Pacific Islands: Fiji New Caledonia Solomon Islands Tonga Vanuatu Western Samoa

COUNTRY REPORT

1st quarter 1997

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Contents

3 Summary

The region 5 Outlook for 1997-98 8 Review

Fiji 15 Political structure 16 Economic structure 17 Outlook for 1997-98 18 Review 18 The political scene 20 The economy

New Caledonia 25 Political structure 26 Economic structure 27 Outlook for 1997-98 27 Review 27 The political scene 32 The economy

Solomon Islands 34 Political structure 35 Economic structure 36 Outlook for 1997-98 37 Review 37 The political scene 38 The economy

Tonga 42 Political structure 43 Economic structure 44 Outlook for 1997-98 44 Review 44 The political scene 47 The economy

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Vanuatu 50 Political structure 51 Economic structure 52 Outlook for 1997-98 53 Review 53 The political scene 56 The economy

Western Samoa 59 Political structure 60 Economic structure 61 Outlook for 1997-98 62 Review 62 The political scene 63 The economy

65 Quarterly indicators and trade data

List of tables 8 The region: world commodity price forecasts 21 Fiji: tourism statistics 21 Fiji: foreign trade 22 Fiji: balance of payments, national estimates 22 Fiji: inflation rates, 1996 65 Fiji: quarterly indicators of economic activity 66 Solomon Islands: quarterly indicators of economic activity 66 Tonga: quarterly indicators of economic activity 67 Vanuatu: quarterly indicators of economic activity 67 Western Samoa: quarterly indicators of economic activity 68 Fiji, Solomon Islands, Vanuatu, Western Samoa: direction of trade 68 Fiji, Solomon Islands, Vanuatu, Western Samoa: main commodities exported

List of figures 18 Fiji: gross domestic product 18 Fiji: Fiji dollar real exchange rate 36 Solomon Islands: gross domestic product 36 Solomon Islands: Solomon Islands dollar real exchange rate 44 Tonga: gross domestic product 44 Tonga: Tonga dollar real exchange rate 53 Vanuatu: gross domestic product 53 Vanuatu: vatu real exchange rate 61 Western Samoa: gross domestic product 61 Western Samoa: tala real exchange rate

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March 7, 1997 Summary

1st quarter 1997

The region Outlook for 1997-98: The changing international environment will force Pacific governments to become less aid-dependent and to reduce the public sector. The role of preferential trade agreements will decline and many regional organisations are seeking to redefine their policies. The outlook for the commodities that dominate many regional economies is mixed.

Review: The fisheries agency has bought a Vessel Monitoring System and international fisheries agreements are coming under scrutiny, with an emphasis on conservation. Pacific governments are concerned about the transport of nuclear waste across the area. Australian immigration rules may be eased. Both France and Australia have stressed their commitment to the region.

Fiji Outlook for 1997-98: The constitutional deliberations will not reach easy agreement, but the deadline is approaching amidst rumours that the prime minister’s position is weak. After a good year in 1996, marred by the effects of a major bank failure on the budget, growth will slow in 1997-98, but the outlook is positive. The budget deficit will rise to over 8% of GDP in 1996/97 because of the cost of a bank failure, but it is expected to fall thereafter.

Review: The parliamentary committee considering the recommendations of a working party on constitutional change has held its sixth meeting and seems reluctant to endorse reform. Lawyers have expressed concern about the administration of the courts. Foreign trade receipts were healthy in 1996 and inflation was moderate. Some capital-account restrictions have been eased.

New Caledonia Outlook for 1997-98: There is every reason to expect the French government to take action to resolve the impasse over mineral rights that is also blocking political dialogue. Long-term growth prospects look good.

Review: A complex dispute involving corporate, metropolitan and local interests over an exchange of mineral rights is hindering progress on agreement over how to approach the 1998 deadline for a referendum on independence. The main parties to the political negotiations share some important points of agreement. The economy performed well in 1996; although exports were lack- lustre, tourism and mineral output were healthy and inflation was low.

Solomon Islands Outlook for 1997-98: The government claims economic development has stalled. But as an election looms, reform will be pushed to the bottom of the agenda. Despite some problems, the extractive sector will continue to grow and exports will remain buoyant.

Review: Legislation reforming provincial government has been overturned by the High Court. Relations with Papua New Guinea have worsened because of the Bougainville crisis. The economy is described as “precarious”, mainly because of the poor budgetary position, which is getting worse. Exports and tourism have shown buoyancy.

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Tonga Outlook for 1997-98: Although political wrangling will continue, the royal prerogative will provide ballast. Efforts to rebuild the damaged squash industry will be slow to materialise.

Review: The squabbling involving parliament, the press and the courts, has continued. Tonga is trying to rebuild the squash export industry, once a mainstay of the economy. A major hotel development has started. Tonga is outraged about Indonesia’s jamming of its satellite earth station on Sumatra.

Vanuatu Outlook for 1997-98: The coalition government is confident of its durability. A return to sustainable growth awaits the enactment of economic and political reforms.

Review: There have been calls for MPs to cease quarrelling and many revel- ations of malfeasance by those in high office and murky plans by recalcitrant members of the paramilitary security force, whose future is under consider- ation. A reform programme, under the auspices of the Asian Development Bank, is to be enacted. New rules will protect sandalwood. Copra prices have been raised.

Western Samoa Outlook for 1997-98: A recovery in agriculture is boosting growth and the outlook for budgetary revenue is healthy.

Review: The political scene is stable. Australia has praised the performance of the government. Agriculture and tourism were strong in 1996. Foreign exchange controls are to be eased. A new tuna cannery has been swamped with job applicants.

Editor: Sophie Lewisohn All queries: Tel: (44.171) 308 1007 Fax: (44.171) 830 1023

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The region

Outlook for 1997-98

A changing global Most governments in the region are in the process of implementing economic environment demands reforms to equip them for a new global environment in which investment, aid new initiatives— and preferential trade arrangements will be harder to find. All governments have relied on these sources of support to varying degrees for many years. The need to find new approaches has highlighted the roles that regional organisations and institutions can play.

The initial areas of reform for most governments have been reductions in the size and scale of their own operations; this invariably means calling on outside help, usually the Asian Development Bank (ADB) for advisory and technical assistance and funds.

In a keynote speech given to an ADB-sponsored meeting in Suva on development issues on November 28, 1996, Fiji’s finance and economic development minister, Berenado Vunibobo, described the constraints on development in the region: small domestic markets, remote locations, a narrow industrial base, shortages of skilled labour and vulnerability to global economic shocks and natural disasters. These had combined to bring growth in income per head more or less to a standstill in the last decade. Many countries in the region bore the twin burdens of large public-sector bureaucracies and weak private sectors. Governments, multilateral financial institutions and donors were now focusing on promoting the private sector and making the public sector more efficient.

—to resolve the “Pacific Mr Vunibobo highlighted the most pressing issue confronting donors and re- paradox” of high aid and cipient countries alike: the “Pacific paradox” of high levels of aid and low levels low growth of economic growth, which often arose from failings of human resource development and management, and government. In many Pacific Island countries the absence of a strong correlation between the level of public investment and economic growth rates was partly the result of their small size and remoteness. But in addition public investment had been geared towards projects of long- term benefit, such as roads, schools and health facilities, where the economic returns had yet to be realised. He also pointed to the positive impact of development assistance in the region; in raising levels of investment, particularly in human resource development; in funding imports critical for economic development; and in introducing international technical assistance to cover the lack of management and technical skills in the region. Improvements in the utilis- ation of the region’s natural resources were also a prerequisite for higher growth rates.

SPARTECA’s importance South Pacific Forum governments, such as Fiji, have been pressing for changes will decline in the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA), which gives them preferential access to the Australian and New Zealand markets. Australia, however, has been urging new approaches,

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including a new regional economic association (4th quarter 1996, pages 13-14, 43-44), rather than fiddling with preference rates and rules of origin.

During a visit to Tonga in December the Australian foreign minister, Alexander Downer, indicated that he thought that SPARTECA was decreasing in importance. In the years ahead it would be important for Australian businesses to invest more in Pacific Island countries, help develop raw materials and agriculture, and play a part in developing tourism industries. He hoped that this would happen, but its extent and pace depended very much on the regional governments themselves, on their ability to foster sustainable economic growth and to ensure political stability. Preferential access under SPARTECA was becoming less important as Australia and New Zealand were progressively liberalising their trade regimes through the World Trade Organization (WTO) and the Asia-Pacific Economic Cooperation (APEC) forum. Developed APEC economies have committed themselves to remove all protection by 2010.

The South Pacific Forum The South Pacific Forum secretariat, based in Suva, Fiji, is redefining its role with secretariat seeks to a new structure that took effect on January 1. According to the secretary-general, redefine its role— Ieremia Tabai, the proposed budget of F$14.1m (US$10m), which includes F$3.21m in assessed member contributions, was drawn up to cover the cost of major internal changes. These include phasing out technical programmes and a new approach to the organisation’s regional activities which will allow the secretariat to focus on providing policy advice in the key areas of economic policy, international relations, trade and investment. The budget also provides a F$60,000 contribution by Forum Island Countries (FICs) towards the cost of running the newly established Pacific Islands Centre in Tokyo, which is funded by Japan and FICs.

—as does the South Pacific The South Pacific Commission (SPC), based in Nouméa, New Caledonia, is also Commission going through a process of restructuring and redefinition. More than 100 delegates from the 26 SPC members met in Saipan, in the Northern Mariana Islands, in November 1996 to endorse the new structure at the annual South Pacific Conference.

The changes result from a review commissioned by the new secretary-general, Bob Dun, which recommended measures aimed at making the organisation leaner, more efficient, with more modern management practices, making it more attractive to the international donor community. Many of the recommendations are designed to increase the authority of the secretary-general (who will be known as director-general) and his deputy (currently there are two deputies). It was also agreed that the name of the organisation should be changed to reflect its membership more accurately. A decision on the new name will be made at this year’s 50th anniversary conference to be held in Canberra, after a competition held in all Pacific Island secondary schools.

In future the conference will be held every two years in October instead of annually and its task will be to appoint the director-general, determine major policy issues and endorse changes to staff and financial regulations once these have been approved by the formal body of officials from member states and territories, known as the Committee of Representatives of Government and Administrations (CRGA).

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Officials will review The CRGA is to meet annually in Nouméa and its functions will include exam- programmes and ining the work programme evaluation done by the secretariat and approving performance annually changes to it; examining and approving policy issues put forward by the secretariat and members; considering applications for the post of director-general and recommending one to the conference; approving work programmes and administrative budgets; and conducting an annual performance evaluation of the director-general. (There is to be a two-term limit for the director-general’s post, but the conference was unable to reach consensus on the length of each term.)

The SPC is to establish a Small Islands States fund to provide technical, training and other services as required by its small island members. Island member countries and traditional and non-traditional donors are to be invited to con- tribute to the fund on a continuing basis.

The PIDP fights back after The prime minister of Fiji, Major-General Sitiveni Rabuka, opened a two-day drastic funding cuts meeting of the standing committee of the Pacific Islands Conference of Leaders (PICL) in Honolulu on February 12. He emphasised that its deliberations were critical to the future of the Pacific Islands Development Programme (PIDP) and its Pacific-wide services. The PIDP (which is sponsored by the East-West Center, a public, non-profit education and research institution based in Hawaii) serves as the research and training arm and secretariat of the conference. It suffered a drastic cut in funding for last year’s operations. However, the US government is expected to provide an additional US$500,000 next year for the PIDP-organised training and education programme. Japan’s consul-general in Honolulu also presented a cheque for $450,000 on behalf of the Japanese government. The prime ministers of the Cook Islands and Tonga attended the meeting, together with ministers, ambassadors and officials representing the Federated States of Micronesia, French Polynesia, Kiribati, New Caledonia, Papua New Guinea and Vanuatu.

Investment in fisheries In coming years there will be an even greater emphasis on fisheries resources will be hard to find— and management. However, even if a fisheries project in the Pacific Islands seemed to make good business sense, it would be difficult to secure the foreign investment necessary, according to a Hawaii attorney, Dean H Robb. At a conference on establishing a tuna industry in the Pacific held in Honolulu in October, Mr Robb pointed to the track record of failed investment in fishing projects, the remote location of most Pacific Island countries, concerns about country-specific and regional risk, the difficulty of collateralising or securing any loan, and the pervasive but ineffective government involvement in fishing enterprises. Most fisheries projects in the region would therefore have to be funded from public sources, because they would not be perceived as secure money-making opportunities by private lenders or investors—unless, obvi- ously, they were already involved in commercial fisheries.

—and overcoming the risk Mr Robb pointed to one of the main obstacles to raising money, which was factors will not be easy securing collateral for the loan. Fishing vessels were notoriously poor collateral because they were mobile, incurred liens, deteriorated and, when sold at fore- closure sales, always made less than projected. In most Pacific Island countries, land also would not serve as a valid collateral for a loan. Most Pacific Island

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countries were viewed as having high country risk, not so much because they were likely to nationalise investments, but because they tended to be anti- business and anti-profit, and had inadequate commercial and legal found- ations. Pacific Island countries should develop their commercial legislation and adopt many of the now fairly uniform international commercial laws on the enforceability of arbitration awards.

The outlook for Pacific Island economies which rely on agricultural exports will face con- commodities is mixed straints arising from the poor outlook for commodity prices in 1997-98. The prices of agricultural commodities such as sugar and copra will fall in 1997-98. Higher Philippine output of lauric oils will lower the prices of coconut and palm kernel oil by about US$100/ton and US$60/ton, respectively, by the end of 1997. The price of cocoa will rise rapidly over the forecast period as production shortfalls underpin prices.

The EIU expects global demand for crude oil to grow more slowly in 1997-98 than in 1996, but supply will pick up assuming the resumption of Iraqi oil exports and higher non-OPEC production. Oil prices are therefore forecast to weaken from the second half of 1997, which will provide some relief on the import side. Our forecast price for copper has been revised upwards in light of higher than expected growth in demand.

The region: world commodity price forecasts (US cents/lb unless otherwise indicated)

1995 % changea 1996 % change 1997 % change 1998 % change Copperb (refined) (US$/ton) 133.2 27.2 104 –21.9 102.5 –1.4 95 –7.3 Nickel (US$/lb) 3.74 29.9 3.41 –8.8 3.45 1.2 3.38 –2.1 Cocoac (US$/lb) 65.1 2.7 65.9 1.2 75.3 14.3 88 16.9 Coffeed (cents/lb) 138.4 3 101.9 –26.4 84.4 –17.2 78.3 –7.2 Sugare (cents/lb) 13.28 10.3 12.07 –9.1 10.18 –15.7 10.25 0.7 Crude palm oilf (US$/ton) 628 18.9 530 –15.6 472 –10.9 416 –11.9 Palm kernel oilf (US$/ton) 677 7.6 727 7.4 688 –5.4 681 –1.0 Copraf (US$/ton) 439 5.1 488 11.2 435 –10.9 424 –2.5 Coconut oilf (US$/ton) 670 10.2 751 12.1 676 –10.0 661 –2.2 Crude oilg (US$/barrel) 17.2 10 20.64 20.0 18.5 –10.4 18.3 –1.1 a Year on year. b London Metal Exchange. c International Cocoa Organisation daily indicator. d International Coffee Organisation composite indicator price. e International Sugar Association daily average. f Basis: cif Europe. g Weighted average cif cost of International Energy Agency imports.

Source: EIU, World Commodity Forecasts.

Review

A US economist sees scope A Hawaiian economist has called for a major US initiative to upgrade and to upgrade US economic expand economic relations between the USA and Pacific Island countries. In a ties with the region— presentation to the Inter-Pacific Bar Association on January 27, Wali M Osman, vice-president and regional economist of the Bank of Hawaii, proposed using as the vehicle for change the Joint Commercial Commission (JCC), which was established with the encouragement of the former US president, George Bush,

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after a meeting with 13 regional leaders in Honolulu in 1990, with the aim of fostering commercial links between businesses in the USA and the Pacific Islands. Although up and running on a limited scale, the JCC has never ful- filled initial expectations. Mr Osman suggested that it was time to consider elevating it to a regional economic and political cooperation forum in the spirit and letter of either the North American Free Trade Agreement (NAFTA) or the Asia-Pacific Economic Cooperation (APEC) forum, for the purpose of fostering economic relations between the USA and Pacific Island countries.

Mr Osman also said that the new stipulations of the World Trade Organization (WTO), which are aimed at eliminating subsidies to domestic industries, should not apply to the Pacific Island economies because they are designed rather to regulate large economies which have extensive and varied resources and are less exposed to the challenges of economic change. The regional economic cooperation pact that Mr Osman was describing would make allowances for the special factors shaping these economies and its charter would allow special incentives for US trade and investment interests to explore the region for opportunities.

—and Island governments According to Mr Osman, the important role played by the state in Pacific are encouraged to expand Island economies has often led to inefficiencies and created obstacles to eco- the private sector nomic change. An important role for governments now was to help the markets by removing barriers to foreign trade and investment through new measures and legislation. Pacific Island governments should further the expansion of the private sector by privatising essential economic activities such as utilities. Instead of aid and the dependency it often created, the new emphasis for the region should be on the production and distribution of its resources.

Fisheries agency signs The Forum Fisheries Agency (FFA) and an Australian professional services and contract for vessel systems integration company, Aspect Computing, signed a contract on monitoring system November 7 for a regional Vessel Monitoring System (VMS), capable of monitoring the positions of up to 1,000 fishing vessels at any one time and with the potential to raise the number to 2,000 vessels. It will also be capable of securely transferring information on positions to each FFA member country, as required, on a timely basis.

The decision to sign followed years of deliberations by the 16 FFA member countries, whose exclusive economic zones (EEZs) cover about 30m sq km in the central and western Pacific. Aspect Computing is one of Australia’s largest independent professional services and systems integration specialists. Absolute Communications of New Zealand will provide software consulting and development services, global positioning system-based tracking solutions and com- puter and network security systems as a subcontractor.

International fisheries Four regional fisheries meetings were held at the FFA’s base in Honiara, Solomon agreements are under Islands, on November 21-29: the 12th Special Session of the Parties to the scrutiny in Honiara— Nauru Agreement; the first Special Meeting of the Federated States of Micronesia Agreement; the first Special Meeting of the Palau Arrangement; and the 30th meeting of the Forum Fisheries Committee (FFC) the body of ministers and ministerial delegates that oversees the FFA and Forum fisheries policies. The

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meetings covered a broad range of technical fisheries issues relating to the central and western Pacific. The director of the FFA, Victorio Uherbelau, said decisions taken at the meetings would set the direction and the pace of the gathering movement towards effective in-zone management plans for tuna stocks in the EEZs of FFA member countries, which provide a substantial pro- portion of total world tuna production.

—as countries set an South Pacific countries are determined to set an example in conservation and example on fisheries management standards for the region’s valuable tuna resources, ’Akau’ola conservation Inoke Faletau, chairman of the FFC, said after its annual meeting in Honiara. ’Akau’ola, who is secretary for fisheries in Tonga, said the 16 member countries of the FFA would convene the Second High-Level Conference on the Conservation and Management of Highly Migratory Fish Stocks in the Central and Western Pacific in Majuro, the Marshall Islands capital, on June 24-27. ’Akau’ola noted that since the establishment of the FFC in 1979, Pacific Island countries had been united in their stand to develop effective conservation and management arrangements to protect the region’s tuna resources.

Invitations to the Majuro conference will be sent to other Pacific Island territories, coastal states such as Indonesia and the Philippines and leading fishing countries such as Japan, South Korea, Taiwan, the USA and China. The meeting will look at areas of concern such as the status of stocks, examine the latest scientific data and set the agenda for future meetings. ’Akau’ola said that FFA countries had always acknowledged that no one state or group of states could effectively manage the highly migratory tuna resources in the region. The central and western Pacific is the most productive tuna fishing ground in the world: the gross value of the 1995 catch was estimated at US$1.7bn.

Micronesian leaders plan The Council of Micronesian Chief Executives has formed a technical working to start a cooperative tuna group to consider the establishment of a tuna cooperative which would be venture owned by the various Micronesian Island governments. The decision was made at the February annual meeting in Palau of the leaders of the Marshall Islands, Kiribati, Nauru, Palau, the Federated States of Micronesia (national and state leaders), the Commonwealth of the Northern Mariana Islands and Guam.

The resolution stated that tuna resources in Micronesia held the region’s greatest natural potential for achieving economic self-sufficiency and affecting the ex- ploitation, management and sustainability of the resource could be most effectively addressed through collective efforts. The resolution recognised the efforts of regional and subregional fisheries organisations and stated that the working group would include in its assessment the economic and social impacts, legal and political implications, as well as enforcement, monitoring and research.

Governments express The government of Kiribati last year led a series of protests to the USA in grave concern about response to the proposals of a US company, Fuel and Security, to store nuclear nuclear waste plans— waste at Palmyra atoll, a US possession 300 miles north of Tabuaeran Island (also known as Fanning) in the easternmost part of Kiribati. An executive of Fuel and Security, Alex Copson, claimed that the company had bought Palmyra for use as a waste dump. Kiribati’s concern was supported by all members of the South Pacific Forum at the Majuro meeting in September 1996 and

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by all US territories in the region, and the plan was cancelled by the US government. Palmyra was first suggested as a storage facility for spent nuclear fuel in 1979, and the decision of the South Pacific Forum last year reaffirmed the region’s strong opposition to this proposal since that time.

In February, however, Greenpeace made public draft legislation prepared for the US Senate that would allow a Russian-US joint venture to establish a nuclear waste facility on nearby Wake Island, also a US possession but subject to a claim by the Marshall Islands that it was a site of great significance for traditional chiefs’ rituals. Palmyra was again cited as a possible alternative for the waste dump. The joint-venture partners are reportedly the Russian government’s ministry of atomic energy (Minatom), and a US company, Nuclear Disarmament Services, of which Mr Copson is the director.

—and the Forum is The secretary-general of the South Pacific Forum, Ieremia Tabai, reiterated in concerned about nuclear February the Forum’s continuing concern about the use of the region for the waste transport shipment of nuclear and other hazardous wastes. He was reacting to the announcement that the UK-based Pacific Teal was on its way from France to Japan via the Pacific with a cargo of vitrified nuclear waste. The position of the South Pacific Forum was clear on this issue, he said: such shipments should be carried out in accordance with the highest international safety and security standards in a manner which satisfactorily addressed all contingencies and in full consultation with Forum members. The secretary-general’s statement was made at the same time as a delegation from the owners of Pacific Teal—Pacific Nuclear Transport, owned by British Nuclear Fuels, Cogema of France and the Overseas Reprocessing Committee of Japan—were touring the region in order to assure South Pacific governments of the safety measures incorporated in the vessel and for its cargo.

The regional environment Tamarrii Pierre Tutangata of the Cook Islands was appointed as the new direc- programme appoints a tor of the South Pacific Regional Environment Programme (SPREP), at its new head— November 25-28 meeting in Nuku’alofa, Tonga. Mr Tutangata has had a 25-year career working in Cook Islands administration and regional institutions including the South Pacific Forum Secretariat and the South Pacific Commission. The November meeting was regarded as the most significant for SPREP since its formal establishment in 1982 and only the third at ministerial level in that time. SPREP revised its action plan, adopted in 1991, to take account of significant political, economic and environmental changes at global, regional and national levels. The action plan sets the framework for a regional approach to environmental issues, and ministers said that its review, along with the appointment of the new director, would give direction and focus to its operations.

The new plan for 1997-2000 focuses on five key elements: conservation of biological diversity; climate change and integrated coastal management; waste management; environmental management, planning and institutional strengthening; and environmental education, information and training. The overall goal is to build national capacity in environmental and resource management in order to improve and protect the environment.

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—and declares 1997 the In February, SPREP launched a regional campaign for 1997 as the Pacific Year Pacific Year of the Coral of the Coral Reef, in order to increase understanding and action for the con- Reef servation and wise use of coral reefs. In the Pacific, it said, too many reefs were being damaged by pollution, destructive fishing techniques, over-harvesting of fish and poor land-use practices that washed soil and wastes on to reefs.

Australia considers new New environmental assessment guidelines for Australian overseas aid projects environmental have been circulated to regional governments by the parliamentary secretary for assessments for aid— foreign affairs, Andrew Thomson. The guidelines strengthen procedures that were last revised in 1991, and were developed for the Australian aid organisation, AusAID, in conjunction with interest groups, such as non-governmental aid organisations and leading Australian environmental technology companies. The guidelines aim to strengthen and streamline procedures and introduce a risk management approach in order to target environmental assessment where it is most needed.

—and easier immigration The Australian government is considering easing immigration restrictions to for remittance-dependent help Pacific Island countries that depend heavily on remittances from their countries— nationals living abroad. The head of the National Centre for Development Studies in Canberra, Ron Duncan, recommended last year in a study commissioned by the Australian government that Pacific Island nationals be granted free movement to Australia and New Zealand as part of the basis of a new regional economic association. The government, without endorsing the idea, circulated the recommendation to South Pacific governments, among others, for discussion.

A more detailed case was made publicly by a Queensland University economist, Richard Brown, in mid-October, at a conference in Canberra organised by the EIU. The employment of Tongan and Western Samoan immigrants in Australia and New Zealand is crucial to both countries and their remittances are a vital source of income and their most important source of foreign exchange. He calculated that, based on 1994 figures, household remittances could represent about two-thirds of GDP in both Tonga and Western Samoa. Because of the great dependence on the earnings of overseas workers, it was important to consider the extent to which existing restrictions and visa-screening processes affected the migrant labour market. If there was no difference in treatment between those who enjoyed unrestricted access (mainly as a result of step migration via New Zealand, for example) and those who had visas, there was a stronger argument for free movement of labour.

—as data show no Mr Brown’s data indicated that in 1993/94 about 80% of Tongans in Australia difference in had emigrated directly from their country of birth and over 90% of Western employability Samoans had step-migrated via New Zealand. His study found that whether a migrant entered Australia under a visa category or enjoyed unrestricted entry under the Trans-Tasman Agreement had no significant bearing on their employability. It was unlikely that any differences in educational attainment could be attributed to the visa-screening process, he said. In countries where emigration and remittance dependence were common, households invested in the human

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capital of particular members for “export”, and this was an essential element of survival strategy in the absence of attractive investment opportunities in their domestic economies. Migrants continued remitting large sums of money over long periods of time, often more than 20 years. Other studies have shown that families deliberate carefully about which members are likely to do well overseas.

The possible closure of A review of the Australian Broadcasting Corporation (ABC) has suggested wide- Radio Australia draws ranging cuts in spending, including the possibility of closing the corporation’s wide regional criticism overseas service, Radio Australia, which was established in 1939. The suggestion has attracted much criticism from governments, individuals and organisations. Western Samoa’s High Commissioner to Australia, Feesago S Fepulea’i, said, reflecting much of the comment, that Australia would be the ultimate loser if Radio Australia were closed down. Its programmes, especially news, were followed keenly in most Pacific Island countries and re-broadcast regularly by many. The services had long projected a positive image of Australia and helped to keep countries of the region in touch with each other and their common causes, a recent example being the French nuclear testing programme.

France and Australia France and Australia have agreed to work more closely together in the prov- reach agreement on closer ision of development assistance to the South Pacific. France’s new permanent collaboration in the region secretary to the South Pacific, Pierre Garrigue-Guyonnaud, described the agreement after his first round of meetings in Canberra with regional ministers and senior officials in February. He said that the two countries agreed on the guid- ing philosophy of development cooperation in the region: good government, sustainable development and economic and monetary reform. They had agreed to exchange information on aid projects to avoid duplication. They would work on joint projects or try to complement each other. Australia and France had several joint development projects under way in Vanuatu and could also work together in the health sector, for example, on strategies to combat AIDS in the region. The two countries have also decided to work closely together in research, especially in marine science, remote sea-bed sensing and agriculture.

France declares a new Mr Garrigue-Guyonnaud said that at the beginning of this year France had policy for the South decided to review its policy towards the South Pacific, reaffirming its interest in Pacific the region and developing aid and dialogue with all countries—not just the large countries such as Australia, New Zealand, Papua New Guinea and Fiji, but also all the smaller island countries. There would be a new emphasis on opening up to the region, the integration of French territories and cooperation. France would maintain its financial (mostly aid) commitment. Sectors to receive priority would be fisheries, marine science, agriculture and rural technology, energy, particularly solar energy, telecommunications and health. Projects in these sectors would be funded not only through multilateral programmes such as those of the South Pacific Commission but also through voluntary contributions for projects initiated by France.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 14 The region

Malaysia becomes the Malaysia has become the South Pacific Forum’s ninth dialogue partner, joining ninth dialogue partner of Canada, the EU, France, Japan, China, South Korea, the UK and the USA. The the South Pacific Forum secretary-general, Ieremia Tabai, said that Malaysia was an important member of the Association of South-east Asian Nations (ASEAN) as well as a committed business partner in many Forum countries. Mr Tabai has invited the Malaysian government to participate at an appropriate level at the post-Forum dialogue sessions in the Cook Islands in September. The post-Forum dialogue was established in 1989 in response to the need to communicate important decisions made by the Forum to non-Forum countries and organisations with long-term interests in the region.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 15

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; universal suffrage for all citizens over 21

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 with 14 provinces governed by a council and an executive head, approved by the Fijian Affairs Board

Legal system Magistrates’ courts, high court and court of appeal with the Supreme Court at the apex

National elections February 1994; next election due by February 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); National Federation Party (NFP); Fiji Labour Party (FLP); General Voters’ Party (GVP); Fijian Association Party (FAP)

Prime minister & minister for Fijian & multi-ethnic affairs & regional development Major-General Sitiveni Rabuka

Key ministers Agriculture, fisheries & forests Militoni Leweniqila Attorney-general & minister for justice Taru Etuati Tavai Commerce, trade & industry Isimeli Bose Education, women & culture Taufa Vakatale Finance & economic development Berenado Vunibobo Foreign affairs Filipe Bole Health & social welfare Leo Smith Home affairs & immigration Colonel Paul Manueli Information, broadcasting & communications Ratu Jo Nacola Labour & industrial relations Vincent Lobendahn Lands, mining & energy Ratu Timoci Vesikula Public works & infrastructure Ratu Inoke Kubuabola Tourism, transport & civil aviation David Pickering Urban development, housing & environment Vilisoni Cagimaivei Youth, employment opportunities & sport Jim Ah Koy

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 16 Fiji

Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at current pricesa F$ m 2,019 2,171 2,269 2,351 2,506b Real GDP growth % 4.7 2.3 3.8 1.4 4.7 Consumer price inflation % 4.9 5.2 0.6 2.2 3.1b Population m 0.75 0.77 0.78 0.78 0.78 Exports fob US$ m 438.5 443.2 484.7 515.5 606.3b Imports fob US$ m 539.2 652.8 720.7 761.4 823.3b Current account US$ m 59.3 13.0 –59.4 0.1 13.9b Reserves excl gold US$ m 316.9 269.5 273.1 349.0 445.6c Total external debt US$ m 338.6 330.1 298.8 n/a n/a Debt-service ratio % 9.3 8.2 7.1 4.6d n/a Exchange rate (av) F$:US$ 1.503 1.542 1.464 1.406 1.403

February 29, 1997 F$1.412:US$1

Origins of gross domestic product 1995 % of total Components of gross domestic product 1994 % of total Agriculture, forestry & fishing 21.3 Private consumption 65.3 Manufacturing 12.4 Government consumption 16.6 Transport & communications 15.6 Gross investment 10.7 Wholesale & retail trade 21.9 Change in stocks/statistical discrepancy 6.0 Services & others 28.8 Exports of goods & services 58.9 GDP at factor cost 100.0 Imports of goods & services –57.5 GDP at market prices 100.0

Principal exports fob 1995a US$ m Principal imports cif 1995a US$ m Sugar 196 Manufactured goods 240 Garments 132 Machinery 198 Gold 42 Food 130 Fish 40 Mineral fuels 98 Timber 32 Total incl others 867 Total incl others 618

Main destinations of exports 1995 % of total Main origins of imports 1995 % of total Australia 24.0 Australia 39.0 UK 20.2 New Zealand 16.0 USA 11.6 Japan 7.2 Japan 5.8 USA 7.1 New Zealand 5.3 Singapore 7.1 a National figures. b EIU estimate. c November. d Official estimate.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 17

Outlook for 1997-98

Progress on constitutional Reform of the racially-biased constitution remains the central political and reform will not come soon economic issue, as well as the biggest single challenge facing the prime minister, Major-General Sitiveni Rabuka. The constitution was introduced in 1990 after General Rabuka’s two coups ousted a government led by Fijian Indians, giving effective control of the political system to indigenous Fijians. General Rabuka has given mixed signals about his own attitude to the constitution. In December he claimed that most Fijians were happy with it and was concerned by some claims that it was undemocratic. At the same time, however, he said, Fijians acknowledged the need to improve the constitution so that all communities could participate equitably in parliament and cabinet.

Meanwhile, the slow deliberations of a parliamentary committee on the findings of a Constitutional Review Commission (CRC) continue in camera, and there seems no early prospect of amendment, although a July deadline for agreement looms.

The prime minister may General Rabuka’s ability to deal with constitutional reform has been dimin- be vulnerable ished by rumours of moves within his fragile coalition government to replace him. Such rumours have arisen precisely because some members of his government believe that he will indeed support breaking the indigenous stranglehold on government, putting economic considerations, especially foreign investment, ahead of the sensibilities of the hardline tribal chiefs. The CRC report stated bluntly that Fiji could not claim to be democratic under the present constitution and this is likely to have influenced some potential investors.

Growth will fall back After a strong rebound in 1996, growth is likely to moderate in 1997-98, but the in 1997-98 EIU still expects the economy to expand by around 3%, assuming strong per- formances from the mining and sugar sectors, and consequently the external sector.

The finance and economic development minister, Berenado Vunibobo, has forecast growth of 3.2% for 1997 based on the production of 470,000 tons of sugar and 350,000 visitor arrivals.

There are high hopes The minister said that export earnings in Fijian dollar terms were expected to for trade increase 22% this year, with a 6% increase in garment export earnings and a 10% increase in fish and timber export earnings. As one of the few Pacific Islands to be a member of the World Trade Organization (WTO), Fiji would next year review custom tariffs to comply with non-discretionary policies, with the aim of improving transparency and earning the confidence of investors. Investment regulations would also be liberalised, simplified and made more transparent.

As a result of growing services income and substantial official transfers, the current-account balance is expected to move further into surplus to around US$25m in 1997-98. Foreign reserves at the end of 1996 had risen to almost US$450m, covering more than five months’ imports, and we expect further

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 18 Fiji

rises in reserves based on growth in export earnings. Inflation is expected to be maintained at 3%.

However, the bail-out of the National Bank of Fiji (NBF) is a continuing financial millstone for the government and the economy. Writing off the bad debts incurred by the government-owned bank will absorb 12.3% of the government’s 1997 expenditure budget, according to estimates tabled in parliament by Mr Vunibobo.

The NBF scandal also may The NBF scandal has the potential to become a more serious political problem cause more political for the prime minister. He told his ministers that if they are charged in connec- damage tion with the NBF inquiry, they are to step down and allow justice to take its course without hindrance. It was contrary to his policy to allow ministers to continue in office if they are charged. One former minister, Koresi Matatolu, resigned as leader of the house of representatives in November, after being charged in connection with the NBF collapse, although he has declared his innocence. Another former minister, Ratu Ovini Bokini, faces charges of official corruption, obtaining money by false pretences and fraudulent conversion of property; he too has declared his innocence. The former chief manager of the NBF, Visanti Makrava, has pleaded not guilty to six charges of abuse of office. The Fiji police force has called in Australian and other foreign investig- ators to assist in examining the bank’s affairs, estimating that the pursuit of some 100 cases identified so far will take at least three years.

Fiji: gross domestic product Fiji: Fiji dollar real exchange rate (a) % change, year on year 1980=100 8 120

6 110

100 F$:DM 4 90

2 80 F$:US$

70 0 F$:¥ Fiji 60 Asia excl Japan -2 1991 92 93 94 95 96 50

(a) 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 political scene

Constitutional A 25-member joint parliamentary select committee held its sixth meeting on deliberations continue March 4 to deal with the findings of the Constitutional Review Commission (CRC) which reported in September (4th quarter 1996, pages 41-43). After its fifth meeting, in January, it announced that unanimous agreement had been reached on 373 of the report’s 697 recommendations, but did not specify

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 19

which ones had been dealt with. A statement from the committee said that where agreement had not been reached, there were observations that would be dealt with subsequently. The fifth meeting also received progress reports from four subcommittees that are examining different chapters of the CRC report. A fifth subcommittee has already finished its work.

After the March meeting the committee issued a statement saying it had not agreed to the CRC recommendations relating to the Great Council of Chiefs and the Senate. The committee suggested that the present system, as prescribed under the Fijian Affairs Act, be retained for the Great Council of Chiefs and that the Senate be appointed by the president on the nomination of the Great Council of Chiefs, the prime minister, the leader of the opposition, and the Council of Rotuma. This means that the upper house will comprise 22 members, eight of whom will be nominated by the chiefs (with power of veto over legislation), seven by the prime minister, six by the leader of the opposition and one by the Council of Rotuma. The CRC had recommended that two members be elected by each of the 14 provinces with no racial restrictions on candidacy or voter rolls, one from Rotuma and six appointed by the president on the advice of the electoral commissioner to represent people who would otherwise be underrepresented, such as women or minority groups.

Further meetings are scheduled for March and April before a report is prepared for tabling in the May parliamentary session. The deadline for a consensus on reform is July 25.

Review of media laws A report on Fiji’s media laws prepared by two UK consultants, Ken Morgan and recommends a new John Prescott, was presented to the information minister, Ratu Jo Nacola, in approach to regulation November. The report, Future of Media Legislation and Regulation in Fiji, was commissioned to look into such matters as newspaper licensing, foreign own- ership of the media and unauthorised publication of official documents.

The report recommended against the introduction of legislation to restrict media freedom and instead called for laws such as the Press Correction Act and the Official Secrets Act to be repealed and replaced by a new body to regulate the industry. Media awareness training for politicians was recommended, as was the establishment of a Fiji Media Council of industry members to adjudi- cate complaints against a set code of practice.

Legislation should be drawn up which embodied fundamental and inalienable principles and their detailed application should be governed by regulatory codes of practice, which could be amended in response to changing circum- stances. The requirement for annual registration of the print media, however, amounted to licensing and was contrary to the concept of freedom of expres- sion. The report recognised that a government was entitled to discipline members and civil servants over the unauthorised disclosure and publication of official documents, but considered that criminal procedures were inappropri- ate, particularly for journalists or editors who were doing their duty.

Lawyers go public with Fijian lawyers have expressed concern about the administration of the higher concerns about courts court and magisterial court systems. Some judges have also criticised the long administration delays, procedural irregularities and the incompetence of court staff and even

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 20 Fiji

magistrates. For example, magistrates had sent people to a higher court for trial on serious charges who were still awaiting trial two years later. At the Suva magistrates courts at least 1,200 files and large amounts of cash had been reported missing in recent years. Lawyers have told local newspapers that some court clerks are clearly bribed to “lose” files.

Trade union body attacks The South Pacific and Oceanic Council of Trade Unions (SPOCTU) has attacked government over the Fijian government for failing to honour a commitment to repeal the 1991 post-coup labour decrees Labour Decrees. These decrees imposed restrictions on union activity and organising, withdrew payroll deductions for union dues and severely limited the number of positions that could be held by activists, a restriction aimed particularly at members of parliament. The chairman of SPOCTU, David Tuhanuku, said that the prime minister had given undertakings in July 1992 before he gained office that the decrees would be revoked. These assurances had been repeated by Fijian government leaders since then. Following a joint complaint from the Fiji Trade Union Congress (FTUC) and the International Confederation of Free Trade Unions, the International Labour Office recommended in November 1992 that the decrees be substantially amended. Mr Tuhanuku said SPOCTU would fully support the FTUC in its efforts to restore the rights of Fijian workers.

The economy

The NBF failure puts a Planned expenditure totalling F$1.03bn (US$730m) in the budget for the year dent in the budget ending December 31, 1997, included F$133.3m to pay for the bail-out of the National Bank of Fiji (NBF). This is in addition to the F$80m injected since the government admitted in late 1995 that the bank had incurred bad debts of more than F$200m.

The budget presented by the finance and economic development minister, Berenado Vunibobo, on November 8, 1996, contained no major new taxes, but increased duties on fuel, liquor and tobacco. The sales tax on public transport vehicles was reduced in order to help improve services and reduce the costs of travel. Employers were allowed to claim a 150% tax break for wages paid to newly-hired school-leavers. A 10% withholding tax on savings and fixed- interest deposits in excess of F$400 was introduced. A review of the taxable benefits provided by employers was announced. Tariffs were kept at existing rates as part of the economic reform programme.

Because of the cost of the bank bail-out, the budget projects a 1997 deficit of F$219.2m, equivalent to 8.2% of GDP, which compares with 3.6% last year. The deficit is projected to fall to 1% in 1998, and the budget is expected to be in surplus by 1999.

Economic growth picks Economic activity picked up in the first three quarters of 1996 and growth for up in 1996 the full year is estimated at 4.7%, compared with 1.4% in 1995. In its third- quarter review, the central bank, the Reserve Bank of Fiji, reported better performance in the agricultural, mining, manufacturing and tourism sectors; sugar production benefited not only from a bigger cane crop but also from better industrial relations and mill efficiency. Greater gold production was due to the

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 21

opening of the Mount Kasi mine, increased production at the Vatukoula mine and expansion of capacity at the Emperor mines, all of which will buoy up growth for the foreseeable future. Tourist arrivals continue to recover; they were 2.1% higher to end-September, with a particularly strong upsurge towards the end of the period.

Fiji: tourism statistics

1996 1994 1995 1 Qtr 2 Qtr 3 Qtr Visitor arrivals (no) 318,874 318,495 70,714 75,580 101,318 Average length of stay (days) 8.5 8.5 8.3 8.3 8.8 Tourism earnings (F$ m) 392.5 405.0 97.2 98.6 152.3 Source: Bureau of Statistics, Statistical News.

Trade performs well Provisional data on overseas trade for the third quarter of 1996 indicated that in 1996 exports had risen 4.3% year on year to F$302.4m and imports were 21.4% higher at F$367.7m, making a trade deficit of F$65.3m. The growth in export earnings during 1996 has been due to increased sugar export receipts following a rise in sugar exports to the UK and the opening of a new market in Singapore. In addition, earnings from gold exports have been improving. Petroleum products and food items were mainly responsible for high import growth. Australia remains the main source of Fiji’s imports, accounting for almost 40% in 1995. Australia and the UK are the two largest markets for Fiji’s products.

Fiji: foreign trade (F$ m) 1996 1994 1995 1 Qtr 2 Qtr 3 Qtr Exports fob 800.5 869.9 180.6 232.9 302.4 Imports cif 1,209.9 1,219.0 291.4 327.8 367.7 Balance –409.4 –349.1 –110.8 –94.9 –65.3 Source: Bureau of Statistics, Statistical News.

Overall payments are in Provisional estimates by the Bureau of Statistics for the second quarter of 1996 deficit indicated a deficit on the balance of payments of F$52m, compared with a surplus of F$21m in the first quarter. The deterioration in the deficit between the two quarters was due to a steady trade-account deficit and a turnaround in the capital account. The treatment of capital flows and sugar receipts compli- cates comparisons, but the current account in the first quarter of 1996 was in deficit at F$13.3m, but moved into a surplus of F$19m in the second quarter. The capital account showed a surplus of F$49.8m in the first quarter, but a deficit of F$42.9m in the second.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 22 Fiji

Fiji: balance of payments, national estimates (F$ m) 1996 1994 1995 1 Qtr 2 Qtr Exports foba 709.7 724.9 149.4 187.0 Imports fob –1,055.2 –1,070.8 –245.7 –271.0 Trade balance –345.5 –345.9 –96.3 –94.9 Services net 286.3 320.2 89.6 80.0 Investment income net –126.1 –104.9 –26.1 1.4 Unrequited transfers neta 84.7 111.4 19.5 32.5 Services, income & transfers net 244.9 326.7 83.0 113.9 Current-account balance –100.6 –19.2 –13.3 19.0 Government, statutory bodies net –48.6 –23.3 3.1 –9.3 Direct investment 102.0 81.4 19.6 –26.2 Commercial banks net –10.0 22.4 16.5 –6.0 Short-term trade credit –17.7 7.6 10.6 –1.4 Capital-account balance 25.7 88.1 49.8 –42.9 Errors & omissions 58.3 40.0 –15.5 –28.1 Overall balance –16.6 108.9 21.0 –52.0

a Reduction in exports fob and increase in unrequited transfers due to treatment of excess receipts from sugar exports to EU as a transfer.

Source: Bureau of Statistics, Statistical News.

Inflation is moderate The annual average inflation rate rose steadily throughout the year from an annual average of 2.3% in January 1996 to 3.1% in December. Food costs remained stable and most of the price increases came from the rising cost of housing, heating and lighting. Annual average inflation for 1996 was 3.1%.

Fiji: inflation rates, 1996 (%) Jul Aug Sep Oct Nov Dec Year Annual average 2.9 3.0 3.0 3.0 3.0 3.1 3.1 Year on year 4.0 3.9 3.0 2.4 2.5 2.4 3.0 Source: Bureau of Statistics, Statistical News.

Exchange control In his November budget speech, Mr Vunibobo announced further exchange regulations relaxed control relaxations which took effect on January 1, 1997. He said the changes reflected the country’s now strong foreign reserves position and the government’s plan to liberalise the current account progressively. Retained export proceeds were to be reviewed at intervals of two years instead of one year, but the limit on retained export proceeds was maintained at 20% for existing exporters; for new exporters the limit was based on forecasts of earnings for the ensuing six months. Regarding offshore investment, non-bank financial institutions were to be allowed to invest a total of F$25m in 1997 (compared with F$20m in 1996) and a family would be allowed to invest F$10,000 (currently F$5,000) up to a total national ceiling of F$10m in one year. Limits on company profit remittances were increased: the limit on operating profits was changed to the current year plus four (instead of three) years’ retained earnings,

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 23

if not previously remitted; the limit on remitting capital profits was lifted from F$10m per year to F$15m. The emigration allowance was lifted to an initial F$250,000, and F$50,000 every subsequent six months. Authorised limits for foreign exchange transactions by banks and other exchange dealers were increased in a dozen categories, as were delegations to the commercial banks and the customs department for a variety of business transactions.

Business migration has The government has announced an easing of investment requirements for busi- also been made easier ness migrants, with a reduction in the minimum requirement from F$500,000 to F$250,000. Previously, a foreign investor needed total assets or capital of F$500,000 to gain a seven-year permit, but the government considered the amount to be too high to attract a viable number of investors. Since 1990 only three investors have been issued with such permits. Age restrictions on residence permits have been removed for those on assured incomes and the restriction on recruitment of foreign workers has been lifted for cooks and farmers.

PAFCO wants to bring The Pacific Fishing Company (PAFCO), which is 90%-owned by the govern- bigger vessels into the ment, is hoping to use large purse-seine fishing vessels to catch tuna, in order tuna trade to overcome supply difficulties. The manager of PAFCO, Mitieli Baleivanualala, said in November after a visit to Europe that he hoped to contract at least two idle Spanish purse-seiners to fish for the company’s 18,000-ton capacity cannery at Levuka, on Ovalau Island. They would be the first European fishing vessels to operate in the South Pacific, where tuna fishing is dominated by Japanese, Chinese, South Korean and US fleets. PAFCO’s supplies of tuna from the Solomon Islands, where it had been buying 9,000 tons annually, had dried up because output at a cannery there had trebled. Supplies from Fiji vessels were inadequate at only 4,000-5,000 tons per year and the South Pacific was experiencing generally poor fishing because of an unusually long cold spell. Mr Baleivanualala said that one European vessel could supply the cannery with up to 6,000 tons of fish annually that would be eligible for entry to European markets free of the 24% duty. PAFCO was also hoping to persuade the EU to lift the Fiji quota for entry of duty-free canned tuna, which is due to expire at the end of 1997, from its current level of 4,500 tons to a maximum of 16,000 tons.

Air Pacific changes fleet The chief executive of Air Pacific, Andrew Drysdale, has announced that Air building plans by Pacific will buy three Boeing 737-700 series jets instead of taking delivery of a agreement with Boeing Boeing 767-300 long-range aircraft that it had ordered for delivery in July 1998. The airline, which is partly government-owned, had reached agreement with Boeing to swap the Boeing 767 contract for the new Boeing 737 series model aircraft. According to Mr Drysdale, by 2000 the airline will have a fleet of four Boeing 737-700s and at least two leased Boeing 747s.

The main influence on the change of plan was that the thrust of the company’s expansion would now be towards the USA, Canada and Europe. Fiji still lacked adequate hotel space and competition in the Asian airline market had become fierce. The Boeing 767 was stretched to its limits on Air Pacific’s north American route, for which the Boeing 747 was a far better aircraft. Boeing 747s will also be used for Asian services and the smaller Boeing 737-700s for services in the South Pacific Islands region and between Fiji and Australia and New Zealand. The airline’s present fleet consists of one leased Boeing 747-200 on Australian,

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 24 Fiji

Japanese and US routes, one leased Boeing 767-300 on Australian, New Zealand and Japanese routes, and a leased Boeing 737-300 and 737-500, used for Pacific Islands, New Zealand and some Australian routes.

The government has announced that a substantial shareholding in Air Pacific is to be offered to a foreign buyer, not identified, capable of assisting the airline’s growth. The Fijian government owns 79.55% of the airline with the balance owned by Qantas (17.5%), Air New Zealand (1.94%) and the governments of Nauru, Western Samoa, Tonga, Kiribati and the Solomon Islands.

A US company proposes a A US company, PanAero Corporation, has put a US$78m proposition to the Fiji major wind power project Electricity Authority (FEA) for a 60-mw windmill generating station to be loc- ated in the Sigatoka Valley. The station would augment power from the 80-mw Monosavu hydropower station, now about to reach maximum output. The company says that the complex of 120 500-kw windmill generators will be privately financed. The FEA is interested in the idea but wants a 12% per unit price cut from PanAero. The FEA is also considering a US$55m proposition from Shell in collaboration with a US company, Powercorp, for a 50-mw oil-fired power station, and from a New Zealand company for the US$40m conversion of the Vaturu water reservoir at Nadi which would generate 20-30 mw.

Fiji and Australia will Fiji and Australia have established a working group to look at what might look at the scope of a be included in a bilateral trade agreement between the two countries. The bilateral trade agreement Australian foreign minister, Alexander Downer, said after an official visit to Suva in December that both countries were enthusiastic about the move towards a bilateral agreement, which had originally been raised during bilateral ministerial talks in 1996. In recent years the trade relationship between Fiji and Australia has been dominated by Fiji’s unsuccessful efforts to get Australia to lower the 50% local-content criteria for duty-free access to the Australian market for Fiji’s exports under the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA). Fiji argues that the 50% local-content rule is an obstacle to growth for Fiji as increasing technological refinement and industrialisation in the garment industry has lessened its dependence on locally made items.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 25

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 granted in 1989 following the signing of the Matignon Accords. 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 7 members from the Province of the Loyalty Islands). Members are elected for terms of six years by universal suffrage. In 1998 a referendum will be held to decide whether New Caledonia is to become independent or remain part of France

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 Couturier 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; next elections due in July 2001

Main political organisations The two main groupings are the Rally for Caledonia in the Republic (RPCR), which is affiliated with the Rally for the Republic (RPR) in France, and comprises the Centre for Social Democrats (CDS) and the Republican Party (PR); and the Kanak Socialist National Liberation Front (FLNKS), comprising the Caledonian Union (UC), the Kanak Liberation Party (PALIKA), the Caledonian Socialist Party (PSC) and the Melanesian Progressive Union (UPM). The fairly new One New Caledonia for All (UNCT) group has significant support in Nouméa, as does the National Union for Independence in the north. The Oceanian Democratic Rally (RDO) represents a large segment of the population of Wallis and Futuna and the Kanak Socialist Liberation (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 Deputies to the French Jacques Lafleur (RPCR) National Assembly Maurice Nénou-Pwataho (RPCR) Representative to the French Senate Simon Loueckhote (RPCR)

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 26 New Caledonia

Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at current prices CFPFr bn 281.3 290.6 n/a n/a n/a Real GDP growth % 1.0 0.7 n/a n/a n/a Consumer price inflation % 2.5 2.6 2.0 1.6 1.7 Populationa ’000 170 174 184 185 187a Exports fob $ m 409.9 376.3 n/a n/a n/a Imports cif $ m 926.4 854.2 n/a n/a n/a Current account $ m n/a n/a n/a n/a n/a Reserves excl gold $ m n/a n/a n/a n/a n/a Total external debt $ m n/a n/a n/a n/a n/a Debt-service ratio % n/a n/a n/a n/a n/a Exchange rate (av) CFPFr:US$ 96.24 102.96 100.93 96.25 96.54a

February 28, 1997 CFPFr103.538:US$1

Origins of gross domestic product 1990 % of total Components of gross domestic product 1990 % of total Commerce 31.0 Private consumption 77.3 Services 25.2 Government consumption 9.4 Mining & metallurgy 14.0 Fixed investment 32.9 Construction & energy 11.0 Change in stocks –1.5 Transport & communications 7.5 Exports of goods & services 29.6 Agriculture & foodstuffs 4.9 Imports of goods & services –47.7 Miscellaneous industries 6.4 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 1995b % of total Main origins of imports 1995b % of total Japan 34.0 France 49.6 USA 23.9 Australia 14.4 USA 8.3 Singapore 6.6 Australia 6.6 New Zealand 6.1 Germany 6.6 Japan 3.8 a EIU estimate. b Derived solely from partner records.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 27

Outlook for 1997-98

The political impasse Since a referendum on independence for New Caledonia must be held in 1998, cannot be allowed to the stalemate over mineral rights and over negotiations about the way forward continue politically needs to be broken. The French government is anxious to bring this about, but has much work to do to reconcile the apparently irreconcilable interests of international investors and corporate managers and the different sections of opinion in New Caledonia.

Fortunately the main political players in New Caledonia are realistic about the political structures that are feasible given the territory’s colonial legacy. A compromise solution, a move towards a high degree of autonomy rather than outright independence, lies around the corner, if not quite sight.

The prospects for the Blessed with fairly sound economic management, plenty of French aid, a stable economy are good currency and large reserves of nickel, the prospects for economic growth are good. In 1996, there were some difficulties with trade and nickel prices fell, but in the next two years nickel prices will recover, although the EIU does not believe a boom is in store. The sooner New Caledonia can add value to its ore extraction, the sooner it will be able to benefit from what is expected to be a healthy demand picture in the medium term. Similarly, prospects for tourism look good over the next two years as the economies of Europe and Asia will be strong.

Review

The political scene

Minerals dispute The Kanak Socialist National Liberation Front (FLNKS) held its 16th congress in interferes with political Nouméa in February and decided that no talks with France on the political negotiations— future of New Caledonia should begin until the issue of access to the mineral resources for a smelter in the Northern Province was resolved (see below). Nevertheless, preparations should be made for a FLNKS convention before April to confirm its proposal for an associated state after 1998, taking account of the French government’s steps to resolve the minerals issue. The Oceanian Democratic Rally (RDO), representing a significant section of New Caledonia’s Wallis and Futunian population, was present for the first time at the FLNKS congress. For the past two years RDO has worked closely with the FLNKS. Speaking afterwards, Rock Wamytan, the FLNKS president, said the meeting had reinforced the unity of the movement. “Everyone put aside their differences in order to move in the same direction,” he said. On the issue of independence in association with France, he said it was the only proposal that satisfied nationalist objectives while also taking into account local reality, especially political strengths.

—and highlights internal The unresolved issue of mineral resources has quickly forced the independence differences in the FLNKS movement to sort out some internal differences, particularly on whether nickel

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 28 New Caledonia

resources should be a precondition of the resumption of political negotiations with the French government. One view—held by Mr Wamytan, along with the Kanak Liberation Party (PALIKA), the Progressive Melanesian Union (UPM), the president of the Northern Province government, Léopold Jorédié, and the past president of the Caledonian Union (UC), François Burck—was that time was running out and that in the lead-up to the 1998 French legislative elections the government would be too preoccupied to give much thought to the demands of the FLNKS.

But the “young Turks”, the UC president, Bernard Lepeu, and Damien Yeiwene and Charles Pidjot of the UC, who were nominated as the new team negotiating with France after Mr Wamytan, Mr Burck and Mr Jorédié walked out of the April 1996 talks in Paris, disagree. The UC is mostly in favour of the minerals precondition, but PALIKA is against it. Mr Lepeu, Mr Yeiwene and Mr Pidjot argue that theirs is the agreed position taken at a convention in December 1995, which also called for the negotiation of a solution with the French state and the non-independence parties for New Caledonia’s accession to independence in association with France from 1998 through an irreversible process.

Minerals dispute has roots New Caledonia’s mineral deposits have become central to both the economic in “rebalancing”— “rebalancing” envisaged by the Matignon Accords of 1988 and the longer-term political status of the territory dealt with in those accords. The basic element of rebalancing requires the development in the north of the main island, the Northern Province, whose government is controlled by the FLNKS, of an industrial base similar to that in the south surrounding Nouméa. As part of this process the Northern Province Finance and Investment Company (SOFINOR) bought the South Pacific Mining Company (SMSP) in 1990 and turned it into the major player in the country’s nickel export business, with 71.5% of the nickel export market, by 1995. But in order to create a real industrial base, the province needed to raise the value added within the growing nickel industry. The chief executive of SOFINOR, Raphael Pidjot, said after the purchase of SMSP that although SMSP was a major nickel exporter there was no value added to the ore within New Caledonia. The territory is estimated to hold one-third of the world’s nickel reserves, but its exports comprise only 5% of the world market in nickel metal, compared with 10% some 20 years ago.

—and plans to build a Thus in 1996 SMSP presented the French government with a joint-venture smelter in the Northern proposal between SMSP and the Canadian nickel group, Falconbridge, for a Province smelter and associated infrastructure in the north (4th quarter 1996, page 75). The project would represent a huge step forward in the process of economic rebalancing. However, the viability of the project depended on the assurance of access to mineral resources. The Northern Province smelter project with Falcon- bridge (which will provide the finance and own 49% of the project), is planned to handle acid ore, which would give the project a longer operating life by using poorer ore. The creation of 2,000 jobs in the largely Kanak north would have a dramatic regional effect, according to Mr Lepeu: “This smelter is indispensable to the economic emancipation of the country, regardless of whether or not one is pro-independence. Each year 3,000 new school leavers arrive on the employment market which has only 1,500 vacancies. In the short term of 5-8 years this

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 29

means 20,000-25,000 youths looking for jobs.” He called it a politico-social bomb with the pin already pulled.

Negotiations have been The state-owned group Eramet, which owns Société le Nickel (SLN), initially tough, protracted and suggested that assurance of access to mineral resources for the smelter could be highly political achieved by an exchange of mineral rights between SMSP and Eramet. Although the metropolitan government agreed in principle, Eramet equivocated. The government was then in a predicament, since it owned 57% of Eramet, but had only four directors on the 15-member board, and could not force through the decision to exchange mineral rights, although all such rights are held by the French state.

Nevertheless, in April 1996 the French government linked its agreement for the smelter and provision of the mineral deposits to acceptance by the FLNKS of a compromise statute on the political future of New Caledonia. The FLNKS and SMSP subsequently walked out of talks in Paris. In July the French government decided to drop the link with a political compromise and agreed with the FLNKS that the mineral question had to be sorted out before political talks could begin. However, in October the government released a statement saying that because of legal and technical difficulties it was not possible to give the required mineral deposits to SMSP. Raphael Pidjot said that Eramet had threatened to take France to the international courts. Eramet then proposed a different mineral deposit swap, which was less advantageous for SMSP. Nevertheless, SMSP agreed provided that the resource swap was “clean, immediate and without conditions”.

The government fails to The overseas territories minister, Jean-Jacques de Peretti, visited Nouméa on break the deadlock with February 12 and announced that he wanted to resolve the nickel question. direct mediation— Representatives of Eramet and SMSP were invited to negotiations on the resource swap. Round-the-clock talks failed to persuade Eramet representatives, who argued that they had worked hard at the problem but they could only exchange titles once a decision had been made to build the Northern Province smelter; the Eramet board could then say that it had no choice but to yield to the French government’s policy of rebalancing New Caledonia’s economy rather than appear to facilitate the interests of a competitor. A formal value also had to be given to the two mineral resources, said the secretary of Eramet, Michel Hemonnot; the government had agreed to guarantee whatever the difference in value of the two mineral deposits might be found in the long term. He said Eramet agreed to feasibility studies going ahead but would not agree to an immediate exchange of titles. SMSP argued that Falconbridge needed to know that it had formal access to the resources before committing itself further. Much money had already been spent on pre-feasibility studies. The SMSP and the FLNKS agreed reluctantly to a clause that if the smelter was not built after ten years, the exchange would be reversed. This was an important concession for a political party on the eve of New Caledonia’s expected transition to a new political status.

—and resorts to using The French government then used powers of state to circumvent a corporate powers of state problem, deciding on February 24 to cancel rights held by Eramet to nickel ore deposits in the north of New Caledonia. This was a dramatic move, which

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 30 New Caledonia

sought to break an impasse that had threatened to derail the government’s economic and political objectives in the territory. Mr de Peretti said that the government had committed its support to the new nickel smelter and was merely exercising its rights as the owner of the territory’s mineral resources in order to give effect to the commitment. He hoped that negotiations with the FLNKS could begin shortly on achieving a consensus agreement about the future of New Caledonia. The government had no issue with Eramet. But the chief executive officer of Eramet, Yves Rambaud, said after the February announcement that the future of the company was threatened and it would use all legal means at its disposal to combat the move.

The French government has been chastened by the prospect of continuing uncertainty if Eramet pursues its claim through the courts. Moreover, Eramet shareholders, including some of the larger retirement funds from the USA and Switzerland, have been prompted to question the wisdom of investing in forth- coming French government privatisations. The SMSP acknowledged that the French government’s action sought to implement its longstanding agreement in principle. But it feared that protracted delay because of legal action could have a terminal effect on the project, given that its joint-venture partner, Falconbridge, had already incurred considerable costs.

Minerals issue overwhelms Before the minerals resource issue arose, the French government and the earlier understandings— FLNKS had agreed that they would negotiate first, and, once an agreement had been reached it would be put to the Rally for Caledonia in the Republic (RPCR) for discussion, followed by a wider consultation of all political groups. The question of minerals access pre-empted negotiations. The leader of the RPCR, Jacques Lafleur, had said that he would be prepared to accept the outcome of the negotiations between France and the FLNKS. His party has thus been some- what on the sidelines of political debate in the territory. Official contact between the RPCR and the FLNKS was, in practical terms, suspended by late last year, although it resumed in December for pragmatic reasons—the problem of finding funds needed to support the budget of the FLNKS-controlled Northern Province. The province needed a French subsidy because of budget difficulties that were recognised as having nothing to do with financial management but with investments that it had been forced to make in large infrastructural projects planned as part of the process of economic rebalancing.

—and a budget deal Keen to move off the sidelines, the RPCR proposed to the FLNKS that it would allows sharing of vision support its request for extraordinary funding from France, if they, in turn, statements allowed passage of the territorial budget through the congress (where the RPCR does not have a majority). Moreover, the two parties released statements, using similar language, on their political visions for the territory. Referring to the possibility of a consensus package for the territory’s future after 1998 future, the RPCR said on December 27 that a new agreement should provide a period of stability of not less than 24 years. A new accord, to be approved by referendum by New Caledonians, should introduce a form of “shared sovereignty” between France and the territory. The RPCR said that this irreversible solution for the emancipation of the territory should be finalised by the end of 1997. If not, the vote on self-determination would go ahead as scheduled by the 1988 referendum law, but with predictable results (that is, an anti-independence

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 31

win) that would usher in a period of uncertainty for New Caledonia. This solemn declaration was a sincere undertaking by the RPCR not only to its partner, the FLNKS, but also to the whole population of New Caledonia, the statement said.

The two sides agree on the On the same day the FLNKS president, Rock Wamytan, said that his members outcome but not the were abstaining on the budget vote because several of their proposals had not transition period— been considered, and because the spirit of the Matignon Accords had not always been evident in some members of the congress. The abstention on the budget demonstrated the exasperation of the independence movement over lack of progress in some areas, but pre-debate meetings had allowed contact with the RPCR to be reactivated, he stated. This would lead to a negotiated solution for the country’s future, which must be ratified by referendum. The solution, once approved by vote in 1998, would institute a shared sovereignty with France and the full exercise of the attributes of sovereignty through a yet to be determined timetable of transfer of powers, according to Mr Wamytan.

The RPCR and the FLNKS thus made public an agreement on a negotiated solution, with a new period of shared sovereignty, with an acknowledgement that they had not agreed on the duration of that period and whether it ended with full independence or another vote. The FLNKS has engaged constitutional lawyers to look at whether independence can be locked in. Some say that the voters of 1998 cannot decide something for the voters of 2008. Within the FLNKS the PALIKA wants a period of not more than ten years’ transition.

—whereas UNCT favours New Caledonia’s third largest political party, One New Caledonia for All greater autonomy (UNCT), led by a businessman, Didier Leroux, finished its first congress in late October with a call for New Caledonia to have a large degree of autonomy, one that would be similar to that given to French Polynesia. Mr Leroux said he envisaged New Caledonia as self-governing in a number of areas, but at the same time linked with France through shared values and by institutional, judicial and financial mechanisms. UNCT, formed before the provincial elections in July 1995, holds eight seats in the territorial congress, compared with 22 for the RPCR and 17 for the FLNKS.

It is clear, however, that both pro- and anti-independence leaders hold to their belief that there should not be an outcome dictated solely by numbers in the 1998 referendum mandated by the Matignon Accords. To have a large minority of “losers”, whatever the result, would be no resolution at all. Rather, they believe, the voters should be asked to endorse a form of independence in association with France, to be achieved over a period of 10-15 years, perhaps more. That underlying consensus remains the best hope for the future.

The FLNKS organises A demonstration, led by Mr Wamytan, was held on October 29, 1996, in demonstrations against Nouméa, to protest against uncontrolled immigration into New Caledonia. uncontrolled immigration Some 5,000 people attended the march, according to its FLNKS organisers, although police estimated a crowd of 3,000. A petition calling for the control of immigration was presented to the office of the French High Commissioner and a special session of the territorial congress was called to debate the issue. The FLNKS said the march was not against immigrants themselves, but in

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 32 New Caledonia

favour of jobs for locals and securing a future for the next generation of Cale- donians. The French government was wrong when it claimed that the Kanak population was growing; Mr Wamytan said Kanaks comprised 44.1% of the population in 1996, compared with 44.8% in 1989.

The economy

Nickel prices fall In 1995 refined nickel prices on the London Metal Exchange rose by 30% to US$3.74/lb. Although New Caledonia’s exports are of ore, rather than refined metal, the buoyancy of demand for the metal in that year helped to boost the overall economy. In 1996, however, prices fell by 8.9%, largely because stain- less steel producers were cutting stocks.

New job-seekers A rise in job vacancies in 1996 was not enough to offset the rise in job seekers, outnumber new vacancies according to the Territorial Institute of Statistics and Economic Studies (ITSEE). It said that in 1996 the average number of job-seekers throughout the territory reached 7,719, an increase of 4.2% compared with 1995. In 1996, 3,626 new jobs were registered with the Employment Agency (l’APE), a rise of 13.9%.

Tourism recovers in the In the tourism sector, a major employer, tourist numbers started badly in the second half first half of 1996, but rose in the second half to give a total increase for the year of 5.6%. A total of 91,121 tourists visited New Caledonia in 1996, metropolitan France providing the largest number, of 27,640 (up 11.9%), followed by Japan (26,987), Australia (14,401) and New Zealand (6,768). The downturn in the first half was attributed partly to the effect of France’s resumption of nuclear tests in French Polynesia. Tourist arrivals from Japan were 7.7% higher than in 1995 but Australian and New Zealand arrivals dropped 6% and 5.6% respectively. Although the average length of hotel stay dropped from 5.3 days to 4.6 days, hotel occupancy rates increased slightly, to 50.5%, compared with 48.7% in 1995.

The trade deficit has The balance of trade worsened in 1996, with a significant increase in imports widened and a slight drop in exports. The trade deficit rose to CFPFr42.8bn (US$413m), compared with a figure of CFPFr35.6bn in 1995. Merchandise imports reached CFP Fr93.09bn, 7.15% higher than in 1995. Imports in the machinery, clothing and electrical goods group rose by 14.5% and transport material was 16.2% higher. While France remains New Caledonia’s major supplier, its role is decreasing, providing 49.6% of imports in 1995 and 41.4% in 1996. The EU excluding France increased sales to New Caledonia by 13.9%, with Australia following as third most important supplier with its share 10.7% higher than 1995. New Zealand increased its share of imports to 6.6% of the total, an increase of 20.4% on 1995; exports were valued at CFPFr50.2bn, 2% less than 1995. Ferro-nickel accounted for 55.7% of exports by value and nickel ore represented 96.4% of export volume for 24.1% of value. The value of seafood product exports, at CFPFr987m was 11.3% less than 1995.

Prices rise moderately As in 1995, New Caledonia experienced only moderate inflation in 1996, when the consumer price index rose by 1.7%, having risen 1.6% in 1995, 2% in 1994

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 33

and 2.6% in 1993. Also as in 1995, foodstuffs were the main contributor in 1996, rising as a group by 4%, but bread prices increased by 34.3%.

Mineral production Mining and mineral production continued to increase in 1996, with nickel ore increases production going up to 7,266 (wet) tons, up 3.4%. As in 1995 the increase was supported by garnierite nickel production, which went up by 7.9%; laterite extraction was down 7.8% and represented only one-quarter of production. Metallurgical production increased in 1996 to 53,412 tons of nickel content, compared with 2% in 1995 but, unlike 1995, the increase was not due to ferro-nickels but to matte, which was up 10.8%.

ENERCAL plans new With energy consumption in the territory rising at nearly 6% per year, the generating capacity energy supplier, ENERCAL, is planning to introduce new capacity. In the short term this will mean two new 12-14 mw generators and a doubling of capacity at the Nepoui power station by 2000. The development agency, ADECAL, reports that the investment will be about US$37m before tax, financed by the company’s own resources, borrowing and fiscal incentives. Medium-term consumption projections could drastically alter with metallurgical projects planned by INCO in the south and SMSP/Falconbridge in the north. The company produced 391,000 mw in 1996 and its annual turnover was equivalent to more than $70m.

French public servants are New conditions announced in November for metropolitan French public ser- losing some of their vants choosing to work in New Caledonia will mean that many of their perqui- perquisites sites have been diminished, in a bid by the French government to cut costs. The public servants will now be restricted to a two-year term, renewable only once, compared with the previous term of three years, renewable without limit. Only magistrates, university professors and researchers will be exempt. Annual leave is to be one month and administrative leave will drop from six months every three years to two months after a four-year term. Distance allowances, which were equivalent to 14 months’ pay for each three-year period, will be reduced to ten months’ salary for a posting in an overseas territory, half paid on arrival and the rest at the end, and only one distance allowance will be paid per married couple.

The FLNKS says the new measures are a first step in response to its call for controls on immigration from France and for policies to give greater access for Kanaks and other New Caledonians to public-sector employment. The FLNKS also wants reform of what it says are other colonial privileges, especially an adjustment index that provides for metropolitan public servants’ salaries to be increased by 1.73 points for Nouméa and 1.94 points for the interior and the islands.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 34 Solomon Islands

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

National elections May 1993; next election due by September 1997

National government Solomon Mamaloni was elected prime minister by parliamentary vote on November 7, 1994 (replacing Francis Billy Hilly)

Main political organisations Two broad-based coalitions: the ruling Solomon Islands National Unity, Reconciliation and Progressive (SINURP) party, and the National Coalition Partners (NCP) consisting of the National Action Party, the Labour Party and the National Party

Members of cabinet Prime minister Solomon Mamaloni Deputy prime minister & minister for commerce, industries & employment Danny Philip

Key ministers Agriculture & fisheries Victor Ngele Culture, tourism & aviation William Haomae Education & human resources Alfred Maetia Energy, minerals & mines David Vouza Finance Edmund Andresen Foreign affairs David Sitai Forestry, environment & conservation Allan Kemakeza Health & medical services Nathaniel Supa Home affairs Oliver Zapo Justice, police & national security vacant Lands & housing Gordon Mara National planning & development Francis Saemala Provincial government & rural development Allan Qurusu Transport, communications & works John Fisango

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Solomon Islands 35

Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at current prices SI$ m 612.0 781.0 718.0a 866.0a 983.5a Real GDP growth % 9.5 2.0 5.2 7.0a 6.0a Consumer price inflation % 12.8 17.2 13.6 9.6 10.5a Population m 0.34 0.35 0.37 0.38 0.39 Exports fob US$ m 102.9 134.3 149.4 175.6a 189.4a Imports cif US$ m 111.5 134.5 132.8 158.9a 172.6a Current account US$ m –1.9 –9.3 –3.6 1.6 n/a Reserves excl gold US$ m 23.50 20.07 17.42 15.91 35.39b Total external debt US$ m 95.1 151.3 165.1 n/a n/a Debt-service ratio % 5.6 n/a n/a n/a n/a Exchange rate (av) SI$:US$ 2.928 3.188 3.291 3.406 3.581

February 28, 1997 SI$3.636:US$1

Origins of gross domestic product 1991 % of total Components of gross domestic product 1989 % of total Agriculture 48.4 Private consumption 78.0 Manufacturing & utilities 4.6 Public consumption 34.7 Construction 4.3 Fixed investment 28.1 Transport 7.2 Exports of goods & services 64.8 Trade & finance 12.9 Imports of goods & services –105.6 Other services 22.6 GDP at market prices 100.0 GDP at market prices 100.0

Principal exports fob 1995 US$ m Principal imports cif 1995 US$ m Timber 88.4 Machinery & transport equipment 18.0 Fish 49.4 Mineral fuels 13.7 Palm oil 18.6 Food 12.6 Copra 8.6 Building construction materials 3.7 Cocoa 4.6 Total incl others 158.9 Total incl others 175.6

Main destinations of exports 1993 % of total Main origins of imports 1994 % of total Japan 36.2 Australia 37.3 UK 22.5 Japan 17.1 Australia 2.1 New Zealand 9.6 USA 0.5 Singapore 8.4 Netherlands 0.2 UK 1.4 a EIU estimate. b November.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 36 Solomon Islands

Outlook for 1997-98

The government The approach of an election this year is dictating the political agenda and, highlights threats from confronted by serious problems, the government has unsurprisingly resorted to abroad— using two classic ploys: crisis at home and threat from abroad. On the foreign affairs front the prime minister, Solomon Mamaloni, has more or less accused the neighbouring Papua New Guinea government of lying and its prime minister, Sir Julius Chan, of incompetence and defeatism in his handling of the long-running crisis on Bougainville.

—and crisis on the On the domestic front, the finance minister, Edmund Andresen, has called into domestic front question the whole 18 years of the country’s political independence, claiming that the country still has not addressed seriously the question of economic independence. Mr Andresen told parliament in his budget speech on November 26 that the economy had changed little in real terms since independence. There had been a failure to establish proper economic policies to address growth and development or to create an environment favourable to business activities. As a result, economic development had stalled. In addition, the provincial government system had become a burden on government finances and a hindrance to rural development.

Mr Andresen considered that the government needed to address the imbalance between the large public sector and the comparatively small private sector. It was essential for the government to focus on structural adjustment to revitalise economic prospects, rebuild private-sector confidence and maintain international credibility.

The economy may be As the election approaches the minds of politicians are likely to focus on the overshadowed by the political process and radical reform will be pushed to the bottom of the agenda. election Whether an incoming government will have the stomach to make cuts in the size of the public sector in an effort to improve public finances remains to be seen. If it does, it is not likely that any changes will feed through before late 1998 at the earliest. Reform and restructuring require a medium- to long-term perspective often at odds with the demands of day-to-day politics.

Solomon Islands: gross domestic product Solomon Islands: Solomon Islands dollar % change, year on year real exchange rate (b) 10 1980=100 Solomon Islands 140 Asia excl Japan 8 120

100

4 SI$:DM

80 2

SI$:US$ 60 0 SI$:¥ 1991 92 93 94 95(a) 96(a) (a) EIU 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.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Solomon Islands 37

Meanwhile, however, the resource extraction that has lain behind the quite rapid rates of growth in the Solomon Islands in recent years will continue, whatever the long term-prices. This implies that growth in export revenue will remain buoyant.

Review

The political scene

The High Court A High Court judgment on February 26 on an action brought by Guadalcanal invalidates the Provincial and Western provinces declared invalid the Provincial Government Act of Government Act 1996 because it was inconsistent with the constitution. The government said it would appeal and the three provinces that have held elections under the act— Temotu, Central and Isobel—will be managed, meanwhile, by the Ministry of Provincial Government and Rural Development. A new provincial government structure had been introduced because the government felt that services were not being adequately delivered. Chiefs needed to be involved in the system and the new law made this mandatory, through an electoral college of chiefs. The court, however, ruled that appointed chiefs, as chairmen of elected assemblies, could constitute a majority in provincial councils and that would be in breach of the principle of universal suffrage.

Bougainville problem The Bougainville problem has taken relations with Papua New Guinea to a new further sours relations low point. Regional attention on Bougainville, especially in Australia, intens- with Papua New Guinea ified after the revelation in February that PNG had contracted a private-sector firm to offer military advice, training and mercenary services. The Solomon Islands government was also quick to deny reports that the Solomon Islands had bought arms and ammunition for the secessionist Bougainville Revolutionary Army in Australia. The prime minister, Solomon Mamaloni, issued a statement on March 4 refuting the reports in the strongest terms. He said, however, that it had become necessary to upgrade the skills and arms of the Royal Solomon Islands Police Field Force (RSIPF), because of incursions since 1989 by the PNG Defence Force and the anti-secessionist Bougainville Resistance militia. In 1996 there had been more than 40 incursions, during which radio telephones belong- ing to rural clinics and church centres had been stolen. The government had repeatedly protested to the PNG government, but to no avail.

The Solomons sees itself as Mr Mamaloni argues that the Solomon Islands has borne the burden of caring the main victim of the for the humanitarian needs of the Bougainville refugees during the nine-year Bougainville conflict conflict and is the biggest victim of a war that is not of its making. He has condemned the decision of the PNG government to employ mercenaries as a cowardly and destabilising act, adding: “The Solomons Islands government sees the introduction of ‘soldiers of fortune’ by the PNG government as a vote of no confidence in the South Pacific Forum, the Melanesian Spearhead Group, the United Nations and the Commonwealth.” The government has initiated action in order to take the issue of the mercenaries to the International Court

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 38 Solomon Islands

of Justice. It expects to lodge a formal case by the end of March and has called upon all Forum members, including Australia and New Zealand, for support.

A new political party is A new political party, the National Party, has been formed with a base of formed 11 major opposition figures. The president of the newly formed party is the former prime minister and current opposition leader, Ezekiel Alebua. Others who have joined the party include Andrew Nori, Sir Baddeley Devesi, George Kejoa, Francis Billy Hilly and the Reverend Michael Maeliau. At the party’s launch in December Mr Alebua said that the National Party would aim for effective government and would canvas the views of Solomon Islanders for input into its policies and platforms. Elections are due by September 1997.

A national policy on For the third time, a draft national policy on women is back on the cabinet women is back on the agenda. The general-secretary of the national council of women, Alice Puia, cabinet agenda— told a workshop on women and development organised by the Australian National University’s Research School of Pacific and Asian Studies in November 1996 that the national plan of action covered health and population, education and training, agriculture and fisheries, unemployment, and legal and human rights, with mechanisms for shared decision-making to pro- mote the advancement of women. Ms Puia claimed that women are increas- ingly disadvantaged in a rapidly changing environment. She said that in the Solomon Islands 40% of women had no formal education, the illiteracy rate for females was 44% and only 17% of the workforce were women. The key issues of concern to women were the high population growth rate of 3.5% and the total fertility rate of 6.4%. Such a rapid population growth had a serious effect on national budgets. The frequency of births, poor dietary patterns and heavy workloads were also problems.

—as cultural values are Ms Puia said that women had the right to make decisions on custom land and blamed for giving women related issues such as logging and mining. Women also had the right to talk a mixed deal about land issues, especially economic terms, but were hampered by their lack of education. Some traditional barriers and values still prevented women getting their legal rights, such as choice in marriage and education. In addition, vio- lence was inflicted on women in many forms under the guise of culture, trad- itions and religion. In terms of economic development, there was a tendency to associate men with cash-cropping and women with subsistence farming.

The national council of women is trying to persuade women to stand in the 1997 elections and has four women candidates for urban electorates.

The economy

Despite some favourable The finance minister, Edmund Andresen, told parliament when he presented trends the economic the 1997 budget in November that despite some favourable trends and growth situation is “precarious”— in productivity, the economy is in a “precarious” situation. The trade position had improved but foreign reserves were not satisfactory, providing only two months of import cover. The balance-of-payments position had improved but remained in deficit. Broad money supply growth (M3) in 1995 was down because of lower growth in credit to government from the banking system, but

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Solomon Islands 39

credit to the private sector rose by 17%. In 1996 there had been a record growth in banking liquidity, which has prompted close monitoring of exchange rates.

Mr Andresen said that early restoration of the securities market, by continuing payments on Treasury bills, was essential in order to create stability, but it depended very much on the government’s ability to service fully both its arrears and future redemptions of securities. He pointed out that the margin between the average deposit and lending rates of the commercial banks in the first three quarters of 1996 had shown an average spread of 10-14%, making the cost of money higher than necessary. This was a critical issue that would be monitored closely, especially as regards its inflationary effects. Inflation in the third quarter of 1996 was about 10.4%, mostly attributable to domestic prices.

Although there were less than eight months to go before a general election, the minister decried expansionary spending policies, saying that they had caused a continuous deterioration in the government’s financial position, so that its debt exposure had reached a level that could not be sustained.

—but there is some good However, there are some good signals. The export sector has maintained stable news growth as a result of both high commodity prices and expanded production, Mr Andresen said. Despite easier prices, log exports in 1995 increased by 15%. Fish exports rose by a record amount and earnings from copra and palm oil increased. Export earnings in 1995 increased by 22% and maintained this trend in the first nine months of 1996.

Mr Andresen highlighted the prospects for growth in the tourism sector with the construction of a new terminal at Henderson Airport and resorts at Anuha and Mamara. Construction at the Gold Ridge mining project is expected to start early in 1997 and more mining developments are expected in the next three or four years. In the agricultural sector, the government is facilitating the establishment of an additional oil palm plantation on government land at Vangunu in Western Province, seeking to expand cocoa and coconut production from the Russell Islands Plantation establishment at Yandina, and starting infrastructural development for a major rice and vegetable production project on the Guadalcanal Plain.

The 1996/97 budget The 1996/97 budget projects total revenue of SI$444.7m (US$122m) (inland deficit will rise revenue SI$157m, customs SI$186m, other SI$101.7m), recurrent expenditure of SI$414.6m and domestic development expenditure of SI$30.1m. Development spending will be augmented by overseas borrowing and aid totalling SI$157.5m, of which 43.6% is allocated to human resources; 29.1% to physical infrastructure; 5.7% to commerce, industries and investment; 11.1% to law, order and national security; and 10.2% to the natural resources sector. Changes to income tax have been postponed to fiscal 1997. Mr Andresen expected that the deficit budgeted for the current year would double by the end of the fiscal year and would effectively exceed the total accumulated debt in arrears, which now amounts to SI$85m-90m. Outstanding government debt will have to be covered by the sale of government assets, notably forestry plantations.

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The government approves In October 1996 the government approved a national code of practice for a timber harvesting code timber harvesting with guidelines binding on all natural forest harvesting oper- of practice ations in the country. The code covers operational planning, road and bridge construction, harvesting operations, conservation, exclusion and buffer areas, and rehabilitation of logged areas, as well as evaluation and suspension procedures. The head of the policy evaluation unit, Hugh Paia, said that implementation of the code was a major challenge to all stakeholders in the timber industry and a milestone on the way to sustainable development.

A government statement on the code said that operational planning of the selective harvesting system would aim at maintaining the complexity and biodiversity of the forest by minimising canopy disturbance and preserving as much forest floor coverage as was practicable. Selected high-quality seed trees would have to be retained. The measures, drawn up with input from the Solomon Islands forest industries association, would ensure that commercial forest resources were only logged selectively and would never be logged out.

Greenpeace joins An alliance between the environmental lobbying organisation, Greenpeace, and Ecotimber export venture tropical timber importers in New Zealand has led to the concept of sustainably managed Pacific Ecotimber exports for the New Zealand market. After public protests about the import of destructively logged timber, the New Zealand timber trade joined Greenpeace in forming the imported tropical timber group (ITTG) and sponsoring a three-year project in the Solomon Islands to provide sustainably harvested timber. ITTG has committed itself to source all imported timbers from sustainable operations. Ecotimber, launched in November 1996, is being drawn from small-scale selective felling operations, using portable saw- mills, carried out with the agreement of local communities.

The electricity board is The government has sacked the Solomon Islands Electricity Authority (SIEA) sacked over mine supply board because of its opposition to a decision to authorise the Australian com- dispute— pany, Ross Mining, to generate its own electricity for its Gold Ridge development at Guadalcanal. According to newspaper reports in Australia, Ross Mining had threatened to mothball the long-discussed Gold Ridge project unless it was allowed to generate its own power.

On January 21 the energy, minerals and mines minister, David Vouza, appointed the permanent secretary of his department, John Naitoro, as chairman, replacing Billy Gatu. Before the announcement of his sacking, Mr Gatu issued a statement saying that Mr Naitoro was trying to replace the SIEA board with people prepared to allow Ross Mining to do whatever it wanted at the Gold Ridge gold mining project. He claimed that Mr Naitoro had a conflict of interest and should stand aside from his position as department head.

—and the new chairman Mr Naitoro has dismissed the claims. In an interview with the Solomon Star denies a conflict of interest newspaper in Honiara he said that Mr Gatu and the other board members were sacked because of their opposition to the government’s decision to allow Ross Mining to generate its own electricity. He said that the SIEA, as a government agency, should help to facilitate the implementation of government decisions. The SIEA had been given sufficient time to demonstrate to the government

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that it could provide a reliable power supply to the mining operation and it had become necessary to maintain government credibility.

The Australian Financial Review described the argument over the power supply as “an extraordinary game of brinkmanship” between the mining company and the government and noted that investors had not been made aware of the dispute during a recent A$23.6m (US$18m) capital raising by the company. The Gold Ridge project, which is estimated to cost US$69m, was the main reason for the additional capital requirement. Under last year’s mining agreement with the government, Ross reportedly agreed to buy power for the mine from SIEA if it guaranteed reliable and economic supply. (Industry sources estimate the requirements at 6-7 mw.) However, the company wrote to the SIEA in December demanding the right to generate its own power, describing this as critical to the success of the project.

The SIEA has received a US$70m proposition from an Australian company for a hydroelectric power station to supply power to Honiara, where the current supply is overwhelmed, and to the Gold Ridge mine.

The NDC is threatened In the wake of the cyclone season, the Solomon Islands National Disaster by cyclone relief Council (NDC) has accused the governments of Australia and New Zealand and arrangements the Solomon Islands Red Cross Society of undermining its authority to deal with natural disasters. The council expressed its disappointment at the way the Australian and New Zealand governments had channelled their donations to victims of Cyclone Fergus through the Red Cross Society. Two people died as a result of Cyclone Fergus, and the islands of Rennell, Bellona and Guadalcanal were declared disaster areas. The statement said that the decision by the two governments contravened the provisions of the NDC Act for the receipt of relief assistance for natural emergency and disaster relief operations. The NDC chairperson, Phyllis Taloikwai, said the council did not consider donations through the Red Cross as official contributions to cyclone relief operations. Her statement also criticised the fact that one of the donors, Australia, has re- quested that any unspent funds be refunded.

Australia’s aid agency, AusAID, which sent A$50,000 (US$40,000) to the Solomon Islands Red Cross, said it was not aware of any requirements to channel funds through the NDC and at no point had such a requirement been put to it. A spokeswoman pointed out that it was a requirement, mandated by the Australian taxpayer, that any donated monies not spent on the cause they were donated for be returned.

The chamber of commerce The Solomon Islands Federation of Employers has been reconstituted as the gets a broader role Solomon Islands Chamber of Commerce and Employers, with broader objectives and a bigger role in commerce and industry. The chairman, Andrew Wickham, said that in its new role the chamber would work closely with the ministry of commerce, employment and trade on issues such as the World Trade Organization (WTO) and trade agreements of the Melanesian spearhead group, among others.

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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 when the chief justice is present

National elections January 1996; next election due by 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 Dr Langi Kavaliku

Key ministers Defence & foreign affairs Prince Tupouto’a Finance Tutoatasi Fakafanua Health Dr Sione Tapa Justice & attorney-general Tevita Tupou Labour, commerce & industries Masaso Paunga Lands, survey & natural resources Honourable Fakafanua Police & prisons Clive Edwards Public works & disaster relief Cecil Cocker

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Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at current pricesa T$ m 201.0 214.8 222.6b 230.0b 239.5b Real GDP growtha % –3.8 4.7 2.6 –1.7b 1.0b Consumer price inflation % 8.0 0.9 1.1 1.4 3.1b Population ’000 97 97 97 97 97 Exports fob US$ m 12.3 16.1 13.9 14.6 15.3b Imports fob US$ m 51.3 56.6 68.9 77.2 82.9b Current account US$ m –0.5 –5.9 n/a n/a n/a Reserves excl gold US$ m 31.77 37.06 35.54 28.71 27.48c Total external debt US$ m 43.5 44.2 64.4 n/a n/a Debt-service ratio % 3.0 3.3 n/a n/a n/a Exchange rate (av) T$:US$ 1.35 1.38 1.32 1.27 1.23

February 28, 1997 T$1.2884:US$1

Origins of gross domestic product 1992b % of total Components of gross domestic product 1992b % of total Agriculture, forestry & fishing 38.6 Private consumption 106.1 Manufacturing 5.1 Government consumption 11.9 Transport, storage & communications 7.7 Gross capital formation 23.7 Wholesale & retail trade 14.7 Increase in stocks 0.8 Finance & real estate 7.1 Exports of goods & services 16.6 Others 26.8 Imports of goods & services –59.0 GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports 1992 US$ m Principal imports cif 1993 US$ m Squash 6.6 Food 17.0 Fish products 3.9 Basic manufactures 12.1 Vanilla 2.2 Machinery & transport equipment 11.6 Total incl others 12.3 Fuels & lubricants 8.6 Total incl others 61.8

Main destinations of exports 1995 % of total Main origins of imports 1995 % of total Japan 48.0 New Zealand 38.0 USA 23.0 Australia 28.0 New Zealand 9.0 USA 11.0 Australia 5.0 Japan 6.0 a Fiscal years beginning July 1. b EIU estimates. c October.

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Outlook for 1997-98

Political tussles will There is no basic change in the immediate outlook. Growth remains subdued continue and nothing will change the intractable structural problems of the economy in the short term. The political scene has been marked by an extraordinary tug- of-war between the parliament and the courts, sparked by rather heavy-handed actions by the government and political activists pressing for a more openly democratic system. Every ingredient is present to ensure that the contest will continue. In many countries it would be seen as a sign of incipient instability but in Tonga the strength of the monarchy pre-empts any such threat. Politics will remain vigorous and liberalisation will be very slow.

Actions on the economy The government is taking some positive steps to stabilise and rebuild the will take time to show export trade in squash pumpkins, taking into account the climatic and organ- results isational factors that led to its collapse in 1995-96. It will necessarily be a slow process, but while it is happening some serious attention is being given to new export crops and the possibility of leasing land for agricultural production in other countries. The search for foreign farmland, although it has now been extended from Papua New Guinea to Hawaii, seems as leisurely as ever. Growth in tourism continues to be slow, but the US$20m refurbishment and expansion of the International Dateline Hotel will provide a major fillip to the sector.

Tonga: gross domestic product Tonga: Tonga dollar real exchange % change, year on year rate (b) 8 1980=100 150 6 140 4 T$:DM 130 2 120 0 T$:US$ 110 -2 100 -4 T$:¥ 90 -6 Tonga Asia excl Japan 80 -8 1991 92 93 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

The political scene

The parliamentary The speaker of the legislative assembly, the Honourable Fusitu’a, has been speaker is found guilty of found guilty of contempt of court over an interview he gave to a Tongan contempt of court— newspaper. He suggested in the interview that the chief justice could be im- peached by parliament for the early release of three people whom parliament had jailed. The interview, which appeared in the paper Taimi ’o Tonga on

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November 29, was given to its deputy editor, Filokalafi ’Akau’ola, after he, and the editor of the paper, Kalafi Moala, had been released from jail, where they had been serving a 30-day sentence imposed by parliament for libellous publication or contempt of parliament (4th quarter 1996, page 70). Along with a people’s representative, ’Akilisi Pohiva, they had been charged with having published details of an impeachment motion against a cabinet minister before the motion had been tabled in parliament. They were freed by the chief justice, Nigel Hampton, following a successful application for a writ of habeas corpus.

—after criticising a In the interview Fusitu’a was quoted as saying that he was dissatisfied with the judgment by the chief judgment of the chief justice, and that if there was a successful appeal by the law justice— committee of the legislative assembly impeachment would be sought. Justice Lewis in the supreme court found that Fusitu’a had brought the judicial system into contempt; interfered with the proper exercise of the office of the chief justice; interfered with the lawful processes of the court; given the impression that the chief justice was not independent and suggested that the supreme court of Tonga was subject to manipulation by the legislative assembly.

—and is fined T$1,000 The judge said he was “reluctantly forced to conclude that Fusitu’a intended to interfere with the proper course of the administration of justice by putting about misleading information. That can only be a most serious contempt of court.” Justice Lewis said that in cross-examination Fusitu’a had said that he had been concerned about being “told that we [parliament] were wrong con- stitutionally” and that perhaps it was this concern that had motivated his remarks. “Whatever it was that motivated these extraordinary remarks has led him into a grave predicament,” the judgment said. Fusitu’a was fined T$1,000 (US$769) and ’Akau’ola, who was also found guilty of contempt for having published the remarks, was fined T$500.

MPs and journalist face On November 15 two People’s Party MPs, ’Akilisi Pohiva and Tesino Fuko, were sedition charges for arrested and detained overnight on allegations of sedition charges, which have criticisms of king also been levelled against ’Akau’ola. The charges relate to published articles in which the MPs were critical of King Taufa’ahau Tupou IV and called for him to hand over power to the people. On November 21, 1996 an international human rights organisation, Amnesty International, issued a statement expressing “alarm about apparent Tongan government attempts to intimidate journalists and pro-democracy politicians”.

Secretary of fisheries The secretary of the fisheries department, ’Akau’ola Inoke Faletau, said on praises new February 3 that the country’s new environmental and conservation laws would environmental laws ensure the preservation of important, endangered marine species. Many sea creatures were now protected during their breeding seasons, including the sea turtle whose breeding period runs from August to February. Anyone found guilty of killing or wounding breeding animals would be punished severely. He also pointed out that dangerous and destructive methods of fishing, particular the use of dynamite, were banned under the new laws.

’Akau’ola launched the 1997 Coral Reefs Awareness programme on February 11. At the launch ceremony Netatua Prescott of the ministry of lands, survey and natural resources environment unit said that the use of dynamite and poisonous

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leaves by fishermen was causing mass destruction of coral reefs. Such fishing methods destroyed all living organisms, including the coral.

Australian aid team Australia’s international aid agency, AusAID, sent a four-person team to Tonga assists environmental in December to design a project to improve environmental management. It effort gives particular attention to the impact of the growing population of Nuku’alofa, which is threatening the fragile lagoon system in the centre of Tongatapu. The team, including a Tongan coastal ecologist, also looked at ways to help the country tackle issues such as urban development, waste disposal, drainage of lagoons, mangrove clearance and protection of aquatic resources. Its report will also seek to identify ways of improving coordination between the various environmental agencies.

The population is nearing According to the census of November 30, 1996, Tonga’s population now stands 100,000, according to the at 97,446. This represents a 3% increase on the 1986 census, and an annual census average growth rate of 0.3% over the ten-year period. Preliminary results of the census, released on December 3 by the Tongan Statistics Department, show that 66,577 people (68.3%) live on Tongatapu; Vava’u recorded a total of 15,779 (16.2%), Ha’apai 8,148 (8.4%), ’Eua 4,924 (5%) and the Niuas 2,018 (2.1%). Over the ten years 1987-96 the population of Tongatapu showed a 4.4% increase, Vava’u of 4% and ’Eua 12.1%, while Ha’apai declined by 8.6% and the Niuas by 14.8%. Final results will be published by April 1998.

The electricity authority The electric power board has been reducing street lighting on Tongatapu be- is reducing street lighting cause of the government’s reduced allocation of funds to pay for it. A board to save money spokesman said the budget allocation of $100,000 was spent in the first quarter of the 1996/97 financial year (July 1996-September 1997) and the board had submitted to cabinet in August a list of ways to cover the costs of street lighting. So far, there had been no response. Street lighting in Nuku’alofa was reduced and the board warned that in sparsely populated areas between villages, all street lights might have to be turned off at night.

In December many households in Nuku’alofa were experiencing periods of very low water pressure or no supply at all. The manager of the water board, Saimone Helu, said that existing wells and other facilities serving the capital could not cope with increased demand caused by ten years of housing expansion. The board has drafted a long-term plan to expand facilities.

The cabinet approves The cabinet approved on February 13 the country’s first dietary guidelines, dietary guidelines— developed by the national food and nutrition committee. They stress the importance of a balanced diet with limited fat, sugar and salt, and drinking clean and safe water. The guidelines urge people to grow their own food and breast- feed babies, take regular exercise, and avoid smoking and the drinking of kava and alcohol.

—and appoints women to The cabinet has appointed the first woman registrar of the supreme court, top jobs Temaleti Manakovii Pahulu, 33, a career civil servant who joined the Crown law office in 1992, became deputy registrar of the court in 1994 and moved temporarily to the justice ministry. She replaces Sione Folau Lokotui, who has been made a magistrate.

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’Emeline Tuita has been appointed Tonga’s consul-general in San Francisco. She was with the Vava’u development unit and then a technical adviser to an officer for the EU responsible for checking that EU-funded projects were being carried out properly and for authorising the release of funds.

Australia offers to The Australian foreign minister Alexander Downer, on an official visit in facilitate UN membership December, said that Australia would be happy to help, along with other Commonwealth countries, to facilitate Tonga’s membership of the UN by en- suring that appropriate office space was available in New York and by assisting with some of the other costs of membership. This assistance would be through a Commonwealth programme, he said.

The economy

Minister aims to stabilise The minister for labour, commerce and industries, Masaso Paunga, is making squash trade and increase strenuous efforts to improve the productivity and stability of the squash pump- productivity kin industry, not long ago an economic mainstay of Tonga, but in recent years beset by both production and trading problems. In 1994 production of squash was nearly 20,000 tons and exports, mostly to Japan, were 17,250 tons. Drought badly affected output in 1995, when exports were about 8,800 tons, although prices were much higher (3rd quarter 1996, page 53). But in 1996 many previous producers refused to plant squash because they had not been paid for earlier crops by many of the new traders who were shoehorning their way into the industry. Mr Paunga has recently had detailed discussions with all major exporters, visited Japan for talks with importers and held consultations with government officials to identify impediments to higher productivity and the reasons for the recent instability. His aim is to raise production from barely 6 (the average in recent non-drought years) to at least 10 tons per acre. Some of the recent problems in the industry stemmed from earlier success. For a long time the Japanese import trade was dominated by a small number of large companies, who placed large, stable orders and paid on time. As the industry expanded, smaller competitors entered the trade, offering higher prices for smaller volumes. Export companies saw this as the start of boom times and urged producers to step up output. But there was no boom. Substantial quanti- ties of the product were not sold and non-payment left both growers and their bankers in Tonga disenchanted with the industry.

Rebuilding export The deputy secretary of the labour, commerce and industries ministry Siole volumes may take years Matoto, said in February that the minister’s initiative aims to restore confidence and start to increase export volumes. He acknowledges, however, that it is likely to take years to get back to previous levels. He says the government is also keen to keep more of the financial and other benefits of the industry within Tonga. But that, too, will be a slow process. At present, most of the Tongan exporting companies deal with counterparts in New Zealand who arrange shipping and supply seed, fertiliser and funding. It is estimated that it would cost T$4m-5m (about US$3m) to establish all the necessary ancillary services in Tonga, but the government is not in a position to finance the change, which will have to be made with private investment. The government is looking for a joint-venture partner to process surplus or export-reject squash

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into powder, an operation that takes place in New Zealand at present. A South Korean company has shown interest in the project but has not committed itself (4th quarter 1996, page 71). Exports are being closely scrutinised to ensure compliance with quality criteria, following a new agreement with Japan, negotiated by the minister in December.

According to Mr Matoto, higher productivity will have two principal benefits. If acreage were reduced, irrigation could be provided more easily as a buffer against drought and land could be made available for other crops. A start had been made with papaya, of which a small but successful shipment had already been sent to Japan; bananas were another possibility. The minister of lands, survey and natural resources minister, the Honourable Fakafanua, led a delegation of officials on a visit to Oahu, Hawaii, in November to inspect land the government is considering leasing and buying for agricultural purposes.

Reduced numbers of At the end of the 1996 export season the ministry issued new, tougher licens- exporters are expected ing criteria for companies wanting to participate in the Japan trade. Both the this season ministry and the Tonga Development Bank, which is the main financier of growers, indicated that they expected fewer exporters for this year’s season. By February only five of last year’s 17 exporters had applied for new licences.

The last shipments of the 1996 export season left for Japan in mid-November, with the total volume for the season confirmed at 12,788 tons. Among the last shipments was a 3-ton consignment of a new variety known as petty squash, developed by Makameone Taumaopeau for the local grower’s cooperative, MBM. The squash is about the size of an apple, with an average weight of 300g. The season ended with the market severely depressed and the likelihood that overall returns would be less than the previous season, even though the export volume was twice as high.

Cooperative federation Tonga cooperative federation reported November 16 a net profit before tax of reports lower profit T$579,000 (US$443,000) for 1995, compared with about T$860,000 in the previous year. The annual general meeting was told that turnover was 11% higher, at T$20.65m. Dividends totalling T$33,361 would be paid to 91 community and family cooperative shops throughout the country.

US$20m to be Tonga National Development Corporation has signed an agreement with the spent refurbishing International Dateline Hotel for a US$20m renovation and expansion of the International Dateline hotel. The work, including a new eight-storey wing, is to be completed before Hotel the end of 1998. The extension is being financed by a US group, Residential Resources. The king poured the first concrete for the project on November 16. The development corporation will acquire a 40% share in the hotel at the completion of the deal.

Tonga accuses Indonesia The government has accused Indonesia of using bullying tactics in a dispute of bullying in telecoms that has now gone to the International Telecommunications Union (ITU) in argument Geneva. Tonga says that for two months its satellite earth station on Sumatra was jammed by Indonesian authorities, disrupting Tongasat services. The dispute arises from an agreement signed in Geneva in 1993 allowing Indonesia to share Tonga’s satellite orbit slot for a limited time. Tonga says that the sharing

arrangement was to end in October 1995; Indonesia says that is not the case. Tonga has asked the ITU to stop Indonesia jamming Tongasat services again. The justice minister and attorney-general, Tevita Tupou, said in February that Tonga would not be bullied and that Indonesia’s position was deliberately false and misleading.

Tonga Telecom installing Tonga Telecom is spending T$4m on a domestic satellite system, known as domestic satellite link DOMSAT, to enhance voice and facsimile communications among the five major island groups. It is expected to be finished in December. Equipment is being provided by NEC Australia under a contract signed on December 12.

Trade deficits maintain The statistics department reported on December 10 that the trade deficit for their usual pattern September was T$6.9m, with imports at T$7.5m and exports $600,000. The deficit for August reached T$9.5m and for July T$6.1m. This meant a deficit for the third quarter of 1996 of T$22.5m compared with T$21m in the second quarter. Imports in the third quarter totalled T$24.4m and exports T$1.9m.

The rate of inflation for the 12 months to end-September was 1.9%, the same as at the end of August.

Smaller profit for Tonga Development Bank’s net profit for 1995 was T$464,875 on a net income development bank of T$5.08m. The annual report released on September 24, 1996 said that income was more than 10% higher, but profit was 11.3% less year on year. Loan approvals were 23.6% less than the previous year, at 7,264, although their total value declined by only 3.3% to T$23.05m. Outer-island lending reached a record level of T$5.39m although, again, the number of loans declined. The bank reported total assets of T$46.4m.

The king opens a new As part of ceremonies marking the anniversary of the accession to the throne wharf of King Siaosi Tupou I in 1845, King Taufa’ahau Tupou IV opened a T$3.4m new wharf at Pangai, Ha’apai, on December 4. The wharf can accommodate two inter-island vessels at a time with at least 3.8 metres draught at low tide. Its construction was funded by the Australian government’s bilateral aid programme through the Ha’apai development committee.

Higher profit for Leiola Duty Free Shops Tonga reported on September 30 a net after-tax profit of duty-free shops T$258,216 for the year to June 30, 1996, and a 20% dividend, the second since its incorporation in 1994. Total taxes and duties paid to the government amounted to T$450,000. The chairman, Semisi S. Koka, said that sales had increased by 4% year on year, to T$2.37m.

The Tonga visitors’ bureau reported on October 10 that the number of visitors arriving by air in 1995 had increased by 3.8% year on year, to 29,500, but tourism earnings had risen by 13.6%.

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 March 1994 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 November 30, 1995; next election due by November 1999

National government Serge Vohor, the prime minister, heads a coalition comprising his faction of the Union of Moderate Parties, the National United Party, and a group made up of the Melanesian Progressive Party, Tan Union, the Fren Melanesia Party and the Vanua’aku Pati

Main political organisations Union of Moderate Parties (UMP); National United Party (NUP); Unity Front (UF), a coalition of the Vanua’aku Pati (VP), Melanesian Progressive Party (MPP), Tan Union (TU) and the Fren Melanesia Party (FMP)

Members of Council of Prime minister Serge Vohor (UMP) Ministers Deputy prime minister & minister for education Donald Kalpokas (VP)

Key ministers Agriculture, livestock, forestry & fisheries John Morrison Willie (VP) Aviation Demis Lango (UMP) Finance Shem Nakaut (NUP) Foreign affairs Willie Jimmy (UMP) Health John Dickensen (NUP) Home affairs Robert Karie (NUP) Justice & women’s affairs Walter Lini (NUP) Lands & natural resources Joe Natuman (VP) Public works & transport Samson Bue (UMP) Trade, commerce & industries Sela Molisa (VP)

Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at current prices Vt m 20,523 21,959 23,160a 24,510a 25,350a Real GDP growth % 0.8 3.8 3.0a 3.2a 2.0a Consumer price inflation % 2.2 5.4 2.4 2.2 1.4a Population m 0.15 0.16 0.16 0.17 0.17 Exports fob US$ m 17.8 17.4 25.1 28.3 27.5a Imports fob US$ m 66.8 64.7 74.7 79.4 82.1a Current account US$ m –13.1 –14.9 –19.8 –18.3 –20.0a Reserves excl gold US$ m 42.46 45.59 43.58 45.83b n/a Total external debt US$ m 40.4 42.4 46.5 n/a n/a Debt-service ratio % 1.4 1.5 n/a n/a n/a Exchange rate (av) Vt:US$ 113.4 121.6 116.4 112.1 111.7

February 28, 1997 Vt113.05:US$1

Origins of gross domestic product 1993 % of total Components of gross domestic product 1993 % of total Agriculture, forestry & fishing 18.9 Private consumption 53.3 Manufacturing 5.8 Government consumption 27.5 Electricity, gas & water 1.8 Fixed investment 27.7 Construction 5.7 Stockbuilding 2.5 Transport & communications 8.4 Exports of goods & services 44.4 Wholesale & retail trade, hotels & restaurants 32.4 Imports of goods & services –60.4 Other services 27.0 Statistical discrepancy 5.0 GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports 1995 US$ m Principal imports cif 1993 US$ m Copra 9.8 Machinery & transport equipment 20.3 Beef 3.8 Food & live animals 17.6 Sawn timber 2.2 Basic manufactures 12.3 Squash 1.3 Mineral fuels 6.7 Cocoa 1.1 Total incl others 75.4 Total incl others 28.3

Main destinations of exports 1995 % of total Main origins of imports 1993 % of total EU 37.4 Japan 35.4 Japan 24.1 Australia 21.9 South Korea 11.9 Spain 13.0 Australia 10.4 Italy 10.9 Bangladesh 10.2 New Zealand 4.2 New Caledonia 6.0 a EIU estimate. b September.

Outlook for 1997-98

The coalition appears The signing of the memorandum of understanding (MoU) with the Asian confident of its durability Development Bank (ADB) (see Review) reflects the government’s recognition of the parlous state of affairs created by a year of political jockeying and scandals. As well as facing up to the facts, the new coalition government forged last year by the prime minister, Serge Vohor, looks reasonably secure—or at least less unstable than has been the case for some time. Party allegiances and coalitions have tended to be nothing if not pragmatic in the past. Local observers make the point that in the 50-member parliament, no matter who is in government, there are plum jobs for 12 ministers and the speaker, and 38 other members trying to get them. However, Mr Vohor has declared confidently that the government will see out the parliamentary term to November 1999. The undertakings made to the ADB certainly demand a high degree of stability and commitment, as well as implementation skills and salesmanship. Last year’s budget included some tough decisions that were highly unpopular, but in this year’s the pain will be much greater.

The pain will start with Government ministers appear to recognise realistically what they have signed the politicians up to, and the timetable for preparation of the comprehensive reform programme will soon make it clear whether that is genuinely the case. A target in the rationalisation process must be the political appointees who in many cases wield direct power to a degree unknown in comparable systems. The practice of maintaining ministries and departments separately is not only cumbersome but expensive. Since each minister appoints his first secretary, second secretary, third secretary, personal secretary, driver and cleaner on the basis of patronage, willingness to accept cuts will be a test of resolve. The public service contains many competent officers but the emphasis in the reform programme on skills formation, especially in budget and financial management, is prompted by indifferent performance in collecting the money owed to the government and in delivering services to the people. The proposed national summit in June should indicate whether or not the cause of reform has been sold effectively.

A recovery in economic The performance of the economy has been poor in recent years, mainly be- performance will await cause of mismanagement and poor resource allocation, the only bright spot reform being a low rate of inflation, as officially recorded. In 1996 Vanuatu appears to have failed to benefit from rising copra prices; in the first nine months of the year its exports, at Vt 2.29bn (US$20m) were 3% less year on year. Prospects for commodity prices other than cocoa are on the whole poor over the next two years (The region: Outlook), which must suggest that Vanuatu’s trade position will deteriorate. The current-account deficit will therefore remain at around US$20m per year, putting a premium on continued inflows of direct investment of around US$30m a year. Maintaining and increasing these flows and mobilising domestic investment in turn depends crucially on the thorough- going implementation of reforms designed to streamline and cleanse the bureaucracy and the political patronage system, and free resources for the private sector.

Vanuatu: gross domestic product Vanuatu: vatu real exchange rate (b) % change, year on year 1980=100 Vanuatu 140 Asia excl Japan 8

120

100 4 Vt:DM

80 Vt:US$ 2

Vt:¥ 60 0 1991 92 93 94 (a) 95(a) 96(a) (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

The political scene

The president tells The president, Jean-Marie Leye, opening the last session of parliament for 1996 politicians that it is time in December, called on MPs to give priority to the interests of the electorate. He to stop fighting— expressed sadness that MPs had taken the country through so much political turmoil in the previous year and were not delivering services to the people. Because of the political disturbances, he said, many people were suffering financially, the economy was depressed and foreign investment had come to a standstill. He called on MPs to forget their difference and turn to God for direction. He congratulated the government on moving responsibility for security to the regular police force from the paramilitary army, the Vanuatu Mobile Force (VMF), and called upon the two security services to work with the politicians for the good of the country. The legislative programme faced by the parliament included the budget and the enshrinement in law of the leadership code (adopted from a Papua New Guinea model but never enshrined in law in Vanuatu).

—and the prime minister In an interview with Radio Vanuatu on January 14, the prime minister said he expresses confidence in was confident that his government would remain in office until the general the coalition elections due in 1999. The three partners in the coalition had a firm coalition agreement and he had no intention of upsetting it.

The ombudsman finds A report from the ombudsman, Marie-Noelle Ferrieux Patterson, in November malfeasance found that the former Union of Moderate Parties (UMP) government led by Maxime Carlot Korman had terminated “a legitimate and cost-effective” contract that had been awarded by the department of civil aviation for the cleaning of Port Vila’s airports, and had awarded a new contract to political allies of the UMP at just over five times the cost. The report found that Mr Korman, the former transport minister, Amos Bangabiti (UMP), and his first secretary, the Port Vila UMP regional president, Irene Bongnaim, had interfered in the tender

process for the airport cleaning to ensure that it was awarded to a company owned by a financial backer of the UMP, François Chani.

The report said that Mr Korman, who was not responsible for civil aviation and had no authority to be involved in the tender process, “deliberately disadvantaged the business of Air Vanuatu, a 100% government-owned company, in favour of a private business which was a strong UMP supporter”. The quid pro quo is the money Mr Chani gave to the UMP in 1993-94, which amounted to Vt1.3m (US$11,400). At the end of 1993 Mr Chani’s company had won a five-year contract worth Vt14.6m per year to clean the airports, although the previous year the contract had been worth Vt$2.7m. The report recommended that the government should make politicians pay for the losses they had caused the government and the people, and that political donations be publicly disclosed. It also urged that the full leadership code be passed into law.

Report recommend’s bar The ombudsman issued another report in December on allegations of various from office for former misdeeds against the former finance minister, Barak Sope, recommending that finance minister he be excluded from any ministerial or other post of public responsibility in the future. The Final Report into Multiple Breaches of the Leadership Code and Other Unlawful Conduct by Hon Barak T Sope was published by Ms Ferrieux Patterson after unsuccessful court action by Mr Sope to stop it.

Among the ombudsman’s recommendations were that the prime minister require Mr Sope to disclose all letters of appointment and other such documents and instruments issued by him and that all that were unauthorised should be cancelled in writing by the attorney-general. She also recommended that the public prosecutor consider prosecutions of Mr Sope under the penal code for making false documents, and under the Prevention of Fraud (Investments) Act for failing to hold a business licence to deal in securities.

Mr Sope was the subject of a report by the ombudsman last year for his role in the attempted scam in which Vanuatu issued US$100m worth of bank guaran- tees; it recommended that he be dismissed. He was eventually demoted to commerce minister, but resigned to join the opposition.

A committee reports on On February 25 the government received a report from a strategic review steer- the future of the mobile ing committee on whether a paramilitary organisation such as the Vanuatu force Mobile Force (VMF) should be retained. The committee had consulted representatives of government, non-governmental organisations (NGOs), chiefs and community and business groups and presented its report to the justice and interim police minister, Father Walter Lini, who had appointed it in January, with his first secretary, Peter Taurakoto, as chairman. (The two men had set up the VMF after the Santo secessionist rebellion in 1980 when Father Lini was the country’s first prime minister and Mr Taurakoto was his first secretary.) Other members of the committee were also senior government officials.

When Mr Taurakoto was appointed, he said that there was a need to review the VMF after the “very serious” events of 1996, when a group of its members abducted the former deputy prime minister, the president and an Australian consultant because of a dispute over the non-payment of allowances. He said the committee would make recommendations about whether the country really

wanted a paramilitary force to assist the police or not, and it would also consider the country’s overall security environment, the roles and tasks of the security forces, their capabilities, structures and organisation. Father Lini said the review was an opportunity for Vanuatu to examine its strategic place within the southwest Pacific and its security interests for the next 5-10 years.

Arrests of VMF personnel Twenty-three members of the VMF, followed by around 130 more, were ar- fill Port Vila prisons— rested and detained in custody in November for their parts in the abductions, which had been designed to bring the pay dispute to a head. At the same time the VMF was stripped of any law and order responsibilities. The 23 were regarded as leaders of the group. An opposition MP, Sato Kilman, whose brother, Corporal Samson Kilman, was among the 23, was also arrested and charged with seditious conspiracy. By January 13 a total of 50 VMF members had been charged, mostly with kidnapping, unlawful assembly and illegal possession of firearms. Some were ordered to stay in their homes because there was no more room in the two prisons in Port Vila.

—as Father Lini discloses a Father Lini visited several church communities in Port Vila in early December, coup plan telling them about the VMF rebels’ master plan, which he said had been found by the police. He said that the objective of the action as outlined in the plan was to overthrow the government, establish martial law, set up a military government and suspend the constitution, introduce a curfew from 10 pm and ban all political parties, meetings and demonstrations. According to the plan, he said, Mr Kilman, who was the first local commander of the VMF and is a former commissioner of police, would be made prime minister of the military government. Mr Kilman is now on bail.

The VMF allowances are The unpaid allowances which were the cause of the VMF’s discontent were finally paid paid on December 31. Father Lini presented individual cheques to the police commissioner for the 70 police and VMF members of “Operation Rescue”, who had arrested the 150 or so VMF rebels, at a public ceremony. But the others also received the money owed to them, some of it due since 1993, albeit without fanfare. A commission of inquiry had looked into the pay dispute at the end of the year and the investigation led to the arrests and the subsequent payments. In addition, it recommended disciplinary action against the former police commissioner, Luke Siba, and the former VMF commander, Seule Takal, both of whom were suspended. A magistrate, Jerry Boe, who chaired the commission, said that the investigation found that about Vt4m allocated for the allowances had been diverted to other purposes, resulting in the non-payment.

Hilda Lini launches new The MP Hilda Lini resigned from the National United Party (NUP) led by her political movement brother, Father Walter Lini, to launch a new movement on November 25 called TuVanuatu Kominiti. Ms Lini, who was removed as justice minister in October by the prime minister after she was disciplined by the NUP, was formerly health minister in the government of Mr Korman. She will sit as a non-partisan member in parliament and plans, with the new movement, to push for a return to traditional leadership, based on Melanesian and Christian values. She said the new movement was being formed because political parties and their leaders had failed the people.

The prime minister visits The prime minister, Serge Vohor, made a visit to China on January 18-25 to China sign a trade agreement with his Chinese counterpart, Li Peng, and for talks on Chinese development assistance to Vanuatu. Vanuatu and China have had diplomatic relations since 1982.

The economy

The government agrees on On February 10 the government signed a preliminary agreement with the Asian a reform package with the Development Bank (ADB) to launch a comprehensive reform programme in the ADB— budget session of parliament, starting in November. The programme was outlined in a memorandum of understanding (MoU) signed in Port Vila by the prime minister and the leader of an ADB mission on a nine-day visit to Vanuatu.

—and a host of problems The two parties noted that Vanuatu’s economy was stagnant, and real income are identified per head was falling. Growth had been seriously constrained by structural and policy weaknesses. The public sector, already large, had grown to a level that was unaffordable. There was great government intervention in the economy, including the day-to-day management of public enterprises, and during 1996 uncertainties increased as instability in the political environment seriously eroded confidence. “A major and critical challenge which the country now faces is the need to restore stability and confidence. It is recognised that this is a fundamental pre-condition for the country to achieve sustainable, private sector-led growth and development,” stated the MoU.

The private sector is to be It was agreed that the reform programme would focus on restructuring the mobilised economy and revising the operations of the public sector. The economic package will include policy changes to provide an environment conducive to private entrepreneurial initiatives and to ensure equal treatment of participants; financial and tax reforms; promoting growth in strategic sectors of the economy; and implementing a national human resource development policy and strategy.

The role of the In the context of a private sector-led growth strategy, the role of government is government is to be to be reviewed to identify core functions and responsibilities. The organisation redefined and structure of government, both at political and civil-service levels, will be changed to enable it to perform these core tasks efficiently and cost-effectively. Action will be taken to strengthen the government’s capacity for effective financial and economic management through such measures as improving the policy process and internal institutional arrangements to ensure fiscal responsibility, accountability and transparency. The agreement also refers to inculcat- ing a performance-oriented culture within government, empowering developmental heads through the budgetary process and introducing performance contracts between ministers and their department heads.

Public enterprises will be There is to be reform of public enterprises, whether by commercialisation, commercialised, corporatisation or privatisation; the government’s regulatory functions will be corporatised or privatised strengthened and all key public finance and public service legislation will be reviewed. The bank mission said that the cost of proposed reforms would not necessarily be substantial since most effort would concentrate on: redefining

the role of government; rationalising its organisation, structure and size; and strengthening the policy, coordination and implementation processes. But it assured the government: “Financial and technical assistance from the donor community, including the bank, could readily be mobilised provided the government demonstrated its resoluteness and unwavering commitment to pursue reform.”

The reform timetable A ministerial task force for reform was formed immediately and a locally-based acknowledges a need for team was to be organised by mid-March to begin the planning process and the wide consultation national programme of consultation. The ADB mission was to submit its final report by the same date. The agreed timetable provides for the ADB to start small-scale technical assistance in budget management and control in early April, to be followed by a series of seminars on the state of the economy and the challenges of the reform task. By mid-May a draft of the comprehensive reform programme (CRP) is to be ready for presentation at national consultations led by the ministerial task force. A national summit on the CRP is scheduled for June before it goes to cabinet in July. A “capacity-building programme” in the areas of financial and economic management will then begin, led by the ADB but involving a number of international aid and development institutions. The programme will be launched in parliament with the November budget.

To head the task team for the reform programme the government has appointed Nikenike Vurobaravu, who was assistant secretary-general of the South Pacific Forum secretariat until December. He was also appointed on February 20 to the new post of ambassador to the EU, effective at the end of his CRP contract. His wife, Myriam Dornoy-Vurobaravu, was appointed secretary in charge of Vanuatu’s agreements with the World Trade Organization (WTO) and the ACP (African, Caribbean and Pacific) Group of the Lomé Convention.

The previous budget Introducing the 1996/97 budget on December 9, the finance minister, Shem showed signs of Nakaut, said the financial situation was “not good at all”. He expected a deficit desperation on recurrent expenditure equivalent to US$6.2m on total expenditure of US$58.6m. He said that one of the prime reasons was the excessive size of the public service and the need for a review of taxation policy. If nothing were done, he said, the government would “have to borrow money from some- where”. In a rare moment of accord, the opposition leader, Mr Korman, agreed that there were too many public servants and political appointees “standing around with nothing to do”. However, in a pointer to the obstacles facing the reform programme, there was local outrage at the austerity measures in the budget, particularly the elimination of the Vt15,000 (US$133) monthly housing allowance for public servants. There was also criticism of proposals to review funding to provincial governments and national government agencies including the broadcasting and television corporation, the banks and the tourism office.

Amongst other revenue measures approved during the December parliamentary sittings, business licence fees were increased to Vt20,000 for Vanuatu citizens and Vt86,000 for foreigners; and from January 1 all dividends paid to the government by gambling and gaming establishments were to go into the

government revenue fund, not the community development fund as they had previously.

A new regulatory regime The minister for agriculture, livestock, forestry and fishing, John Morrison is created for sandalwood Willie, issued a new administrative order on February 7 aimed at the better management control and sustainable management of the sandalwood industry. It introduces constant monitoring of the high-value sandalwood stock by the department of forestry as the basis for sustainable harvesting, and covers licensing, declaration of the harvesting and trading seasons, pricing and fees.

Copra prices are increased The commodities marketing board announced on December 13 an increase in the prices of dried and smoked copra of Vt2,000 (US$17) per ton to Vt27,000 and Vt22,000, respectively. The board’s general manager, Franklyn Kere, said the rise was based on the latest world price increases. Copra prices rose 11.2% in 1996 to US$499 per ton, but this rise is not expected to be maintained in 1997-98.

Western Samoa

Political structure

Official name Independent State of Western Samoa

Form of state UK-style cabinet government

The executive The prime minister, chosen by a majority in the parliament (Fono), 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 Western 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 26, 1996; next election due by April 2001

National government The Human Rights Protection Party, led by Tofilau Eti Alesana, holds 28 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 Tofilau Eti Alesana Deputy prime minister & minister of finance Tuilaepa Sailele Malielegaoi

Key ministers Agriculture & meteorological services Molio’o Teofilo Education Fiame Naomi Health Misa Telefoni Justice Solia Papu Vaai 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

Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at current prices Tala m 275.3 291.8 321.2 340.0 385.0a Real GDP growth % –3.3a 5.6a –5.0a 9.6b 6.0b Consumer price inflation % 9.0 1.8 18.4 1.0 7.0a Population m 0.16 0.16 0.16 0.17 0.17 Exports fob US$ m 5.82 6.43 3.53 8.75 10.25a Imports fob US$ m 89.90 87.37 69.01 80.22 86.12a Current account US$ m –52.50 –38.68 5.78 9.78 10.66a Reserves excl gold US$ m 61.16 50.71 50.80 55.31 57.25c Total external debt US$ m 117.9 194.2 154.8 n/a n/a Debt-service ratio % 5.5 6.9 10.5 n/a n/a Exchange rate (av) Tala:US$ 2.465 2.568 2.535 2.472 2.462

February 28, 1996 Tala2.4771:US$1

Origins of gross domestic product 1986 % of total Components of gross domestic product 1988 % of total Agriculture 30.9 Private consumption 84.8 Manufacturing 13.3 Government consumption 17.9 Trade 19.3 Fixed investment 30.4 Government services & finance 19.0 Exports of goods & services 35.0 Total incl others 100.0 Imports of goods & services –68.2 GDP at market prices 100.0

Principal exports 1994 US$ ’000 Bananas 85.6 Timber 64.3 Taro 33.9 Copra 21.3 Total incl others 3,487.2

Main destinations of exports 1993 % of total Main origins of imports 1993 % of total New Zealand 51.6 New Zealand 51.1 American Samoa 26.6 Australia 19.8 USA 8.8 Japan 12.1 Australia 6.5 USA 6.3 Fiji 6.5 Fiji 4.1 American Samoa 3.9 a EIU estimate. b Official estimate. c November.

Outlook for 1997-98

Government policy and Growth prospects for 1997-98 are buoyant, as both government policy and favourable weather will favourable weather have enabled the economy to consolidate itself. Although buoy the economy floods in January damaged roads and other facilities, the costs for repair and maintenance will not be as great as those caused by recent disastrous cyclones. Moreover, crops have been left almost unscathed, prices for coconut products are strong, and a big recovery in cocoa production is expected in 1997, as trees planted after the cyclones of the early 1990s start producing.

Government finances are The finance minister, Tuilaepa Sailele Malielegaoi, reported in February that the improving government’s own financial position had improved in the 12 months to end- November 1996 and the government was now in credit by Tala58.6m ($23.7m). This had been an important factor in facilitating private-sector expansion and lending to the private sector had increased some 20% over the period. (Calls on the banking system in recent years to finance government debt produced major constraints on private-sector lending.) Mr Sailele described this as an encourag- ing sign of confidence, but he also cautioned against inflationary pressures. The inflation rate in November was estimated to be 7% year on year. Mr Sailele was confident that appropriate monetary and fiscal policies would allow inflation to fall in 1997, when he expected the economy to grow by 5-6%.

Rising revenues cover Mr Sailele also announced that total budgetary expenditure for 1996/97 would higher spending be Tala226.4m or Tala318.6m including foreign aid and soft loans. Additional expenditure of Tala6.51m would be more than covered by surging revenue of Tala6.96m. The government expects to finish the financial year with a surplus of Tala1.12m, 75% higher than originally forecast. Increased revenue has come in from taxes on international trade, excise and the value-added goods and services tax (VAGST). The government has not made a provision in the expenditure estimates for infrastructure rehabilitation following the January floods, but is seeking funding assistance from the Asian Development Bank and the World Bank.

Western Samoa: gross domestic product Western Samoa: Tala real exchange % change, year on year rate (c) Western Samoa 1980=100 10 Asia excl Japan 140 8

6 120

2 100

0 Tala:DM 80 -2

-4 Tala:US$ 60 -6 1991 92(a) 93(a) 94(a) 95(b) 96(b) Tala:¥ (a) EIU estimate. (b) Official estimates. (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 political scene

The HRPP wins another Western Samoa’s ambassador to Belgium and the EU, Afamasaga Faamatala, was parliamentary seat successful in the October parliamentary by-election for the seat of Aana Alofi. His victory has increased the number of seats held by the ruling Human Rights Protection Party (HRPP) of the prime minister, Tofilau Eti Alesana, to 35 in the 49-seat Fono (parliament). He replaces Toealepaialaii Siueva who resigned following allegations of corrupt campaigning in the April general election. The founding vice-chancellor of the National University of Samoa, Tauiliili Uili, was appointed to replace him as ambassador.

The government proposes The government tabled a constitutional amendment on December 10 designed a new term for the chief to limit the term of office of the controller and chief auditor to three years, on auditor— the basis that this departmental head should be no different from other government departmental heads. The government has already introduced legislation to make top departments jobs and positions such as the commissioner of police automatically vacant every two years; incumbents are required to re-apply along with any other candidates. The current exceptions are the controller and chief auditor, and the chief justice, who may hold office until they are 60 years old or are removed by a two-thirds majority in parliament for misbehaviour or infirmity of mind or body.

—in what may simply be a However, Tuiatua Tupua Tamasese Efi, leader of the main opposition party, the ploy to remove the Samoa National Development Party (SNDP), accused the government in current incumbent December of paving the way to remove the current chief auditor, Sua Rimoni Ah Chong. Mr Rimoni was suspended in July 1995 after he had sued parliament, the government, the prime minister and a commission of inquiry over the handling of his 1994 audit report. The Court of Appeal has ruled that Mr Rimoni’s role ended when he handed over his audit report to parliament, and that he may not take parliament to court. The court did find that some of his claims, including one that the prime minister tried to interfere with his 1994 audit, were worthy of a hearing, but no date has so far been set for it.

The WMO looks at The secretary-general of the World Meteorological Organisation (WMO), establishing a base in the Professor G O P Obasi, visited Apia on January 24 for talks with the South Pacific country Regional Environment Programme (SPREP) and the Western Samoan government. The talks concentrated on setting up a WMO subregional office in Apia for Asia and the southwest Pacific within, or to coexist with, SPREP. This would allow the WMO to monitor its programmes and respond quickly to the needs of member countries in the Pacific, as well as collaborate with the SPREP on similar programmes. The two organisations began a formal relationship in 1994, with the aim of strengthening the capacity of the Pacific region in meteorology and climatology. Jointly run projects have installed satellite-receiving equipment in the Cook Islands, Fiji, Kiribati, Tonga, Tuvalu and Western Samoa to prepare daily weather forecasts and forecast and track tropical cyclones.

The economy

Australia applauds The Australian foreign minister, Alexander Downer, who visited Apia on economic reforms December 18, applauded the government’s economic reform initiatives, as have international institutions such as the Asian Development bank (ADB), the World Bank and the IMF. The government had fostered a remarkable recovery after the economic difficulties of the early 1990s caused by two devastating cyclones, a taro blight which shattered the country’s main export and financial problems associated with the government-owned Polynesian Airlines.

1996 growth has benefited Figures provided by the finance minister, Tuilaepa Sailele Malielegaoi, and con- from a recovery in firmed by the IMF on its annual visit in December indicate that the economy agriculture— grew by 9.6% in 1995. According to the ADB, Western Samoa was the only developing country in the Pacific region to achieve a high growth rate in 1995.

Mr Sailele announced in early February that economic growth in 1996 had exceeded early government estimates of 3-4% growth, rising by an estimated 6%. Output in all major sectors of the economy expanded in the first 11 months of the year, partly helped by the government’s policy of promoting the private sector as a spur to economic growth. In the first 11 months of 1996 exports rose 17% year on year to Tala21m (US$9.3m). Coconut products led the expansion, but the country has slowly but steadily been diversifying its exports, with 50 products now listed. Fish exports grew particularly strongly and are now the fourth biggest earner after coconut oil, coconut cream and copra. Imports rose by 9.2% in the period.

—and tourism has been Tourist arrivals increased by 10% and gross foreign exchange earnings from strong tourism were 16% higher in the same 11-month period, at Tala83m, and will exceed Tala100m for the full year. Private remittances sent home by Western Samoans overseas reached Tala76.9m at the end of November, 2% higher year on year. The balance of payments showed a surplus of Tala6m at the end of the third quarter, which is expected to reach Tala8m at year-end. The surplus at the same point in 1995 was a mere $100,000. According to the government, net foreign reserves at the end of November were sufficient to cover nearly six months of imports.

Foreign exchange controls The finance minister announced on February 5 that from March 1, for the first are to be eased and time the Western Samoan tala could be exchanged for foreign currencies out- simplified side the country. The central bank will also allow a limited amount of tala notes to be taken out of the country by travellers and has approved exchange arrangements with commercial banks in New Zealand, Australia, American Samoa, Fiji and Tonga. The minister said that although there would initially be limits to the amounts that could be converted, the ultimate aim was to make the currency fully convertible. A range of exchange controls that have operated since the financial crisis of the early 1980s were also relaxed, including the practice of releasing foreign exchange in instalments for certain overseas remittances. The government has now signed a standard Article VIII agreement with the IMF that it would not introduce further controls on foreign exchange transactions in the future.

Agreement is reached on a The government department of Posts and Telecommunications has entered mobile phone service into a joint venture with Telecom New Zealand for the establishment of a mobile, cellular phone service. Operations are expected to start in late April or early May 1997. The finance minister said that the new service, plus the recent commissioning of Internet services and the licensing of cable television provid- ers, reflected the government’s commitment to the modernisation of information technology.

Tuna canners are The tuna canning company, Star Kist Samoa, which is based in American swamped by job Samoa, experienced a huge response to its advertisement for up to 300 add- applicants— itional workers to clean fish during a period of high demand. Some 3,000 job-seekers turned up, attracted by the offer of a wage of US$3.10 an hour, which compares well with the country’s minimum wage of 56 US cents per hour.

—but Yazaki workers stay The same enthusiasm for work is not apparent among the 3,500 workers at the at home in droves— country’s largest private-sector employer, the automotive components maker, Yazaki Samoa. According to the labour minister, Polataivao Fosi, absenteeism is a worrying problem, with 100-200 workers failing to report for work on some days. The worst absenteeism reportedly occurred on the Mondays after Friday pay-days.

—putting the focus on the The finance minister, Tuilaepa Sailele Malielegaoi, has warned of the dangers of need to change work bad work habits and called for overseas habits to be copied; otherwise, private- habits sector investors such as Yazaki would not stay in the country. The implication is that workers are not well enough motivated.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 65

Quarterly indicators and trade data

Fiji: quarterly indicators of economic activity

1994 1995 1996 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 tons 218.4 164.4 54.2 60.1 171.4 152.4 39.1 60.5 216.8 125.3a Tourism Qtrly totals Visitor arrivals ’000 94 83 66 77 95 80 71 76 101 61a Prices Monthly av Consumer prices: 1990=100 117.2 118.9 120.6 120.6 120.4 121.6 123.8 124.7 124.7 124.6 change year on year % –0.3 0.7 1.6 2.1 2.7 2.3 2.7 3.4 3.6 2.5 Money & banking End-Qtr M1, seasonally adj: F$ m 328.0 346.4 347.9 369.6 363.5 383.1 420.0 438.8 491.0 494.4b change year on year % –8.3 –5.0 6.5 3.7 10.8 10.6 24.3 18.7 35.1 n/a Commercial banks: total depositsc F$ m 1,366.9 1,390.7 1,358.3 1,382.6 1,420.9 1,457.7 1,484.8 1,455.9 1,483.2 n/a loans & advances “ 1,076.1 1,088.4 1,105.9 1,118.0 1,109.8 1,125.3 1,139.5 1,134.6 1,169.2 n/a Foreign trade & payments Qtrly totals Exports fobd F$ m 246.4 261.4 165.4 176.1 290.0 238.5 180.6 232.9 302.4 n/a Imports cif “ 381.5 329.5 289.8 303.1 303.0 323.1 291.4 327.8 367.8 n/a Government revenue Total F$ m 171.6 198.7 160.3 170.2 182.0 202.5 150.3 186.3 189.8 n/a income taxes ” 91.1 109.9 86.9 96.5 100.6 109.8 84.4 100.5 107.4 n/a Exchange holdings End-Qtr Foreign exchange US$ m 256.2 247.8 223.3 225.6 291.1 322.8 338.3 302.0 350.2 401.3 Exchange rate Official rate F$:US$ 1.441 1.409 1.402 1.389 1.413 1.429 1.408 1.404 1.397 1.384

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

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

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 66 Quarterly indicators and trade data

Solomon Islands: quarterly indicators of economic activity

1994 1995 1996 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Prices Monthly av Consumer prices: 1990=100 156.1 161.5 162.2 166.2 170.2 175.2 179.2 190.2 n/a n/a change year on year % 12.2 15.3 13.7 10.4 9.0 8.5 10.5 14.4 n/a n/a Money End-Qtr M1, seasonally adj: SI$ m 138.47 150.17 163.04 160.75 162.00 145.41 170.96 193.19 178.81 189.35 change year on year % 16.1 28.8 31.6 17.0 17.0 –3.2 4.9 20.2 10.4 30.2 Foreign trade Qtrly totals Exports foba US$ 34.8 30.9 34.8 38.5 41.3 41.1 37.5 48.3 34.3 11.6b Imports fob “ 31.0 31.1 34.1 33.3 33.6 38.7 34.7 36.3 33.8 11.9b Exchange holdings End-Qtr Foreign exchange US$ m 21.3 21.9 16.6 16.9 16.7 16.3 15.1 19.8 28.0 28.6c Exchange rate Official rate SI$:US$ 3.292 3.316 3.329 3.366 3.400 3.450 3.476 3.514 3.550 3.587

Note. Annual figures of most of the series shown above will be found in the Country Profile. a DOTS estimate. Includes re-exports. b July only. c End-November, 34.6.

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

Tonga: quarterly indicators of economic activity

1994 1995 1996 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=100 123.3 121.2 122.1 123.2 124.2 124.5 127.1 127.9 127.1 n/a change year on year % 1.5 –2.3 1.0 1.3 0.7 2.7 4.1 3.8 2.3 n/a Money End-Qtr M1, seasonally adj T$’000 24,124 23,901 24,272 25,131 24,049 21,530 24,570 23,160 21,465 19,869a change year on year % 12.4 3.2 18.1 25.2 –0.3 –9.9 1.2 –7.8 –10.7 n/a Foreign trade Qtrly totals Exports fobb T$’000 3,261 11,223 1,991 1,811 3,946 10,695 1,545 1,499 1,319c n/a Imports cif “ 24,343 25,570 21,593 24,616 26,666 25,158 20,661 22,517 16,901c n/a Exchange holdings End-Qtr Foreign exchange US$ m 27.21 33.07 23.60 24.39 22.69 26.85 24.03 25.06 22.32 24.06a Exchange rate Official rate T$:US$ 1.301 1.258 1.277 1.277 1.267 1.270 1.238 1.232 1.219 1.206d

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

Source: IMF, International Financial Statistics.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 67

Vanuatu: quarterly indicators of economic activity

1994 1995 1996 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=100 117.3 118.1 121.9 118.2 119.8 120.1 120.9 121.6 n/a n/a change year on year % 1.4 2.6 4.9 0.3 2.1 1.7 –0.8 2.9 n/a n/a Money End-Qtr M1, seasonally adj: Vt m 6,294 5,683 5,811 5,441 5,658 6,263 6,420 6,101 6,423 6,308a change year on year % 18.3 0.8 4.7 –3.3 –10.1 10.2 10.5 12.1 13.5 n/a Foreign trade Qtrly totals Exports fobb Vt m 753 916 640 755 962 816 n/a n/a n/a n/a Imports cif “ 2,778 2,542 2,437 2,918 2,486 2,818 n/a n/a n/a n/a Exchange holdings End-Qtr Foreign exchange US$ m 46.65 39.63 39.27 40.32 41.66 44.16 40.62 44.43 39.87 40.93c Exchange rate Official rate Vt:US$ 114.7 112.1 113.2 113.5 112.6 113.7 111.8 111.4 111.2 110.8

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

Source: IMF, International Financial Statistics.

Western Samoa: quarterly indicators of economic activity

1994 1995 1996 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=100 130.4 127.9 127.6 133.1 127.7 132.3 137.2 138.3 139.1 142.8a change year on year % 20.5 15.7 1.7 1.1 –2.1 3.4 7.5 3.9 8.9 n/a Money End-Qtr M1, seasonally adj: Tala m 41.54 42.56 42.09 48.18 56.67 54.85 50.02 47.24 53.24 53.28b change year on year % 7.9 8.2 1.4 24.8 36.4 28.9 18.8 –2.0 –6.1 n/a Foreign trade Qtrly totals Exports fobc Tala ’000 2,554 2,606 3,320 3,931 7,322 7,274 5,287 6,242 7,552 2,053a Imports cif “ 56,218 53,126 51,352 47,939 66,386 69,676 62,021 56,378 66,231 21,399a Exchange holdings End-Qtr Foreign exchange US$ m 48.46 46.92 44.59 44.52 45.77 51.28 45.99 48.92 52.84 53.25b Exchange rate Official rate Tala:US$ 2.533 2.452 2.467 2.431 2.503 2.527 2.452 2.452 2.434 2.434

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.

EIU Country Report 1st quarter 1997 © The Economist Intelligence Unit Limited 1997 68 Quarterly indicators and trade data

Fiji, Solomon Islands, Vanuatu, Western Samoa: direction of trade

Fiji Solomon Islandsa Vanuatu Western Samoaa F$ m SI$ ’000 Vt m US$ m Jan-Mar Jan-Mar Jan-Jun Jan-Jun Jan-Marb Jan-Marb Jan-Dec Jan-Dec Imports cif 1995 1996 1993 1994 1994 1995 1993 1994 West Germany 3.72 4.57 2,489 1,690 n/a n/a 2 1 Netherlands n/a n/a 52 686 n/a n/a 0 0 UK 6.51 6.01 2,336 3,766 n/a n/a 1 0 Singapore 20.87 12.85 29,279 16,646 63 269 1 1 Australia 97.85 132.17 72,186 89,170 981 794 17 16 New Zealand 44.87 44.75 23,705 17,550 213 194 40 30 Japan 22.99 13.38 38,746 40,426 207 257 11 8 USA 28.02 18.55 9,324 8,484 n/a n/a 11 9 Total incl others 289.76 291.45 216,104 208,593 2,487 2,313 103 80

Jan-Mar Jan-Mar Jan-Jun Jan-Jun Jan-Sep Jan-Sep Jan-Dec Jan-Dec Domestic exports fob 1995 1996 1993 1994 1994 1995 1993 1994 West Germany 0.61 0.58 2,952 3,133 0 0 Netherlands n/a n/a 12,745 21,380 c c 00 546 442 Spain n/a n/a n/a n/a} 0 0 UK 20.87 20.20 24,588 26,656 0 0 China 0.0 4.70 n/a n/a n/a n/a 0 0 Australia 45.18 53.95 3,677 2,428 136 197 1 0 New Zealand 8.96 8.44 546 621 9 10 3 2 Japan 9.60 11.09 79,188 92,749 308 376 0 0 South Korea 5.35 0.01 30,839 34,221 59 50 0 0 USA 18.02 16.74 1,258 350 n/a n/a 1 0 Total incl others 141.45 150.03 193,577 232,102 1,673 1,880 6 4 a Including re-exports. b Imports cleared for home consumption. c Total EU.

Source: National sources.

Fiji, Solomon Islands, Vanuatu, Western Samoa: main commodities exported

Fiji Solomon Islandsa Vanuatu Western Samoa F$ m SI$ m Vt m Tala ’000 Jan-Jun Jan-Jun Jan-Jun Jan-Jun Jan-Sep Jan-Sep Jan-Dec Jan-Dec 1995 1996 1993 1994 1994 1995 1990 1991 Beef & veal n/a n/a n/a n/a 310 330 n/a n/a Fish 16.96 16.24 37.0 49.0 n/a n/a n/a n/a Sugar 68.77 93.70 n/a n/a n/a n/a n/a n/a Coffee n/a n/a n/a n/a 1 5 n/a n/a Cocoa n/a n/a 7.0 4.8 149 104 502 n/a Logs & lumber 21.69 17.85 108.2 139.7 197 181 21 n/a Copra & copra oil n/a n/a 10.6 10.5 723 875 1,101 n/a Palm oil n/a n/a 17.3 20.5 n/a n/a n/a n/a Coconut oil 1.55 3.39 2.7 0.8 n/a n/a 4,168 n/a Gold 32.25 39.57 0.6 0.1 n/a n/a n/a n/a Clothing 87.34 92.39 n/a n/a n/a n/a n/a n/a Total incl others 293.55 337.71 193.6 232.1 1,673 1,880 19,437b 18,324c a Including re-exports. b Including coconuts, 5,596, and taros, 3,502. c Including coconuts, 5,300, and taros, 6,900.

Source: National sources.