases of diarrhoea per day caused by infected water. Rising cases of dengue fever, food poisoning and viral infections added to fears of an epidemic. Repairs to infrastructure, primarily roads and bridges, will take several months, while small and medium-sized businesses in Nadi and Ba, the two worst affected towns, will suffer incalculable losses resulting from water- damaged merchandise.

The economy contracted In late 1998 the Bank of Hawaii projected that Fiji’s recession would bottom by 4% in 1998— out at the end of the fourth quarter of 1998, with average real GDP growth rebounding to 3-5% in 1999. Although the Reserve Bank of Fiji (RBF, the central bank) issued a slightly less optimistic forecast than this (of 2-3%), the 1999 budget, presented to parliament on November 6th, envisaged that average real GDP growth would rebound to 5% in 1999, underpinned by a series of measures to strengthen investor and business confidence. In his budget speech the finance minister, Jim Ah Koy, cited the devastated sugar harvest as the reason for the 4% contraction in 1998. Sugar production in 1998 fell to its lowest level for over 30 years, with export receipts plummeting to around F$220m (US$112m), compared to about F$350m in 1997. Excluding the downturn in the sugar sector, Mr Ah Koy calculated economic growth to have reached around 1% in real terms. He maintained that the economy had been largely insulated from the Asian crisis, primarily through the devaluation of the currency in January 1998, but also because the vigorous promotion of Fiji as a tourist destination had provided a boost to the services sector.

—but a strong recovery The finance minister predicted a healthy recovery in 1999, although this was is expected before Cyclone Dani hit in January this year. He estimated that the budget deficit would be considerably reduced and that consumer price inflation would remain in single digits, notwithstanding some upward pressure on consumer prices in the aftermath of the devaluation. He noted that the exchange rate was now competitive and foreign-exchange reserves were adequate at around 5.5 months of import cover. Although the continued dependence on agriculture in the context of erratic weather conditions keeps the economy in a precarious position, it was hoped that the rehabilitation of the sugar industry would help boost average real GDP growth to around 3% in 1999.

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There are plans for a With effect from January 1st 1999 foreign-exchange controls were relaxed fur- radical restructuring of ther, with an emphasis on streamlining procedures and documentation require- the financial sector ments. In addition, the government is considering allowing institutions other than the Fiji National Provident Fund (FNPF) to operate pension funds to enhance competition and diversify the market. Meanwhile, having emerged from years of financial crisis, the National Bank of Fiji (NBF) recorded a profit of F$1m (US$508,000) in 1998 and announced plans for a foreign investor to take a strategic stake in the bank (see below). It was further announced in the budget that the Fiji Development Bank (FDB) and the Fiji Housing Authority (FHA) would sell their mortgage portfolios to the NBF to avoid unnecessary overlap- ping of services between the three public institutions. Having reviewed the FDB’s operations, the government decided that the bank should concentrate on its core business of providing development finance to industry and agriculture. To this end the FDB is to be allowed to accept deposits from the public.

Colonial buys a majority The Australian financial services group, Colonial Limited, has acquired 51% of stake in the National the National Bank of Fiji, previously wholly owned by the Fiji government. Bank of Fiji Seeking a strategic partner in the bank, the government attracted 20 other bids and negotiated a final price with Colonial of F$9.5m, which will be used to reduce government debt. The company has operated in Fiji for 123 years and has some 70% of the life insurance market and a large share of private health insurance. It is hoped that a strategic partner will enhance competition in the banking sector, in which Australia and New Zealand Banking Group (ANZ) has a 37% share, Westpac about 28%, NBF 9% and the Bank of Hawaii about 5%. A further 20% of NBF shares will be sold to the public, and Colonial has an option to increase its holding to 75% at some time in the future. The bank will be renamed Colonial National Bank.

An inquiry recommends a The findings of an independent inquiry on the financial sector, commissioned commission to monitor by the finance ministry and undertaken by the University of the South Pacific foreign banks— in Suva, were released in mid-February. The inquiry recommended the immed- iate establishment of a banking commission to deal with customer complaints and monitor fees, charges and interest rates. In particular, the report cited two Australian banks, ANZ and Westpac, whose profit margins in Fiji were higher than anywhere else in the world, as they maximised profits in a market with little competition. The banks were found to have high fees and charges, high interest rates on loans and low interest rates on deposits, although the banks claim that these are necessary to make up for the risks associated with doing business in Fiji. They were also criticised for their declining quality of service, apparent insensitivity and indifference to customers, lack of products for lower-income earners and their withdrawal from small towns.

—but the government After tabling the report in parliament, Mr Ah Koy said that the bulk of the responds with caution recommendations would have to be dealt with by the new government after the May election. The prime minister added that the government would have to handle the recommendations with caution to avoid undue stress in customer-bank relations.

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Further sales of The government is planning to continue its divestiture programme of state government assets will assets in a bid to reduce the total domestic and external debt stock, which stood help reduce debt at F$1.4bn (US$737m) at the end of 1998, equivalent to around 46% of GDP. The debt-service requirement reached F$196m in 1998 and is projected to climb to an alarming F$241m in 1999, representing 26% of total annual expenditure. According to Mr Ah Koy, sales of state assets will be more than sufficient to cover the projected budget deficit of 4% of GDP in 1999, and the government is aiming to reduce expenditure by 1% of GDP in 1999 and 2.8% of GDP in 2000.

Import duties have been In his budget speech Mr Ah Koy announced that the complex system of duty simplified concessions, originally designed to encourage private-sector investment, was to be scrapped from the beginning of 1999. It has been replaced with a uniform tariff of 3% on all imports of industrial inputs.

Meanwhile, duties on imported items which have local substitutes have been reduced from 30% to 27%, although a further reduction to 22.5% is expected, exposing the local market to more foreign competition. In contrast, the domestic timber processing industry will be supported by an increased duty of 27% (up from 10%) on imported veneers and plywood. Tariffs on new vehicle imports have been standardised at 27% for all vehicles.

The budget also sent encouraging signals to foreign investors, announcing that the international credit rating agency, Moody’s, would provide a sovereign debt rating for Fiji. Full dividend imputation is also to be introduced to encourage reinvestment of retained earnings, while legislation governing foreign direct investment (FDI) is to be introduced.

More workers will be Also as part of the budget, the basic threshold for income tax exemptions was exempt from income tax raised from F$5,000 (US$2,540) to F$6,500, and up to F$10,500 of income can now be exempted for those with dependents. The effect will be to exempt roughly 54% of the workforce from income tax.

1998 was another record The tourism minister, David Pickering, announced that more than 371,000 year for tourism— visitors arrived in the country during 1998, 4% more than the previous year’s record of just under 360,000. The number of tourists from Australia increased by 25% to exceed 100,000 for the first time, and there was a record 70,000 from New Zealand. However, the number of Japanese tourists was down by 20% and the Korean market virtually disappeared, with a drop of 86.6%. Mr Pickering said that foreign-exchange earnings from tourism exceeded F$440m.

—but there are even The Fiji Visitors Bureau (FVB) hopes to attract 398,400 visitors and tourism greater plans for 1999 revenue of F$586m for 1999—both record targets. It forecasts growth of Australian and beyond visitor traffic of 11.6% to 111,800; New Zealand traffic of 2.6% to 72,000, and American of 13.2% to 58,800. However, it expects Japanese business to fall by another 5% to 33,700 visitors this year, contrary to the predictions of Air Pacific (see below), saying that it will take time before there is any significant improvement in the numbers of visitors from South-east Asia. Fiji escaped the slump in tourism experienced by many of its neighbours, not least because the FVB’s government grant was doubled and because of its successful strategy of targeting

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established markets. The FVB’s targets for the medium term include 420,000 visitors by 2000 and 500,000 by 2002.

Air Pacific plans an The country’s national airline, Air Pacific, in striking contrast to many floun- increase in capacity after dering Asia-Pacific carriers, plans to increase its capacity by 70% in 1999. This a successful year is a result of a recently signed code-share agreement with American Airlines and plans for a strategic alliance with a major Asian carrier. The airline expects capacity to be increased to nine flights a week to Sydney, four flights a week to Melbourne and daily flights to Brisbane, as well as new flights to two as yet unnamed Australian cities. From June 1999 non-stop flights to Los Angeles will increase to five a week and two other destinations, possibly San Francisco and Vancouver, are planned. A twice-weekly Tokyo service will be operated with a larger aircraft, and Japan has been asked to approve a third frequency. The delivery of two new Boeing 737-800s in 1999 will enable Air Pacific to fly to new Pacific destinations currently served only by wide-bodied jets. The airline has also negotiated low-interest finance of US$125m for three new aircraft and renegotiated an existing lease in its favour.

Air Pacific is 51% government-owned and 46% is owned by Australia’s Qantas. The government intends to float part of its shareholding on the Suva stock exchange.

The government approves The government has approved a US$280m resort development proposal for a major new resort Natadola Beach at Sigatoka, about 90 minutes by car from Nadi international development airport, by a consortium of French and Hong Kong companies. The consortium, called the Natadola Resort Company Ltd, has already acquired 327 ha of state and native land for a four-phase project over ten years, starting in 1999. Phase one involves the construction of a 300-room, 4/5-star resort with an 18-hole golf course. It is expected to create 600 permanent jobs. The other three stages will create an additional 1,000 jobs. The government has stated that it will pay particular attention to the involvement of Fijian landowners.

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New Caledonia

Political structure

Official name French Overseas Territory of New Caledonia and Dependencies

Form of state Largely autonomous territory within the French state, except in such areas as foreign relations, defence, justice, currency and credit

The executive The government delegate, High Commissioner of the Republic in New Caledonia, Wallis and Futuna, currently Dominique Bur

Head of state President of France, Jacques Chirac

Territory legislature A combination of French metropolitan government and local autonomy. 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. The Nouméa Accords, signed in May 1998, provide for the extensive devolution of powers to New Caledonia. The accords were put to a referendum in November 1998; a further referendum on complete independence will follow in 15-20 years’ time

Local government In addition to the three provincial assemblies, there are 32 basic local government units known as communes

Legal system French-style, 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 law 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; parliamentary election due in March 1999

Main political organisations The two main groupings are the Rassemblement pour la Calédonie dans la République (RPCR), which is affiliated with the Rassemblement pour la Calédonie (RPR) in France, and comprises the Centre des Démocrates Sociaux (CDS) and the Parti Républicain (PR); and the Front de Libération Nationale Kanak Socialiste (FLNKS), comprising 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 significant support in Nouméa, as does the Union Nationale pour l’Indépendence. The Rassemblement Démocratique Océanien (RDO) represents a large segment of the population of Wallis and Futuna and the Libération Kanak Socialiste (LKS) is strong in the Loyalty Islands

President of the Northern Province Léopold Jorédié (FLNKS) President of the Southern Province Jacques Lafleur (RPCR) President of the Loyalty Islands Nidoïsh Naisseline (LKS) President of the Territorial Congress Pierre Frogier (RPCR) Vice-president Richard Kaloï (UC) Deputies to the French Assemblée Nationale Jacques Lafleur (RPCR) Pierre Frogier (RPCR) Representative to the French Senate Simon Loueckhote (RPCR)

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Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997 GDP at current prices (CFPfr bn) 290.6 306.7 n/a n/a n/a Real GDP growth (%) 0.7 n/a n/a n/a n/a Consumer price inflation (av; %) 2.6 2.0 1.6 1.7 n/a Populationa (’000) 174 184 185 197b 200 Exports fob (US$ m) 376 326c 483 500 n/a Imports cif (US$ m) 854 763c 868 930 n/a Exchange rate (av; CFPfr:US$) 102.96 100.93 96.25 96.54 105.85

February 26th 1998 CFPfr108.221:US$1

Origins of gross domestic product 1990 % of total Components of gross domestic product 1990 % of total Agriculture 4.9 Private consumption 77.3 Mining & metallurgy 14.0 Government consumption 9.4 Construction & energy 11.0 Fixed investment 32.9 Miscellaneous industries 6.4 Change in stocks –1.5 Transport & communications 7.5 Exports of goods & services 29.6 Commerce 31.0 Imports of goods & services –47.7 Other services 25.2 GDP at market prices 100.0 GDP at market prices 100.0

Principal exports fob 1993 US$ m Principal imports cif 1993 US$ m Ferro-nickels 212 Foodstuffs 148 Nickel ore 76 Transport equipment 147 Foodstuffs & animal products 9 Machinery & electrical equipment 145 Metal & metal products 1 Minerals 84 Total incl others 376 Total incl others 854

Main destinations of exports 1996c % of total Main origins of imports 1996c % of total Japan 30.6 France 45.1 France 28.9 Australia 17.9 US 12.2 Singapore 6.8 Australia 6.9 New Zealand 6.4 Taiwan 6.1 Japan 3.7 a EIU estimates. b Census result. c Derived from trading partners’ records.

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Outlook for 1999-2000

The “yes” vote raises the Following the overwhelming “yes” vote in the referendum on the Nouméa political temperature— Accords on November 8th 1998, the French Assemblée Nationale (parliament) unanimously approved legislation required to implement the Accords in December. Having broadly endorsed the text of the legislation by mid-February, the French Senate now has until mid-March to assess the constitutionality of the Accords. The fact that the implementation process of the Nouméa Accords is clearly gaining momentum both in the métropole and in New Caledonia itself has spawned urgent jockeying for position among the archipelago’s plethora of political parties in preparation for provincial elections, now due in May. The poll promises to be particularly heated because it is perceived by pro- and anti-independence camps alike as an opportunity not only to shape the contours of the territory’s emergent autonomous political institutions, but also to manipulate the speed of the devolution process.

New Caledonia’s first government is to be elected under a system of proportional representation, with members of provincial assemblies convening in the Assemblée Nationale. Under the legislation approved in the referendum, the territory now enters a 15-year transition period of “shared sovereignty”, during which France will progressively devolve political and economic powers to the New Caledonian government. After this period, the territory can opt to assume control of four final domains: defence, currency, law and order, and justice, thereby becoming a sovereign state. If New Caledonia does not opt for full independence, its relationship with France would be one of associated statehood, similar to that between the Cook Islands and New Zealand.

—as political parties The “yes” vote has radically altered the focus of political activity in New scramble to form Caledonia. During the referendum campaign there were two clearly discernible alliances— camps—the “yes” camp and the “no” camp—with the majority of the population paying little attention to the idiosyncrasies of each party’s arguments for or against independence. However, in the provincial elections in May it is parliamentary representation that is at stake, and representation can only be secured if a party captures at least 5% of the vote. This will almost certainly produce a degree of unity in the pro-independence camp, with many support- ers returning to the ranks of the Front de Libération Nationale Kanak Socialiste (FLNKS). Indeed, the FLNKS congress in mid-March will underline the importance of unity in the pro-independence camp, and this will highlight the schisms and often acrimonious personal rivalries between key figures in the anti-independence camp. For his part, Jacques Lafleur, the leader of the main anti-independence party, the Rassemblement pour la Calédonie dans la République (RPCR), will have to cover considerable political terrain after swathes of non-Kanak voters rebuffed him by either joining the radical “no” camp or by abstaining in the referendum.

The political temperature will rise steadily in New Caledonia in the run-up to the election, with politicians and parties assessing policy options and campaign strategies to ensure maximum representation in the archipelago’s new institutions. Despite vigorous campaigning it is highly likely that the anti- independence camp will be vastly outnumbered in the new parliament. The

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character of the intensifying political competition will be largely determined by the players involved. In 1998 both Mr Lafleur and the FLNKS leader, Roch Wamytan, indicated that they might withdraw from political life. With the prospect of leading New Caledonia’s first semi-autonomous government, however, they may decide to stay.

—before the transfer of The actual transfer of political and economic powers from France to New powers begins in 2000 Caledonia will begin on January 1st 2000, ending in 2014, when islanders must decide whether or not to pursue full independence. During this period France will be represented by a High Commissioner, who will oversee the actions of the new governmental institutions and ensure their legality. In the areas where the New Caledonian Congress has jurisdiction it will be empowered to adopt “laws of the country” by an absolute majority to replace French laws.

Review

The legislation on the Notwithstanding the vociferous efforts of the conservative, anti-independence Nouméa Accords is Rassemblement pour la Calédonie dans la République (RPCR) to water down approved— the legislation approving the Nouméa Accords, it was endorsed by the French legislature unscathed, to the delight of the pro-independence coalition, the Front de Libération Nationale Kanak Socialiste (FLNKS). The leader of the FLNKS, Roch Wamytan, welcomed the outcome as a decisive victory. The legislation is expected to be cleared through the French parliamentary committee system—the review by the judicial committee of the French Senate is decisive—and to receive final approval by early March with only minor technical changes. The RPCR was keen to alter the provisions for the transition to full independence after the 15-year period of “shared sovereignty”, by ensuring that as many as three referendums would be held on the adoption of the four final domains of power (see Outlook). There was also concern about residency criteria for eligible voters. Under the current arrangements, eligibility requires ten years’ residency, which also conveys the right to citizenship and employment. The poll on accession to full sovereignty will be restricted to citizens with at least 20 years’ residency.

—and the decisive vote is Although the conflicting objectives of the FLNKS and the RPCR were noted welcomed on both sides of during the recent debate on the legislation in the Assemblée Nationale (parlia- the political fence ment) in Paris, both the French president, Jacques Chirac, and prime minister, Lionel Jospin, welcomed the resounding “yes” vote in the referendum (4th quarter 1998, page 21). Along with leading political figures in New Caledonia, the French government was keen for a high voter turnout in the referendum on the Nouméa Accords, provision for which had already been made in the French Constitution. In the event, nearly 75% of the 107,000 eligible voters partici- pated in the referendum, compared with traditional participation levels of around 60%. Turnout rates ranged from 43.7% in Lifou, in the predominantly Kanak Loyalty Islands, to 86.8% in Farino, a small settler community on the main island. The rate in Nouméa was an astonishing 80.1%. The highest incidence of “no” votes was recorded in the largely European towns of Koumac (47.3%), Farino (44.7%), Nouméa (42.3%) and Dumbéa (41.1%), while the

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majority of “yes” votes were found in Belep Island (97.4%), Hienghène (96.4%), Maré Island (96.2%) and Ouvéa Island (95.8%). No constituency in the country recorded a majority “no” vote.

Voting patterns revealed a significant swing in the largely European areas away from the RPCR to the anti-independence position of the Front National (FN) and Une Nouvelle Calédonie pour Tous (UNCT), led by Didier Leroux (4th quarter 1998, page 22). For his part, Mr Wamytan, indicated that the FLNKS was pleased with the results, particularly with the increase in youth support for the party.

Prospects for the nickel With little prospect of an improvement in world nickel prices, subdued by sector remain grim— sluggish demand and oversupply, the outlook for the New Caledonian nickel sector remains grim. According to the latest available data from the Institut territorial de la statistique and des études économiques (ITSEE), mineral output fell in November, although the slight increase in metallurgical production continued. Provisional statistics suggest that nickel ore extraction reached only 460,000 wet tonnes in November, the lowest level since January 1997. Total nickel production in the first 11 months of 1998 reached 6.9m wet tonnes, a 7.5% decline on the corresponding period in 1997, while metallurgical production was 5,129 tonnes in November. The Doniambo smelter produced 51,627 tonnes of nickel in the first 11 months of 1998, an increase of 3% on the same period in 1997.

—and a committee is In response to the crisis in the nickel sector, the local authorities have formed formed to respond to the Comité pour la reconstruction des mines (Coremines), at the suggestion of the crisis— the High Commissioner, Dominique Bur. Coremines will be responsible for guiding the nickel sector through the current adverse international conditions and will provide finance in the form of guaranteed loans to companies which commit to restructuring. Coremines held its first meeting in late January, which discussed means of evaluating the performance of companies in the mining sector and providing assistance in rebuilding them.

—but Mr Lafleur insists Jacques Lafleur, New Caledonia’s most formidable businessman and indus- the outlook for the nickel trialist and founder of the Société Minérale du Sud Pacifique (SMSP), has acted sector is not dire— quickly to dispel the general pessimism in New Caledonia about the future of the nickel industry. Mr Lafleur responded vociferously to a television documen- tary in February which had called the outlook for the sector catastrophic, pointing out that the nickel market had always been subject to cyclical forces and that some 15 crises had been weathered during the 40 years of his involvement in the non-ferrous metals industry. He argued that Japanese demand had only slowed because of current price factors, adding that because nickel reserves in New Caledonia were virtually inexhaustible, new developments should proceed.

—although recent data According to ITSEE data, the value of merchandise imports in the first 11 highlight the downturn months of 1998 rose to CFPfr90.3bn (US$846m), a 2.8% increase on the corresponding period in 1997, while the volume of imports rose by 8.2%. The increase is attributable to a variety of factors, notably lower prices for manufacturing inputs, moderate inflation in import-supplying countries, and the de- preciation of the US, Australian and New Zealand dollars. Machinery and

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electrical equipment accounted for 18.3% of the total value of imports, while foodstuffs and transport materials accounted for 17.4% and 17.3% respectively.

Merchandise exports performed poorly over the same period, falling by 29.7% on their 1997 levels to CFPfr37.7bn. The decline was solely attributable to the crisis in the nickel industry. The value of nickel ore exports dropped by 42.1% to CFPfr5.7bn, ferro-nickels by 28.1% to CFPfr8.1bn and mattes by 32.1% to CFPfr2.3bn. Meanwhile, non-nickel exports rose by 4.5% over the same period. Seafood sales performed impressively, with prawn and tuna exports reaching CFPfr1bn and CFPfr353m, respectively. There were also significant shipments of scallops and trochus. The overall decline in exports has resulted in a considerable widening of the trade deficit, which had increased to CFPfr52.7bn by November 1998.

Nickel ore titles are Titles to the nickel ore deposits in the Poum and Koniambo ranges were signed exchanged and exchanged before notaries in December, the first important step since the resources issue was resolved with the Bercy agreement of February 1st 1998. Following the accords, Poum passed to the Société Le Nickel (SLN) and Koniambo to the SMSP. SLN and its parent company, Eramet, received CFP18bn (US$168m) “compensation” as a result of the deal. SMSP began work in August on prospecting, research and analysis as part of its feasibility studies for a proposed smelter, and the exchange of titles will be finalised only when the smelter project is given the green light.

The territorial congress has decided not to impose taxes on the Poum and Koniambo mines, in an effort to enhance the economic prospects of the smelter and thereby helping to redress the balance between economic development in the northern and southern provinces of the main island. In January the chairman of the SMSP, André Dang, announced that deposits of high quality cobalt had been found which, if they prove commercial, will encourage the construction of a second hydro-metallurgical smelter to treat both laterites and cobalt. With cobalt prices far more buoyant than nickel prices, this should help to underpin expansion in the mining sector. Mr Dang also announced that a definitive decision on whether or not to proceed with the smelter could be brought forward, to 18-24 months instead of by 2005. Meanwhile, the SMSP is elaborating a proposal to build an oil refinery in the north to lower the energy costs of the smelter.

Tourist arrivals begin According to ITSEE data, only 9,392 tourists visited New Caledonia in November, a to dip— 3.8% fall year on year. Japanese arrivals dipped for the second consecutive month, by 12.5% in October and by a further 9.2% in November. Australian and New Zealand tourist arrivals fell by 7.9% and 3.6% respectively. Only arrivals from the métropole increased in November, by 2.4%. Despite the fall in visitor numbers, ITSEE maintains that the tourism industry is sound, with nearly 94,000 tourists visiting the archipelago in the first 11 months of 1998, a mere 0.9% drop on the corresponding period in 1997. Provisional statistics on hotel occupancy point to a rate of 70.5% in November, up from 65% in October. Arrivals from cruise ships dropped to 17,120 in the first 11 months of 1998, a 40% decline on the same period in 1997.

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—but the construction The construction sector remained relatively buoyant around the capital, sector holds its own Nouméa, in the Southern Province, although ITSEE figures point to sluggish activity in the Northern Province. Overall, 1,433 building permits were issued in the first 11 months of 1998, a 21.3% rise on the previous year.

Inflationary pressures are Month-on-month inflation remained remarkably stable in New Caledonia, kept to a minimum rising by a mere 0.2% in November. In the year to November, average consumer prices also increased by just 0.2%. Between October and November 1998 food prices rose by 0.7%, while prices for manufactured goods and services dropped by 0.3% and 0.2% respectively. Higher food prices were mainly attributable to rises in the cost of vegetables, fish and fruit, while meat prices fell.

Sopac is to be recapitalised A prawn-processing company, Sopac, is to receive a major capital injection. Sopac shareholders recently decided that with an annual turnover of CFPfr1.4bn (US$13m), the company was undercapitalised at around CFPfr38.5m. The governments of the Northern and Southern provinces, along with the development fund ICAP will each contribute CFPfr50m to Sopac, while the Port of Nouméa and the Chamber of Commerce and Industry will supply CFPfr40m and CFPfr25m, respectively. The capital injection will be channelled through Sofinor, the main shareholder in Sopac, and will enable the company to boost capacity at its plant in the Southern Province. Seafood now represents New Caledonia’s second largest export, with one-third of prawns produced in the territory coming from the two farms of the Northern Province.

The Northern Province The government of the Northern Province allocated CFPfr50m (US$468,000) in seeks a geographical February to fund an assessment of the economic impact of developments in the balance in development Voh, Kone and Pouembout regions. Projects already announced for the region due to proceed in the next few years include the SMSP nickel smelter, the development of Nepoui port and various other smaller projects such as poultry processing, a prawn treatment plant and the establishment of a base for deepwater fishing vessels. The aim of the study is to ensure that the developments are located in the most economically advantageous sites, and that resources are equally channelled to the western and eastern regions of the province.

The last budget is In January the last territorial budget was presented by a High Commissioner to submitted by the High New Caledonia. The budget focused on supporting apprenticeship schemes, Commissioner bolstering the social security system, increasing the territory’s stake in the local flag carrier, Air Calédonie, and providing more funds for the restructuring the Nouméa hospital. A road improvement programme is also to be launched. The majority of the decisions on public-sector spending will be made by provincial governments.

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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, at which time a successor will be elected by the Fono for a five-year period

National legislature Unicameral, 49-member Fono; 47 members are elected by all Samoans aged 21 or over to represent 41 constituencies, while the remaining two are elected from the electoral rolls made up of non-Samoans; the Fono sits for five-year terms

Legal system System of lower courts leading to Court of Appeal at apex

National elections April 26th 1996; next election due by April 2001

National government The Human Rights Protection Party, led by Tofilau Eti Alesana, holds 37 of the 49 seats in the Fono

Main political parties Human Rights Protection Party (HRPP); Samoa National Development Party; Samoa All People’s Party

Prime minister& minister of finance Tuilaepa Sailele Malielegaoi Deputy prime minister vacant

Key ministers Agriculture, forestry, fisheries & meteorological services Solia Papu Vaai Education Fiame Naomi Health Misa Telefoni Justice Molio’o Teorilo Labour Polataivao Fosi Lands, surveys & environment Tuala Sale Tagaloa Posts & telecommunications Le’afa Vitale Transport Joe Keil Women’s affairs Leniu Tofaeono Avamagalo Works Luagalau Lavaula Kamu Youth, sport & cultural affairs Leota Lu II

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 26 Samoa

Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997 GDP at current prices (Tala m) 291.8 321.2 369.0a 421.0a 481.0a Real GDP growth (av; %) 9.5 –7.8 9.6b 6.0b 3.4b Consumer price inflation (av; %) 1.8 18.4 1.0 7.5 10.5 Population (m) 0.16 0.16 0.17 0.17a 0.17a Exports fobc (US$ m) 6.43 3.53 8.75 10.10 14.57 Imports fobc (US$ m) 87.37 69.01 80.22 90.88 99.70 Current-account balancec (US$ m) –38.68 5.78 9.32 12.29 9.09 Reserves excl gold (US$ m) 50.71 50.80 55.31 60.80 64.21 Total external debt (US$ m) 193.8 156.9 170.4 166.9 n/a Debt-service ratio, paid (%) 6.9 7.4 4.3 4.0 n/a Exchange rate (av; Tala:US$) 2.568 2.535 2.472 2.462 2.556

February 26th 1999 Tala3.0157:US$1

Origins of gross domestic product 1996d % of total Components of gross domestic product 1988 % of total Agriculture 39.9 Private consumption 86.3 Manufacturing 17.9 Government consumption 18.6 Electricity 6.4 Fixed investment incl change in stocks 31.5 Construction 1.9 Exports of goods & services 30.4 Services 22.8 Imports of goods & services –66.8 Government 11.1 GDP at market prices 100.0 GDP at market prices 100.0

Main destinations of exports 1996e % of total Main origins of imports 1996e % of total Australia 81.5 Australia 33.3 New Zealand 6.2 New Zealand 25.0 Slovakia 3.1 Japan 14.9 Germany 3.1 Fiji 8.0 American Samoa 1.5 US 7.5 a EIU estimate. b Official estimate. c IMF balance-of-payments figures. d IMF staff estimates. e Derived from trading partners’ statistics.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Samoa 27

Outlook for 1999-2000

Continuity marks the The resignation in November 1998 of the long-serving prime minister, Tofilau accession of the new Eti Alesana, and his replacement with Tuilaepa Sailele Malielegaoi, the former prime minister deputy prime minister, came as little surprise to the Samoan electorate. Indeed, the move has been widely perceived as the formalisation of existing arrangements and has prompted neither a cabinet reshuffle nor any tension between Mr Tuilaepa and the cabinet, which he effectively headed during Mr Tofilau’s frequent absences for medical treatment in recent years. While Mr Tuilaepa has not named a deputy prime minister as yet, the importance of continuity in political life and economic policy has been underlined. The privatisation programme will remain the focus of economic policy, in particular the divestiture of the telecommunications parastatal. Overall, the government will have a relatively easy ride on the economic front compared with other small island economies (SIEs) in the region, with the continued boom in the fisheries sector providing the government with adequate revenue levels in 1999-2000.

Samoa: gross domestic product Samoa: Tala real exchange rates (b) % change, year on year 1980=100 140 10

8 Tala:DM 6 120 4 2 100 0 -2 Samoa 80 -4 Asia excl Japan Tala:US$ -6 -8 60 1993 94 95(a) 96(a) 97(a) Tala:¥ (a) Official estimates. (b) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic 1980. . . . 85 . . . . 90 . . . . 95 . . Outlook.

Review

The change of leadership The former deputy prime minister and minister of finance, Tuilaepa Sailele has little impact on Malielegaoi, was sworn in as prime minister on November 23rd 1998 along with economic policy— the cabinet, following the resignation of the long-serving premier, Tofilau Eti Alesana. Mr Tofilau had been a member of the Fono (parliament) for over 30 years and prime minister and leader of the governing Human Rights Protection Party (HRPP) for 20 years. After frequent treatment for liver cancer and a heart condition in New Zealand, a pallid Mr Tofilau became a senior minister without portfolio at the changeover ceremony. Although his continued presence in the government has been a matter of controversy (see below), his successor confirmed that the HRPP remains strongly committed to continued prudent economic management and fiscal discipline. Economic policy will centre on

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 28 Samoa

bolstering the confidence of the private sector by increasing co-operation between government and the business community.

—and competitiveness and Mr Tuilaepa has indicated that the government will seek to improve the oper- the Y2K crisis will remain ating and regulatory environment for the private sector in an attempt to boost high on the agenda competitiveness. Legislation will be amended to streamline the issuing of business licences and to formulate a simpler, more transparent policy towards foreign direct investment (FDI). The public sector will be dominated by two key issues: the proposed divestiture of the posts and telecommunications service, and ensuring that adequate investment is channelled into resolving the so- called Y2K (year 2000) computer compatibility problem. The government is also committed to examining ways of enhancing the accountability of public- sector entities and is considering allowing state enterprises to be governed by the Companies Act. Mr Tuilaepa confirmed that the health and education sectors will receive higher priority in government expenditure, while efforts will be made to reduce import tariffs and income tax, where possible in line with World Trade Organisation (WTO) directives. Measures to broaden the tax base further are also under review.

There are further tensions The accession of Mr Tuilaepa to the premiership has further strained relations with the Samoa Observer— between the government and the only daily English-language newspaper, the Samoa Observer. The newspaper launched a strong attack on Mr Tuilaepa’s decision to retain the finance portfolio, which it interprets as a move to extend his personal power base. In January the paper reported that Mr Tuilaepa had appointed himself head of no less than 35 government departments and corpor- ations and had also accepted the post of chairman of the Western Samoa Rugby Football Union. Amid rising concern about his ability to execute his core func- tions, the prime minister’s office replied that Mr Tuilaepa was only involved in decisions at the policy level and did not participate in the day-to-day running of government departments—technical and administrative matters were being handled by departmental heads and assistant secretaries with specialised staff.

—and the role of the The Samoa Observer also raised questions about the role of Mr Tofilau as a senior former prime minister is minister in government in view of his health. In an editorial on January 17th called into question— the newspaper openly asked whether the former prime minister was attending cabinet meetings and, on a more sensitive note, whether he continued to receive his annual salary of over Tala100,000 (US$34,000). The paper also asked whether Mr Tofilau continues to enjoy benefits such as a free car and residence, and whether the cost of his foreign travel and medical treatment are to be met with public funds.

—despite a hefty fine In late September 1998 the Supreme Court ruled that the publisher and editor levied against the of the Samoa Observer, Savea Sano Malifa, should pay Mr Tofilau Tala75,000 newspaper (US$25,000) in costs, in addition to a payment awarded earlier worth Tala50,000 for damages in a civil defamation action (3rd quarter 1998, page 29). However, the chief justice, Sir Gordon Bisson, refused to award the full claim of Tala549,000 lodged by Mr Tofilau, who had engaged lawyers in Samoa, New Zealand and Australia. In defence of his decision Sir Gordon explained that he had taken account of Mr Tofilau’s previous claim for damages

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Samoa 29

of Tala400,000, of which 13% had been awarded. However, he added that Mr Malifa’s legal defence was inherently sound, predicated on a recent decision by a New Zealand court on qualified privilege for statements about the actions and qualities of current, former or aspiring members of parliament. Mr Malifa argued that the ruling should also apply in Samoa. According to Sir Gordon, the ruling protects the interests of free speech and expression in political dis- cussion, without jeopardising the legal machinery with which to penalise genuine instances of defamation.

Mr Malifa wins a Several weeks after the court’s decision was released, Mr Malifa was awarded the Commonwealth award Astor prize by the Commonwealth Press Union, which recognises contributions to preserving and enhancing the freedom of the media. This was the first time that the award has been conferred on a media organisation in the Pacific region. Mr Malifa, who founded the Samoa Observer, has often been the target of political pressure. The newspaper’s offices burned down in mysterious circumstances in 1994, its journalists have intermittently been harassed, and Mr Malifa himself has been beaten. The financial viability of the newspaper is now in question, given the considerable legal costs which it has incurred. On a somewhat sar- donic note, Mr Tuilaepa remarked that it was the government which should be compensated for allowing the newspaper to be published freely.

There is a boom in church The latest economic review published by the Central Bank of Samoa points to construction an “unprecedented boom” in church construction. The value of building permits for churches in the first half of 1998 reached Tala4.2m (US$1.4m), a 28-fold increase on the previous six months. Some observers have attributed the boom to a revival of faith in the country, but whatever the reason, it has provided a strong boost to the construction sector and has generated welcome spin-offs in terms of creating employment opportunities. The government accounted for 35% of new construction of churches, by building a Christian temple on Mount Vaea at a cost of Tala1.5m.

Changes to the tax regime On January 1st wide-ranging changes to the tax regime were introduced. In are introduced addition to a revision of income tax exemptions, the 1% levy on purchases of foreign exchange has been abolished, while the National Provident Fund Act has been amended to allow contributors greater flexibility to withdraw funds to make personal investments. The prime minister indicated that further changes to the structure of tariffs and import duties could be expected during the year, depending on economic performance and revenue generation. Mr Tuilaepa also confirmed that several major public infrastructure projects would be initiated, notably the expansion and upgrading of Faleolo international airport through a concessional loan from the World Bank. The terminals are to be improved, the runway resealed and new traffic control and emergency facilities installed. Rural water supplies are also to be upgraded with support from the EU.

A delegation from A high-level delegation from neighbouring American Samoa visited the capital, American Samoa seeks Apia, in January, in a bid to increase economic co-operation between the two closer co-operation nations. The speaker of the American Samoan House of Representatives, Aina Saoluaga Nua, identified tourism, trade, tariffs and the tax regime as priority areas in which new arrangements might be mutually beneficial. Joint tourist

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 30 Samoa

promotions, particularly aimed at the continental American market, would also help both countries. American Samoa is now western Samoa’s largest export market, with fish exports the leading commodity sold to the neighbouring territory. In January a larger and more modern ferry began operations between the respective capitals, Apia and Pago Pago. On a light-hearted note, Mr Aina said that a mark of the close relations between the two Samoas was the weekly shipment from Apia of 750,000 cases of the award-winning Vailima beer (4th quarter 1998, page 30).

An MP is accused of At a meeting in February the matai (chiefs) of the village of Safotu, on Savai’i adultery by constituency island, alleged that the MP for the constituency, Gaiga Tino, was guilty of chiefs adultery and ordered him to resign his seat as punishment. They also imposed a fine of Tala1,000 (US$330), six cattle, and 300 loaves of bread. Mr Tino was also required to feed the village for one day.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Solomon Islands 31

Solomon Islands

Political structure

Official name Solomon Islands

Form of state Constitutional monarchy

The executive UK-style cabinet, chosen from within parliament, headed by the prime minister chosen from and by parliament

Head of state Queen Elizabeth II, represented by a governor-general who must be a Solomon Islander; Moses Pitakaka currently holds the position

National legislature Unicameral, 50-member National Parliament; elected for four-year terms by universal suffrage

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 at the apex; the Court of Appeal is staffed by justices from Papua New Guinea, Australia and New Zealand

National elections August 6th 1997; next election due by September 2001

National government Bartholomew Ulufa’alu was elected prime minister by parliamentary vote after the elections of August 1997

Main political organisations The ruling coalition is the Alliance for Change, consisting of six parties including the National Action Party, the Labour Party and the National Party. Other parties include the coalition, Solomon Islands National Unity, Reconciliation and Progressive Party

Members of cabinet Prime minister & acting minister of finance Bartholomew Ulufa’alu Deputy prime minister & minister for transport, works & utilities Sir Baddeley Devesi

Key ministers Agriculture & fisheries Sanga Aumanu Commerce, employment & tourism Enele Kwanairara Education Ronidy Mani Foreign affairs & trade Patteson Oti Forestry, environment & conservation Hilda Kari Health & medical services Dickson Warakohia Home affairs Leslie Osero Indigenous business development David Holosivi Lands & housing Jackson Piasi Police & national security Rubins Mesepitu Provincial government Japher Waipora Women’s affairs, youth & sports Gordon Mara

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 32 Solomon Islands

Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997 GDP at current prices (SI$ m) 781 931a 1,093a 1,264a 1,402a Real GDP growth (%) 2.0 5.2a 7.0a 3.5a –1.0a Consumer price inflation (av; %) 9.2 13.3 9.7 11.8 12.0b Population (m) 0.36 0.37 0.38 0.39 0.40b Exports fobc (US$ m) 129.0 142.2 168.3 184.0b n/a Imports cifc (US$ m) 136.9 142.2 154.5 150.8b n/a Current-account balancec (US$ m) –7.4 –3.6 8.3 18.4b n/a Reserves excl gold (US$ m) 20.07 17.42 15.91 32.58 31.34 Total external debt (US$ m) 150.5 154.9 157.5 144.9 n/a Debt-service ratio, paid (%) 5.8 8.2 3.8 3.6 n/a Exchange rate (av; SI$:US$) 3.188 3.291 3.406 3.566 3.717

February 26th 1999 SI$4.82:US$1

Origins of gross domestic product 1992 % of total Components of gross domestic product 1989 % of total Agriculture 48.4 Private consumption 78.0 Mining –0.3 Public consumption 34.7 Manufacturing 3.7 Fixed investment 28.1 Electricity, gas & water 0.9 Exports of goods & services 64.8 Construction 4.3 Imports of goods & services –105.6 Trade 9.6 GDP at market prices 100.0 Transport & communications 7.2 Finance 3.3 Public administration 23.0 GDP at constant prices 100.0

Principal exports fob 1995 US$ m Principal imports cif 1995 US$ m Timber 83.1 Machinery & transport equipment 49.5 Fish 42.8 Manufactured goods 34.7 Palm oil 19.5 Food 23.5 Copra 9.6 Miscellaneous manufactured articles 14.8 Cocoa 3.9 Mineral fuels 14.3 Palm kernel 1.6 Chemicals 7.8 Marine shells 1.6 Total incl others 154.5 Coconut oil 1.2 Total incl others 168.3

Main destinations of exports 1996d % of total Main origins of imports 1996d % of total Japan 50.5 Australia 41.5 Spain 15.5 Japan 10.2 Philippines 7.8 Singapore 8.8 Thailand 4.9 New Zealand 7.5 UK 4.4 US 4.8 a EIU estimate. b Official provisional figure. c National figures. d Derived from trading partners’ statistics.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Solomon Islands 33

Outlook for 1999-2000

Latent political tensions Although the ruling Alliance for Change (AFC) coalition, led by the prime come to the fore minister, Bartholomew Ulufa’alu, has managed to weather recent political turbulence with greater resilience than expected—a summit of community leaders in January indicated widespread support for the government’s economic rescue package—simmering instability in Guadalcanal will raise the political temperature in the coming months. With fundamental issues of land ownership having festered unresolved for over a decade, the solution of the political impasse, which has eluded the former prime minister, Ezekiel Alebua, will now have to be tackled by Mr Ulufa’alu. He has sent clear signals to Guadalcanal that a large one-off monetary compensation is out of the question, if for no other reason than that other provinces would almost certainly submit similar claims. The salient question is whether the prime minister can muster the political savvy to neutralise ethnic tensions, which revolve around the issue of land ownership, in the context of ongoing political instability.

Civil service reform and The cornerstone of the government’s economic rescue package will be to re- financial stabilisation are duce the civil service, while also securing generous assistance from the inter- high on the agenda national donor community and soliciting foreign direct investment (FDI) where possible. The fact that the prime minister managed to reach an agreement with ten civil service unions on the terms of retrenchments—over 500 positions are to be axed in 1999—augurs well for the implementation of further unpopular cutbacks. Trimming the upper echelons of the civil service will, however, prove more challenging, with nine former “permanent” secretaries contesting their redundancies in court. It now remains to be seen whether Mr Ulufa’alu will manage to walk the narrow political tightrope between press- ing ahead with the civil service restructuring and averting a potentially devastating backlash from the bureaucracy and senior members of government as a result of the unpopular measures.

Solomon Islands: gross domestic product Solomon Islands: Solomon Islands dollar % change, year on year real exchange rates (a) 1980=100 10 Solomon Islands 140 Asia excl Japan 8

120 6

4 100

SI$:DM 2 SI$:US$ 80 0

-2 60 1993 94 95 96 97 SI$:¥ (a) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic 1980. . . . 85 . . . . 90 . . . . 95 . . Outlook.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 34 Solomon Islands

Review

The political temperature In late January the Solomon Islands police commissioner, Frank Short, publicly rises in Guadalcanal— urged the government to establish a royal commission of inquiry into the activities of a militant group in Guadalcanal province. Violence has steadily escalated in the region since early December, as ethnic tensions resurfaced between the people of Guadalcanal and Malaita provinces. Guadalcanal islanders are frustrated with the continual influx of people from other parts of the country to the capital. There is particular resentment against Malaitans who, according to residents of Guadalcanal, enjoy preferential treatment from the government and private sector. This resentment has manifested itself in west Guadalcanal, where cars were stopped at random and occasionally stoned at roadblocks, while houses were burned and other property looted. Some Malaitans who had settled in the area fled to Honiara, and several hundred Malaitans staged a street demonstration there in mid-December. The following month two senior New Zealand detectives began an independent investigation into the death of a man in an exchange of gunfire between police and an armed group on Bungana Island in the Central Islands province. A police constable was also wounded in the incident.

—amid a series of Mr Short’s proposal for a royal commission of inquiry followed another inci- shootings— dent, in which a security officer was killed at a tourist resort near Honiara. The shooting was allegedly carried out by several men in traditional dress who, according to local rumour, belonged to the Guadalcanal liberation army. On a more controversial note, Mr Short added that the inquiry should examine the alleged involvement of political figures in the recruitment and training of militants.

On December 10th a group of armed men held up a police station, raided its armoury and escaped with more weapons, while tensions in Guadalcanal escalated to the point that farmers refused to enter the province to deliver produce, leaving markets bare and causing steep rises in the price of fruit and vegetables. A week later, just before a special conference of provincial leaders, the premier of the province, Ezekiel Alebua, revealed that he had received a death threat. He condemned the demonstration in Honiara, claiming that it was prompted by spurious rumours, including one which alleged that his government in- tended to evict islanders from other provinces after confiscating their land. Mr Alebua’s denunciation of the demonstration was echoed by the premier of Malaita, David Oeta. As a result, one of the key recommendations to emerge from the conference was to draw up goodwill treaties between provinces.

—which has prompted the The ruling Alliance for Change (AFC) coalition is the first Solomon Islands government to revisit the government since 1978 that has tackled the thorny issue of land appropriation land issue— and distribution in the country. The titles to land have been returned to the governments of Isabel, Central and Guadalcanal provinces. However, Mr Alebua warned that the issue has not been fully resolved; it has been complicated by the fact that some land has been sold into private ownership for residential, agricultural and industrial purposes, which was illegal in the view of the Guadalcanal provincial government. Mr Alebua demanded that the national government

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Solomon Islands 35

amend the relevant legislation to prevent people from owning land in other provinces, and that the central government pay rent for having the capital on Guadalcanal island, at a proposed rate of SI$50 ($10) per resident. He has claimed further compensation of SI$14m for having the capital in the province, on the grounds that Guadalcanal’s constitutional rights and freedoms have been breached, and of an additional SI$100,000 for every Guadalcanal resident killed “for no reason” since independence. The latter claim followed a decision by the central government in 1998 to award SI$16,000 in compensation to the parents of Malaitan girls who were victims of an alleged mass rape at a high school in Honiara.

—but Mr Ulufa’alu warns In January the prime minister, Bartholomew Ulufa’alu, acknowledged the seri- that compensation is not ousness of ethnic tensions in the Solomon Islands but argued that monetary the answer compensation would not resolve contentious issues. No viable alternative seemed to be offered, however, amid rhetoric that the government needed to identify the root causes of the crisis which, according to Mr Ulufa’alu, included socio-political, economic and personal interests as well as historical factors. Mr Ulufa’alu then dispatched a letter to Mr Alebua, urging him to either for- mally submit his claims to the national government or terminate communications with him on the issue—in which case he would deal directly with Guadalcanal chiefs and community and church leaders.

The 1999 budget features Amid government pledges to balance the budget in 1999, the prime minister massive expenditure cuts warned that further monetary and fiscal belt-tightening was required. Al- though the Ulufa’alu administration is assuming that revenue levels will remain fairly constant in 1999, some ministries are slated to suffer drastic funding cuts. As acting minister of finance, the prime minister revealed in his November budget speech that, faced with the choice between maintaining current levels of recurrent expenditure and boosting development spending, the government had opted for the latter. Given that there was a revenue shortfall of SI$40m (US$8.3m) in 1998—total receipts only reached SI$394m— the government issued a conservative projection for total revenue in 1999 of SI$379m. Mr Ulufa’alu confirmed that the government would not incur further domestic borrowing, although some external financing may be considered. Official estimates are still unavailable for GDP growth in 1997 and 1998. However, the prime minister indicated that expansion in 1997 was probably negligible, while the economy almost certainly contracted in 1998 owing to inappropriate policies and the impact of the Asian economic downturn.

Wood exports fall The indications are that the impact of the Asian economic downturn on the in 1998— logging industry in 1998 was severe. Around 430,000 cu metres of wood worth US$25m were exported in the first nine months of 1998. This represented a fall of 21% in volume and 58% in value terms on the corresponding period in 1997. Average log prices were a mere US$59 per cu metre in 1998 compared with US$110 in 1997. However, logging levels were still well ahead of the estimated environmentally sustainable yield of under 300,000 cu metres per year, and it was clear that additional controls were needed to implement a sustainable yield policy.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 36 Solomon Islands

—but fisheries sales are on Fish has now overtaken wood as the Solomon Islands’ main export earner. The the upswing total fish catch by the domestic fleet had reached nearly 33,000 tonnes by the end of September 1998, about 12% higher than the 1997 catch. Fish prices have also remained buoyant, with frozen fish earning around US$1,000/tonne, pushed upwards by supply shortages at major canneries. Production of palm oil and palm kernels was also up by 6% on 1997 levels, and palm oil prices were considerably higher throughout the year than the average price of US$546/t in 1997. Palm oil prices are thought to have reached around US$650/t at the end of 1998 and are projected to hover around $600/t in 1999.

The price outlook for Amid generally subdued world commodity prices the outlook for prices of copra smallholder farmers and cocoa, two vital cash crops for the Solomon Islands smallholder sector, is improves reasonably bright. World production of copra is expected to fall in 1999, with prices forecast to rise to about $430/t in 1999 compared to $403/t in 1998. According to the prime minister, most if not all of the country’s copra production will be crushed in 1999 once regional mills are established. Regarding cocoa, he confirmed that local producers had benefited from relatively buoyant prices, which had risen to an average of US$1.75/kg in 1998 from $1.62/kg in 1997. Coconut oil prices are also forecast to rise from around $650/t in 1998 to $700/t in 1999, providing a further boost to farmers.

The Gold Ridge mine is set After the opening of the Solomon Islands’ first gold mine at Gold Ridge in to produce at capacity central Guadalcanal in September (4th quarter 1998, page 36), Mr Ulufa’alu in 1999 indicated that the deposit would reach full production capacity in 1999. Gold and silver output has been forecast to reach 100,000 oz.

The Bank of Hawaii In its second report on the Solomon Islands released in October, the Bank of commends the Hawaii (BoH) commended the AFC government for its efforts to introduce reform drive difficult economic reforms, but warned that the country had entered a difficult transition period and that broader public support must be galvanised for the reform programme. The BoH also stressed the importance of public-sector downsizing and economic liberalisation measures to enhance competitiveness and efficiency. The main challenge was to kick-start productive sectors, boost employment generation and satisfy domestic demand with locally produced goods. According to the report, tourism remains a crucial potential growth sector, although this will require widespread improvements to the dilapidated infrastructure. Land reform is also essential to boosting tourism and other sectors, given that under current regulations the sale of communal land to foreign individuals or institutions is prohibited. Access to land may be obtained through the issue of leases, but titles are not issued. Potential domestic and foreign investors have complained that the absence of land titles makes obtaining leases, let alone financing, for potential developments a lengthy and costly process.

The SPFFA vessel In order to safeguard the fisheries sector, legislation was recently passed to monitoring regime is implement the South Pacific Forum Fisheries Agency (SPFFA) vessel monitoring implemented— system (VMS, see The region). The relevant equipment is to be installed on the 17 fishing vessels operated by the local fishing company, Solgreen, including those which have allegedly been involved in illegal fishing activity. According

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Solomon Islands 37

to the minister for agriculture and fisheries, Sanga Aumanu, the decision followed allegations that two foreign vessels chartered by Solgreen had transferred tuna caught in Solomon Islands waters to a carrier vessel on the high seas. Under the new legislation, automatic location communicators will be active at all times for a period of five years, while satellites linked to the VMS will provide co-ordinates of vessels and data on catches. No foreign vessels will be permitted to fish for tuna in the Solomon Islands exclusive economic zone (EEZ) without VMS installations.

The approval of the legislation has coincided with general optimism about the prospects for the fisheries sector. Provisional data suggest that the tuna catch in 1998 was probably the largest since 1983. By the end of September around 70,000 tonnes of tuna had been caught, and the figure was expected to rise to 80,000 tonnes or more for the year; the average annual catch hovers around 50,000-60,000 tonnes. Worryingly, the increase in 1998 has been attributed to unusual movements of fish schools caused by the effect of the El Niño oceanic current on water temperatures.

—and negotiations with In January negotiations broke down between the Solomon Islands and Japan the Japanese government over the implementation of the VMS requirement, which will enable the Solomon end in deadlock Islands authorities to monitor all activity in its 1.34m-sq-km EEZ. Although Mr Aumanu regretted the diplomatic stalemate with Japan, an important bilateral partner, he maintained that the VMS requirement represents a relatively minor imposition on operators in the EEZs of the deepwater fishing nations. Moreover, if fishing activity is carried out legally, the VMS requirement should make no difference to foreign operators at all. Mr Aumanu attempted to couch the debate in environmental terms, stressing the importance of safeguarding tuna stocks in the region and pointing out that vessels operating under the fisheries agreement between the US and the Pacific had implemented the VMS.

The government approves In November the Ulufa’alu administration approved the importation of nine an arms deal by the containers of arms into the Solomon Islands, purchased by the previous previous regime government at a cost of US$5m at the height of the Bougainville crisis in Papua New Guinea. According to the prime minister, the shipment included heavy calibre weapons, rocket launchers, ammunition, two Cessna aircraft and a helicopter, much of which had been stored in New Zealand at the request of the government. A new adviser to the police force, who assumed the position in November, will advise the government on usage of the weapons.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 38 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, headed by a prime minister, comprising the governors of Ha’apai and Vava’u and ministers of the Crown; ministers are appointed permanently until retirement age

Head of state King Taufa’ahau Tupou IV

National legislature Unicameral Legislative Assembly with limited powers, comprising the speaker, the cabinet, nine nobles chosen by the 33 nobles of Tonga, and nine representatives elected by all Tongans aged 21 or over; three of the representatives are elected from Tongatapu, one each from Toputatu Niua and Niua Fa’ou, two from Ha’apai and two from Vava’u; the nobles chosen cover similar areas

Legal system Modelled on the English system, with the Privy Council (consisting of the cabinet headed by the king) sitting as the Court of Appeal

National elections January 1996; next election due end-March 1999

Main political organisation People’s Party

Prime minister & minister of agriculture, fisheries & forestry Baron Vaea of Houma Deputy prime minister & minister of education & civil aviation Langi Kavaliku

Key ministers Finance Tutoatasi Fakafanua Foreign affairs & defence Prince Lavaka Ata Ulukalala Health (acting) Tilitili Puloka Justice & attorney-general Tevita Tupou Labour, commerce & industries, tourism Masaso Paunga Lands, survey & natural resources Honourable Tu’i’afitu Police, prisons & immigration Clive Edwards Public, fire services & prisons Cecil Cocker

Governor of Ha’apai Fielakepa

Governor of Vava’u Siosaia Ma’ulupekotofa

Governor of the Reserve Bank Siosiua ’Utoikamanu

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Tonga 39

Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997 GDP at current pricesa (T$ m) 201.0 214.8 229.5b 343.5b n/a Real GDP growtha (%) 4.7 2.6 1.6b 3.0b n/a Consumer price inflation (av; %) 0.9 1.1 1.4 3.0 2.1 Population (’000) 100 100 100 100 100b Exports fob (US$ m) 16.1 13.9 14.6 15.3b n/a Imports fob (US$ m) 56.6 68.9 77.2 82.9b n/a Current-account balance (US$ m) –6.0 20.4 n/a n/a n/a Reserves excl gold (US$ m) 37.06 35.54 28.71 30.62 27.49 Total external debt (US$ m) 44.2 64.4 70.1 69.6 n/a Debt-service ratio, paid (%) 3.1 4.5 5.0 4.9 n/a Exchange rate (av; T$:US$) 1.38 1.32 1.27 1.23 1.26

February 26th1998 T$1.6104:US$1

Origins of gross domestic product 1994b % of total Components of gross domestic product 1991b % of total Agriculture 30.1 Private consumption 93.8 Mining 0.2 Government consumption 18.9 Manufacturing 4.5 Gross capital formation 15.5 Electricity, gas & water 1.5 Increase in stocks 1.9 Construction 5.0 Exports of goods & services 20.7 Services 44.1 Imports of goods & services –50.9 GDP at market prices GDP at market prices 100.0 incl indirect taxes & subsidies 100.0

Principal exports fob 1995 US$ m Principal imports cif 1995 US$ m Squash 6.6 Food 17.6 Fish products 3.4 Machinery & transport equipment 16.0 Vanilla 2.2 Basic manufactures 15.0 Total incl others 14.6 Mineral fuels 9.6 Total incl others 77.2

Main destinations of exports 1996c % of total Main origins of imports 1996c % of total Japan 42.9 New Zealand 34.2 US 19.0 Australia 16.4 Canada 14.3 US 9.6 Australia 4.8 UK 8.2 New Zealand 4.8 Japan 5.5 a Fiscal years beginning July 1st. b EIU estimate. c Estimates derived from trading partners’ statistics.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 40 Tonga

Outlook for 1999-2000

Economic hardship casts As the deterioration of the agriculture-dependent economy accelerates—the doubts on the viability of recent prolonged drought was followed by a devastating cyclone in December— the leadership— the upper echelons of the Tongan government have failed to present a cohesive and viable strategy to rescue the country from current hardships and diversify the economic base in the long term. Food shortages, widespread damage to infrastructure and falling export levels have elicited only ad hoc and unconvinc- ing responses from the government, while initiatives to support the agriculture and fisheries sectors remain embryonic, with little sign of commitment to implement crucial, if costly, projects. The lack of direction in government has been exacerbated by the fact that the prime minister, Baron Vaea of Houma, submitted his application for retirement over a year ago, which has been approved in principle by the privy council. There is no obvious successor to Baron Vaea, which not only intensifies uncertainty about the composition of any future Tongan government but has also exacerbated the lack of co-ordination at all levels of government.

—and the indecisiveness of The fact that King Taufa’ahau Tupou IV has failed to clarify any arrangements King Taufa’ahau will not after Baron Vaea’s retirement has increased the sense of uncertainty in Tonga. help matters Rumours have circulated that the premiership may be awarded to the king’s younger son, Prince Lavaka Ata Ulukalala, who currently holds the foreign affairs and defence portfolios. Meanwhile, one MP has called publicly for the more experienced Crown Prince Tupouto’a to be recalled to public service as prime minister. According to reports in the local media, however, Prince Tupouto’a has indicated that he would only consider accepting the post if he is given the right to appoint and dismiss ministers, currently the prerogative of the king. A constitutional change of such magnitude is considered unlikely, but a private arrangement between the king and his son has not been ruled out. The other contingency flagged by local analysts is the promotion of the deputy prime minister, Langi Kavaliku. If the king selects Dr Kavaliku, a major cabinet reshuffle could ensue, possibly ahead of the parliamentary election due in March.

Tonga: gross domestic product Tonga: Tonga dollar real exchange % change, year on year rates (b) 1980=100 10 Tonga 150 Asia excl Japan T$:DM 140 8 130 6 120

110 4 100 T$:¥ 2 90 T$:US$ 80 0 1993 94 95(a) 96(a) 70 (a) EIU estimates. (b) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic 1980. . . . 85 . . . . 90 . . . . 95 . . Outlook.

Review

Candidates are registered At the forthcoming election the nobles will vote for their representatives on to contest the March 10th, while the representatives of the people will be elected on March parliamentary election 11th. The registration of candidates for election to the legislative assembly, known as the people’s representative, closed in mid-January. Some 55 politicians submitted their candidacy for the nine seats, including eight incum- bents, among them Akilisi Pohiva, the leader of the Human Rights and Democracy Movement. The “number three” representative for Tongatapu, Uliami Fukofuka, opted not to seek a fourth term, taking up an appointment as co-director of the Faith Seminary. The newly elected parliament, which will also include nine elected noble representatives, 12 cabinet ministers, and two provincial governors appointed by King Taufa’ahau Topou IV, will run until 2001. According to election officials nearly 55,000 voters had registered by mid-January, although further enrolments are expected.

Cyclone Cora wreaks With winds of up to 160 km/hour, tropical Cyclone Cora struck Tonga on havoc with the December 27th, causing widespread damage, estimated by the National archipelago— Disaster Relief Committee (NDRC) at T$19.6m (US$12.5m). A report issued in mid-January by the Ministry of Agriculture and Forestry calculated that nearly T$15m of food and cash crops had been destroyed, based on a random survey of around 10% of Tongan farms. The cyclone merely exacerbated the acceler- ating economic downturn prompted by a period of extended drought (4th quarter 1998, pages 40-41) and the Asian economic slowdown. The ministry warned of severe food shortages, estimating that around T$3.5m of food aid would be required, with the people of Vava’u and Ha’apai requiring relief supplies at least until late April. The breadfruit crop, which was ready to be harvested when the cyclone struck, was worst affected, but banana trees and cassava roots also suffered extensive damage.

—damaging Tongatapu’s Cyclone Cora ripped through Tongatapu, Ha’apai and ’Eua during daylight hospital and broadcasting hours, accompanied by heavy downpours. Vaiola hospital on Tongatapu suf- facilities fered damage estimated at T$50,000 (US$32,000), but fortunately only three patients were in the complex at the time. Many schools, churches and community halls were also damaged. Although the authorities managed to repair power lines fairly quickly, some areas went without telephone services for nearly three weeks. The main transmitter at Radio Tonga, which services all islands in the disparate kingdom, went off air at the height of the cyclone, remaining out of service for almost 30 hours. In January the government promised to provide the broadcasting agency with a new generator to avoid this contingency in future.

Tonga makes a diplomatic Tit-for-tat politics between China and Taiwan, which has engulfed the Pacific move on the regional region for several years, extended to Tonga when the country officially recog- chessboard— nised the Beijing government. A giant statue of King Taaufa’ahau and a gift from the Chinese president, Jiang Zemin, were unveiled in the palace grounds in November to mark the change in diplomatic allegiance. The statue had been presented to the king during a meeting in Beijing in July 1998, which was followed by a visit to the Taiwanese head of state, Lee Teng-hui. The king had

apparently hoped that Tonga would be the first state to establish official bilateral relations with both China and Taiwan, but such is the intensity of the diplomatic chess match which has unfolded between the rival nations that this proved impossible. It is widely thought that the decision to recognise Beijing reflects the influence of Princess Pilolevu Tuita and the minister for foreign affairs and defence, Prince Lavaka Ata Ulukalala.

—as Princess Pilolevu Soon after taking office, Prince Lavaka dispatched a letter to the Chinese envisages stronger links authorities confirming the severing of official bilateral relations with Taiwan. It with China— is noteworthy, however, that China did not object to economic, commercial, cultural and other non-governmental relations between Tonga and Taiwan. The diplomatic negotiations between Tonga and China were spearheaded by Princess Pilolevu, who resides in Hong Kong and is the majority shareholder in Tongasat, which manages the kingdom’s nine orbital satellite slots, including four that cover the Asia-Pacific region. Tongasat is currently pursuing several potentially lucrative business deals in China and is keen to solicit Chinese involvement in a consortium to provide a regional communications satellite linking Asia and the US.

—and not solely for The king apparently defended the decision to sever links with Taiwan as a business opportunities political decision and a “downpayment” on UN membership, which China has pledged to facilitate. A meeting with the UN secretary-general, Kofi Annan, in January confirmed this objective. According to Princess Pilolevu, the royal family views the strengthening of relations with China not only in terms of business opportunities but also evangelical ones. She confirmed that Tongan evangelists awaited the opportunity to proselytise in China. Meanwhile, Taiwanese diplo- mats were required to leave Tonga within one month of the severing of relations, although the government gave no indication of what would happen to the Taiwanese embassy, recently built at a cost of T$2.5m.

Illegal aliens are expelled In December and January the Tongan authorities intensified expulsions of ille- amid rising anti-Asian gal aliens of Asian origin, mainly Chinese, amid mounting racial tensions in the sentiment country. The minister of police, prisons and immigration, Clive Edwards, also ruled that no extensions would be granted to Asians with one-month visitor permits, while those with work permits but no employment would have to leave Tonga immediately. Some local shopkeepers had complained that Chinese nat- ionals were taking over the fale koloa (small retail shop) sector, although official figures suggest that only 38 fale koloas in Tongatapu are operated by Chinese, and of these 26 are owned by Tongans. The expulsions were not universally welcomed, however. Some local businessmen argued that Chinese operators were relied on to manage their businesses efficiently and that the expulsions represented a serious loss.

Against a background of steadily climbing political tensions the prime minister, Baron Vaea of Houma, appealed for tolerance in a national broadcast, reminding islanders that around 200,000 Tongan expatriates relied on legal protection in their countries of residence.

Sales of Tongan passports Mr Edwards confirmed in December that a scheme involving the sale of Tongan are suspended passports for T$10,000 (US$6,400), rendering holders “Tongan Protected Persons”, had been suspended and was unlikely to be reinstated. The minister indicated that negative publicity had prompted the governments of Australia, New Zealand and Canada, among others, to refuse entry to such passport-holders. One Tongan Protected Person was also detained in Britain. Mr Edwards conceded that the scheme had been a useful source of foreign exchange for the country but acknowledged concerns that applications from dubious personali- ties feared to have connections with mafia organisations had been registered. Tongan citizenship can still be conferred on humanitarian grounds through naturalisation. The recent naturalisation of the vice-president and family of a large international automobile manufacturer, at a cost of over US$30,000, has raised questions about the rigidity with which these criteria are applied.

The governor of Vava’u is The king has appointed the honourable Siosaia Ma’ulupekotofa to the noble appointed to noble title title and estates of Tuita, succeeding his father, the late Baron Tuita of ’Utungake. and estates of Tuita The letter of appointment was read to the new noble at a ceremony on December 11th attended by his wife, Princess Pilolevu Tuita, and many other nobles. Honourable Tuita, as he is now known, is governor of Vava’u, which is a cabinet and privy council position. The Tuita estates include ’Utungake, Vava’u, and Ha’afakahenga and Futu, in Niuafo’ou. Honourable Tuita joined the civil service in 1972 and has served as high commissioner to the UK, consul- general in San Francisco and deputy secretary of the Ministry of Foreign Affairs.

Mr Edwards wins a Mr Edwards, the police minister, has won a defamation action against Kalafi defamation case Moala, the publisher and editor of the local newspaper, Times of Tonga, lodged over an article published in 1997. The article included assertions that the minister was at the forefront of alleged persecutions of the government’s political rivals. Mr Edwards, who filed for damages totalling T$140,000 (US$89,000), was awarded T$40,000 by the Supreme Court. Justice Daniel Finnigan indicated that his decision took into account damage to Mr Edwards’ reputation and public confidence in him, emotional distress, and his ability to carry out his public responsibilities.

Foreign-exchange reserves The governor of the National Reserve Bank of Tonga (NRBT, the central bank), fall to precarious levels Siosiua ’Utoikamanu, has warned that the country’s dwindling foreign- exchange reserves, which fell to the equivalent of less than two months’ import cover by end-November, could render payments for food, oil and medicines extremely difficult in the coming months. Mr ’Utoikamanu also advised that the civil service might have to be downsized to cut costs, while price hikes of basic household goods should be expected. The importance of diversifying the country’s export base was underlined once again in order to reduce Tonga’s dependence on pumpkin squash sales, the primary market for which is Japan. According to the IMF, foreign-exchange reserves (excluding gold) plummeted to a mere US$19m at the end of the second quarter of 1998, although by November the NRBT managed to shore up reserves to US$26m. Mr ’Utoikamanu confirmed that US$10m had been allocated from the government’s overseas trust fund to insulate the country from the further depletion of reserves.

Tonga: foreign-exchange reserves, 1998 ($ m; end-period) Jun Jul Aug Sep Oct Nov Foreign-exchange reserves 17.34 15.71 15.45 20.68 22.97 24.47 SDRs 0.17 0.17 0.19 0.19 0.20 0.21 Reserve position in the Fund 1.61 1.61 1.62 1.66 1.72 1.69 Total reserves (excl gold) 19.13 17.49 17.26 22.53 24.89 26.36 Source: IMF, International Financial Statistics.

The trade deficit narrows According to the national statistical office, Tonga’s trade deficit narrowed slightly— slightly between the second and third quarters of 1998, from T$23.7m (US$15.1m) to T$23.2m. Merchandise imports remained unchanged at T$25.5m in both quarters, while merchandise exports rose from T$1.8m to T$2.1m. The continental US continues to account for 33% of Tongan exports— the figure rises to 50% including Hawaii—while Australia and New Zealand provide nearly two-thirds of Tongan imports.

—and new initiatives are According to a senior figure in the ministry of agriculture, Haniteli Fa’anunu, sought to boost the government is considering new initiatives to increase output of fresh pro- agricultural exports— duce in a bid to boost export revenue. The government is planning to lease a further 810 ha of prime land in Hawaii; the fields will be farmed by Tongans and the produce will be exported to the local and mainland US market. Some 40 crops are under consideration. Proposals have also been submitted to establish markets for Tongan produce in Auckland, New Zealand and Pago Pago, the capital of American Samoa. Following the signing of bilateral trade agreements with Fiji in 1996 and Niue in 1998 to encourage agricultural exports, another accord is under negotiation with Samoa. Although Mr Fa’anunu indicated that quarantine restrictions had always been a major constraint to boosting agricultural exports, it is hoped that this obstacle has been removed through the establishment of a new hot-air treatment plant at Fua’amotu airport (4th quarter 1998, page 41). The Ministry of Agriculture is considering installing a second fumigation plant at the airport and an additional plant on Vava’u, with smaller units in Niuatoputapu and Niuafo’ou.

—especially as the During a visit to Tonga in December the developer of the treatment plant said fumigation plant remains that the installation at Fua’amotu was operating far below capacity because of under-utilised a lack of produce available for treatment. The equipment, which cost around T$280,000 (US$179,000), uses extremely hot, dry air to eliminate fruit fly and can handle 1.5 tonnes of produce per fumigation. According to local experts, 9 tonnes of fruit can be cleared for export per 24-hour period if the plant operates continuously. Instead, the plant is currently operational only twice a week, with a mere two or three loads of produce processed. Local experts in agriculture and agribusiness have identified the lack of commercial culture among Tongan farmers as a key problem. The notion of reinvesting in key factor inputs in order to boost output and thereby increase exports remains a largely alien concept.

A new island erupts from The kingdom acquired a new, volcanic island in January, the second to appear the ocean in the past four years. It emerged after undersea eruptions along the Tofua Arc, a volcanic belt extending more than 300 nautical miles and including the islands of Ata, Falcon, Tofua, Kao, Late, Fonualei, Niuafo’ou, Niuatoputapu and Tafahi. The new island, as yet unnamed, emerged amid flames and steam hurled into the sky around 49 km north-west of Nuku’alofa. According to preliminary aerial and sea observations, it is 200-300 metres long and 30-40 metres wide and said to be still growing.

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, Jean-Marie Leye, was elected in 1995 for a four-year term by an electoral college drawn from members of parliament and heads of local government

National legislature Unicameral parliament, 50 members elected for four-year terms; universal franchise containing an element of proportional representation

Regional legislature The National Council of Chiefs, elected from the district councils of chiefs, exists alongside parliament to discuss and be consulted on matters relating to custom and tradition

Legal system System of magistrates’ courts leading to Supreme Court at apex

National elections March 6th 1998; next election due by March 2002

National government Donald Kalpokas, the prime minister, heads a coalition comprising the Vanua’aku Pati, the John Frum group, the Vanuatu Republican Party and one independent

Main political organisations Union of Moderate Parties (UMP); National United Party (NUP); Vanua’aku Pati (VP); Vanuatu Republican Party; John Frum group

Members of Council of Prime minister, minister Ministers for foreign affairs, the comprehensive reform programme, trade & the public service Donald Kalpokas Masike-Vanua (VP) Deputy prime minister & minister for business development Willie Jimmy (UMP)

Key ministers Agriculture, forestry & fisheries John Morsen Willie (VP) Education, youth & sports Joe Natuman (VP) Finance Sela Molisa (VP) Health Jean S Keasipai (John Frum group) Infrastructure, utilities & public works Henry Taga (UMP) Internal affairs & justice Vincent Boulekone (UMP) Lands, geology & mines Silas Hakwa (VP)

Economic structure

Latest available figures

Economic indicators 1993 1994 1995 1996 1997 GDP at current prices (Vt m) 23,779 24,962 26,633 27,679a 29,308a Real GDP growth (%) 4.5 2.5 3.2 3.0b 3.5b Consumer price inflation (av; %) 5.4 2.4 2.2 0.9 2.8 Population (m) 0.16 0.16 0.17 0.18 0.18a Exports fob (US$ m) 17.4 25.1 28.3 30.2 n/a Imports fob (US$ m) 64.7 74.7 79.4 97.0 n/a Current-account balance (US$ m) –14.9 –19.8 –18.3 –22.0a n/a Reserves excl gold (US$ m) 45.59 43.58 48.29 43.92 37.30 Total external debt (US$ m) 42.4 46.5 48.2 47.1 n/a Debt-service ratio, paid (%) 1.4 1.6 1.5 1.4 n/a Exchange rate (av; Vt:US$) 121.6 116.4 112.1 111.7 115.9

February 26th1998 Vt129.25:US$1

Origins of gross domestic product 1995 % of total Components of gross domestic product 1995 % of total Agriculture 22.8 Private consumption 48.0 Manufacturing 6.4 Government consumption 27.0 Electricity, gas & water 1.5 Fixed investment 30.5 Construction 6.0 Stockbuilding 2.1 Trade 27.9 Exports of goods & services 45.2 Transport & communications 7.7 Imports of goods & services –54.8 Finance 13.3 Statistical discrepancy 2.0 Other services 14.4 GDP at market prices 100.0 GDP at constant factor cost 100.0

Principal exports fob 1995 US$ m Principal imports cif 1995 US$ m Copra 9.8 Machinery & transport equipment 28.8 Beef 3.8 Basic manufactures 18.3 Timber 2.2 Food & live animals 13.0 Cocoa 1.1 Miscellaneous manufactured goods 9.6 Total incl others 28.3 Mineral fuels 7.1 Total incl others 89.7

Main destinations of exports 1996c % of total Main origins of imports 1996c % of total Japan 27.6 Japan 46.6 Spain 20.7 Australia 23.0 Germany 13.8 Singapore 8.1 Côte d’Ivoire 6.9 New Zealand 5.6 UK 6.9 France 3.1 a EIU estimate. b Asian Development Bank estimate. c Estimates derived from trading partners’ statistics.

Outlook for 1999-2000

Reforms will remain on The comprehensive reform program (CRP), underwritten by the Asian course despite recent Development Bank (ADB) and Vanuatu’s major international donors and now political instability— in its third year, remains firmly on course, despite political upheaval in October which saw the expulsion of the National United Party from government (4th quarter 1998, page 45). The indications are that Vanuatu has entered a period of relative political stability, while the prime minister, Donald Kalpokas Masike-Vanua, has emerged from the turbulence with greater credibility. It now appears highly unlikely that threats of a no-confidence motion bran- dished by opposition parties in December will materialise.

—but austerity measures Although there is widespread agreement about the need to accelerate the imple- will inflict economic mentation of the CRP, the associated monetary and fiscal austerity measures will hardship impose considerable economic hardships on a population which remains cyni- cal about the merits of the reforms. Economic expansion will be limited in the forecast period, and although some Asian economies are expected to bounce back in late 1999, the external environment will not be conducive to economic recovery. The government’s fiscal position will be eased by the introduction of value-added tax (VAT), which came into effect in 1998, and there will be strong emphasis on compliance in 1999-2000. The indications are that the islanders are adjusting to the new tax, although intermittent rumblings of discontent will remain. The salient question is whether improvements in revenue collection can be matched by more effective government expenditure. It has emerged that the 1998 budgetary outturn exceeded expectations primarily because the civil service was unable to implement the spending of committed funds.

Vanuatu: gross domestic product Vanuatu: vatu real exchange rates (b) % change, year on year 1980=100 140 Vanuatu Asia excl Japan Vt:DM 10 120

100 6

4 80 Vt:US$ 2

60 0 1993 94 95 96 97 Vt:¥ (a) Asian Development Bank estimate. (b) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic 1980. . . . 85 . . . . 90 . . . . 95 . . Outlook.

Review

Tensions ease on the According to the prime minister, Donald Kalpokas, political stability in govern- political scene ment has improved considerably since the decision by the Vanua’aku Pati (VP) to expel the National United Party (NUP), led by Father Walter Lini, from the

ruling coalition (4th quarter 1998, page 46). The NUP was hastily replaced with the Union of Moderate Parties (UMP), led by the deputy prime minister, Willie Jimmy. Mr Kalpokas confirmed that the VP-UMP coalition had a parliamentary majority of 28 seats and that on-going litigation over electoral petitions did not threaten political stability in Vanuatu.

Vanuatu’s first prime Father Walter Hadye Lini, the country’s founding prime minister and, in recent minister dies times, leader of the NUP, died on February 19th at the age of 57. Thousands of people lined the streets of Port Vila to throw flowers and palm fronds in the path of the cortège as his state funeral procession moved through the capital three days later. At the airport the biggest crowd ever seen in Vanuatu, estimated at between 12,000 and 15,000, packed every vantage point as his coffin was loaded for the flight to Pentecost Island for burial in the village of Agatoa, where he was born. Mr Lini, a charismatic leader, retained enormous personal support, despite the often turbulent political environment that surrounded his later period in power. His death brought tributes from across the political spectrum and throughout the region.

The withdrawal of British The government has expressed concern about reports that the UK plans to representation is a worry withdraw diplomatic representation from Vanuatu. As the UK is one of the country’s key international donors, Mr Kalpokas has affirmed the importance of a strong British presence in the archipelago and sought to remind Britain of the binding links that developed between the two nations during the colonial period and after. According to the prime minister, British overseas development assistance has steadily decreased since the mid-1990s, a trend which it is feared will worsen if the UK’s diplomatic relations with Vanuatu are handled from Suva, Fiji. The Vanuatu government requested clarification from London about the UK government’s plans and has apparently been informed that future arrangements are still under consideration.

The 1999 budget One week after the minister of finance, Sela Molisa, presented the 1999 budget is approved in parliament on December 7th, it was approved with no amendments, the first time in several years that the budget was passed before year-end. In his budget speech Mr Molisa argued that Vanuatu had achieved economic and financial stability despite a harsh external environment and a series of internal crises. The minister indicated that the economy was expected to expand in the coming years, underpinned by the development of the tourism sector and an anticipated improvement in international prices for beef and timber. Total expenditure (including foreign loans and grants) is forecast to reach Vt9.15bn (US$71m), while spending on development projects will rise from Vt150m (US$1.2m) in 1998 to Vt300m in 1999. The budget deficit is expected to total Vt236m.

Mr Molisa indicated that the Asian economic downturn was the most significant exogenous factor affecting the Vanuatu economy in 1998, reducing demand for exports and exerting downward pressure on commodity prices. Moreover, currency devaluations by major trading partners such as Papua New Guinea and the Solomon Islands had adversely affected the economy.

The VNPF payout drained According to Mr Molisa, the massive payout by the Vanuatu National Provident the economy in 1998— Fund (VNPF) in January 1998 represented a considerable drain on economic

resources, stoking demand for imports and consequently exerting pressure on foreign-exchange reserves. The government was forced to take corrective action to prop up the vatu, which in turn pushed up interest rates. However, commercial bank rates have since been reduced and the Reserve Bank of Vanuatu (RBV, the central bank) is better placed to control foreign reserves. The riots which prompted the VNPF payout, combined with the 20% devaluation of the Fijian dollar, affected the tourism sector severely in 1998, which grew by a mere 1%. Production in the agriculture, forestry and fisheries sector slowed by 2.7% in 1998, while copra production fell by 1.2% as a result of lower export prices. There was an expansion in the kava industry, but the contribution to total exports remained limited.

—but the budget deficit Mr Molisa confirmed that government revenue totalled only Vt6.7bn in 1998, was smaller than expected around 7% below target, because of the disappointing collection performance by the relevant government departments and agencies. Despite the shortfall the deficit was kept to Vt50m owing to strict controls on government spending and the failure to implement a number of development projects. The government will now concentrate on increasing compliance with VAT, introduced in August 1998 in a bid to increase revenue to 24% of GDP by 2000. Revenue from VAT, estimated at Vt808m in 1998, is projected to reach Vt2.3bn in 1999 and Vt2.4bn in 2000. Meanwhile, government expenditure is forecast to rise to Vt7.6bn, with an 8% increase in spending on education and a 3% increase on health expenditure.

Public finances begin to In an interview with the Canberra-based Pacific Report the prime minister con- convalesce— firmed that the introduction of VAT in Vanuatu had been so effective that the 1998 budget deficit was estimated to have fallen to a mere 20% of the original forecast of Vt250m. Mr Kalpokas conceded, however, that the new tax had brought some controversy, particularly from opposition parties and community groups, which argued that VAT would fan the flames of inflation by raising the prices of basic household goods. Mr Kalpokas further admitted that non-governmental organisations (NGOs) had strongly objected not only to VAT but also to the comprehensive reform programme (CRP). According to local NGOs, the implementation of VAT underlined the fact that the government was out of touch with the economic situation of the majority of islanders, and that basic goods would be beyond the reach of considerable sections of the population as a result of the tax. The government retorted that compensatory cuts in import duties would mitigate the impact of VAT, adding that opposition claims that import duties had not been lowered only applied to certain goods such as tobacco, spirits and luxury goods. Moreover, fuel prices had fallen considerably as a result of tax cuts, as had the cost of basic food items such as milk, sugar and rice.

—increasing the The fact that by boosting revenue the introduction of VAT has increased the government’s policy government’s room for manoeuvre where policy formulation is concerned has options been demonstrated by Mr Kalpokas’s recent presentation of key policy priorities. Legislation is to be introduced to privatise the postal service and to establish a ports authority along the lines of the current airports authority. The government is also planning to implement a master plan for the education

sector to boost the number of places available for primary school leavers and raise standards. Latest available data suggest that only 30% of primary school children continue with their education, although there were differences between the francophone and anglophone communities—45% of francophone students enter secondary education, compared to 25% of anglophone students. The number of places available in francophone and anglophone primary schools is also to be balanced.

Raising investor The government has reaffirmed its commitment to restoring investor confi- confidence remains dence, an objective which it hopes will be facilitated through the recent enact- a priority ment of legislation to establish a Foreign Investment Board. Other measures designed to improve the investment climate include the exemption of capital imports from duty, and the possible removal of coastal shipping and kava exports from the list of businesses reserved for the majority ni-Vanuatu population. According to Mr Kalpokas, foreign and local investors are interested in hotel projects on Santo island, and proposals have been received to build more hotels in Vila. Two major infrastructure developments involving foreign assistance include the upgrading of Santo airport and the Efate ring road project. Work on the modernisation of Santo airport so that it can handle international flights was due to start in early 1999, while the Bauerfield Airport on Efate, which serves Port Vila, is due to be upgraded to handle wide-bodied aircraft such as Boeing 767s. International flights from Australia and New Zealand are expected to be launched, and possibly flights from some Asian destinations.

Community consultation The second national summit meeting on the CRP was held in November. on the CRP is hailed Nearly 200 community leaders from all parts of the archipelago attended the a success meeting in the capital, Port Vila, at which Mr Kalpokas confirmed that responsible monetary and fiscal policy had pulled Vanuatu back from the brink of bankruptcy. According to the prime minister, the government now plans to accelerate and widen the reform process, paying particular attention to public- sector management, private-sector development and improving standards of behaviour for politicians. The importance of community leaders demonstrat- ing strong commitment to the CRP was underlined, and Mr Kalpokas confirmed that one of the key reasons why the NUP had been dismissed from the coalition was its lack of commitment to the CRP.

Air Vanuatu anticipates a The national flag carrier, Air Vanuatu, posted losses of Vt250m (US$1.9m) in recovery in 1999 the 1997/98 financial year (October-September), but affirmed that the loss had been anticipated and that the airline expected to return to profitability within three years. According to the general manager of Air Vanuatu, Jean-Paul Virelala, the airline had been profitable since 1993, but the introduction of two new aircraft, including a costly Boeing 737, had pushed the company into the red in 1998. Other external factors had also exacerbated the losses, notably the riots in mid-January over the Vanuatu National Provident Fund, which had dissuaded some holidaymakers from visiting the archipelago. The Asian economic downturn and the associated collapse of many regional currencies had also made Vanuatu extremely costly compared with other destinations such as Bali and the Philippines. The relatively poor performance of the Saab aircraft leased from the Air Marshall Islands had also pushed up the airline’s costs.

The president pardons an The Australian businessman Peter Swanson, who was jailed in Vanuatu for Australian convict fraud in 1998, was pardoned by the president, Jean-Marie Leye, and released after serving only three months of an 18-month sentence. The president’s decision was denounced by the prime minister, who insisted that the prosecu- tion had cost the government Vt30m (US$233,000). In 1996 Mr Swanson fraudulently obtained ten bank guarantees from the government, each with a face value of US$10m, although they were recovered before they could be negotiated. A statement from the government on November 4th confirmed that Mr Swanson had been deported and declared a prohibited immigrant.

New trade agreements In November the governments of Vanuatu and French Polynesia signed an are signed agreement to promote bilateral trade through a joint committee. The accord also provides duty exemptions for certain products and the basis for a Tahitian company to establish a coconut oil mill on the island of Espiritu Santo. Mean- while, the government has signed an agreement with Thailand to develop trade and investment opportunities and to increase technical co-operation between the two countries.

Tanna international Whitegrass International Airport on the island of Tanna was officially opened airport is opened by the prime minister on January 25th after expenditure of US$3m on the airfield and facilities. The French government provided two-thirds of the funding. It is hoped that Tanna, famed for its accessible active volcano, will draw tourists from neighbouring New Caledonia, which is only 40 minutes away by air. Air Vanuatu is planning to use its Saab 2000 aircraft on the route.

Cyclone Dani causes Cyclone Dani struck the islands of Santo, Malekula and Efate on January 20th- widespread damage 22nd, causing extensive damage to roads and bridges and power and telephone lines. Hundreds of houses were damaged, prompting the government to appeal for emergency assistance to avoid outbreaks of disease in the worst affected areas. When the cyclone passed Port Vila, winds of 150 km/hour were recorded.

Other island countries

Federated States of Micronesia

An election looms Twenty-seven politicians, including the president and vice-president, Jacob Nena and Leo Falcam, have submitted their candidacy for the national election on March 2nd. The election is for 14 seats in the Federated States of Micronesia (FSM) congress. One seat is designated from each state carrying a four-year term, and there are ten seats carrying two-year terms: three from Pohnpei, five from Chuuk and one each from Kosrae and Yap. The 11th FSM congress, scheduled to convene on May 11th, will then elect the president and vice-president from the “at-large” members. The resulting vacancies will be filled following elections in the states concerned. Petitions were also lodged for a proposed constitutional amendment calling for revenue to be shared at a ratio of 30% to 70% between the national and the state government; for fees from foreign fishing accords to be divided equally between the two; and for states to have sovereign ownership over natural resources within their boundaries, including those in the country’s exclusive economic zone (EEZ).

A former president dies A former FSM president, Bailey Olter, died on February 16th. Mr Olter suc- ceeded John Haglelgam as president in 1991 and was re-elected in 1995. He served as Pohnpei State Treasurer and, in the pre-independence Trust Territory, was chairman of external affairs in the FSM’s first and second congresses.

Marshall Islands

The 1998/99 budget After an extraordinary three-day session in November the nitijela (parliament) is approved— approved the 1998/99 budget, with total expenditure projected at US$81m. The special parliamentary session had to be called after a drawn-out political battle over a vote of no confidence in the government had prevented the approval of the budget before the end of the 1997/98 fiscal year (October- September). With US$20m to be spent on repaying government debt to the domestic banking sector, government expenditure will amount to around US$61m. Opposition senators objected to the lack of detail in the budget, adding that departmental spending allocations and criteria had been omitted. The increase in the contingency fund, which is controlled by the cabinet, from US$200,000 in 1997 to US$1.2m in 1999, was also queried. In response the minister of finance, Tony de Brum, confirmed that ministries had received details of expenditure allocations and that they were responsible for operating within their budgetary allocations. He added that by opting not to pass a “line-item” budget, the nitijela was providing ministries with greater flexibility.

Meanwhile, Mr deBrum warned that although there had been an increase in expenditure on education, spending per head had remained low. The budget

also included funding increases for the health sector and subsidies for copra producers in outer islands and the government hotel, run by Outrigger. The US will fund around US$45.8m of the budget, while loans from the Asian Development Bank will provide an additional $8.9m. The balance will come from domestic taxes, licences and sales.

—and tax cuts are on According to the acting president, Phillip Muller, legislation on tax cuts and the cards the establishment of a national trust fund are the key issues on the agenda for the new session of the nitijela, which opened in early January. Mr Muller de- tailed initiatives due to be implemented in 1999 to wrest the economy from a two-year downturn. The reform programme, backed by the Asian Development Bank, has seen the public sector reduced by about 25%. This, in turn, has severely affected the private sector, which depends heavily on government spending. Dismissing 1998 as a “difficult” year, Mr Muller indicated that the cabinet was working on economic recovery measures and that improvements were to be made in the health and education sectors in 1999, while development spending would also increase. The government is hoping to introduce legislation to reduce taxes in order to boost private consumption and ease the burden on the private sector, while a trust fund is to be established to help fund future projects. Funding is to come from the Asian Development Bank and bilateral governments, notably Taiwan.

Air Marshall Islands Mr Muller indicated that the national flag carrier, Air Marshall Islands, is to changes course withdraw its aircraft from international services to concentrate on domestic routes. The importance of a reliable domestic service was underlined, especially if tourism is to be promoted in a country scattered across some 800,000 sq km of ocean. The government and the airline are also looking at suitable aircraft to improve services to remote outer islands, and two planes may be bought from the German manufacturer, Dornier.

Tuvalu

Tuvalu’s two banks are to In January the government decided to merge the operations of the Development be merged Bank of Tuvalu (DBT) and the National Bank of Tuvalu (NBT) to create one national bank responsible for commercial, retail and development banking. Plans for the merger were elaborated early in the new year, and the government will decide on the final structure of the new entity in March. It is projected that the implementation of the merger will take about six months. An official statement on the decision indicated that some employment opportunities would be generated by the merger, but that there would also be retrenchments. Redun- dant workers will be compensated by the government, which reiterated the importance of improving the quality and availability of banking services.

Existing DBT loans will be assumed by the NBT on similar terms and conditions. The government has confirmed that the bank will be provided with long-term funding in order to support its development lending activities.

Nauru

An agreement on a reform The government and the Asian Development Bank (ADB) signed an agreement package is signed with in December on a major economic and financial adjustment programme. The the ADB ADB is to provide loans and technical assistance grants. The agreement takes into account the likely exhaustion of Nauru’s phosphate reserves in 8-12 years’ time and seeks to develop alternative sources of income thereafter. Meanwhile the president, Bernard Dowiyogo, has introduced a series of measures to reduce government spending and the fiscal deficit to sustainable levels. The civil service wage bill is to be slashed considerably, while subsidies for public utilities and enterprises are to be reduced. Selected taxes and customs duties will be introduced, as well as user charges, while revenue collection is to be enhanced. Public financial management and the budgetary implementation and preparation process are to be improved, increasing transparency and accountability. The ADB-backed programme foresees the strengthening of essential banking services, improving the functioning of public enterprises and encouraging private-sector growth. President Dowiyogo welcomed the conclusion of the agreement, arguing that it represented a vote of confidence in Nauru from the ADB. Major elements of the programme have already been included in the 1998/99 budget, and further measures are to be announced.

Air Nauru wins charter Air Nauru was given full rights to operate charter services by Australia’s Civil rights in Australia Aviation Safety Authority (CASA) in December. The granting of full charter rights will supplement current scheduled international services from Melbourne and Brisbane to Nadi, Nauru, Tarawa, Pohnpei, Guam and Manila, according to Air Nauru’s new chief executive officer, Owen Coughlan. The airline will operate under full Australian regulatory control and is now seeking to consolidate new commercial alliances.

The Menen hotel installs a The long-standing problem of water shortages at Nauru’s principal hotel, the water plant Menen, has been solved with the commissioning in December of its own desali- nation plant. The plant, supplied by an Australian company at a cost of A$27,000 (US$17,200), converts brackish water from the hotel’s well to fresh water by a reverse osmosis system. It has halved the hotel’s requirements for desalinated water from the Nauru Phosphate Corporation to three tankers per day.

Nauru is to host the world The International Weightlifting Federation has awarded Nauru the 2001 world weightlifting contest championships for men and women. The successful Nauru bid was put to the in 2001 federation in December at a meeting in Helsinki, Finland, by a team headed by the sports minister, Vinson Detenamo, who is also the president of the Nauru Olympic Committee. Other contenders were Russia, Germany, Poland, Spain and Malaysia. This will represent the largest sporting event in Nauru’s history and is expected to attract about 1,000 athletes and officials.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 56 Quarterly indicators and trade data

Quarterly indicators and trade data

Fiji: quarterly indicators of economic activity

1996 1997 1998 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Exports Qtrly totals Sugar ’000 tonnes 216.8 170.7 0.0 38.9 132.3 140.2 16.6 26.5 85.9 55.0a Tourism Visitor arrivals ’000 101 92 84 84 100 92 78 95 107 93 Prices Monthly av Consumer prices: 1990=100 124.7 124.6 128.5 129.8 128.2 128.2 132.3 135.5 137.3 139.2 change year on year % 3.6 2.5 3.8 4.1 2.8 2.9 3.0 4.4 7.1 8.6 Money & banking End-Qtr M1, seasonally adj: F$ m 475.9 454.5 422.5 391.8 453.4 444.0 468.7 473.9 455.0 492.9 change year on year % 33.9 18.5 –0.9 –11.8 –4.7 –2.3 10.9 21.0 0.4 11.0 Commercial banks: total depositsb F$ m 1,483.2 1,459.0 1,375.8 1,348.5 1,367.5 1,334.6 1,335.2 1,321.3 1,326.3c n/a loans & advances “ 1,169.2 1,168.2 1,178.1 1,169.2 993.8 1,020.0 1,030.0 1,034.2 1,040.3c n/a Foreign trade & payments Qtrly totals Exports fobd F$ m 385.9 249.4 124.1 196.4 349.0 203.5 168.5 n/a n/a n/a Imports cif “ 405.2 359.1 300.4 342.2 421.2 328.7 335.2 231.7 n/a n/a Government revenue Total F$ m 189.8 225.6 155.1 202.2 195.6 250.6 158.8 230.2 n/a n/a income taxes ” 107.4 125.3 85.5 111.6 113.0 135.1 87.8 111.1 n/a n/a Exchange holdings End-Qtr Foreign exchange US$ m 350.2 401.3 347.3 327.9 334.7 335.5 344.2 317.6 315.1 357.0e Exchange rate Official rate F$:US$ 1.397 1.384 1.411 1.421 1.472 1.549 1.942 2.047 2.045 1.986

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Total for October-November. b Demand, savings and time deposits. c End-August. d Includes re-exports. e End-November.

Sources: ISO, Statistical Bulletin; Fiji, Bureau of Statistics; IMF, International Financial Statistics; Reserve Bank of Fiji, Quarterly Review.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Quarterly indicators and trade data 57

Samoa: quarterly indicators of economic activity

1996 1997 1998 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Monthly av Consumer prices: 1990=100 125.5 126.7 131.3 132.0 137.1 133.4 134.4 138.5 137.1 135.5 change year on year % 5.7 7.0 6.7 6.3 9.2 5.3 2.4 4.9 0.0 1.6 Money End-Qtr M1, seasonally adj: Tala m 52.81 51.41 52.82 59.45 56.02 62.58 54.69 58.16 57.82 56.00 change year on year % –6.1 –1.4 3.8 23.3 6.1 21.7 3.5 –2.2 3.2 –10.5 Foreign trade Qtrly totals Exports foba Tala ’000 7,552 5,787 8,422 8,757 11,009 10,343 10,091 10,887 11,801 10,464 Imports cif “ 66,231 62,496 62,394 58,238 66,284 60,461 59,957 61,762 76,551 87,382 Exchange holdings End-Qtr Foreign exchange US$ m 52.84 56.82 57.45 58.56 58.03 60.39 52.99 53.10 56.91 57.37 Exchange rate Official rate Tala:US$ 2.434 2.434 2.472 2.533 2.612 2.766 2.884 3.106 3.074 3.010

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Includes re-exports.

Source: IMF, International Financial Statistics.

Solomon Islands: quarterly indicators of economic activity

1996 1997 1998 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Monthly av Consumer prices: 1990=100 193.6 195.7 203.8 209.2 209.5 212.1 222.8a n/a n/a n/a change year on year % 10.5 9.2 7.2 8.6 8.2 8.4 n/a n/a n/a n/a Money End-Qtr M1, seasonally adj: SI$ m 190.72 197.16 201.70 205.75 218.34 212.45 195.71 200.04 225.62 212.31 change year on year % 30.3 15.8 7.1 11.9 14.5 7.8 –3.0 –2.8 3.3 –0.1 Foreign tradeb Qtrly totals Exports fob US$ 48.4 78.4 37.4 39.5 55.7 43.8 46.7 38.2 n/a n/a Imports fob “ 34.5 44.7 34.5 39.7 42.7 41.8 37.8 30.9 n/a n/a Exchange holdings End-Qtr Foreign exchange US$ m 28.6 31.8 28.6 30.2 32.3 35.6 30.7 32.1 35.6 48.3 Exchange rate Official rate SI$:US$ 3.587 3.622 3.648 3.681 3.870 4.748 4.785 4.799 4.933 4.859

Note. Annual figures of most of the series shown above will be found in the Country Profile. a January only. b DOTS estimates. Include re-exports.

Sources: IMF, International Financial Statistics; Direction of Trade Statistics, quarterly.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 58 Quarterly indicators and trade data

Tonga: quarterly indicators of economic activity

1996 1997 1998 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Monthly av Consumer prices 1990=100 127.1 126.7 128.6 130.4 130.1 130.6 132.3 134.6 134.7 135.4a change year on year % 2.3 1.8 1.2 2.0 2.4 3.1 2.9 3.2 3.5 n/a Money End-Qtr M1, seasonally adj T$’000 21,773 21,838 24,642 22,306 22,760 22,668 22,973 23,007 25,685 21,565b change year on year % –10.5 –3.9 3.4 –4.1 4.5 3.8 –6.8 3.1 12.9 n/a Foreign trade Qtrly totals Exports fobc T$’000 1,881 8,649 1,723 1,618 n/a n/a n/a n/a n/a n/a Imports cif “ 24,379 24,249 17,595 23,805 n/a n/a n/a n/a n/a n/a Exchange holdings End-Qtr Foreign exchange US$ m 22.32 28.77 27.60 29.32 29.50 25.72 18.55 17.34 20.68 26.73 Exchange rate Official rate T$:US$ 1.219 1.213 1.227 1.251 1.290 1.362 1.385 1.502 1.613 1.616

Note. Annual figures of most of the series shown above will be found in the Country Profile. a October only. b End-November. c Includes re-exports.

Source: IMF, International Financial Statistics.

Vanuatu: quarterly indicators of economic activity

1996 1997 1998 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Monthly av Consumer prices: 1990=100 122.0 120.0 122.6 124.3 125.0 126.1 125.9 126.3 131.0 n/a change year on year % 1.8 –0.1 1.4 2.2 2.5 5.1 2.7 1.6 4.8 n/a Money End-Qtr M1, seasonally adj: Vt m 6,449 6,425 6,342 6,513 6,174 6,525 7,442 7,085 7,330 7,646a change year on year % 13.8 3.3 1.9 3.2 –4.3 1.6 17.4 8.8 18.7 n/a Foreign trade Qtrly totals Exports fobb Vt m 990 719 1,080 724 1,339 950 703 802 1,444 n/a Imports cif “ 2,988 2,693 2,370 2,573 2,910 3,035 1,909 3,168 3,010 n/a Exchange holdings End-Qtr Foreign exchange US$ m 39.87 39.82 40.54 34.00 38.70 33.34 21.67 21.14 34.78 40.41 Exchange rate Official rate Vt:US$ 111.2 110.8 112.8 115.1 118.1 124.3 124.3 130.5 130.9 129.8

Note. Annual figures of most of the series shown above will be found in the Country Profile. a End-November. b Includes re-exports.

Source: IMF, International Financial Statistics.

EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Quarterly indicators and trade data 59

Pacific Islands: direction of tradea (US$ m) Fiji Solomon Islandsb Vanuatu Samoa Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1996 1997 1996 1997 1996 1997 1996 1997 Imports cif Australia 428 427 65 66 37 35 39 36 China 16221111n/a1 Fiji – – n/a 2 6 n/a 13 16 Germany 66111n/a32 Hong Kong 19 23 54331n/a Japan 4149151775922623 New Zealand 141 145 11 9 10 7 48 32 Singapore 58 58 13 25 13 11 2 1 UK 13 19 3 1 n/a n/a 2 2 US 303672111312 Total incl others 876 898 147 159 168 175 157 134 Exports Australia 21121023115044 Germany 222741223 Hong Kong 6612n/an/a11 Japan 60 31 104 106 8 17 n/a 1 Malaysia 20 20 2 5 n/a n/a n/a n/a New Zealand 29 31 1 1 n/a n/a 4 2 Portugal 16 n/a n/a n/a n/a n/a n/a n/a Spain 1 1 32 n/a 6 4 n/a n/a UK 127 90 9 14 2 1 n/a n/a US 7686211214 Vanuatu n/a n/a 10 n/a – – n/a n/a Total incl others 714 618 206 176 30 35 64 63 a DOTS estimates. b Imports fob.

Source: IMF, Direction of Trade Statistics, yearbook, quarterly.

Pacific Islands: main commodities exported

Solomon Fiji (F$ m) Islandsa (SI$ m) Vanuatu (Vt m) Samoa (US$ ’000) Jan-Jun Jan-Jun Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1997 1998 1994 1995 1996 1997 1995 1996 Beef & veal n/a n/a n/a n/a 430 417 n/a n/a Fish 27.37 19.67 99.1 145.7 n/a n/a 176 629 Sugar 32.42 36.80 n/a n/a n/a n/a n/a n/a Coffee n/a n/a n/a n/a n/a n/a n/a n/a Cocoa n/a n/a 12.5 13.4 165 240 0 0 Logs & lumber 14.24b 25.76b 276.9 283.0 358 501 84 342 Copra & copra oil n/a n/a 19.8 32.9 1,240 2,004 1,887 1,761 Palm oil n/a n/a 39.9 66.5 n/a n/a n/a n/a Coconut oil 3.04 3.76 2.0 4.1 n/a n/a 3,254 3,309 Gold 35.79 33.76 0.3 0.6 n/a n/a n/a n/a Clothing 89.54 82.63 n/a n/a n/a n/a n/a n/a Total incl others 259.53 268.53 467.9 573.2 2,709 3,567 8,686c 10,047d a Including re-exports. b Including manufactures. c Including coconut cream, 1,959. d Including coconut cream, 1,764.

Sources: National sources; IMF, Samoa—Recent Economic Developments; IMFVanuatu, Statistical Appendix.