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

COUNTRY REPORT

3rd quarter 1997

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

3 Summary

The region 5 Outlook for 1997-98 6 Review

Fiji 10 Political structure 11 Economic structure 12 Outlook for 1997-98 13 Review 13 The political scene 14 The economy

New Caledonia 18 Political structure 19 Economic structure 20 Outlook for 1997-98 20 Review

Solomon Islands 24 Political structure 25 Economic structure 26 Outlook for 1997-98 26 Review

Tonga 28 Political structure 29 Economic structure 30 Outlook for 1997-98 30 Review

Vanuatu 32 Political structure 33 Economic structure 34 Outlook for 1997-98 34 Review

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Western Samoa 37 Political structure 38 Economic structure 39 Outlook for 1997-98 39 Review

Other Pacific Islands 41 Cook Islands 41 Federated States of Micronesia 42 Nauru

43 Quarterly indicators and trade data

List of tables 15 Fiji: consumer prices 15 Fiji: foreign trade, Jan-Mar 43 Fiji: quarterly indicators of economic activity 44 Solomon Islands: quarterly indicators of economic activity 44 Tonga: quarterly indicators of economic activity 45 Vanuatu: quarterly indicators of economic activity 45 Western Samoa: quarterly indicators of economic activity 46 Pacific Islands: direction of trade 46 Pacific Islands: main commodities exported

List of figures 12 Fiji: gross domestic product 12 Fiji: Fiji dollar real exchange rate 15 Fiji: foreign trade 15 Fiji: current-account balance 26 Solomon Islands: gross domestic product 26 Solomon Islands: Solomon Islands dollar real exchange rate 30 Tonga: gross domestic product 30 Tonga: Tonga dollar real exchange rate 34 Vanuatu: gross domestic product 34 Vanuatu: vatu real exchange rate 39 Western Samoa: gross domestic product 39 Western Samoa: Tala real exchange rate

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September 8, 1997 Summary

3rd quarter 1997

The region Outlook for 1997-98: Economic growth is likely to continue to be slow for most countries in the region. However, the longer-term situation will improve if the South Pacific Forum states maintain their new commitment to structural reform.

Review: The economic ministers of the Forum countries have signed up to an action plan for structural reform, good governance and trade liberalisation. A confidential Australian briefing paper has deeply offended sensitivities in the region.

Fiji Outlook for 1997-98: Parliament’s approval of a reformed constitution is a strongly positive development for the investment climate, although serious problems still lie ahead.

Review: Parliament has approved the new constitution which reduces communal discrimination and provides for multiparty government. A cabinet reshuffle has brought in the Fijian Association. Inflation was easing down again at mid-year. The trade gap widened sharply in the first quarter but robust tourism earnings pushed the current account into surplus. Sugar production is likely to be close to the 1996 level this year. The privatised shipyard is still looking for a partner.

New Caledonia Outlook for 1997-98: The change of government in Paris has set back prospects of an early consensus for the referendum next year.

Review: The new French premier has sent a special envoy to report on the northern smelter problem. Resolution has been made more difficult by the retention of the current CEO at Eramet, who opposed the ore-swap sought by the Kanak parties. Tourism is booming, but export earnings were down in the first half of the year.

Solomon Islands Outlook for 1997-98: The new administration faces a difficult task in tack- ling the government cash crisis.

Review: The former opposition leader has been voted prime minister by the newly elected parliament. The UNDP is to aid malaria control. The Gold Ridge project has been challenged in court.

Tonga Outlook for 1997-98: Prospects for economic growth continue to be highly constrained.

Review: The crown prince has warned that pro-democracy campaigners will “get what they deserve”. Inflation continues at around 2%. The tourism minister has proposed a more culturally sensitive form of accommodation for visitors.

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Vanuatu Outlook for 1997-98: Despite persistent political instability, the momentum is being maintained for consensus-based economic reform.

Review: The government coalition has been reshaped. The national “summit” on the comprehensive reform programme was held in June. The ombudsman has ruled against the ex gratia payments to MPs made in 1993 and has recommended that the current finance minister be dismissed.

Western Samoa Outlook for 1997-98: Economic growth will ease down after the sharp recovery of 1995-96.

Review: The country’s name has been changed to Samoa. A passport racket has been revealed. The economic recovery was slowing in the final quarter of last year. The surplus on the balance of payments rose in 1996 despite the wider trade gap.

Other Pacific Islands The recession in the Cook Islands appears to have bottomed out. The ADB has provided funding for fisheries management in the Federated States of Micronesia. The Nauru parliament has set up a company to manage the phosphate mining rehabilitation funds.

Editor: Graham Richardson All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

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The region

Outlook for 1997-98

Short-term growth Few of the islands can look to any surge in economic growth in the next prospects remain modest— 15 months. Instead, most, with the notable exception of Fiji, will see their economies growing in line with population increases. This reflects in part the mixed prospects for the prices of the agricultural commodities and primary materials which these small economies produce in exportable quantities. Prices of edible oils will overall be weakening because of improvements in supply and some consumer resistance to the recent high price levels. Copra prices are expected to weaken in both 1997 and 1998, while prices of coconut oil are forecast by the EIU to fall by 9.1% in 1997 and then to flatten out in 1998. Palm oil prices will be down sharply next year after this year’s slight increase. By contrast, cocoa prices are forecast to rise strongly this year and next (by 9.1% and 12% respectively) because of the shortfall in supply. Nickel, the one mineral the region produces in significant quantities, has generally bright price prospects because of recovery in demand. But the positive impact is confined to one country, New Caledonia. In general the mining sector remains at a low level of development. Only Fiji is producing gold in any significant quantities, and it is this sector which is currently underpinning GDP growth. Despite the generally sluggish prospects on the export earnings side (except for niche products produced in small quantities), the region will benefit from the forecast weakening in oil prices as Iraqi exports resume in the final months of 1997.

The fragile economies of the region will therefore remain highly vulnerable to trends in world demand and supply which they cannot influence, and their generally poor resource endowments and relatively high costs mean they are not well-placed to benefit from the ongoing process of economic globalisation.

—but there is a new For a variety of reasons, therefore, short-term growth prospects remain gener- commitment to structural ally subdued in the region, but in the longer term there are hopes for a more reform rigorous approach to economic management and good governance. The “action plan” approved at the meeting of economic ministers of the South Pacific Forum countries is, at this stage, little more than a list of intentions. But to the extent that the programme signals this is maintained and realised through specific and coordinated actions, it should enhance the limited growth prospects of a region which is essentially an adjunct to larger, much more developed economies.

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Review

Forum governments sign At a meeting in Cairns, Australia, in July the economic ministers of the South up to an “action plan” for Pacific Forum governments (consisting of the Cook Islands, Fiji, Kiribati, Republic structural reform— of the Marshall Islands, Federated States of Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tuvalu and Vanuatu) agreed to an “action plan” that could become a landmark in their chequered history of economic and political progress since independence. This plan was born of an acute, shared awareness of the situation facing the island governments. Flows of aid—on which a number are critically dependent—are changing in both volume and direction; preferential market access and pricing arrangements for the region’s exports are being phased out. Most of the governments in the region have already embarked on some form of economic restructuring, with the support of international financial institutions. The others accept, even if only tacitly, that they need to institute similar change as the pressures of globalisation increase.

The action plan is due to be endorsed formally by the heads of government of the Forum countries at their annual meeting in the Cook Islands on September 12. It commits members to reform under three broad headings: economic restructuring; good governance; and trade and tariff liberalisation. It will adopt in these areas the standards of the Asia-Pacific Economic Cooperation (APEC) forum and the World Trade Organisation (WTO), even though most Forum members do not belong to either body. By doing this, the Forum aims to send potential foreign investors a message of responsibility which will generate confidence in the region. The urgent need for foreign investment overcame the reservations of many governments to some aspects of the plan that will create serious problems for them, especially the loss of revenue that will result from reducing import tariffs.

—which aims to stimulate The action plan declares that: “Private-sector development is central to ensur- the private sector— ing sustained economic growth, and governments should provide a policy environment to encourage this.” It commits members, “as appropriate to ... individual circumstances”, to develop national economic reform strategies, in consultation with community groups and the private sector, while ensuring the delivery of essential services and minimising potential adverse social im- pacts. “In particular,” it says, “we will invite our private sectors to identify all issues affecting business competitiveness that can be addressed by government policy reform, advise the relative importance of these to business productivity and recommend positive steps ... to improve the economic environment within which they operate.”

—enhance the quality of The good governance section of the plan deals with public accountability and governance— investment policies. It pledges to adopt best-practice principles for public accountability, covering budgetary processes, the publication of fully audited accounts of governments and their enterprises, information about loan agree- ments or guarantees (including longer-term implications), open and compet- itive tendering, prompt disciplinary measures for contravention of financial regulations, empowerment of public accounts/expenditure committees of legis- latures, adequate funding and independent reporting rights for auditors-general

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and ombudsmen, and legislated powers and responsibilities for central banks. Investment policies are to be “open, liberal and transparent”.

The economic ministers expressed their grave concern about the implications of “undesirable financial activities in the region”—examples of which have featured recently in the Cook Islands, Vanuatu and the Marshall Islands—and called for the adoption of consistent laws and administrative procedures to combat them.

—and achieve “free and In the area of tariff liberalisation the plan sets a common goal of free and open open trade” trade but “with each member developing its own timetable and mechanism”. “We will rationalise and progressively reduce our tariffs, with the aim of removing all the adverse effects of tariffs on our economies, while recognising the special circumstances of some smaller Forum island countries,” it says.

It adopted a series of “guiding principles” for tariff reform.

• In cases of genuine need, local industry will receive targeted assistance rather than tariff protection.

• A standard general rate will apply, except for business inputs and special cases such as tobacco and alcohol (where there will be an excise on the local product).

• There is to be a duty draw-back arrangement for exporters.

• Ad valorem rates will be used wherever possible.

• Carriage, insurance and freight (cif) values will be used as the basis for tariffs.

In addition, it was agreed that next year’s ministerial meeting should consider additional measures to strengthen international competitiveness such as more regional collaboration in customs and quarantine reforms, and to take best advantage of the information revolution.

A confidential Australian In fact, the Cairns meeting reverberated around the region not because of its briefing paper causes a commitment to economic rectitude but because of an extraordinary, and furore— acutely embarrassing, security breach involving the Australian delegation. Three or four copies of a briefing paper, marked “Confidential—Australian Eyes Only (AUSTEO)”, were apparently left unattended in the media registration area of the conference, and a journalist took one. Most of the information in the briefing booklet was accurate and pertinent but it also included crude and sometimes defamatory descriptions by the Australian cabinet’s Office of National Assessment (ONA) of delegates to the meeting, along with some cyni- cal and, in many cases, out-of-date assessments of individual economies in the region.

For example, the economy of the Cook Islands was said to be in “free fall” and its prime minister “boastful and vain”. The performance of the Fiji finance minister was characterised as “poor”, while it was said that the Kiribati delegate “has not been a strong minister” and “occasionally drinks heavily”. The minister of the “financially stricken” Marshall Islands was described as having to “clean up a mess he helped to create” while serving under “the pork-barrelling and opportunist founding president”. The paper said of Nauru that “even if it

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adopts reform” it “may be incapable of sustaining its sovereignty”. New Zealand’s delegate, the deputy prime minister, was described as “a loose cannon” and “ever the opportunist”. The PNG minister was characterised as the “lickspittle” of his prime minister. The government of the Solomon Islands was said to be “preoccupied with averting collapse, not reform” with its finance minister having “a reputation for corrupt dealing”. Tonga was “half-hearted about reform” while Vanuatu’s commitment to reform was “fragile, because of ingrained bad habits” and a minister “corrupt, spurns due process and advice, and attracts carpetbaggers”.

Not surprisingly the personal comments in the briefing paper elicited strong reactions throughout the region, which are likely to cause continuing problems for Canberra. Australian diplomats expressed regret about the incident to heads of government in the region but the government denied the need for an apology, arguing that the offensive remarks had no official endorsement. How- ever, a number of regional leaders expressed the view that the briefing paper demonstrated an attitude that would not be easily forgotten; one said he was convinced that it had been leaked deliberately to “put island countries in their place”, as might have been expected in colonial times. The material was published extensively in every Forum country and some media serialised the entire 93-page document. One minister criticised in the report said that it was difficult to believe the paper did not have official imprimatur since it would have needed ministerial clearance before it was issued to the 23 members of the Australian delegation.

The affair was widely seen within Australia as an appalling reflection on the government, which was saved from the worst consequences of the gaffe only by the disparity in economic and political power between Australia and its neighbours.

—with angry public A number of the governments in the region responded publicly to the criti- responses by some leaders cisms and statements in the briefing. In a statement to the Fiji parliament on July 31 the finance minister impugned, Berenado Vunibobo, said that the country must not believe that Canberra would continue to be supportive and so should reduce its dependence on Australia. The paper demonstrated an underlying racism and gave the impression that its authors thought island leaders had “just come out of the trees”. Another target of criticism in the paper, the Cook Islands prime minister, Sir Geoffrey Henry, said the report was valuable in that it “reveals extraordinary ignorance in high places in Australia and, worse yet, breathtakingly profound insensitivity” on the part of its authors. He pointed out that the statement that the Cook Islands were “on the brink of insolvency” was totally out of date; if Australia had made the same economic progress as the Cooks it would be the pride of every Australian taxpayer.

The Tuvalu prime minister, Bikenibeu Paeniu, called a public meeting in the capital, Funafuti, on August 4 to discuss the leaked material. Reading from a seven-page statement, he acknowledged that some of the reporting was “quite accurate” but a claim that Tuvalu should “spend better, not more” ignored the fact that without the money to fund the necessary infrastructure it was difficult to make spending more effective. Moreover, Australia had been urging Tuvalu

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to spend more from its Trust Fund on development projects. The paper had raised the issue of the potential inundation of Tuvalu because of global warm- ing, yet Australia rejected the global consensus on a target to reduce green- house gas emissions. Australia supported education and training but the Tuvaluan students it sponsored were educated in Fiji because it was cheaper; there were only two tertiary awards a year for Tuvaluans to study in Australia. The paper emphasised the importance to Tuvalu of remittances from its people in other countries, yet Australia denied residency to Tuvaluans, despite numer- ous Australian reports recommending preferential treatment for the small island states.

In a statement on August 8, setting out his government’s reaction, the then prime minister of the Solomon Islands, Solomon Mamoloni, was less measured. He declared that instead of developing closer understanding with the governments of the region, Australia had resorted to “political dirty tactics” against them. Canberra needed to “refrain from childish politics and hypocrisy and behave like a mature government”. The critical comments on the private lives of ministers in the briefing paper reflected an attitude “akin to the former White Australia policy”. He said: “It will take a long while before the wound is healed, if at all.”

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Fiji

Political structure

Official name Republic of Fiji

Form of state Parliamentary

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

Head of state The president, Ratu Sir Kamisese Mara

National legislature Bicameral parliament comprising the appointed upper house or Senate (34 members) and an elected House of Representatives (70 members); the 1990 constitution ensures an indigenous Fijian majority in parliament; universal suffrage for all citizens over 21 constitutional change in 1998 will change the imposition of the legislature, removing the guarantee of a Fijian majority

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

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

National elections February 1994; next election due 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 with special responsibility for constitutional reform & multi-ethnic affairs & regional development Major-General Sitiveni Rabuka Deputy prime minister & minister of education & technology Taufa Vakatale

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

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Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at current factor costa F$ m 2,019 2,171 2,269 2,351 2,524 Real GDP growtha % 4.7 2.3 3.8 1.4 4.4 Consumer price inflation % 4.9 5.2 0.6 2.2 3.1 Population m 0.75 0.77 0.78 0.78 0.77 Exports fobb US$ m 349.8 370.9 490.2 519.6 655.2 Imports fobb US$ m 538.8 652.8 719.7 761.4 837.7 Current account US$ m 61.3 –138.1 –112.8 112.7 10.2 Reserves excl gold US$ m 316.9 269.5 273.1 349.0 427.2 Total external debt US$ m 338.7 330.3 285.7 252.8 n/a Debt-service ratio, paid % 9.0 7.8 8.7 5.9 n/a Exchange rate (av) F$:US$ 1.503 1.542 1.464 1.406 1.403

September 5, 1997 F$1.461: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 IMF balance-of-payments figures.

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Outlook for 1997-98

Victory for constitutional Following the successful conclusion of the country’s protracted constitutional reform leaves other major review process (see The political scene), there are high hopes of a resurgence in problems to be resolved— foreign investment and business confidence, the two factors most obviously lacking since the coups of 1987. Many potential foreign investors will remain cautious, as they are now looking at other problems that have in the recent past taken second place to the issue of constitutional reform. One of the largest and most pressing is the uncertainty about agricultural land leases in the sugar industry, still Fiji’s biggest earner and one which must gear itself to a future of declining preferential arrangements under the Lomé Convention. Most sugar- cane farms are operated by Indians, but virtually all the land used for sugar cultivation is owned by ethnic Fijians. The Native Land Trust Board has claimed that up to 80% of Fijian landowners want to take back their land as leases expire. By most assessments, the effects on sugar production—and inter- communal relations—would be disastrous.

—and multiparty Moreover, there was some disappointment that the constitutional decision did government is still some not lead rapidly to the sort of national unity government that many had hoped way off— to see. In June, with a victory in sight on constitutional reform, the prime minister, Major-General Sitiveni Rabuka, was talking up the prospect of a multiparty national government within a matter of weeks. Then, with victory achieved, his partner in championing the reforms, the opposition leader, Jai Ram Reddy, opted for his party to stay out of a governing coalition until after the concept is voted upon at the first general election held under the terms of the amended constitution (in 1999). General Rabuka did the best he could to meet expectations in the circumstances, by taking into the cabinet two members of the Fijian Association Party (FAP).

—but the investment Significant issues remain outstanding, but the prospect for economic improve- outlook has undoubtedly ment is the most promising for a decade, with a number of major new develop- improved ments in gold mining and tourism set to make an early start. In this situation GDP growth next year should be well up on both 1996’s 4.4% and this year’s likely 3-4%.

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

10 Fiji (a) 120 Asia excl Japan 110 8

100 6 F$:DM 90 4 80 F$:US$ 2 70 F$:¥ 0 60

-2 1991 92 93 94 95 96 50 (a) National sources. (b) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic 1980....85....90....95. Outlook.

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Review

The political scene

Parliament approves a A year after the process of constitutional review began, the Fijian Senate unan- new constitution— imously passed the Constitution (Amendment) Bill on July 10. The lower house had given the bill a similar unanimous vote on May 13—ten years to the day since the then acting chief of the defence force, Lieutenant-Colonel (now Major-General) Sitiveni Rabuka, led a military coup to remove from office the first government of Fiji composed predominantly of politicians with an Indian ethnic background. A decade on, the coup leader, now prime minister in an elected government, organised the symbolic date for the vote to emphasise his own, and the wider, conviction that the institutionalised racial divide which had been introduced in the 1990 constitution had to go. In May 1997 the outcome in the Senate, representing entrenched, ethnic Fijian interests, still seemed uncertain, particularly as some influential members of the government were thought to be urging the Fijian chiefs to block the reform.

A remarkable piece of personal advocacy on June 6 put it beyond doubt. General Rabuka arranged that the leader of the National Federation Party (NFP), Jai Ram Reddy, should address the Great Council of Chiefs—the first time any citizen of Indian background had ever done so. It was a compelling speech, delivered with grace and humility, emphasising the theme of partnership between all communities, indigenous Fijian and non-Fijian. He addressed his audience as “the chiefs not just of Fijians, but of all the people of Fiji”. He emphasised that the Indians of Fiji sought neither separation nor dominance but rather partnership in what they regarded as their home. The country had lived too long with fear: native Fijians were afraid for their identity and way of life, while Indians and other communities were afraid of always being second-class citizens, con- demned to perpetual insecurity in the place of their birth. Mr Reddy argued that the constitutional committee had found a formula to encourage a political culture of cooperation in a broadly based national government.

The chiefs responded by endorsing the constitutional changes recommended by a parliamentary select committee, whose deliberations had been led by the prime minister and the opposition leader over a period of eight months.

—which erodes the The new constitution, which will come into effect at the beginning of 1998, communal component— makes a number of changes in the interests of more transparent governance, including strengthening the positions of statutory officers such as the auditor- general and police commissioner. But the core reform is reducing the number of reserved seats in parliament: the number of seats in the House of Representatives reserved for the Fijian community is reduced from 37 (out of 70) to 23 (out of 71), and those for Indian Fijians from 27 to 19, while there are now to be three seats for other ethnic scoups instead of five, with one seat for Rotuman (as before) leaving 25 “open” seats. The guaranteed Fijian majority is thus ended, and non-communal representation is set to become a major force. Underlining the theme of cooperation, the adversarial features of the Westminster system are abandoned. Unless they choose to opt out, every party that received more than

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10% of the vote at the last general election will be entitled to places in the cabinet in proportion to the numbers elected to parliament. After the opposition leader’s appearance before the Great Council of Chiefs, General Rabuka was confidently forecasting the formation of a multi-ethnic government within weeks. However, after the passage of the Constitution (Amendment) Bill, the leader of the NFP said that the various parties should focus on forming a national coalition to campaign in the elections in 1999.

—and provides for Winding up the debate on the constitution bill in the House of Representatives multiparty government General Rabuka had stressed that the protection for the rights of indigenous Fijians in the 1990 constitution had not been eroded in substance. He stressed that, as the majority community, indigenous Fijians would continue to play a pre-eminent role within a multiparty cabinet. He has a point. Both sides have had to yield ground—institutional communalism has not been eliminated, the Great Council of Chiefs retains its powers, the Senate’s members are nomi- nated, and several seats remaining reserved.

A cabinet reshuffle brings The first move towards widening the party composition of the government has in the Fijian Association in fact been in the direction of the indigenous Fijian community. The cabinet was reshuffled on August 7 to admit two members of the Fijian Association Party (FAP) to share power with the ruling Soqosoqo ni Vakavulewa ni Taukei (SVT). The FAP, a traditionalist party, has five seats in the House of Representatives. One of its leaders, Ratu Finau Mara, now has a key position as minister for Fijian affairs. He is the son of the former prime minister, now president, Ratu Sir Kamisese Mara. Another FAP member of parliament, Viliame Caubati, became assistant minister of communications, works and energy.

General Rabuka also made changes affecting the finance and foreign affairs portfolios. One of the country’s leading entrepreneurs, Jim Ah Koy, formerly youth and sports minister, took over finance from Berenado Vunibobo, who moved to foreign affairs and external trade, previously held by Filipe Bole. The latter became minister for national planning, while the education minister, Taufa Vakatale, a woman, was given the additional post of deputy prime minister.

The economy

Extra budget spending is When the 1997 budget was presented in November last year, the government planned pledged to rein in spending growth after the surge in 1996 caused by the bailout of the National Bank of Fiji. In May, however, the finance minister presented a proposal for additional spending of F$42m (US$29m) this year. The funds will cover a wide range of programmes, with the largest allocation (F$16m) going to the agriculture ministry.

Inflation subsides slightly The acceleration in inflation on its year-earlier level during the first quarter of this year proved shortlived. By June consumer price inflation dipped to 3.8%, compared with 4.2% in June 1996. However, average inflation in the seven months to the end of July was still up on 1996. As the table below indicates, this trend mirrors the movement in the heavily weighted food index. The steep rise in food prices year on year was due in part to the impact on supply and

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transport of Cyclone Gavin in March, but it also reflected the weakening in the Fiji dollar against the currency of its leading source of supply, Australia.

Fiji: consumer prices (% change, year on year; period average) All items Food 1996 1997 1996 1997 Jan 3.0 2.6 1.0 1.8 Feb 2.3 4.2 –0.9 6.3 Mar 2.8 4.5 0.7 7.7 Apr 2.6 3.8 0.7 5.9 May 3.4 4.5 3.9 7.2 Jun 4.2 3.8 6.6 4.7 Jul 4.0 2.6 5.4 3.9 Jan-Jul 3.2 3.7 2.5 5.4 Source: Bureau of Statistics, Statistical News.

The trade deficit rises Foreign trade got off to a poor start this year, with export earnings in Fijian steeply— dollars down close to one-third year on year in the first quarter. This was almost wholly due to the fall in domestic exports, with earnings from the principal export of sugar down by F$33.4m to only F$22.9m (reflecting delays in shipment) and from garments; down by some F$10m, or almost a quarter. Imports meanwhile showed rather slower growth than the overall 10.1% increase registered in 1996. To some extent this can be attributed to the fall in re-exports in the first quarter of this year, while the decline in exports of garments (where there is a high import component) was also a factor. The result was a sharp deterioration in the trade balance.

Fiji: foreign trade, Jan-Mar (F$ m) 1996 1997 % change Exports fob 180.6 124.1 –31.3 of which: domestic 150.0 98.7 –34.2 Imports cif –291.4 –300.4 3.1 Balance –110.9 –176.2 58.9 Source: Bureau of Statistics.

Fiji: foreign trade Fiji: current-account balance F$ m, quarterly $ m 400 Exports fob 20 Imports cif 0

300 -20

-40

200 -60

-80

100 -100

-120

0 -140 1995 . . . 96 . . . 97 1990 91 92 93 94 95 96

Source: Bureau of Statistics. Source: IMF.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 16 Fiji

—but tourism contributes Fortunately, the most significant single source of foreign earnings, tourism, is to a surplus on the having a good year. In the first quarter gross earnings were officially estimated current account— at F$107.5m, representing an increase of F$15.9m or 17.4% on the same period of 1996. Tourist numbers were up by 19.4% to 84,435, and total visitor days increased by 16.5% in the same period. The pace slackened very slightly in April and May, with the five-month total for arrivals, at 135,750, 16.2% up on the year-earlier level.

This improvement and a fall in outward transfers meant that, despite the widening trade gap, the current account registered a surplus of F$66.2m (in cash terms) in January-March, in contrast to the F$12.7m deficit in the first three months of 1996.

—while reserves fall Overall payments have, however, registered a deficit of F$64.1m in the first because of adverse capital quarter of this year, compared with a marginal surplus (F$8m) in the corre- movements sponding period of 1996, because of outflows of investment. Consequently there was a quite sharp fall in the country’s foreign exchange holdings during this period, from US$401.3m at the end of 1996 to US$347.3m at the end of March. Twelve months earlier they had been US$338.3m.

A privatised shipbuilder is The government’s first privatisation is proving a headache. In March 1996 a still looking for a partner majority stake in the Government Shipyard was sold to two interests, Carpenters Fiji (which acquired a 26% share) and the MCI Group of New Zealand (25%). Under the terms of the deal the partnership, MCI Carpenters, would pay instal- ments of F$250,000 at the end of the first and second years, and a final payment of F$2,687,500 at the end of the third. However, the situation was complicated in November when the MCI operation in New Zealand went into receivership and so pulled out of the Fiji operation. Carpenters consequently had to find another partner to take up the MCI shares and make a contribution towards the capital needed for the yard’s development. The original joint venture with the government, Shipbuilding Fiji Limited (SFL), then suffered a setback when, in March this year, it lost a F$11m order for five ships from a French Polynesian firm, SARL Tahitian Shipbuilders, because it could not offer a performance guarantee.

It had earlier been hoped that Tahitian would buy up MCI’s equity. SFL was, however, able to pay up the first F$250,000 instalment—but only in late April, a month behind schedule according to the government. Meanwhile, it was continuing to seek a new partner, with some urgency. The Commonwealth Development Corporation has emerged as a possibility, but it is demanding a comprehensive restructuring since, with its record of problems on delivery and cost, the shipyard is only able to win orders with payment on completion.

Sugar production is Industry forecasts in June, at the beginning of the 1997 harvesting season, were forecast to be steady that the sugar cane crop will be slightly below 4m tons this year, down from this year 4.3m tons in 1996. However, a marked improvement in cane quality was also forecast, which means that sugar output may remain close to last year’s 460,000 tons.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 17

More investment at Mount Gold mining is set to continue to be a significant source of economic growth. Kasi— The operator of the Mount Kasi gold mine, Pacific Islands Gold, plans to invest some F$6m in further development of the mine over the next five years, to bring its output to 72,000 oz per year, up from the present level of 32,000 oz per year.

—and by South Korean Since the initiation of a direct air service to South Korea in September 1995, interests in timber economic contacts between the two countries have been expanding. Last year processing the number of South Korean visitors rose by 160% to 9,295, which is still a modest figure. In the 12 months to end-June this year, nine South Korean investments have been approved by the Fiji government. The latest of these still small-scale projects is a joint venture, Han Shine Enterprises, which is investing F$750,000 to set up a sawmill and furniture-manufacturing plant.

Air Pacific profits are Air Pacific, majority-owned by the government with Qantas of Australia hold- ahead of budget but down ing a 17.5% stake, had an operating profit of 17.4% in the year to March 31, on last year’s 1997, slightly ahead of forecast. Net profit after tax was F$7.7m (on revenue of F$264.3m), down from F$8.6m (on F$260.4m) in 1995/96.

Further increases in sales should result from a partnership agreement recently signed with Canadian Airlines. To take effect in late October, and subject to government approval, this initially provides for joint weekly services from Fiji to Toronto and Vancouver via Honolulu.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 18 New Caledonia

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 Party of Kanak Liberation (PALIKA), the Kanak Socialist Party (PSK) and the Melanesian Progressive Union (UPM). The 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 National Assembly Jacques Lafleur (RPCR) Maurice Nénou-Pwataho (RPCR) Representative to the French Senate Simon Loueckhote (RPCR)

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 19

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 197b Exports fob US$ m 410 376 326c 487c n/a Imports cif US$ m 926 854 763c 922c n/a Exchange rate (av) CFPFr:US$ 96.24 102.96 100.93 96.25 96.54a

September 5, 1997 CFPFr111.158: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 1995c % of total Main origins of imports 1995c % 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 estimates. b Census result. c Derived from trading partners’ records.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 20 New Caledonia

Outlook for 1997-98

Change of government in While the economic outlook is rosy, with tourism expanding strongly and France injects some nickel output rising, the change of government in France has created uncertain- political uncertainty— ties for the future of New Caledonia. The Socialist-led government of Lionel Jospin has not demonstrated the commitment of its predecessor to achieving an early resolution of the dispute over nickel resources for the planned new smelter in Northern Province (see below), even though that dispute has stalled progress on discussions about the political future of the territory. The political hiatus comes at a critical time. Next year, the territory is scheduled to vote on whether it wants independence or a continued association with France. This vote was mandated by the Matignon Accords of 1988, which ended years of violence between the independence movement on one hand and the implacably opposed pro-French elements on the other. The plebiscite seemed a good idea at the time but the main parties to the accords have come to realise that an outcome which delivered “victory” to one side and “defeat” for the other could be disastrous in such an evenly balanced community.

The pro-independence Kanak Socialist National Liberation Front (FLNKS) and the anti-independence groups led by the Rally for Caledonia in the Republic (RPCR) had been working towards a compromise proposition. Significant differences remained about the form the new relationship should take and its duration, but greater autonomy was taken to be the basis of any deal.

—and a settlement of the However, negotiations ground to a halt over the resources dispute, which is seen nickel resources dispute is by the pro-independence forces as integral to the Matignon Accords. These essential accords provide for extensive “rebalancing” of the economy in particular between the area around Nouméa, in the south of the main island (the Southern Province), which is the heartland of pro-France sentiment, and the rest of the territory, where Kanak interests predominate. The proposal by the Kanak-owned South Pacific Mining Company (SMSP), in a joint venture with the Canadian company Falconbridge, to construct a nickel smelter in the north is recognised as a substantial element in this rebalancing process. However, the project re- quires access to ore reserves at Koniambo owned by the mining group, Eramet, in which a French government-owned company is the majority shareholder. SMSP has proposed a swap for reserves it holds at Poum, but Eramet’s chief executive had opposed such a deal. Whereas the previous French government seemed to appreciate the need for a speedy resolution of this issue to allow a resumption of political negotiations, the same attitude is not apparent now. If a “winner takes all” type of plebiscite next year is to be avoided, Paris needs to make a move. Time is running out.

Review

The new prime minister After the Socialist Party’s victory in the French general elections of late pledges policy continuity— May/early June, the new prime minister, Lionel Jospin, included the subject of New Caledonia in his general policy statement to the National Assembly on

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 21

June 20. The message was one of continuity of French policies in the territory; his government was determined to do all it could to achieve a negotiated solution in New Caledonia so that a win/lose referendum on independence in 1998 could be avoided. Following meetings in Paris with a delegation from the Kanak Socialist National Liberation Front (FLNKS) over more than two weeks in June, the overseas minister, Jean Jacques Queyranne, said that his goal was to resume political negotiations as quickly as possible to achieve a consensus on the proposal to be submitted in the referendum. After a meeting with Mr Jospin on July 1 the FLNKS leaders reported that he had promised he would be personally involved in resolving the issue of the northern nickel smelter.

—and the two sides restate Both sides were in Paris in late June to press their case. The FLNKS president, their positions Rock Wamytan, reasserted that his goal was for “associated statehood” to begin after the vote in 1998. The notion of statehood met the nationalist goals of Kanaks while that of association with France took into account the other communities in New Caledonia who did not want to break ties with the metropole. For his part, the Rally for Caledonia in the Republic (RPCR) leader, Jacques Lafleur, restated the need for an 18-24-year extension of the Matignon Accords. He considered that the only sticking point to consensus was the duration of the post-1998 period. This is not the FLNKS view: it will accept another transition period only if it is guaranteed to end in independence, not another referendum.

A special envoy is On July 18 the French government appointed a former head of the French appointed to report on national railways, Philippe Essig, as its special envoy to report on the northern the northern smelter— nickel smelter problem. His brief is to evaluate the economic and industrial potential of a nickel smelter in the north and to facilitate an agreement between Eramet (and its nickel subsidiary, Société Le Nickel) and the joint- venture partners, South Pacific Mining Company (SMSP) and Falconbridge. In the letter setting out the terms of reference, the prime minister stressed the goal of economic rebalancing that underpinned the Matignon Accords and proposed that the overall potential for value added from the territory’s mineral resources be analysed. The smelter report was due on September 15 and that on mineral resources at the end of the year.

—but the retention of the However, the Jospin government has in some ways worsened the problem by Eramet CEO complicates opting to retain Yves Rambaud as chief executive officer (CEO) of Eramet. the issue— Mr Rambaud is opposed to the ore exchange that SMSP proposes, and was thus seen by the FLNKS as the principal obstacle to an Eramet/SMSP agreement. The Juppé government came round to this view earlier in the year, and had moved to oust him by placing an ally of the president, Jacques Chirac, as head of ERAP, the government-owned, majority (55%) shareholder in Eramet (3rd quarter 1997, page 20). Another government appointee, Thierry Chambolle, was proposed as the new CEO of Eramet. These plans were overturned at the annual general meeting of Eramet on July 31 when, instead of being removed as earlier proposed, Mr Rambaud was offered another five years as CEO.

The new government’s action was designed to reassure the minority shareholders of ERAP who had feared that there would be adverse repercussions for the privatisation programme in France if the government were seen to interfere in the independence of a commercial entity. These shareholders, led by British

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 22 New Caledonia

pension funds, secured written guarantees of Eramet’s independence from state interference.

—and the offer of seats on Faced with this situation, and as a means of involving the Caledonian parties, the board highlights the government offered two positions on the Eramet board—one for the FLNKS divisions in the FLNKS minerals spokesman, Paul Neaoutyine, and one for Gael Yanno of the RPCR. Both declined the offers.

The FLNKS refusal highlighted a division within the coalition over strategy. The Caledonian Union (UC), the largest member of the front, saw the offer as a trap, while Mr Neaoutyine’s party, the Party of Kanak Liberation (PALIKA), was keen to accept the position. Under pressure from the UC, the FLNKS announced that while it would be happy to sit on the Eramet board as a shareholder, it could not accept the government’s offer as this would limit its room for manoeuvre.

Divisions between UC and PALIKA were further highlighted at a FLNKS extraordinary convention on August 2, held in Nouméa. All four member parties attended—ie the two much smaller parties, the Kanak Socialist Party (PSK) and the Melanesian Progressive Union (UPM), as well as the UC and PALIKA. No substantive resolutions were agreed, with the only decision being to hold a further meeting at the end of September, after the Essig report had been presented.

The basic tension—described by local media as a crisis—is over the continued insistence by the coalition that a resolution of the nickel resource issue is a precondition for the resumption of talks on the political future of New Caledonia. PALIKA wants this precondition lifted. It argues that time is running out to achieve consensus on the referendum, and without one the independence movement will be at a disadvantage. Waiting for the government to adopt a position on the resource issue before negotiating is a sign of weakness. PALIKA is also unhappy with the UC presidency of the Northern Province, which is currently in deficit, and has been critical of the structure of the FLNKS used for decision making on strategy: despite their differing sizes, each party has the same number of places in the FLNKS executive. On the other hand, the UC, Mr Wamytan’s party, sees the provision of the nickel supplies needed for the northern smelter as crucial to the building of economic independence for the territory, and a test of faith of the French government. A few more weeks’ delay will not make much difference, it argues. Further complicating the situation, among the wide range of political views represented in the UC is a radical element, keen to adopt militant tactics should the Essig report not resolve the issue of access to nickel reserves for the smelter.

Tourism is booming— The indications are that 1997 will be a very good year for tourism after the stagnation of 1996. The first six months saw an overall rise in the number of visitors of 27.7% year on year, to 45,767 visitors, and hotel occupancy rates rose from 43.6% to 53.3%.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 23

—but exports fell in the Earnings from exports of mineral products, which account for around three- first half of 1997 quarters of the total, were down 6% year on year in the first six months of the year, to CFPFr24.5bn (US$236m). With imports down 2.4%, to CFPFr44.3bn, the trade deficit was little changed, at CFPFr19.8bn.

Inflation remains low Reflecting trends in metropolitan France, the consumer price index rose a cumulative 0.9% in the first half of this year. This brings the rate of consumer price inflation over the previous 12 months to 2%—little changed from the 1.7% recorded in calendar 1996.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 24 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 August 6, 1997; next election due by September 2001

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

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

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

Key ministers Agriculture & fisheries Steve Aumanu Commerce & tourism Enele Kwain Development planning Fred Fono Education Ronidy Mani Finance Manasseh Sogavare Foreign affairs Patteson Ori Forestry, environment & conservation Hilda Kari Health & medical services Dickson Warakohia Home affairs Leslie Osero Lands & housing Jackson Piasi Police & national security Lester Saomasi Provincial government Japher Waipora Women, youth & sports Robins Mesepitu

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Solomon Islands 25

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 11.8 Population m 0.34 0.35 0.37 0.38 0.39 Exports fob US$ m 102.9 134.3 149.4 168.3 189.4a Imports cif US$ m 111.5 134.5 132.8 158.9a 172.6a Current account US$ m –1.4 24.4 20.1 n/a n/a Reserves excl gold US$ m 23.50 20.07 17.42 15.91 32.58 Total external debt US$ m 94.3 150.5 154.9 157.5 n/a Debt-service ratio, paid % 5.5 4.4 6.2 n/a n/a Exchange rate (av) SI$:US$ 2.928 3.188 3.291 3.406 3.581

September 5, 1997 SI$3.670: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 1995b US$ m Principal imports cif 1995b 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 1995c % of total Main origins of imports 1995c % of total Japan 64.5 Australia 42.9 UK 7.6 Singapore 12.9 Thailand 6.3 Japan 10.0 Philippines 5.7 New Zealand 8.6 USA 3.2 PNG 3.6 Hong Kong 3.6 a EIU estimate. b National statistics. c Estimates, derived from trading partners’ statistics.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 26 Solomon Islands

Outlook for 1997-98

The new government faces The August elections produced widespread change in the parliament and re- daunting problems sulted in a cabinet in which only three members have previous experience of ministerial office. The emergence of something like a new order seems to be what the electorate wanted. It is clear that many new MPs were successful on just that basis; specific policy commitments were notably lacking. In the current economic situation, an administration lacking experience may not be a bad thing. A new government, with little political baggage, may be more prepared to accept professional advice on how to tackle the crisis that largely stemmed from the older order ignoring such advice. The nature of the crisis is clear. The government has virtually no cash in hand, is heavily in arrears on its debt-service commitments and revenue collection is grossly inadequate. It faces the long-term structural problem—now becoming alarmingly short- term—of the rapid depletion of the country’s major economic resource, its forest cover. Introducing the necessary remedial measures will require a high degree of political courage. In such circumstances, given the country’s history of unstable political coalitions inevitable question arises, of how long this one will last. The new prime minister, Bart Ulufa’alu, only narrowly won the election for his position in parliament, and his government depends on the support of six parties and independents. This is not the ideal environment for fiscal stabilisation.

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

8 120

100

4 SI$:DM

80 2

SI$:US$ 60 0 SI$:¥ 1991 92 93 94 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

An “all change” election— The general elections on August 6 followed the pattern of the recent past, with the incumbent administration defeated and more than half of the 50 members of the National Parliament losing their seats. Among the prominent politicians to fall were the deputy prime minister, Francis Saemala, and Francis Nori from the opposition. After intense negotiations between the various parties, Bartholomew (Bart) Ulufa’alu was elected prime minister, defeating Danny

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Solomon Islands 27

Philip, who had been commerce minister in the outgoing government led by Solomon Mamaloni. Mr Ulufa’alu won 26 out of the 48 votes cast.

Mr Ulufa’alu was the candidate of the Alliance for Change, a coalition of the parties and independents that had largely constituted the opposition in the previous parliament. He first entered politics in 1976 as MP for East Honiara and served as leader of the opposition until 1980. He then became minister of finance in the first Mamaloni government (1981-84). In 1990 he resigned from parliament to become chief economic consultant to the second Mamaloni government.

—and a very bold The new government has given an indication that it understands what needs announcement to be done to resolve its acute shortage of cash. In early September it was reported that department heads have been informed that around 1,000 civil servants will be made redundant in the next six months, and another 1,000 in the following 12. (No up-to-date figures are available, but in 1993 some 9,600 civil servants were employed by the national government.) This is not a costless option—either politically or economically—but it would represent a welcome reduction in the third of the budget that goes on salaries.

The UNDP backs malaria The UN Development Programme (UNDP) has announced a two-year control and local US$548,000 malaria control project in the Solomons which, it says, has the government training worst malaria rate in the world. In 1992 the incidence was 411 cases per 1,000 people, far in excess of Vanuatu, the next worst affected country. Last year, however, the rate was down to 207 per 1,000 as an anti-malaria drive begun four years earlier started to take effect. The new UN programme aims to distrib- ute chemically treated anti-mosquito nets to 80,000 people (about one-fifth of the population).

The UNDP is also contributing some US$999,000 to a US$1.2m government training project aimed at improving management in provincial and sub-provincial governments and rural and outer island communities. The aim is to enhance both access to services and village participation in the planning and development of projects in their areas. The programme will operate in three provinces— Malaita, Isabel and Rennell, and Bellona.

The Gold Ridge project is Two writs were filed in the Solomon Islands high court on July 22 aimed at challenged in court halting Ross Mining’s A$65m (US$47m) Gold Ridge gold-mining project at Guadalcanal, on environmental and compensation grounds. The writs named 1,239 complainants, most of them landowners along the Metapona river and its tributaries, but with more than 200 within the mining lease. Some of the names, however, also appeared on a press release issued the following day by those supporting the project. The issue is essentially one of compensation. This means that settlement is feasible, but reaching such an agreement may delay the start-up of production at the country’s first mining venture. This is scheduled for March next year.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 28 Tonga

Tonga

Political structure

Official name Kingdom of Tonga

Form of state Constitutional monarchy, with the monarch retaining significant power

The executive The king appoints a cabinet, headed by a prime minister, comprising the governors of Ha’apai and Vava’u and ministers of the Crown; ministers are appointed permanently until retirement age

Head of state King Taufa’ahau Tupou IV

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

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

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Tonga 29

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 –1.6 1.0b Consumer price inflation % 8.0 0.9 1.1 1.4 3.0b 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 –6.0 20.4 n/a n/a Reserves excl gold US$ m 31.77 37.06 35.54 28.71 30.62 Total external debt US$ m 43.5 44.2 64.4 70.1 n/a Debt-service ratio, paid % 3.0 3.0 4.6 n/a n/a Exchange rate (av) T$:US$ 1.35 1.38 1.32 1.27 1.23

September 5, 1997 T$1.369: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.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 30 Tonga

Outlook for 1997-98

Prospects for growth are There is little prospect of a marked upturn in growth over the short or even limited medium term in this narrowly based economy. Production remains essentially based on traditional activities and patterns, even as the government continues to encourage niche market products. Unconventional means of generating income—the sale of passports and nationality—are not sustainable over the longer term.

The immediate outlook for squash sales to Japan, which account for about half of total export earnings, is unclear, while production of fruit and root crops this year will be down because of cyclone damage in March. On the other hand, fish exports are likely to earn more, while income from tourism is rising (by 16.1% year on year in the first quarter).

Tonga: gross domestic product Tonga: Tonga dollar real exchange % change, year on year rate (b) 1980=100 10 150 8 140 6 T$:DM 130 4 120 2 T$:US$ 0 110

-2 100 T$:¥ -4 Tonga 90 -6 Asia excl Japan 80 -8 1991 92 93 94 95 96(a) 70

(a) EIU estimates. (b) Nominal exchange rates adjusted for changes in relative consumer prices. 1980. . . . 85 . . . . 90 . . . . 95 . Sources: EIU; IMF, International Financial Statistics; World Economic Outlook.

Review

The crown prince warns In a rare speech to parliament, Crown Prince Tupouto’a, who holds the foreign campaigners for and defence portfolios, said that the day would come when campaigners for democracy democracy in Tonga “will be dealt with”. He was speaking on a bill, opposed by pro-democracy MPs, to reduce the price of passports (sold mainly to Asians). He accused them of having spoken unkindly about his father, King Taufa’ahau Tupou IV, which was something the Chinese passport buyers did not do. He warned that “those who run around trying to rob the king of his authority ... will get what they deserve”.

Tonga began selling passports a decade ago; a celebrated purchaser was the late Ferdinand Marcos of the Philippines during his period in exile. The original scheme was declared unconstitutional and replaced by one under which a passport and Tongan nationality sold for US$40,000. However, the high price appears to have deterred potential buyers. Under the latest measure, parliament

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Tonga 31

gave the minister for immigration authority to sell passports at lower, unspeci- fied prices.

Steady import costs hold Reflecting the country’s dependence on imports and the subdued rate of down inflation inflation in the country’s major foreign sources of goods (New Zealand and Australia), the consumer price index (CPI) in July was only 2% above its year- earlier level, a rate slightly below the 2.2% registered in July 1996. Significantly the local component of the index was up 2.4%, with that of imports rising by only 1.4%.

A minister outlines new New directions for the tourism sector have been proposed by the minister directions for the tourism responsible for the industry, Masaso Paunga, whose portfolio also includes industry labour and commerce. In a recent interview with a local news magazine, Matangi Tonga, Dr Paunga was dismissive of the ten-year tourism plan, adopted in 1993 on the advice of Australian consultants, to more than double tourist arrivals to 50,000—a plan based on the conventional pattern of hotel and resort development. He said the money for such developments was not available from the government and was unlikely to be forthcoming from the private sector. Moreover the standard tourist hotel concept did not facilitate contact with local people or differentiate Tonga from any other destination. His own vision was to achieve similar numbers by quite different means, bringing the tourism industry as close as possible to Tongan society through the mechanism of the “home stay” in Tongan villages. A committee of the Tonga National Cultural Centre is currently selecting four or five villages for a pilot project. The proposal is to attach an 18-foot Tongan fale (traditional house) with one or two rooms and “very good toilet facilities” to a family house, using building materials bought in bulk by the government. Tourists would become part of a Tongan family rather than spectators in the country, and the industry would be controlled essentially at the village or family level.

A significant advantage of this type of tourism stressed by the minister was that it would largely remove the element of “serving”. Dr Paunga considered the serving ethos to be inappropriate to Tonga, being the only Polynesian country in the South Pacific never to have been colonised.

Tonga Telecom aims to The Tonga Telecommunications Commission (Tonga Telecom) aims to provide double telephone access 84% of the country’s households with access to telephone, fax, e-mail and by 2000 internet services by 2000. The number of telephone lines is to be increased from the current 6,950 to 13,260, with the commissioning of five new earth stations for satellite services.

Japanese cooperation is At the triennial agricultural and industrial show held in August this year, announced in pearl Japanese involvement in the marine sector was announced. According to the farming and fishing king negotiations are in progress with a Japanese company for the further development of pearl farming in Vava’u; pearls could also be cultivated in Ha’apai and Tongatapu. The prime minister took the opportunity to stress the government’s determination to develop an indigenous fishing industry rather than license the exploitation of this resource to others. A fishing training vessel from Japan is to visit Tonga in October to provide training in more modern techniques and skills.

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 the Union of Moderate Parties, the National United Party, and the Melanesian Progressive Party

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

Members of Council of Prime minister Serge Vohor (UMP) Ministers Deputy prime minister & minister for industries,trade commerce & cooperatives Barak Sope (MPP)

Key ministers Agriculture, livestock, forestry & fisheries Vital Soksok (UMP) Education, youth & sports Louis Carlot (UMP) Finance Willie Jimmy (UMP) Foreign affairs Amos Andeng (UMP) Health & rural water Charly Nako (UMP) Home affairs Robert Karie (NUP) Justice & women’s affairs Walter Lini (NUP) Land & natural resources Sato Kilman (MPP) Public works Samson Bue (UMP) Telecommunications & aviation Demis Lango (UMP)

Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996 GDP at current prices Vt m 21,541 23,779 24,962 26,633 27,500a Real GDP growth % –0.7 4.5 2.5 3.2 3.0a Consumer price inflation % 2.2 5.4 2.4 2.2 0.9 Population m 0.15 0.16 0.16 0.17 0.18 Exports fob US$ m 17.8 17.4 25.1 28.3 30.3a Imports fob US$ m 66.8 64.7 74.7 79.4 85.7a Current account US$ m –13.1 –14.9 –19.8 –18.3 –22.0a Reserves excl gold US$ m 42.46 45.59 43.58 48.29 43.92 Total external debt US$ m 40.4 42.4 46.5 48.2 n/a Debt-service ratio, paid % 1.3 1.4 1.6 1.5 n/a Exchange rate (av) Vt:US$ 113.4 121.6 116.4 112.1 111.7

September 5, 1997 Vt117.62:US$1

Origins of gross domestic product 1993 % of total Components of gross domestic product 1995 % of total Agriculture, forestry & fishing 18.9 Private consumption 48.0 Manufacturing 5.8 Government consumption 26.0 Electricity, gas & water 1.8 Fixed investment 30.5 Construction 5.7 Stockbuilding 2.1 Transport & communications 8.4 Exports of goods & services 45.2 Wholesale & retail trade, hotels & restaurants 32.4 Imports of goods & services –54.8 Other services 27.0 Statistical discrepancy 3.0 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 1995b % of total EU 37.4 Japan 43.7 Japan 24.1 Australia 22.5 South Korea 11.9 Singapore 9.2 Australia 10.4 EU 9.2 Bangladesh 10.2 New Zealand 7.0 New Caledonia 6.0 a EIU estimate. b Estimates, derived from trading partners’ statistics.

Outlook for 1997-98

Commitment to economic Despite another change in the composition of the government coalition the reform is surviving prospects for progress on the comprehensive reform programme (CRP) remain political instability— promising. The strong multiparty support for the programme is unaffected, and the success of the national consultative summit held in June was another encouraging sign, particularly as no attempt has been made to hide the degree of pain associated with the economic reforms proposed in the CRP. The de- tailed terms of the CRP are due to be worked out before the end of this year.

—while economic growth With no demand-restricting measures therefore likely to be implemented until continues at a slow pace 1998, economic growth this year should maintain the modest pace of the recent past, with GDP rising by 2-3%. Income from tourism will benefit from higher air-service frequencies, while construction is getting a boost from the related upgrading of airports. The chronic deficit on merchandise trade will meanwhile be held back by the weakening in oil prices and generally good demand—and prices—for the agricultural commodities that Vanuatu exports in modest quantities.

Vanuatu: gross domestic product Vanuatu: vatu real exchange rate (b) % change, year on year 1980=100 Vanuatu 140 Asia excl Japan 8 7 120 6 5 100 4 Vt:DM 3

2 80 Vt:US$ 1 0 Vt:¥ 60 -1 1991 92 93 94 95 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

Another reshuffling of the Following the familiar pattern, the coalition agreement formalised between the governing coalition National United Party (NUP), the Union of Moderate Parties (UMP) and the Vanua’aki Pati (VP) in March (2nd quarter 1997, page 36) proved shortlived, and a new coalition was put together at the end of May. The collapse in the existing coalition followed the defection of five of the seven MPs of Father Walter Lini’s NUP to the VP. On the next day all four VP ministers, including the deputy prime minister, Donald Kalpokas, were sacked. The half of the UMP led by the prime minister, Serge Vohor, and the half led by the former prime minister, Maxime Karlot Korman, reconciled their differences and were joined by Barak Sope’s Melanesian Progress Party (MPP), the remaining two NUP members and the Tan Union and Fren Melanesian MPs. Mr Korman declined a

ministerial portfolio, to allow wider geographical representation in the cabinet, but Mr Sope became deputy prime minister with the industry, trade, commerce and cooperatives portfolio.

The consultative meeting The familiar musical chairs in government has left unaffected its commitment on the CRP is held— to the comprehensive reform programme (CRP), the structural reform backed by the Asian Development Bank (ADB) and major aid donors, which aims to produce increased and sustainable rates of economic growth, an improvement in public-sector management and good governance. The national “summit” meeting on the CRP, representing all elements of the community, met in June as scheduled. More than 300 people attended, including government and opposition MPs, private-sector representatives, church, trade union and women’s groups, traditional chiefs, all the diplomatic corps and development partners including the ADB. Proceedings were broadcast live on television and radio. The reform programme is now scheduled to go to parliament for final endorsement in October.

—and wins the approval At the first consultative meeting of Vanuatu’s development partners, held in of development partners Nouméa on July 28, the government’s initiative in launching the CRP was applauded. The donors expressed appreciation for the consultative and partici- patory process adopted by the government to formulate the programme, particularly the bipartisan political approach. The development partners also stated that the wider community must continue to be actively involved, that both government performance and public accountability must improve and that the government must withdraw from commercial activities. They were all necessary to produce a predictable and stable policy environment in which growth could be promoted. Donors are to meet again in a year’s time to review progress on the CRP.

The ombudsman finds The ombudsman, Marie-Noelle Ferrieux Patterson, recommended in June that against the new finance the new finance minister, Willie Jimmy, be dismissed for his role in the payment minister— of compensation to 23 MPs in 1993. The government, then led by Maxime Korman, had awarded ex-gratia payments of Vt1.5m (US$12,000) each to 18 UMP and five MPP members involved in a 1988 boycott of parliament. The UMP MPs, led by Mr Korman, had lost their seats because of the boycott, a decision that was upheld by both the Supreme Court and the Court of Appeal. The MPP MPs, led by Mr Sope, had resigned from parliament in support of the UMP boycott. After the UMP victory in the elections of December 1991, the Korman cabinet voted in September 1993 to make the payments, despite the fact that ministers stood to gain personally, and against the advice of the solicitor-general that they were illegal. Mr Jimmy, then finance minister, au- thorised the payment. Less than one year later the same ministers approved payments to themselves of larger amounts under a new Compensation Act: this is to be the subject of another report, the ombudsman said. She recommended that Mr Jimmy be dismissed from his current ministerial post and that the 23 MPs be obliged to return the money.

—but the government This ruling from the ombudsman is clearly unwelcome to the new members of plans to repeal current the governing coalition. Last year the ombudsman had ruled that Mr Sope, the ombudsman legislation new deputy prime minister, was unfit to hold public office because of his role in the illegal issue of bank guarantees.

The government therefore plans to introduce legislation allowing individuals who considered themselves wrongly accused to take legal action against the ombudsman. The former and current MPs named in the report on ex gratia payments are currently challenging the validity of the ombudsman’s appoint- ment and the constitutionality of the powers set out in the current legislation. The Supreme Court has set October 7 for the start of hearings.

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 –8.0b 9.6b 6.0b Consumer price inflation % 9.0 1.8 18.4 1.0 7.6 Population m 0.16 0.16 0.16 0.17 0.17 Exports fobc US$ m 5.82 6.43 3.53 8.75 10.10 Imports fobc US$ m 89.90 87.37 69.01 80.22 99.00 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 60.80 Total external debt US$ m 117.9 193.8 154.4 161.9 n/a Debt-service ratio, paid % 5.5 6.9 7.3 4.2 n/a Exchange rate (av) Tala:US$ 2.465 2.568 2.535 2.472 2.462

September 5, 1997 Tala2.418: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

Main destinations of exports 1995d % of total Main origins of imports 1995d % of total Australia 86.4 New Zealand 34.7 New Zealand 6.8 Japan 20.8 American Samoa 1.7 Australia 19.4 Fiji 8.3 USA 5.6 Singapore 4.2 a EIU estimate. b Official estimate. c IMF balance-of-payments figures. d Derived from trading partners’ statistics.

Outlook for 1997-98

Economic growth The economy is entering a period of consolidation after the sharp rebound seen stabilises at a lower rate in 1995-96 following the major natural disasters of 1994. Tourism is emerging as the best potential foreign earner, even though the government has yet to sign up a developer for a major resort or hotel project. Instead, the government is now encouraging both domestic and foreign investors to focus on small, motel-style accommodation, the need for which is increasingly apparent, and which has greater backward linkages in the domestic economy. Meanwhile, the now well-established economic reform and restructuring programme is entering a new phase with some significant privatisations and corporatisations scheduled for this year and next, which should have an immediate favourable impact on government income.

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 4

2 100 0 Tala:DM -2 80 -4 Tala:US$ -6 60 -8 Tala:¥ 1991 92(a) 93(a) 94(b) 95(b) 96(b) (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 change of name goes The country’s name was formally changed to Samoa by the parliament on July 4. through A few politicians in neighbouring American Samoa objected, but most citizens in Samoa were unmoved by the change.

A passport racket is The chief immigration officer, Tuipoloa Suisala Eteuati, and five other officers disclosed from the immigration department face multiple charges relating to the illegal sale of passports. Hearings have been scheduled for mid-May next year. The racket came to light largely through investigations by the Samoa Observer, and the newspaper’s editor/publisher and Samoan-language editor now face crimi- nal libel charges. The prime minister, Tofilau Eti Alesana, has threatened to change the law to allow for the closure of newspapers “stirring up trouble”. The World Press Freedom Committee has contributed US$5,000 to a legal defence fund for the journalists.

Samoa is ahead of most Among the members of the South Pacific Forum, Samoa is relatively well ad- regional governments in vanced in implementing economic reform and faces no major difficulties with economic reform the action plan agreed at the July meeting (see The region). Many of the elements that this plan outlines have already been introduced. Samoa has had value-added tax (VAT) in operation since 1994, when it also lowered income tax by 10% and reduced or eliminated duties on about 35 items, notably basic foodstuffs. There was another round of tariff cuts in March 1996, and the government is considering further liberalisation of the tariff regime. In September 1996 both direct control by the Central Bank of Samoa of the setting of interest rates, and the ceiling on bank credit, were abandoned in favour of determination by market forces. For several years now Samoa had been con- tracting out work previously done by the public works department through a system of open tenders; heads of government departments have been on con- tract since 1991 and other key positions are due to follow soon. Public-sector employment has meanwhile been allowed to fall through natural wastage.

The budget speech reports In his budget speech on May 30, the finance minister produced data on the the economy’s recovery economy’s recovery after the two cyclones of 1994 and the taro leaf blight. from natural disasters Agricultural production rose by 42% in 1995 and an estimated 23% in 1996; industrial output by 25% and just over 8% respectively. GDP is estimated to have increased by 9.6% in 1995 and just under 6% in 1996. In 1997 and 1998 the government expects growth to slow to a more sustainable 3.4% per year.

This forecast of slackening growth is borne out by recent data from the Central Bank for the last quarter of 1996. The overall volume of agricultural produce supplied to the central market in Apia was 23% down on the same quarter of 1995, while in manufacturing there were year-on-year falls in production of beer (12%), soft drinks (10%), cigarettes (15%) and paint (18%), broadly offset by rises in corned meat (28%), timber (9%), coconut oil and copra meal (both 11%). The construction sector registered some growth, with the number of building permits up 2% year on year.

The payments surplus rose In 1996 the balance of payments registered an overall surplus of US$13.7m, up last year, despite the from US$8.1m in 1995. This was entirely due to the fall in the current-account wider trade gap deficit, from US$38.3m to US$24.9m, mainly caused by higher income from tourism. The massive imbalance on merchandise trade rose slightly, with exports up 15% to Tala24.8m (US$10.1m) and imports up by 7% to Tala243.7m (largely owing to higher spending on fuel), to leave a deficit of US$88.9m increasing from the 1995 figure of US$71.5m.

Other Pacific Islands

Cook Islands

The recession appears to According to an Asian Development Bank (ADB)-funded economist at the have bottomed out— finance ministry, the recession bottomed out in the first quarter of 1997 and GDP is likely to stabilise over the whole year, giving marginal growth of about 0.5% in 1997. In his forecast for the next three years, published in July, this economist predicted that GDP growth would begin to resume its longer-term trend, with growth of about 3% in 1998 and 6% over the two subsequent years. The recovery will stem essentially from the expansion in tourism (numbers were up 9% year on year in the first six months) and higher investment. As a result of the strenuous attempts now being made to reverse the decline in agricultural exports, and the growth in earnings from pearls, merchandise exports are forecast to grow by an annual average of 10% over the next three years. And overall, the economy is now responding to the various reforms instituted in the face of the government’s financial crisis of two years ago.

—and donors are ready to A consultative meeting of donors to the Cook Islands in late July commended maintain support for the “substantive and creditable progress” of the government in implementing economic reform— the agreed economic reform. The meeting, held in Nouméa, was convened by the ADB and included Australia, New Zealand, China, France, Japan, the UK, the Commonwealth Secretariat, the UN’s Economic and Social Commission for Asia and the Pacific (ESCAP) Pacific Operations Centre, and the UN Development Programme (UNDP). In a statement made after the meeting the donors expressed their willingness to continue to assist economic reform.

—which includes policies Over the next few years the government plans to stimulate the development of to boost development in the country’s outer islands, through political and financial devolution. The the outer islands overall aim is to ensure that the outer islanders have the same economic, educational and health opportunities as exist on the main island of Rarotonga. The budgeting system for the provision of services to the outer islands will be changed to give them a larger degree of financial independence. Three local government entities are to be created on these islands, with elections to take place towards the end of this year. In addition a permanent fund of no less than NZ$2m (US$1.3m) per year is to be established, and will be available to the outer islands for bidding for infrastructure projects.

Federated States of Micronesia

(Chuuk, Kosrae, Pohnpei, Yap)

The ADB provides funding The FSM has received a US$934,000 technical assistance grant from the ADB to for fisheries management modernise the management of its fisheries sector. The country’s economic zone yields about 210,000 tons of tuna annually, but because its fishing capa- bility is small, nearly all the tuna catch is harvested by foreign fishing vessels.

The grant will help the Micronesian Maritime Authority to develop into a single fisheries management authority and will also be used to design and implement a fisheries management and development plan and coordinate the activities of government and private-sector agencies.

Nauru

An agency is set up to The Nauru parliament recently passed legislation to set up a corporate entity to manage rehabilitation manage the programme for the rehabilitation of depleted phosphate mining funds areas. The programme, which is expected to take more than 23 years, will utilise funds from the Nauru-Australia Compact of Settlement (NACOS), an out- of-court settlement between the two governments reached after Nauru took its case for rehabilitation compensation to the International Court of Justice.

Air Nauru is to move on to Nauru is to put its national airline, Air Nauru, on to the Australian aviation the Australian register register. Australia’s Civil Aviation Safety Authority (CASA) will take over responsibility for the surveillance and certification of Air Nauru aircraft, reducing the airline’s insurance costs. It is hoped that the change will open up business opportunities for Air Nauru, which currently holds a number of unused slots.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 43

Quarterly indicators and trade data

Fiji: quarterly indicators of economic activity

1995 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Exports Qtrly totals Sugar ’000 tons 54.2 60.1 171.4 152.4 39.1 60.5 216.8 170.7 0.0 38.9a Tourism Qtrly totals Visitor arrivals ’000 66 77 95 80 71 76 101 92 84 84 Prices Monthly av Consumer prices: 1990=100 120.6 120.6 120.4 121.6 123.8 124.7 124.7 124.6 128.5 129.9 change year on year % 1.6 2.1 2.7 2.3 2.7 3.4 3.6 2.5 3.8 4.2 Money & banking End-Qtr M1, seasonally adj: F$ m 348.2 370.7 364.3 383.9 421.8 440.1 493.0 453.1 416.9 390.5b change year on year % 3.9 6.9 9.9 12.1 21.1 18.7 35.3 18.0 –1.2 n/a Commercial banks: total depositsc F$ m 1,358.3 1,382.6 1,420.9 1,457.7 1,484.8 1,455.9 1,483.2 1,459.0 n/a n/a loans & advances “ 1,105.9 1,118.0 1,109.8 1,125.3 1,139.5 1,134.6 1,169.2 1,168.2 n/a n/a Foreign trade & payments Qtrly totals Exports fobd F$ m 165.4 176.1 290.0 238.5 180.6 403.5 300.1 128.9 124.1 n/a Imports cif “ 289.8 303.1 303.0 323.1 291.4 327.8 359.9 348.6 300.4 n/a Government revenue Total F$ m 160.3 170.2 182.0 202.5 150.3 186.3 189.8 225.6 n/a n/a income taxes ” 86.9 96.5 100.6 109.8 84.4 100.5 107.4 125.3 n/a n/a Exchange holdings End-Qtr Foreign exchange US$ m 223.3 225.6 291.1 322.8 338.3 302.0 350.2 401.3 347.3 326.8b Exchange rate Official rate F$:US$ 1.402 1.389 1.413 1.429 1.408 1.404 1.397 1.384 1.411 1.413e

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

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

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 44 Quarterly indicators and trade data

Solomon Islands: quarterly indicators of economic activity

1994 1995 1996 1997 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Prices Monthly av Consumer prices: 1990=100 162.2 166.2 170.2 175.2 179.2 190.2 192.6 193.6 195.7 n/a change year on year % 13.7 10.4 9.0 8.5 10.5 14.4 13.2 10.5 9.2 n/a Money End-Qtr M1, seasonally adj: SI$ m 162.88 156.89 163.43 146.01 170.79 187.99 181.09 190.13 197.55 200.90 change year on year % 31.6 16.1 17.3 –4.0 4.9 19.8 10.8 30.2 15.7 6.9 Foreign tradea Qtrly totals Exports fob US$ 34.8 38.5 41.3 41.0 37.3 47.5 33.4 44.7 46.1 17.3b Imports fob “ 34.1 33.3 33.6 38.7 34.7 36.5 34.0 42.9 42.3 13.3b Exchange holdings End-Qtr Foreign exchange US$ m 16.6 16.9 16.7 16.3 15.1 19.8 28.0 28.6 31.8 28.6 Exchange rate Official rate SI$:US$ 3.329 3.366 3.400 3.450 3.476 3.514 3.550 3.587 3.622 3.648

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

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

Tonga: quarterly indicators of economic activity

1995 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Monthly av Consumer prices 1990=100 122.1 123.2 124.2 124.5 127.1 127.9 127.1 126.7 128.6 n/a change year on year % 1.0 1.3 0.7 2.7 4.1 3.8 2.3 1.8 1.2 n/a Money End-Qtr M1, seasonally adj T$’000 24,299 25,235 24,073 21,530 24,625 23,303 21,487 20,363 25,578 n/a change year on year % 18.1 22.6 –0.3 –9.9 1.3 –7.7 –10.7 –5.4 3.9 n/a Foreign trade Qtrly totals Exports foba T$’000 1,991 1,811 3,946 10,695 1,545 1,499 1,881 n/a n/a n/a Imports cif “ 21,593 24,616 26,666 25,158 20,661 22,517 24,379 n/a n/a n/a Exchange holdings End-Qtr Foreign exchange US$ m 23.60 24.39 22.69 26.85 24.03 25.06 22.32 28.77 27.60 27.81b Exchange rate Official rate T$:US$ 1.277 1.277 1.267 1.270 1.238 1.232 1.219 1.213 1.227 1.228b

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

Source: IMF, International Financial Statistics.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 45

Vanuatu: quarterly indicators of economic activity

1995 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Monthly av Consumer prices: 1990=100 121.9 118.2 119.8 120.1 120.9 121.6 122.0 120.0 122.6 n/a change year on year % 4.9 0.3 2.1 1.7 –0.8 2.9 1.8 –0.1 1.4 n/a Money End-Qtr M1, seasonally adj: Vt m 5,776 5,491 5,619 6,256 6,387 6,334 6,353 6,476 6,581 6,226a change year on year % 4.5 –2.8 –10.5 10.1 10.6 15.4 13.1 3.5 3.0 n/a Foreign trade Qtrly totals Exports fobb Vt m 640 755 962 816 568 1,091 990 719 1,228 n/a Imports cif “ 2,437 2,918 2,487 2,818 2,459 2,748 2,988 2,693 2,370 n/a Exchange holdings End-Qtr Foreign exchange US$ m 39.27 40.32 41.66 44.16 40.62 44.43 39.87 39.82 40.54 34.00 Exchange rate Official rate Vt:US$ 113.2 113.5 112.6 113.7 111.8 111.4 111.2 110.8 112.8 115.1

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

Source: IMF, International Financial Statistics.

Western Samoa: quarterly indicators of economic activity

1995 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Prices Monthly av Consumer prices: 1990=100 127.6 133.1 127.7 132.3 137.2 138.3 140.7 144.0 147.1 151.1a change year on year % 1.7 1.1 –2.1 3.4 7.5 3.9 10.2 8.8 7.2 n/a Money End-Qtr M1, seasonally adj: Tala m 42.30 48.80 55.88 53.55 50.27 47.95 52.34 53.40 51.97 52.87b change year on year % 2.7 26.1 37.7 29.0 18.8 –1.7 –6.3 –0.3 3.4 n/a Foreign trade Qtrly totals Exports fobc Tala ’000 3,320 3,931 7,322 7,274 5,287 6,242 7,552 5,787 8,422 6,564d Imports cif “ 51,352 47,939 66,386 69,676 62,021 56,378 66,231 62,496 62,394 45,864d Exchange holdings End-Qtr Foreign exchange US$ m 44.59 44.52 45.77 51.28 45.99 48.92 52.84 56.82 57.45 58.58b Exchange rate Official rate Tala:US$ 2.467 2.431 2.503 2.527 2.452 2.452 2.434 2.434 2.472 2.533

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Average for April-May. b End-May. c Includes re-exports. d Total for April-May.

Source: IMF, International Financial Statistics.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 46 Quarterly indicators and trade data

Pacific Islands: 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 1996 1997 1993 1994 1994 1995 1993 1994 Germany 4.57 1.45 2,489 1,690 n/a n/a 2 1 Netherlands n/a n/a 52 686 n/a n/a 0 0 UK 6.01 5.12 2,336 3,766 n/a n/a 1 0 Singapore 12.83 14.76 29,279 16,646 63 269 1 1 Australia 132.17 141.58 72,186 89,170 981 794 17 16 New Zealand 44.75 42.60 23,705 17,550 213 194 40 30 Japan 13.38 23.15 38,746 40,426 207 257 11 8 USA 18.55 17.25 9,324 8,484 n/a n/a 11 9 Total incl others 291.45 300.38 216,104 208,593 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 1996 1997 1993 1994 1994 1995 1993 1994 Germany 0.58 0.69 2,952 3,133 Netherlands n/a n/a 12,745 21,380 Spain n/a n/a n/a n/a } 546 442 0 0 UK 20.20 6.30 24,588 26,656 China 4.70 0.00 n/a n/a n/a n/a 0 0 Australia 53.95 54.98 3,677 2,428 136 197 1 0 New Zealand 8.44 7.98 546 621 9 10 3 2 Japan 11.09 5.48 79,188 92,749 308 376 0 0 South Korea 0.07 0.32 30,839 34,221 59 50 0 0 USA 16.74 9.16 1,258 350 n/a n/a 1 0 Total incl others 150.03 98.74 193,577 232,102 1,673 1,880 6 4 a Including re-exports. b Imports cleared for home consumption. c Total EU.

Source: National sources.

Pacific Islands: main commodities exported

Fiji Solomon Islandsa Vanuatu Western Samoa F$ m SI$ m Vt m Tala ’000 Jan-Sep Jan-Sep 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 43.80 44.36 37.0 49.0 n/a n/a n/a n/a Sugar 197.17 203.64 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 34.93 34.57 108.2 139.7 197 181 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 2.66 4.09 2.7 0.8 n/a n/a 4,168 n/a Gold 44.07 61.84 0.6 0.1 n/a n/a n/a n/a Clothing 144.27 153.52 n/a n/a n/a n/a n/a n/a Total incl others 556.59 606.75 193.6 232.1 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.