Fiji New Caledonia Solomon Islands Tonga Vanuatu Western Samoa

COUNTRY REPORT

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

2nd 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.

London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent Street The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, USA Hong Kong Tel: (44.171) 830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.171) 499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638 e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]

Website: http://www.eiu.com

Electronic delivery EIU Electronic Publishing New York: Lou Celi or Lisa Hennessey Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 London: Moya Veitch Tel: (44.171) 830 1007 Fax: (44.171) 830 1023 This publication is available on the following electronic and other media: Online databases CD-ROM Microfilm FT Profile (UK) Knight-Ridder Information World Microfilms Publications (UK) Tel: (44.171) 825 8000 Inc (USA) Tel: (44.171) 266 2202 DIALOG (USA) SilverPlatter (USA) Tel: (1.415) 254 7000 LEXIS-NEXIS (USA) Tel: (1.800) 227 4908 M.A.I.D/Profound (UK) Tel: (44.171) 930 6900

Copyright © 1997 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the EIU does not accept responsibility for any loss arising from reliance on it.

ISSN 1366-4093

Symbols for tables “n/a” means not available; “–” means not applicable

Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK 1

Contents

3 Summary

The region 5 Outlook for 1997-98 8 Review

Fiji 11 Political structure 12 Economic structure 13 Outlook for 1997-98 14 Review 14 The political scene 15 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 27 Review

Tonga 29 Political structure 30 Economic structure 31 Outlook for 1997-98 31 Review

Vanuatu 33 Political structure 34 Economic structure 35 Outlook for 1997-98 36 Review

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 2

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 Kiribati 43 Marshall Islands 44 Nauru

46 Quarterly indicators and trade data

List of tables 8 The region: world commodity price forecasts 10 The region: tourist arrivals in the South Pacific 16 Fiji: tourism statistics 16 Fiji: foreign trade 16 Fiji: government financial accounts 17 Fiji: consumer prices 46 Fiji: quarterly indicators of economic activity 47 Solomon Islands: quarterly indicators of economic activity 47 Tonga: quarterly indicators of economic activity 48 Vanuatu: quarterly indicators of economic activity 48 Western Samoa: quarterly indicators of economic activity 49 Direction of trade 49 Main commodities exported

List of figures 6 The region: net disbursements of ODA to Pacific Islands 13 Fiji: gross domestic product 13 Fiji: Fiji dollar real exchange rate 16 Fiji: tourist arrivals 16 Fiji: government revenue and expenditure 26 Solomon Islands: gross domestic product 26 Solomon Islands: Solomon Islands dollar real exchange rate 31 Tonga: gross domestic product 31 Tonga: Tonga dollar real exchange rate 35 Vanuatu: gross domestic product 35 Vanuatu: vatu real exchange rate 39 Western Samoa: gross domestic product 39 Western Samoa: Tala real exchange rate

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 3

May 22, 1997 Summary

2nd quarter 1997

The region Outlook for 1997-98: Donors will increasingly focus on policy coordination so as to enhance the efficacy of their aid. A positive indicator for the region is the conclusion by a major review of the Australian aid programme that it maintain its focus on the Pacific Islands. The overall price outlook for the region’s export commodities is sluggish.

Review: Fiji, the newest member of the MSG, has urged more action as a bloc. International funds have been pledged to support regionwide projects on the environment, foreign trade and investment, waste management, and external relations. The tourist industry overall was picking up last year, but trends varied widely between countries. The ADB is to set up a venture capital fund for its member countries in the region.

Fiji Outlook for 1997-98: The constitutional review process is moving to a critical stage, with parliament now considering the proposal approved by its sub- committee. Agreement on this compromise deal would greatly enhance economic growth prospects, which are already good, with a forecast of an increase in GDP of around 3% in both years.

Review: The draft constitutional amendment bill has been tabled in parliament. It proposes opening out the system to non-indigenous Fijians as from 1999, and so will be opposed by hardline nationalists. GDP growth picked up to 4.7% in 1996, with gold mining the most dynamic sector. The fiscal balance deteriorated markedly last year because of a bank bailout by the government. Inflation edged up slightly in the first three months of the year. A cyclone in March damaged the sugar crop. Emperor Gold Mines has doubled its production target for 2000. Fiji TV’s monopoly has been removed.

New Caledonia Outlook for 1997-98: With the prospect of an end to the dispute over nickel supply to the planned northern smelter, the momentum of political progress should be restored. Economic prospects remain good.

Review: Further intervention by the French government has opened a way to the resolution of the nickel supply dispute, and talks have resumed between the two sides. Inco has set out its plans for a new nickel smelter, involving investment of US$840m. The 1996 census results show that the Melanesian community is declining in significance. Hotel expansion is planned in the capital. The longline fishing fleet is to increase, geared to the Japanese market.

Solomon Islands Outlook for 1997-98: The general elections in September are unlikely to produce a government committed to the drastic spending cuts needed to solve the deep budget crisis. GDP growth will continue at around its recent 4% rate, on an essentially unsustainable basis.

Review: GDP growth slowed in 1996, but was still a high 6%, driven by the continuing increase in timber output. The Central Bank governor has attacked

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 4

the government’s “unbridled expenditure policy”. The contract for the country’s first mining venture has been signed.

Tonga Outlook for 1997-98: Economic growth will continue on a narrow and vulnerable base.

Review: Maintenance spending is losing out to rising personnel costs in the budget. The terms for squash exports to Japan have been agreed, with new quality criteria. Squash export volumes and earnings registered a partial recovery last year. A cyclone in March caused damage on two islands.

Vanuatu Outlook for 1997-98: The formalisation of the coalition agreement holds out the prospect of the greater political stability which will be needed to put through economic reform. GDP is likely to continue its recent 2-3% annual growth.

Review: The three partners in the government coalition have signed a document setting out institutional structures for their cooperation. GDP rose by 3% in 1996.

Western Samoa Outlook for 1997-98: Improved cocoa output should underpin economic growth, while structural economic reform is set to deepen.

Review: Proposed amendments to the constitution include reduced independence for the chief auditor. GDP growth continued at a high rate in 1996, at 7%, reflecting the momentum of recovery after 1994’s disasters. Polynesian Airlines has extended its network to Melbourne.

Other Pacific Islands The paring back in the public administration will bring a severe contraction in the Cook Islands economy this year. The acting president of FSM has now been sworn in. A voluntary retirement scheme, supported by ADB, aims to cut the public workforce by one-fifth. The ADB is providing funds for a major sanitation project in Kiribati. The contract has been signed with a Japanese company for the upgrading of Betio Port. The president of the Marshall Islands, who held the post for 17 years, has been succeeded by his cousin. ADB funds will be used to fund a major redundancy programme in the public service. A contract has been signed for copra supplies from FSM. Nauru has another new president. His predecessor introduced measures to lessen the country’s severe financial difficulties.

Editor: Graham Richardson All queries: Tel: (44.171) 308 1007 Fax: (44.171) 830 1023

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 The region 5

The region

Outlook for 1997-98

Donors are looking for Overall economic prospects in the region remain subdued, with several coun- ways to increase their tries undergoing painful restructuring and the largest regional economy, that of impact Papua New Guinea, struggling against political instability. Prompted by a growing realisation that many regional governments cannot expect to achieve worthwhile and sustainable growth through their own efforts in the foreseeable future, major aid donors have begun serious efforts to maximise the impact of their assistance. On the initiative of the Australian government’s Agency for International Development (AusAID), the first Pacific Donors Consultation was held in Sydney in February, involving senior officials of Australia, France, Japan, the UK, the European Commission, New Zealand, the USA, the Asian Development Bank (ADB), the World Bank and the UN Development Programme (UNDP). Given the increased pressures on all aid budgets, the new signs of cooperation between donors have been seen as a development broadly in parallel with the redefinition and restructuring of regional organisations and institutions (1st quarter 1997, page 6). Indeed, AusAID, describing the context of the meeting, said that the aid and trade relationships that a number of significant donors had traditionally maintained with Pacific Island countries were “undergoing a more or less extensive reorientation”. Budget constraints had led some donors to reduce aid to the Pacific region, developments in the world trading system had diminished the benefits and relevance of preferential trading arrangements, and there was increasing emphasis on support for policy and management reforms in the programmes of most of these donors. The latter raised particular issues of coordination at both policy and project level. An additional factor is the changing role of the World Bank, which has not pre- viously been a significant lender in the South Pacific. It now has a separate division in Washington to deal with Papua New Guinea and the South Pacific. The Sydney meeting dealt principally with policy level coordination issues and more systematic collaboration in policies and projects. It is likely to be repeated every 18 months or so “on an opportunistic basis”.

The French representative France’s permanent secretary for the South Pacific, Pierre Garrigue-Guyonnaud, says the Pacific is a special said after the meeting that all donors agreed the South Pacific was “a very case specific case that deserves particular interest, taking account of specific differ- ences and justifying adaptations of our procedures and way of dealing with the region”. He noted that there was now a “wider, more global vision of development, not oriented only to programmes but also to economic and financial reforms, and the involvement of all actors of the economic world” and emphasised that the “totality of civil society” should be associated in this process, including chambers of commerce, the churches, non-governmental organisations (NGOs) and women’s groups. Mr Garrigue-Guyonnaud pointed out that development assistance should not be the result of proposals from donors, but should be in response to a need expressed by the people of the recipient country.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 6 The region

Where France was concerned, its commitment to the South Pacific was con- firmed and its contribution would not be decreased, but increased, he said.

Regional governments Notwithstanding efforts by the donors’ group to maximise the value of their fear a loss of interest assistance, there is considerable nervousness in the region about the commit- among donors— ment of some of them. A low-key announcement on April 16 by the US State Department that it was merging its office of Australia and New Zealand affairs with its office of Pacific Island affairs was widely reported as a “further” sign of America’s declining interest in the region, since it followed closures of several regional consular, information and aid offices. The interpretation was promptly rebutted. Alarm has also been generated by the Australian government abandoning any commitment to the UN target of 0.7% of GDP for the provision of aid by developed countries. That decision may, however, be offset in regional terms by the outcome of the major review of Australia’s foreign aid published in May.

—but a major Australian The review was described by the Australian foreign minister, Alexander aid policy review calls for Downer, as the most important contribution to the aid debate in a decade. The a focus on the Pacific— report is open for public comment over the next three months while the government conducts its own analysis of the findings. The government’s for- The region: net disbursements of ODA to Pacific Islands, US$ m mal response to the review will set the framework for aid in the 1998 budget. PNG Only Papua New Guinea will be exempt from this timetable because of talks French Territories (a) Former US Trust Territories (b) scheduled for next year on policy after 2000, when the current bilateral aid Other islands (c) treaty ends. 2,000

1,600 The review was chaired by the former executive chairman of the Australian Woolworths supermarket chain, Paul Simons. It pointed out that Australia 1,200 should sharpen the geographic focus of its aid to achieve greater efficiency and 800 effectiveness. International and domestic expectations of Australia’s role in the 400 region meant that Papua New Guinea and the Pacific Islands should have first priority. Australia should cut down on the 60 countries that currently receive 1992 93 94 95 (a) French Polynesia, New Caledonia and Wallis & Futuna. its aid: “Papua New Guinea and the Pacific Islands have unique and, in many (b) Federated States of Micronesia, Marshall Islands, Palau and Northern Marianas. (c) Fiji, Tonga, W. Samoa, Solomon cases, pressing development needs, and Australia has particular national inter- Islands, Vanuatu, Kiribati, Cook Islands, Tuvalu, Nauru, Niue and Tokelau. Source: DAC. ests in their stable and sustainable development.”

—encouraging reform— Recognising that Australian aid has a significant impact in PNG and the Pacific that is greater than in other regions, the report states: “There is strong need to continue efforts to support good governance, especially through economic reforms and sustainable resource management.” It recognises that there are limits to how much a donor should try to impose preferences on independent countries; putting strong conditions on aid flows could harm the commitment of recipient states. Rather, the Simons committee recommended that the ultimate response to poor policies in the South Pacific should be a cut in aid given to slow-moving governments. The review pointed out that the Pacific Island countries should not be seen as homogenous. It recognised that Tonga, Western Samoa and more recently Vanuatu had “moved determinedly towards reform”. Others, such as Tuvalu, had managed their limited resources prudently.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 The region 7

—and maintaining the Australia’s development assistance to the Pacific (excluding PNG) amounted to concentration on core A$129m (US$100m) in 1996/97, with two-thirds of the money going in bi- countries— lateral aid to 16 countries. The seven core countries in the bilateral programme are Fiji, Kiribati, Solomon Islands, Tonga, Tuvalu, Vanuatu and Western Samoa.

Noting the withdrawal of other aid donors from the region, the report cautioned against Australia yielding to pressures to spread its aid to a larger range of island countries. It also urged the examination of further trust funds for very small island countries. The Tuvalu Trust Fund and the Kiribati Revenue Equalisation Reserve Fund had worked quite well, with the capital of the funds preserved and added to, which was “in marked contrast to the Nauru Phosphate Royalties Trust Fund”.

—while urging some The review echoed one theme of the last major aid review (the Jackson Report of special immigration 1984) with a call on the Australian government to reconsider the option of a provisions special migration programme for the smaller atoll states. The Simons committee described migration or guest worker schemes as a “vexed issue” for Australia, but said moving people “may prove to be more cost-effective than continuing high levels of aid in perpetuity”. Reflecting on Australia’s past refusal to consider such schemes, the review noted likely opposition because of “high unemployment and a desire to protect the integrity of Australia’s non-discriminatory immigration policy”.

Commodity price Among agricultural commodities of relevance to the foreign income of the prospects improve, but are region covered by this report, the price outlook for this year and next is now still not very good rather better than the EIU forecast in the last quarter, but is far from robust. We have revised upwards our forecast for the cocoa supply shortfall, resulting in even higher prices in 1998. The underproduction which has plagued the cocoa market in the 1990s is likely to remain a feature for the rest of the decade. The strength of coffee prices, however, is expected to result in a rise in production which will bring the re-emergence of a surplus in 1997/98, pulling down prices next year, although the average for this year is now expected to be up, rather than down. Palm oil stocks are forecast to rise and prices to weaken during the rest of 1997 while lauric oil prices will remain stable throughout this year and then strengthen moderately in 1998. Earlier we had forecast a marked slacken- ing for this year, and stagnation or a modest fall for next. A similar change in our forecast applies to sugar, the region’s most important agricultural crop export. The fall in sugar prices this year is now several points lower than earlier expected, while the improvement next year is marginally stronger, because supply from Brazil and India in both 1996/97 and 1997/98 is forecast to be slightly down.

Prospects for the region’s leading mineral export—nickel—have improved this year, but worsened next, with the overall trend one of stagnation after the sharp movements in recent years. World demand is picking up only slowly and will be outpaced towards the end of the forecast period by the increase in supply, much of it from large low-cost orebodies.

The region’s trade balance will, however, benefit from the quite marked weakening in international oil prices this year, and their further, marginal fall next year, in response to continuing oversupply.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 8 The region

The region: world commodity price forecasts (US$/ton unless otherwise indicated) 1995 % changea 1996 % change 1997 % change 1998 % change Nickel (refined: US$/lb) 3.74 30.0 3.40 –9.0 3.52 3.5 3.38 –4.2 Cocoab (US cents/lb) 65 2.7 65.9 1.4 75 13.8 91 21.3 Coffeec (US cents/lb) 138.4 3.0 101.9 –26.4 117.8 15.6 103.8 –11.9 Crude palm oild 628 18.9 531 –15.4 533 0.4 464 –12.9 Palm kernel oild 677 7.6 728 7.5 758 4.1 802 5.8 Coprad 439 5.1 489 11.4 491 0.4 513 4.5 Coconut oild 670 10.2 752 12.2 758 0.8 791 4.4 Sugare (US cents/lb) 13.28 9.7 11.96 –10.0 10.53 –11.9 10.75 2.1 Crude oilf (US$/barrel) 17.2 –6.1 20.64 20.0 18.5 –10.4 18.3 –1.1 a Year on year. b International Cocoa Organisation daily indicator. c International Coffee Organisation composite indicator price. d Basis: cif Europe. e International Sugar Association daily average. f Weighted average cif cost of International Energy Agency imports.

Sources: EIU, World Commodity Forecasts: Industrial Raw Materials; World Commodity Forecasts: Food, Feedstuffs and Beverages.

Review

Fiji urges the Melanesian Fiji’s prime minister, General Sitiveni Rabuka, has urged members of the Spearhead Group to work Melanesian Spearhead Group (MSG) to promote economic and technical co- as a bloc operation between themselves. Fiji hosted the 11th MSG summit meeting on May 6-8, attended by the heads of government of the Solomon Islands (Solomon Mamaloni), PNG (John Giheno) and Vanuatu (Serge Vohor) as well as the president of the Kanak Socialist National Liberation Front (FLNKS), Rock Wamytan, from New Caledonia. Speaking at the opening, General Rabuka said the world economy was shaped and controlled by the interests of powerful trading nations, which on the one hand talked of free trade but on the other formed trading blocs such as the EU and the North American Free Trade Agree- ment (NAFTA). This sent a clear message to the small island nations of the South Pacific that “we must seek cooperation with those nations with whom we have an identity of interests”. The Solomon Islands premier said that since the incep- tion of the MSG in 1986 it had made progress on a number of fronts, and the adhesion of Fiji last year had reinforced its status as a subregional bloc. Since MSG members held a very significant share of the region’s resources, as a group they possessed strong bargaining power. Mr Mamaloni also called for further examination of the idea of a Melanesian bank; the MSG countries, he said, held enough hard cash that could be put together to establish a financial institution of their own instead of “losing the money to other countries” outside the group.

International funds for The French government is to donate FFr200,000 (US$35,000) to assist the organ- regional projects: from isation of a major meeting on climate change and sea level rise, to be held in France— August. An agreement to this end was signed in April between the Caisse française de développement (CFD) and the South Pacific Regional Environment Program (SPREP) for the third Intergovernmental Meeting on Climate Change and Sea Level Rise. The meeting will bring together senior government officials, non-governmental organisation (NGO) representatives, scientists, planners, policy advisers and media from the Pacific.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 The region 9

—South Korea— The Seoul government has provided US$70,000 to the South Pacific Forum Secretariat to fund a trade and investment mission to South Korea involving 14 Forum Island Countries (FICs). The Forum’s secretary-general, Ieremia Tabai, pointed out that, as the aid climate changes, foreign trade is increasingly important to the economic welfare of island states. The Korean economy was a promising source of investment capital and economic cooperation for FICs. The mission is to take place in July.

—the EU— The EU has committed a grant of Ecu600,000 (US$530,000) over two years to the Forum secretariat to implement the Pacific Waste Awareness and Education Programme. This is the latest in a series of projects coordinated by the SPREP, aimed at minimising the impact of waste on the environment: the proper management and disposal of solid waste has become increasing important for island states with their limited land, high transport costs and lack of resources. The project will be implemented in the eight Pacific countries of the African, Caribbean, Pacific (ACP) group which receives special assistance from the EU under the Lomé Convention.

—the UK— In March the UK ambassador to Fiji, Michael Peart, presented Mr Tabai with a grant of F$70,000 (US$50,000) to finance a series of studies on future relations between Pacific Island countries and the EU. The Lomé Convention expires at end-February 2000, and negotiations between the contracting parties are to begin next year. The Forum secretariat has already embarked on a series of studies on the current EU/South Pacific relationship and options for the future. Issues being researched include the budgetary effects of changes to aid flows and preferences for commodity exports; other studies will cover the sugar and the beef and veal protocols. Mr Peart said the EU wanted the Pacific voice to be heard in Brussels when decisions are made about post-Lomé arrangements, and the studies would help articulate the message the Pacific wanted to deliver.

—and Japan Japan has contributed US$600,000 to the Forum secretariat to help fund its development programme for 1997. The money will support activities in market and industries promotion, the enhancement of skills in development planning, the development and promotion of external relations, legal drafting assistance and law enforcement and human resources development.

The Fisheries Committee The Forum Fisheries Committee (FFC), meeting in March in Vanuatu, agreed agrees on its approach to on its approach to the forthcoming major conference on conservation and a tuna conference management of tuna in the western and central Pacific. The Second High Level Multilateral Conference on the Conservation and Management of Highly Migratory Fish Stocks in the Western and Central Pacific is to be held in Majuro in the Marshall Islands this June. The chairman of the FFC, Tonga’s secretary of fisheries, said the Majuro conference would set the framework for the development of vital conservation and management measures for the tuna resources of the western and central Pacific, in particular those caught on the high seas. According to him it was “not a one-off affair, nor do we expect to get down to detailed negotiations at this early stage”. The aim is to develop a process for discussion with other coastal countries and distant water fishing countries. Forum countries were determined to take a firm lead in setting conservation

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 10 The region

and management standards for the region’s resources of tuna, whose migratory nature means that cooperation by all interested parties is essential to prevent depletion over the long term.

There is a slight upturn in The Tourism Council of the South Pacific reported in March that tourist arri- tourism growth vals in the Pacific Islands rose by 4.6% in the first nine months of 1996 on the corresponding period of 1995. This modest increase mirrors the slow growth in the leading tourist destination (Fiji) and the decline in the second (French Polynesia) in the aftermath of the French nuclear testing programme, but is nevertheless an improvement on 1995 when numbers rose by only 1.5%, largely because of the tests.

The region: tourist arrivals in the South Pacific (no) Jan-Sep 1995 1996 % change Fiji 238,036 246,612 3.6 French Polynesia 139,532 121,892 –12.6 New Caledonia 63,046 61,968 –1.7 Papua New Guinea 26,006 59,522 128.9 Western Samoa 47,095 53,455 13.5 Cook Islands 35,755 35,894 0.4 Vanuatu 32,219 34,013 5.6 Tonga 20,404 18,242 –10.6 Solomon Islands 8,499 8,200 –3.5 Kiribati 2,097 2,056 –2.0 Niue 1,708 822 –51.9 Tuvalu 639 658 3.0 Total 615,036 643,334 4.6 Source: Tourism Council of the South Pacific.

A venture capital fund is The Asian Development Bank (ADB) is to invest US$3m in a venture capital to be set up fund, provisionally called the Pacific Investment Capital Fund, to stimulate the private sector in small developing member countries in the region. This is the first such fund targeted at the island countries where economic growth vitally needs the private sector but where there is an acute shortage of equity or risk capital. The ADB said the generally small size of potential private sector projects in the region has constrained its own efforts to lend to them directly. The fund, to be incorporated in Vanuatu, will have a minimum size of US$15m and a maximum of US$20m. Investments will be closed for redemption at the end of ten years, with provision for a two-year extension. Other initial investors are expected to include the Commonwealth Development Corporation (CDC; US$5.5m), the European Investment Bank (US$2m), the Caisse française de développement (US$1m) and the Vanuatu Mutual Provident Fund ($1m). Assistance will be given to a wide range of sectors, mainly agribusiness and food processing, tourism, fishing and marine resources, transportation, forestry, minerals, light manufacturing and financial services. The fund will be managed by Pacific Capital Partners, a subsidiary of the CDC.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 11

Fiji

Political structure

Official name Republic of Fiji

Form of state Parliamentary

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

Head of state The president, Ratu Sir Kamisese Mara

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

Regional government Local administration is on a divisional basis with separate councils for urban areas. There is a separate local government system for the indigenous Fijian population with 14 provinces governed by a council and an executive head, approved by the Fijian Affairs Board

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

National elections February 1994; next election due by February 1999

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

Main political parties Fijian Political Party (Soqosoqo ni Vakavulewa ni Taukei, SVT); National Federation Party (NFP); Fiji Labour Party (FLP); General Voters’ Party (GVP); Fijian Association Party (FAP)

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

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

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 12 Fiji

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 fob US$ m 438.5 443.2 484.7 515.5 653.2 Imports fob US$ m 539.2 652.8 720.7 761.4 813.7 Current account US$ m 59.3 13.0 –59.4 0.1 13.9 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

May 16, 1997 F$1.409: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.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 13

Outlook for 1997-98

The constitutional review The outcome of the constitutional review process is not certain as it enters the process is moving to the critical phase. Proposals formulated in camera by a parliamentary committee critical stage over a period of more than seven months were tabled in parliament in mid- May. They are the result of painstaking consideration of the recommendations of the Constitutional Review Commission (CRC) that reported last September on changes required to the racially-based constitution introduced in 1990 after two military coups led by Major-General (then Colonel) Sitiveni Rabuka, now the prime minister. As the parliamentary committee completed its report there were strong indications that the prime minister and the opposition leader, Jai Ram Reddy, were close to an agreement on a reform package they could jointly support. It would give considerable power to indigenous Fijians, but not total dominance as at present and would result in the formation of governments of national unity in most circumstances. However, hardline opinion on both sides of the argument is against such a resolution.

Settlement would give an A resolution of the constitutional question on such cooperative lines would immediate boost to the clear a significant logjam to new investment in Fiji and the implementation of economy structural reform. This in turn would give a boost to the pace of economic growth which, on present indications, is likely to ease back after 1996’s strong recovery. The Asian Development Bank (ADB) has recently forecast GDP growth of 3.2% in 1997 and 2.7% in 1998, down from the 4.4% rate recorded last year. This is in line with EIU expectations, based on good performance by gold mining, sugar (although there are now some uncertainties about the latter) and tourism, with a consequent further improvement in the external position.

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

6 110

100 F$:DM 4 90

2 80 F$:US$

70 0 F$:¥ Fiji (a) 60 Asia excl Japan -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.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 14 Fiji

Review

The political scene

It is time for a decision on The constitutional process approached its final phase in mid-May. The final constitutional reform— draft of a constitutional amendment bill was tabled before the joint parliamentary select committee on May 14; it will then go to the Fijian Great Council of Chiefs before being submitted to parliament in June. There it will need a 75% majority in the elected House of Representatives and in the appointed Senate, where chiefs hold two-thirds of the seats. If the reform bill is passed by the parliament it would receive presidential assent by July 25. The prime minister, Major-General Sitiveni Rabuka, has hinted that he might then invite Indian opposition politicians to join the government which would work as a national coalition until a general election due in 1999, when the reforms would be fully implemented.

—which would open out Under the draft significant revisions are proposed to the constitution imposed the system to in 1990 by the post-coup regime, which reserved control of the political system non-indigenous Fijians— to indigenous Fijians. The bar on a non-Fijian being prime minister would be lifted. The prime minister would be required to invite all parliamentary parties to be represented in his cabinet, although he would be able to form one from his own party if others declined. The president would continue to be a Fijian. The structure of the House of Representatives would change. Instead of a chamber of 37 Fijians, 27 Indians, five general members (that is, elected by other voters) and one Rotuman—which guarantees a Fijian majority—it would have 71 members: 23 Fijian, 19 Indian, three general and one Rotuman communal seats, and 25 open seats. The parliamentary select committee had earlier re- solved to maintain the present system for the Great Council of Chiefs and a wholly nominated Senate. The latter will have 22 members (down from the current 34), eight nominated by the Great Council of Chiefs (and holding power of veto over Fijian regulation), seven nominated by the prime minister, six by the leader of the opposition and one by the Council of Rotuma. The Constitutional Review Commission (CRC) had recommended that two members be elected from each of the 14 provinces, with no racial restrictions on either candidacy or voter rolls, one from Rotuma and six appointed by the president on the advice of the Electoral Commissioner to represent people who would otherwise be under-represented, such as women, residents of a particular area or minority groups. This proposal was rejected by the select committee in March (1st quarter 1997, page 19).

—and not everyone is Although the proposals are strongly supported by the prime minister, and have happy apparently been agreed by the opposition leader, Jai Ram Reddy, they are opposed at both ends of the political spectrum.

The leader of the Fiji Labour Party (FLP), Mahendra Chaudhry, complains that they would preserve communal voting principles. But the more serious threat comes from hardline Fijian nationalists in the prime minister’s party, the So- qosoqo ni Vakavulewa ni Taukei (SVT, Fijian Political Party). Among these are some influential cabinet ministers, who seem determined, behind the scenes,

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 15

to try to persuade the chiefs to block the reforms. The dissident chiefs want five more communal seats than is proposed in the lower house, claiming that otherwise Fijians would once again be exposed to rule by an Indian-dominated government. It was just such an event that led to the first 1987 coup. General Rabuka says he is confident that Fijians will accept the reforms and that, against this background, from October Fiji will be back in the Commonwealth from which it was expelled in 1987.

The police commissioner The police commissioner, Isikia Savua, has urged the speedy enactment of laws calls for extradition laws— for the extradition of suspects from countries where they have taken refuge. Fijian investigators have been unable to extradite from Australia a former senior executive of the government-owned National Bank of Fiji, wanted for ques- tioning about fraud that drove the bank into insolvency with bad debts of more than F$220m. In the absence of an extradition agreement between the two countries, the Australian Federal Police were unable to make an arrest. Fiji police said that at least 18 other people under investigation as part of the bank inquiry had fled overseas.

—as the authorities try to In addition to the bank scandal the police are investigating allegations of crack down on fraud and building contract frauds involving senior staff of the Fiji Housing Authority. corruption Since the beginning of this year, the government has ordered inquiries into reports of massive corruption in the Customs Department, the Companies Office and Registrar-General’s Department. There also have been reports in the media of how an Asian businessman with large freehold landholdings in Fiji had used his daughter to infiltrate the Lands Registry office and manipulate hundreds of land title documents.

Australian aid for Australia is to contribute A$5.8m (US$4.5m) to a programme to establish formal postgraduate medical postgraduate medical training at the Fiji School of Medicine. The Australian training Agency for International Development (AusAID) will provide five doctors to work alongside local counterparts in developing and implementing a postgraduate curriculum in five main disciplines. The funding will also cover: a programme of short-term support from visiting medical specialists; attachments (both clinical and management) in Australia for senior staff and trainees; support for a distance learning centre within the Fiji School of Medicine; and course development.

The economy

A good recovery in 1996— In its latest Asian Development Outlook the Asian Development Bank (ADB) traces the broadly based nature of Fiji’s economic recovery in 1996, when GDP rose by 4.7% (national sources put the increase at 4.4%) after the near stagnation registered in 1995. Agricultural output rose by 2.7%, with most of the growth attributable to activities other than in the dominant sugar sector. Industrial production was nearly 10% higher, largely the result of higher gold output as Mount Kasi entered operation and activities at Emperor Gold Mines expanded; garment manufacturing registered 6.5% growth while construction also showed strong expansion, at 8.5%, compared with 5.2% in 1995. However, tourism-related activities, which account for about 20% of GDP, showed little

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 16 Fiji

Fiji: tourist arrivals growth, although tourist arrivals increased by 6.6% to a record 339,560, due '000 mainly to a 170% increase in South Korean visitors (to 9,295), following the 350 opening of flights to Nadi by Korean Air Lines, and the 18% rise in UK numbers (to 28,907). However, Japanese and American tourist traffic fell by 2.6% (to 44,598) and 1.5% (to 38,707) respectively. With the average length of stay 300 down slightly, gross earnings from tourism rose at a marginally lower rate than numbers, by 6.2% to an estimated F$430m (US$300m).

Fiji: tourism statistics 250 1994 1995 1996 Visitor arrivals (no) 318,874 318,495 339,560 Average length of stay (days) 8.5 8.5 8.3 1991 92 93 94 95 96 Tourism earnings (F$ m) 395.5 405.0 430.0 Source: Reserve Bank of Fiji. Source: Reserve Bank of Fiji, News Review.

The improvement in domestic output allowed a modest rise in foreign earnings last year; domestic exports are provisionally put at F$791m, 3.5% up on 1995. With a much more rapid rise in total exports (ie including re-exports), of 17% to F$1.02bn and with total imports up by 10.1% to F$1.38bn, the trade deficit narrowed slightly, from F$384m to F$362.7m.

Fiji: foreign trade (F$ m) 1994 1995 1996 Exports fob 800.5 869.9 1,017.4 Imports cif 1,209.9 1,253.9 1,380.1 Balance –409.4 –384.0 –362.7 Sources: Bureau of Statistics, Statistical News; press reports.

—but the budget balance Generally higher production levels and the slight improvement in the external deteriorated markedly balance were accompanied by a marked deterioration in the budget balance. But this was due to a special factor, namely the bailout of the National Bank of Fiji (NBF), which more than doubled capital outlays and pushed up total Fiji: government revenue and expenditure government expenditure by 17.2%. With government revenue up by only F$ m 4.6% on 1995, the overall budget deficit ballooned to an estimated 4.4% of Revenue & grants 1,000 Expenditure GDP last year, compared with only 0.8% in 1995. Balance 800 Fiji: government financial accounts (F$ m) 600 1995 1996 % change 400 Revenue and grants 718.9 751.9 4.6 of which: 200 inland revenue 498.1 525.0 5.4

0 Expenditure 737.7 864.2 17.2 Current 649.2 660.9 1.8 Capital 88.5 203.3 129.7 1990 91 92 93 94 95 96

Source: Reserve Bank of Fiji. Balance –18.8 –112.3 n/a Source: Reserve Bank of Fiji, Monthly Bulletin.

Inflation edges up in the While the rate of consumer price inflation eased down in the final quarter of first quarter 1996, the first months of this year saw an acceleration, to 4.5% in March. This still small change is largely attributable to the slight weakening in the Fiji

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Fiji 17

dollar against the currency of its major import source, Australia. In March it was down by 1.4% on its year earlier value.

Fiji: consumer prices (% change year on year; period average) 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Jan Feb Mar 2.7 3.4 3.6 2.5 3.6 4.2 4.2 4.5 Source: Reserve Bank of Fiji, News Review.

Cyclone causes damage to Cyclone Gavin in March is said by the Fiji Sugar Board to have caused what the sugar crop— might prove to be heavy damage to the 1997 sugar cane crop, as well as an estimated F$33m damage to roads, telecommunications, water and electricity supplies and other infrastructure. Other damage was light, apart from patches of destruction to small villages and settlements. Casualties numbered 20.

—but the forecast of gold Emperor Gold Mines is now confident of lifting annual gold output to 400,000 oz output by Emperor Mines by 2000, or four times the current level and double its original target. In January is doubled this year production was running at some 14,500 ounces, compared with just over 11,000 a year earlier. New ore finds at Vatukoula and a rich new prospect near Nadi are the causes of the company’s optimism.

Poverty is increasing Although the economy has been growing at an average 2.6% per year in the current decade, well above the rate of population growth because of the high levels of emigration since the 1987 military coups, this has not reduced the proportion of the population living in poverty. In 1990/91 about 25% of Fiji’s households were under the poverty line of F$83 per week; according to a recently published study by the Fiji government and the UN Development Programme (UNDP), the situation is worsening. Most of the benefits of growth have accrued to the better-off, with the more rapid rise in the price of food than in overall income hitting the poorest particularly hard.

The government ends the The government has cancelled the monopoly of Fiji Television and issued a television monopoly licence to a Hawaiian business consortium to operate a 15-18 channel cable TV service. This decision has cause considerable consternation since the eight-year exclusive licence awarded to Fiji TV by the government was a core factor in the public issue of shares last year. The prospectus had said it would take at least six years for the company to become profitable. The information and communications minister, Ratu Inoke Kubuabola, has said the monopoly contravened fair trading laws, and that he had the right under the legislation to cancel the monopoly “in the public interest”. He expressed dissatisfaction with the high foreign, mainly US, content of television programmes and complained that much was unsuitable to Fiji’s culture.

A minister wants more The foreign minister, Filipe Bole, visited Solomon Islands, Papua New Guinea private-sector business and Vanuatu to discuss issues ahead of the summit meeting of the Melanesian councils Spearhead Group (MSG) in Fiji in May (see The region). He urged the establishment of business councils in the three countries to promote trade between the MSG member states, pointing to the stimulus such councils had given to Fiji’s trade with Australia and, most recently, New Caledonia.

EIU Country Report 2nd 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 Kanak Liberation Party (PALIKA), the Caledonian Socialist Party (PSC) 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 Jacques Lafleur (RPCR) National Assembly Maurice Nénou-Pwataho (RPCR) Representative to the French Senate Simon Loueckhote (RPCR)

EIU Country Report 2nd 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 $ m 409.9 376.3 n/a n/a n/a Imports cif $ m 926.4 854.2 n/a n/a n/a Exchange rate (av) CFPFr:US$ 96.24 102.96 100.93 96.25 96.54a

May 16, 1997 CFPFr103.958: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 estimate. b Census result. c Derived solely from partner records.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 20 New Caledonia

Outlook for 1997-98

An end to the nickel With the prospect of an end to the protracted dispute over nickel ore resources resources dispute will for a new smelter in the Northern Province (see Review), both the political and allow political progress— the economic climate should change for the better. While the smelter project is important in itself, in terms of the country’s earnings prospects, the dispute had brought a worrying breakdown in discussions about the political future of the territory. Time is running short for the parties to the Matignon Accords— the French government, the pro-independence movement, the Kanak Socialist Liberation Front (FLNKS), and the anti-independence movement, the Rally for Caledonia in the Republic (RPCR). The accords, signed in 1988 after a period of protracted violence and extensive loss of life, provided for a referendum on the future of the territory in 1998. All parties have come to realise, however, that a referendum that left a large, disaffected minority, would create more problems than it solved. Pro- and anti-independence thinking has been developing along the lines of a transitional period of “shared sovereignty”, or, as the FLNKS would rather see it, “associated statehood”. But the concept clearly needs to be developed further, and the duration of the transition period de- fined before a firm proposal can be put to the vote. The evolution of thinking on all sides has been slow since 1988. Last year the French government decided to set aside the tripartite negotiations for the time being, dealing first with the FLNKS, then separately with the RPCR, before returning to the three-party meetings for a final phase. That process has been on hold throughout the minerals dispute and needs to restart urgently.

—against a propitious Meanwhile the signs point to sustained economic growth, at strengthening economic background rates. Earnings from nickel are set to rise, with higher volumes offsetting the overall stagnation of prices this year and next, while the planned development of smelting facilities, which holds out the prospect of much higher value added in this sector over the longer term, will step up the level of investment in the economy. Meanwhile, investment in tourism is increasing, and this is a sector which stands to benefit markedly from a peaceful political settlement.

Review

Prospects improve for an Prospects for a resolution of the dispute over nickel resources for a major new early resolution of the smelter in the Northern Province improved markedly in April and May nickel ore dispute— through the active intervention of the French government.

The Kanak-owned South Pacific Mining Company (SMSP) is seeking to secure the nickel supply necessary for its US$1bn smelter project with the Canadian company Falconbridge to go ahead. The northern smelter would be a significant step in the economic “rebalancing” of New Caledonia envisaged in the Matignon Accords. For operating reasons, SMSP wants to exchange the nickel deposits it holds at Poum, in the Northern Province, for deposits near the northern town of Koniambo, which are held by Société Le Nickel (SLN), a subsidiary of the French government-owned Eramet. Eramet claims to have no

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 21

objections in principle but has raised technical questions, including the valuations of the two resources, which have stalled the issue for more than a year. Stalled with it have been discussions between the government and the Kanak pro-independence movement on the political future of the territory, as the latter has insisted that the nickel issue be settled before political talks resume.

—as Paris adopts a new The dilemma for the government in Paris has been that although it holds 55% strategy to secure a deal of the equity in Eramet it lacks a majority on the board and could not persuade the outspoken chief executive officer (CEO) of the company, Yves Rambaud, to drop his objections to the exchange. Having taken action in February to strip Eramet of the Koniambo ore deposits, risking protracted litigation (1st quarter 1997, page 29), the government appears to have re-thought its strategy. In April it appointed a close associate of the president, Jacques Chirac, to head the government-owned resources and research company ERAP, which holds the state interest in Eramet. Shortly after it was announced that, at the annual general meeting of Eramet in late May, Mr Rambaud would step down and the appointment of three new board members proposed by ERAP would be consid- ered. The appointments meant, effectively, government control of Eramet, while a statement from ERAP said that the new CEO of Eramet would seek an equitable solution to mining problems in New Caledonia, respecting the interests of the company, its staff and minority shareholders.

Some of the institutional shareholders in Eramet had earlier warned the government that if it did not respect minority interests there could be repercus- sions for privatisations such as the sale of France Télécom shares. The French finance minister, Jean Arthuis, said in early April that minority shareholders would be compensated for the loss of the Koniambo licence.

Talks are resumed under Against this background talks resumed in Paris on May 2 between the SMSP, pressure from industrial Falconbridge and Eramet. They ended with a decision to refer the issues, in- action in New Caledonia cluding valuations, to legal and technical experts.

The resumption of negotiations was prompted by extensive industrial action, including the blockade of all nickel exports from New Caledonia. The ban was lifted only after commitments to resume negotiations were given by the government, Eramet and SMSP/Falconbridge and after the announcement of the change at ERAP. New Caledonia’s largest union, the USOENC, which cov- ers the mining sector, led the action, including a 24-hour general strike, and demonstrations in Nouméa. The USOENC, whose membership includes a large proportion of SLN’s 2,200 workforce, has expressed full support for the northern smelter but opposed the French government cancellation of the Koniambo licence, fearing job losses. In March the major independence party, the Caledonian Union (UC), and another union, the USTKE, organised a demon- stration in Nouméa of 4,000-5,000 people in support of the northern smelter. A petition protesting at the actions of the Eramet group and signed by 6,000 was presented to the French high commissioner. UC also held demonstrations at mining sites in the north in support of a speedy resolution of the smelter project problem.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 22 New Caledonia

The RPCR is sceptical— The conservative party, the Rally for Caledonia in the Republic (RPCR), called for the Koniambo deposits to be bought by the territory government from Eramet/SLN, arguing that it alone could be judge of what was in the general interest. The RPCR’s contention is that Eramet/SLN stands to be disadvantaged in favour of the SMSP. In a statement on April 4 the RPCR referred to the northern smelter as a “hypothetical project” and said that recent indications were that ore from the Poum deposit had already been exported and thus could not be exchanged. It said that the logic and spirit of the Matignon Accords had been left behind and the territory was reliving a period of claims, occupations, threats and counter-threats.

—while the FLNKS warns The president of the FLNKS, Rock Wamytan, responded with a statement on of the danger to political April 10 that the nickel resources dispute could undermine the peace, eco- progress nomic rebalancing and dialogue that had resulted from the Matignon Accords. He called on all parties to the FLNKS coalition to unite to achieve access by SMSP to the Koniambo nickel reserves.

Inco details plans for a On April 8 Scott Hand, the president of the Canadian group Inco, the world’s new nickel smelter leading producer of nickel, presented details of the company’s project for another smelter in New Caledonia’s south. After feasibility studies conducted over the past two years, Inco is looking at building a pilot smelter this year at Goro in the far south of the main island, producing 12 tons/day of metal. A smelter capable of producing 30,000 tons/year of nickel by 2003 would then be built, with plans to double capacity later. The US$840m project would involve the construction of a port, electricity substation and major road infrastructure and would create 680 direct jobs. The pilot smelter will use innovative tech- nology that allows the extraction of nickel and cobalt from poor quality laterites. The reserves are estimated to hold 165m tons of ore with a nickel and cobalt content of 1.6% and 0.16% respectively. The Canadian company ac- quired the Goro reserves in 1992 from New Caledonia’s Bureau of Mineral and Geological Research (BRGM), which has a 15% shareholding in Inco’s subsidiary, Goro Nickel. The pilot smelter is due to go ahead as soon as tax concessions and titles to deposits neighbouring Goro are finalised.

A fast-growing population The results of the latest census, conducted in mid-April 1996, were published with many immigrants on March 24. These show a population of 196,836, up by 19.9% since the last census, in 1989, representing an average annual increase of 2.6%. By ethnic origin Melanesians have edged down from 44.8% of the total to 44% and Polynesians (Wallisians, Futunians, and Tahitians) from 11.5% to 9%. The most marked change, however, has been in the European community, which now accounts for 43% of the total, up from 33.6% in 1989. “Others” have meanwhile fallen from 10.1% (mainly Asians) to 3%. Linking up with these results, 23% of the population last year were born outside the territory.

Hotel expansion is Investment of FFr93.5m (US$16.3m) is planned at the Nouvata-Park Royal Hotel planned in Nouméa— in Nouméa, on extensions including a 1,000-seat function room and seven- storey building and the development of an artificial lagoon. When the work is completed the hotel will have 198 rooms, eight suites and two restaurants.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 New Caledonia 23

—and four more longline The New Caledonian fishing company Navimon, a subsidiary of the Loyalty fishing vessels are planned Islands Development and Investment Company, has ordered another four longline vessels for tuna fishing. This will bring its total fleet to ten boats. The vessels are being constructed at the Piriou naval yards in France. The company hopes to increase its exports to Japan to 100 tons of tuna per month, around three times the current level, when the vessels are commissioned within the next two years. Sashimi-grade tuna is already New Caledonia’s second largest export after nickel.

EIU Country Report 2nd 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 May 1993; next election due by September 1997

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

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

Members of cabinet Prime minister Solomon Mamaloni Deputy prime minister & minister for national planning & development Francis Saemala

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

EIU Country Report 2nd 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 10.5a Population m 0.34 0.35 0.37 0.38 0.39 Exports fob US$ m 102.9 134.3 149.4 175.6a 189.4a Imports cif US$ m 111.5 134.5 132.8 158.9a 172.6a Current account US$ m 13.1 24.4 20.1 n/a n/a Reserves excl gold US$ m 23.50 20.07 17.42 15.91 32.53 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

May 16, 1997 SI$3.657:US$1

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

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

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

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 26 Solomon Islands

Outlook for 1997-98

General elections hold out With general elections scheduled for September 3, many of the candidates have little promise for tackling indicated that they will make an issue of the financial performance of the the fiscal crisis— government of Solomon Mamaloni. Since Mr Mamaloni won back the pre- miership in November 1994 the already severe fiscal imbalance generated by years of high levels of government spending and borrowing has deepened. But the general expectation is that the elections will not change the political balance, and so there will again be no political will to tackle the fundamental budget problem. Even if Mr Mamaloni were not able to secure the numbers to keep him in office, a successor would face the dilemma that firm action would cause pain and, quite possibly, defections from the inevitably loose alliances necessary to form a government.

—and modest GDP growth In the absence of measures of fiscal stabilisation in the foreseeable future, the is likely to continue economy will maintain its expansion over the short term. GDP growth at around the 1996 rate of 4% is likely this year and next. Export earnings will continue to rise, based on an unsustainably high timber cut and some recovery in fish output after last year’s weather-depressed results. The weakness in prices for palm oil and copra will, however, tend to hold down the overall rate of growth. Although import growth is likely to pick up somewhat, squeezing the modest surplus on trade, the current account should just remain in surplus. Meanwhile the long-awaited agreement for the Gold Ridge gold mining project has been signed, holding out the prospect of production at the country’s first mining venture starting up in March next year.

On the international front, relations with Papua New Guinea are improving after the recent low point when Mr Mamaloni’s government threatened to take PNG to the International Court of Justice over its decision to employ mercenar- ies to resolve the secessionist problem on Bougainville.

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

100

4 SI$:DM

80 2

SI$:US$ 60 0 SI$:¥ 1991 92 93 94 95(a) 96(a) (a) EIU estimate. (b) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic 1980. . . . 85 ....90....95. Outlook.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Solomon Islands 27

Review

GDP growth edged down In its recently published Asian Development Outlook the Asian Development in 1996 Bank (ADB) estimates that growth in the Solomon Islands economy slowed to 4% in 1996, down from 6% in the previous year. The primary sector was again the driving force, above all log and timber production which was up by about 8%. Production of palm oil and kernels increased at the same rate but copra and coconut oil output was significantly lower and fisheries output was down by one-third because of unfavourable weather. The latter was largely responsi- ble for the much slower growth in export receipts, namely 4.3% compared with more than 18% in 1995. But with import spending down by 4%, reflecting the contraction in bank credit to both the government and the private sector, the surplus on trade rose, pushing up the current-account surplus to 4.6% of GDP from 3% in 1995. As a result external reserves recovered strongly, to US$35.5m at year-end, more than double the end-1995 figure and representing just over two months’ import cover.

The Central Bank The ADB report noted that “fiscal stability is clearly the most pressing prob- governor offers a lem”, which the 1997 budget showed no signs of tackling. The point was made damning critique more bluntly by the outspoken governor of the Central Bank of Solomon Islands, Rick Hou, when he launched the bank’s annual report on May 12. He presented a thorough critique of the economy and the performance of government. The governor identified the main cause of the current fiscal problem as “an unbridled government expenditure policy”. Budget revenue has been on target, with the current tax-to-GDP ratio of 24% representing an “outstanding performance compared to other developing countries”. In the absence of ade- quate data it was not yet possible to estimate government expenditure in 1996, but it was certainly well up on 1995. Mr Hou urged a series of measures on the government to achieve “normalcy”. It must apply and maintain tight control on expenditure; make it illegal for anyone in government to commit funds for purposes outside the approved budget; give priority to making payments where the government had legally binding commitments and cut back on discretion- ary expenditures; eliminate all tax and duty exemptions and place the grant of such concessions in the future in the hands of officials without any ministerial involvement; improve revenue and tax compliance; and revive the securities market to enable the government to borrow from non-inflationary (ie non-Central Bank) sources.

But the fiscal crisis was tied in with the country’s very disappointing performance on a wider front. The Central Bank governor pointed to the very poor social and economic indicators. GNP per head, at US$560, is one of the lowest in the region (the EIU puts GDP per head considerably higher, at US$700), while rates of life expectancy, doctors and teachers per 1,000 population, in- fant mortality, access to safe drinking water, adult literacy and average years of schooling were among the worst in the region. Rapid urbanisation and weak- nesses in public policy had been associated with rising crime rates, the breakdown of the family unit and values, increases in sexually transmitted diseases, alcohol abuse, and teenage pregnancies. Yet at the same time the government

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 28 Solomon Islands

had spent vast sums, and the country’s natural resources were being run down at unsustainable rates.

Mr Hou emphasised the urgent need to address the basic issue of good governance. In the conduct of public affairs, ethical standards had to be set at the highest level. But “ bribery and corruption has become a way of life in some quarters, most prominently in the allocation of land, business licences, tax concessions and so on”. In addition, there had been many allegations that the quality of public administration was poor. This would seem to owe much to the heavily politicised character of public service, as well as the inadequacy of a legal and regulatory framework dating from the colonial era.

The Gold Ridge project The mining lease agreement for the Gold Ridge gold mining project—the first marks the beginning of a mining venture in the Solomon Islands—was signed in March by the govern- mining industry— ment and an Australian company, Ross Mining. Construction at the mine site on Guadalcanal began in April and the first gold is expected to be produced in March next year. At the signing ceremony, the minister of energy, minerals and mines, David Vouza, said that in its approach to the project and negoti- ation with the government, Ross Mining had shown both commercial trans- parency and sensitivity to the people and the environment. The prime minister said the development represented new challenges for the government and landowners. In a pointed reference to PNG’s problems in neighbouring Bougainville, he said: “We should take on all these challenges and avoid what has happened in other countries.”

—which will require an The energy ministry hosted a week-long seminar in April for about 50 senior upgrading of government government officials, representatives of the Central Bank and the Guadalcanal capacity province on the implications of the Gold Ridge mining agreement and other agreements relating to this massive project. The seminar’s aim was to ensure that relevant government ministries were fully versed as to the agreement and to identify areas of weakness within particular ministries, and propose remedial measures, so that the agreement can be properly implemented and monitored. The seminar was assisted by legal and economic advisers from the Common- wealth Fund for Technical Cooperation.

Local companies win Ross Mining has contracted Solomon Airlines as sole carrier of its mining service and supply personnel during the construction and operations of the Gold Ridge mining contracts at the mine project. The agreement, signed in April and worth about SI$2m (US$500,000), follows a SI$1m deal with the local company, Ela Motors, for construction vehicles. The company has also been meeting with the Solomon Islands Chamber of Commerce to discuss the impact of Gold Ridge on the business community.

A new opposition leader is The president and parliamentary leader of the National Party, Edward elected Hunuehu, was elected leader of the opposition grouping, National Coalition Partners (NCP), in May after the sudden resignation of the veteran politician Ezekiel Alebua. He will lead the NCP in the forthcoming general elections.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Tonga 29

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 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 30 Tonga

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 3.1b Population ’000 97 97 97 97 97 Exports fob US$ m 12.3 16.1 13.9 14.6 15.3b Imports fob US$ m 51.3 56.6 68.9 77.2 82.9b Current account US$ m –0.5 –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 % 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

May 16, 1997 T$1.291: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 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Tonga 31

Outlook for 1997-98

Growth on a narrow base Economic growth is likely to have registered a marginal upturn in 1996/97 (July-June) and should strengthen further over the next year because of a continuing improvement in the agricultural sector. Although the number of squash exporters to Japan is now greatly reduced, the volume of exports is expected to rise sharply and the strict new licensing criteria should mean higher quality and hence prices. Fish exports are also expected to earn more, while income from tourism and inflows of remittances should continue to rise. Thus the rate of economic growth, while improving, will remain highly vulnerable both to climate (the cyclone in March will have dented crop production) and to external demand for a very limited range of goods and services.

Tonga: gross domestic product Tonga: Tonga dollar real exchange % change, year on year rate (b) 8 1980=100 150 6 140 4 T$:DM 130 2 120 0 T$:US$ 110 -2 100 -4 T$:¥ 90 -6 Tonga Asia excl Japan 80 -8 1991 92 93 94 95 96(a) 70

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

Review

The ADB is worried about In its latest review of the region’s economies the Asian Development Bank the trend in budget (ADB) has voiced some reservations about Tonga’s budget for 1996/97. The spending aggregates are broadly stable, with revenue forecast to decline by 2.6% and expenditure to rise by 0.7%. But there is a signal weakness in the structure of spending, with personnel costs due to rise from 47% of the total in 1995/96 to 51%; at the same time the provision for operations and maintenance has fallen from 20% in 1994/95 to only 14.8%, meaning that this sector of the budget, which is crucial to the effective delivery of government services, will have contracted by one-third in a period of only two years.

The commerce minister The minister for labour, commerce and industries, Masaso Paunga, visited maintains the drive to Japan in March to settle arrangements with squash importers and other enhance squash earnings— authorities for the 1997 season. The aim is to avoid the problems that have risen in the recent past when the multiplication in the number of Japanese importers of squash from Tonga prompted overproduction, which resulted in wastage and falling prices. Dr Paunga had made an earlier visit, last November, when new quality criteria were agreed, and then held meetings with squash

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 32 Tonga

growers on Tongatapu, Vava’u and ’Eua, as well as with exporters. In addition, in a welcome move to enhance the value of production, the minister has reached agreement with a South Korean company for the establishment of a processing plant in Tonga to produce powdered squash from export rejects.

—after a year of recovery Squash exports showed some recovery in 1996 after the drought-depressed levels recorded in 1995. Shipments reached 12,788 tons, with earnings of T$11m (US$9m), compared with 8,290 tons and T$8.4m in 1995. However, volumes are still far off the 1994 figure; then, exports reached 17,250 tons.

Cyclone Hina causes Cyclone Hina in March caused damage estimated at more than T$18m to extensive damage crops, buildings and power and telephone lines in Tongatapu. The toll was even greater in the smaller island of ’Eua. More than 12,000 tons of fruit and root crops were damaged on Tongatapu, much of it destined for export. Manioc plantations were so badly affected that no further exports are likely this year (they totalled 800 tons in 1996). On both islands, agricultural authorities have advised landholders to plant fast-maturing produce such as sweet potatoes, potatoes and corn to supply local needs.

Sedition charges against a Three sedition charges brought against a pro-democracy campaigner, Siosifa pro-democracy Filini Sikuea, were dismissed by the Supreme Court in February. The prosecution campaigner are dismissed alleged that, after the raising of a petition and the staging of a protest march, Mr Sikuea had said words to the effect that “if his campaign for change did not succeed he would do what was done at Tungi Arcade—bang”. The latter was said to be a reference to a fatal shooting in 1992. The three charges against Mr Sikuea were as follows: he had seditiously encouraged hatred towards the king, the Legislative Assembly and the government; his words had encouraged and caused disorder; and he had encouraged an illegal act to bring about legal and constitutional change. The crown called eight witnesses, all of whom had differ- ent versions of what was alleged to have been said. The judge ruled that there was no evidence relating to intent, and on that basis he dismissed the charges.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Vanuatu 33

Vanuatu

Political structure

Official name Republic of Vanuatu

Form of state Parliamentary, based on the UK model

The executive Council of Ministers, made up of 12 members of parliament chosen by the prime minister, who is in turn elected by parliament from among its members

Head of state The president, Jean-Marie Leye, was elected in March 1994 for a four-year term by an electoral college drawn from members of parliament and heads of local government

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

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

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

National elections November 30, 1995; next election due by November 1999

National government Serge Vohor, the prime minister, heads a coalition comprising his faction of the Union of Moderate Parties, the National United Party, and the Vanua’aku Pati

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 education Donald Kalpokas (VP)

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

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 34 Vanuatu

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 1.4a Population m 0.15 0.16 0.16 0.17 0.17 Exports fob US$ m 17.8 17.4 25.1 28.3 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 48.29b 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

May 16, 1997 Vt113.74: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 1993 % of total EU 37.4 Japan 35.4 Japan 24.1 Australia 21.9 South Korea 11.9 Spain 13.0 Australia 10.4 Italy 10.9 Bangladesh 10.2 New Zealand 4.2 New Caledonia 6.0 a EIU estimate. b Official estimate.

Outlook for 1997-98

The coalition parties have The governing coalition seems to have settled down to the hard grind of formalised their economic reform and restructuring under the terms of the memorandum of cooperation— understanding signed with the Asian Development Bank (ADB) in February. After years of political intrigue and instability the discipline of the three-party coalition has been impressive, and their cooperation has been enshrined in an unusually detailed, formal document, signed in March (see Review). This ac- knowledges the inability of any individual party to form a government and the need to cooperate for a “strong, efficient and stable government”.

—paving the way for the The coalition will face its first big test in June at the public summit meeting on endorsement of a reform the terms (still being formulated) of the comprehensive reform programme programme (CRP). Despite the factionalised state of politics the programme is expected to gain strong endorsement from this public consultation process. This should reassure the multilateral institutions, the private investors and the coalition partners.

Another period of modest Within the constraints that the CRP will impose, Vanuatu is unlikely to see any growth in GDP immediate improvement in its economic performance. Nevertheless expansion at around the 2-3% rate of the recent past is likely to be maintained. With greater political stability and increased air services, tourism can be expected to expand at slightly above the 1996 rate (when arrivals rose by 5.5%), while the upgrading of three airports will give impetus to the construction industry. Export earnings should improve because of strong demand for major exports, holding down the still sizeable current-account deficit.

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

The coalition parties agree On March 14 the three members of the governing coalition—the National to cooperate United Party (NUP), the Union of Moderate Parties (UMP) and the Vanua’aku Pati (VP)—signed a document to give a formal structure to their cooperation. It sets the size of the Council of Ministers at 12, specifies the allocation of ministerial portfolios between parties (four each) and specifies a strict code of “guiding principles”. It requires that people given government appointments have appropriate qualifications, while acknowledging the need for a balance of political allegiances. There is provision for this requirement to be, in effect retrospective, to eliminate the patronage of the previous government headed by Maxime Carlot Korman, who continues to lead an apparently irreconcilable faction of the UMP.

The coalition agreement provides for a joint committee to be set up, comprising two non-minister members from each party. The committee is designed to serve as an appeals body on coalition disagreements but has also been given specific powers to limit the authority of the prime minister. The relevant sec- tion of the agreement says: “The parties agree that before the prime minister may exercise his power to appoint, transfer or dismiss any minister, or before any changes to any ministerial portfolio or responsibility are made, the prime minister shall ... refer such proposals to the Joint Committee for [its] consideration and advice.” The committee’s recommendations are then to be forwarded to the three party leaders to decide “by consensus” whether the prime minister’s proposals should be implemented. This formalisation of power-sharing is yet to be tested by a serious difference, but its existence will tend to lessen the likelihood of such a situation arising.

The economy showed Three changes of government last year did nothing for investor and consumer some resilience in 1996 confidence. Yet the economy at the end of the year was in better shape than expected. GDP growth was only marginally lower than in 1995, at an estimated 3% compared with 3.2%, and inflation remained low (the EIU’s estimate is of slightly below 2%) There was a slight deterioration on the current-account balance, with the deficit estimated at some US$22m or 9% of GDP. This re- flected the 5% rise in the merchandise deficit (fob-cif) to Vt7.83bn (US$70m) as the 7% rise in exports was far exceeded by the 8% increase (on a much higher base) in imports. However, inflows on the current account benefited from the 5.5% rise in total visitor numbers, from 43,721 in 1995 to 46,123. Australia accounted for more than half of all visitors, followed by other Pacific countries (32.5%), Europe (11.7%), North America (4.6%) and Japan (1.8%).

A Taiwan fishing boat is The owners of a Taiwanese fishing vessel, found guilty of fishing illegally, and fined for illegal activities then escaping from custody, have been fined Vt35m. The vessel, Shung Fa No 6, was licensed to catch only tuna but was taking large quantities of shark and other species. The ship was re-arrested after being located in an air search.

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 7.0b Consumer price inflation % 9.0 1.8 18.4 1.0 7.5a Population m 0.16 0.16 0.16 0.17 0.17 Exports fob US$ m 5.82 6.43 3.53 8.75 10.10a Imports fob US$ m 89.90 87.37 69.01 80.22 91.34a 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

May 16, 1997 Tala2.464:US$1

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

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

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

Outlook for 1997-98

Growth prospects are good With agricultural output likely to rise as new cocoa trees come into production, GDP should continue to register strong growth. However, the rate is expected to fall slightly below the 7% registered in 1996, which to some extent was still a rebound from the lows of 1994.

One very positive feature is the further deepening of the economic reform programme, which has already yielded benefits in the form of improved tax revenue and enhanced monetary discipline. The government is expected to reinforce the performance budget system, introduced last year, by placing senior department managers on performance-related contracts. The privatisation and corporatisation of public-sector business enterprises is also set to continue. Samoa Forest Products is to be sold this year, along with the government’s shares in Western Samoa Brewery and Samoa Coconut Products. Other privatisations will follow next year. With the review of the tariff structure now completed, revisions will be introduced aimed at removing disincentives to local entrepreneurs. Additionally, reform of the financial system is due to move on, with the deregulation of interest rates. The overall result will be a more open economy, with enhanced efficiency in government and a greater role for the private sector.

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

-6 Tala:US$ 60 -8 1991 92(a) 93(a) 94(b) 95(b) 96(b) Tala:¥ (a) EIU estimate. (b) Official estimates. (c) Nominal exchange rates adjusted for changes in relative consumer prices. Sources: EIU; IMF, International Financial Statistics; World Economic 1980. . . . 85 . . . . 90 . . . . 95 . Outlook.

Review

The government proposes The prime minister, Tofilau Eti Alesana, introduced a bill in parliament in constitutional March for a number of constitutional amendments including one to change amendments the name of the country to Samoa—the name by which it has been recognised at the UN ever since it joined in 1976. Some politicians warned, however, that it could give offence to neighbouring American Samoa. The opposition leader, Tuiatua Tupua Tamasese Efi, claimed the renaming was a government ploy to divert attention from another proposed amendment that would remove safe- guards on the independence of the chief auditor. The amendment limits the

chief auditor’s term of office to three years; provides that the appointment be made by the cabinet; and allows for an incumbent to be dismissed by a simple majority vote in the parliament. At present, the chief auditor may hold office until the age of 60 and may only dismissed by the parliament with a two-thirds majority, in the event of misbehaviour or infirmity. The background to this proposal is that the present chief auditor, Sua Rimoni Ah Chong, has been suspended since July 1995 when he sued the parliament, the government and a commission of inquiry over the handling of his 1994 report.

A veteran diplomat is The country’s longest-serving ambassador, Afamasaga Toleafoa, has been ap- appointed regional pointed ambassador at large for the Asia and Pacific region. Mr Afamasaga was ambassador at large ambassador to the EU and several European countries until late last year, when he won a seat in parliament for the ruling Human Rights Protection Party at a by-election. In his new role he will be based in Apia, allowing him to fulfil his parliamentary duties.

GDP registered another Economic growth in 1996 is officially estimated at 7%, not far off the record year of strong growth in 9.6% of 1995. Reflecting improved agricultural supply, the strength of world 1996 prices for coconut products, and buoyant sales from the Yazaki automotive components plants, exports rose by 14% to Tala24.87m (US$10.1m), the highest level since 1984 and almost three times the 1994 level. However import growth, while a moderate 5%, was enough—because of the very high base—to push up the trade deficit (fob-fob) to Tala 200m. The rise in earnings from tourism and the slight increase in remittances were not enough to offset the deterioration in the merchandise balance, and the Asian Development Bank (ADB) has estimated that the current-account deficit was equivalent to 11% of GDP last year, just above 1995’s 10%. However net capital inflows, including a significant concessional component, produced a surplus on payments overall, allowing a further improvement in reserves. At year-end these amounted to US$60.80m, up from US$55.31m in 1995 and representing 7-8 months’ import cover—a very comfortable margin.

The consumer price index Government data for consumer price inflation show a switchback in the recent is to be reweighted past, with an average annual rate of 18.4% in 1994, falling to 1% in 1995 and then up to 7.5% in 1996. In the first two months of this year the rate was 9.1%. These rates are clearly anomalous at a period when the effective exchange rate was showing very little movement. They owe much to the very high weighting of taro in the food index. Its price soared in 1994 because of the near elimin- ation of domestic supply; consumers have turned to alternatives, making the index a very inaccurate measure of inflation. A correction is due to be made this year, with a household income expenditure survey to be the base for a new set of index weights.

Polynesian Airlines The government-owned Polynesian Airlines, back in profit after its financial extends its network to crisis in the early 1990s, extended its network to Melbourne in May. It already Melbourne flies to Sydney and has added a weekly flight from Apia to Nuku’alofa (Tonga) and Melbourne in its efforts to win a larger share of traffic between Australia and the Pacific.

Other Pacific Islands

Cook Islands

The economy is set to The economy of the Cook Islands is expected to contract sharply this year as contract sharply as the restructuring begun in 1996, designed to rein in the public sector, produces reforms bite its toughest effects. The Asian Development Bank (ADB) forecasts that GDP will decline by nearly 16%, taking it to a level about 20% below that of 1995. While agriculture and marine output is projected to increase by more than 8% in 1997, other service sectors will be shrinking, and particularly public administration, whose contribution to GDP is expected to be only 40% of the level in 1995-96. This is the result of the steep fall in budget spending this year, by close to one-third, as fiscal operations are governed by the new statutory requirement for budget balance. The forecast fiscal deficit, of NZ$2.1m (US$1.5m), will be covered by asset sales.

The ADB, which helped to draft the restructuring programme, has lauded the progress so far achieved, but has also pointed to the need for further measures to stimulate the private sector—notably more investment in infrastructure and the resolution of difficulties over customary land tenure.

Federated States of Micronesia

(Chuuk, Kosrae, Pohnpei, Yap)

The acting president takes The vice-president, Jacob Nena, was sworn in as president on May 8, after over acting as president since November 8, when the incumbent, Bailey Olter, was declared by the Congress to be unable to discharge the duties of his office because of a stroke suffered in July. The handover of power became automatic after 180 days. Mr Nena has twice been elected to the post of vice-president and has served a four-year term in Congress.

Meanwhile in the March elections for the Congress, all ten incumbents were returned for two-year terms.

An early retirement The national government has introduced a voluntary early retirement scheme, scheme aims to cut civil which aims to cut the public service workforce by around 20%. It is a major service employment component of the economic reform programme which seeks to reduce the cost of national government operations and enhance private-sector development. People who enter the scheme are barred from re-employment in any capacity by the government or its agencies. In addition, new legislation freezes salaries and institutes time off in lieu of overtime payments. Retirement pay-outs are being financed by a loan of US$18m from the ADB, with allocations of US$3m to the national government, US$5.3m to Chuuk, US$4.2m to Pohnpei, US$3.5m to Yap and US$2m to Kosrae. State governments are to begin implementing the early retirement programme next year.

The ADB is also providing a grant of US$380,000 for the formulation of an investment promotion plan and a review of financial sector institutions and instruments to help develop the private sector. The ADB has already provided technical assistance to strengthen the agriculture and fishing sectors, and assistance for tourism is in the pipeline.

Pohnpei is hit by tropical A state of emergency was declared in Pohnpei on April 20 after severe flooding storms and mud slides caused by tropical storm Jimmy, which struck the island on April 12-13, and typhoon Isa, on April 19-20. The national government provided an immediate US$100,000 for relief work and has applied to the US government for federal disaster funds.

An air service agreement The governments of the Federated States of Micronesia (FSM) and the Marshall is reached with the Islands signed a bilateral international air transport agreement in May, open- Marshall Islands ing the way for Air Marshall Islands to begin scheduled passenger and freight services between them. FSM has no airline of its own, with Continental Air Micronesia providing its domestic and most international services. The agreement provides for each country to give traffic rights to a designated airline.

Kiribati

The ADB backs a A major sanitation project is to be supported by a soft loan from the ADB. The sanitation project US$14.5m project to improve water and sanitation services is to begin in 1999 and will take three years. About 28,500 people or 37% of Kiribati’s population live on the capital island, South Tarawa, where population pressures are caus- ing problems. According to ADB experts, about 6,500 tons of solid waste— largely benign and consisting of leaves, cans and plastics—are produced each year, of which 75% is burned, buried or discarded on the beach. Of the five disposal sites only one has a sea wall to contain the waste. Uncontrolled oil discharge is another concern, polluting water reserves. The reticulated water supply system is in a poor state, with leakage of up to 50%. Sewerage and salt water reticulation systems are also badly in need of maintenance.

Contract signed for port The government has signed an agreement with Tetra of Japan, as main contrac- upgrade tor and project supervisor, for a A$43m upgrading of Betio Port. The three-year project includes a container yard, cargo sheds, an office complex and a passenger terminal and is being funded by Japan. Work is due to begin in August.

At the same time, at a meeting between Kiribati and Australian defence officials, Australia undertook to survey the Betio lagoon to locate any unexploded bombs from the Second World War. Australia was also asked to extend its maritime surveillance to the northern and eastern boundaries of the country’s 200-mile exclusive economic zone.

Sentences on fish poachers The captains of two fishing boats caught fishing illegally near Butaritari Island are reduced in northern Kiribati last November won an appeal in March against the severity of their penalties. The two men, one from China and the other from Taiwan, were each fined A$100,000 (US$77,000), with six years’ imprisonment in default.

The court reduced the fines to A$6,000, with nine months’ imprisonment in default, but upheld the forfeiture of the boats and their catches.

Marshall Islands

The architect of The Iroijlaplap (paramount chief) and president of the Marshall Islands, Amata independence dies after 17 Kabua, the chairman of the South Pacific Forum, died in Honolulu in December. years in the presidency— He was one of the elder statesmen of the South Pacific and architect of the Marshall Islands’ independence. He was elected the country’s first president in 1979 and then re-elected for successive four-year terms.

—and is succeeded by his A cousin of Amata Kabua and another powerful paramount chief, Imata Kabua, cousin— was elected president by the Nitijela (parliament) on the first vote, on January 14. He secured 20 votes, beating the speaker, Kessai Note, and the former ambassador in Washington, Wilfred Kendall (each with six votes). The new president said he would continue the course established by his cousin, whose term in office was characterised by stimulus of the private sector, major government investments in infrastructure and the promotion of foreign investment, including passport sales to Asians. However, his style differs from that of Amata Kabua; he is a blunt speaker who does not shy away from confrontation. In the late 1970s and early 1980s he led repeated sail-in protests at the US Army missile testing range, which led to an increase in US rental payments from a few hun- dred thousand dollars per year to more than US$7m annually.

As the leading traditional chief for Kwajalein Atoll he will be a major force in any future negotiations with Washington for the continued use of the multi- billion dollar testing facility. He is also one of the richest men in the Marshall Islands because of the Kwajalein rents from the USA.

—who makes some The new president has added two members to the cabinet: the newly elected changes in the cabinet Senator Jiba Kabua (son of Amata Kabua) will receive the resources and development portfolio, while Senator Justin de Brum (the former head of the Marshall Islands Development Authority) will take over as minister of education from Christopher Loeak. The latter is assuming the president’s previous portfolio, as minister for the Ralik chain of islands. The former resources and development minister, Lomes McKay, is now minister of justice. Other ministers are unchanged.

An ADB loan will soften The ADB approved a loan of US$12m at the end of January to finance the the impact of redundancies in the government service arising from the restructuring pro- restructuring gramme. This programme aims to cut the cost of government, streamline its services and promote private-sector development. The funding is conditional on the implementation of increases in taxes on petrol, tobacco, alcohol and certain other luxury and food items. The relevant legislation went before parliament on January 21. Government workers who have been laid off will receive an initial lump sum severance payment, and then monthly payments similar to what they would have received from the social security system had they retired voluntarily. The payments are to assist them in the transition to private employment, and may continue for up to three years. The ADB funds

will also be used for retraining programmes to assist former government workers to launch private businesses. So far 300 workers have been laid off, another 100 workers are expected to leave this year, with more in 1998, and there has been a virtual freeze on hiring since late last year.

A processing plant is to The Majuro-based Tobolar Copra Processing Authority has signed a deal with buy copra from FSM the Federated States of Micronesia (FSM)’s Coconut Development Authority to buy all the exportable copra that is produced in the FSM. This is the first trade agreement linking the islands of the former US Trust Territory in a commercial deal. The first shipment from the FSM was expected about May. The FSM’s copra production is low but will enhance Tobolar’s ability to produce refined oil and soap products. The Marshall Islands also buys copra from Kiribati that is processed into oil at the Majuro refinery. Tobolar is now planning to ship refined oil in bulk to Pohnpei to sell to Ponape Coconut Products, a company that produces a variety of coconut soap and oil products for export.

The government is The government is considering proposals from two USA-based companies for studying nuclear waste feasibility studies on the storage of nuclear waste from Asian power plants at storage proposals one of the country’s low-lying atolls. One of the companies is Raytheon, a major US Defence Department contractor which manages the missile testing range at Kwajalein Atoll for the US Army. The US State Department has expressed concern about the nuclear waste proposals but the Marshall Islands government has affirmed that it will keep both the US Government and its friends in the region informed if concrete steps were taken on the basis of the feasibility study.

The USA funds a new The USA is to finance a US$12.5m power plant for Majuro. The loan is being power plant provided by the Federal Financing Bank through the US Rural Utilities Service, and will be used for a 12-mw power plant and a major upgrading programme, including the installation of underground power lines to part of the capital. The new plant is expected to enter operation in early 1998.

Nauru

A new president is elected Kinza Clodumar was elected president following the general elections in February. The vote was called try to end a period of political instability, engendered by the rivalry between two former presidents, Lagumot Harris and Bernard Dowiyogo. Mr Harris had won the presidency after the elections of late 1995, but was toppled in November and replaced by a minority Dowiyogo government, which lasted only a few weeks before a government headed by the former education minister, Kennan Adeang, took over. This was in turn ousted three weeks later, on December 19, in favour of a caretaker president, Reuben Kun, who called the new elections.

Mr Clodumar has held a variety of portfolios, notably finance. He was the nominee of Mr Dowiyogo, and won the presidency by nine votes to eight against Mr Harris, in the 18-member parliament.

The Harris government The Harris government introduced a tough budget last year. The measures sought to tackle the dire included a two-year wage freeze, curtailment of public-service recruitment, financial situation greater emphasis on the development and promotion of Nauruan staff and cutbacks in expatriate employment, the closure of a number of overseas consu- lates, drastic cuts in staff and a reduction in overseas medical visits, with greater use of specialist visits to the island. This permitted a slashing in budget spending to A$46m (US$35m) from the previous A$89m, but with revenue estimated at only A$22m, a major problem remained. Meanwhile external debt amounts to some A$200m. Mr Harris therefore embarked on a programme of corporatisation and asset sales, and Price Waterhouse was brought in to develop a strategy to help the country deal with its financial mess. The then finance minister, Reuben Kun, said the government would not be able to meet all its debts in the 1996/97 financial year, or within the next three years. Accordingly, the government had instructed the Nauru Phosphate Royalties Trust to begin selling off assets identified as under-performing.

Queensland seeks to Following the change of government, a government-led trade mission from deepen relations Queensland visited Nauru in March to consolidate the progress made by last year’s trade mission. As a result of that visit Nauru entered into an agreement for the provision of health services (valued at about A$2m per year) with the Brisbane Private Hospitals Network, and the Nauru Ministry of Education agreed to adopt the Queensland secondary school curriculum. The March mission included representatives from the private hospitals, the overseas unit of the Queensland Department of Education and a food company, Evfresh Group. Exports of food from Queensland to Nauru have increased significantly since last year.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 46 Quarterly indicators and trade data

Quarterly indicators and trade data

Fiji: 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 Exports Qtrly totals Sugar ’000 tons 164.4 54.2 60.1 171.4 152.4 39.1 60.5 216.8 170.7 0.0a Tourism Qtrly totals Visitor arrivals ’000 83 66 77 95 80 71 76 93 92 54a Prices Monthly av Consumer prices: 1990=100 118.9 120.6 120.6 120.4 121.6 123.8 124.7 124.7 124.6 128.2 change year on year % 0.7 1.6 2.1 2.7 2.3 2.7 3.4 3.6 2.5 3.6 Money & banking End-Qtr M1, seasonally adj: F$ m 342.6 348.2 370.7 364.3 383.9 421.8 440.1 493.0 453.1 416.3b change year on year % –5.3 3.9 6.9 9.9 12.1 21.1 18.7 35.3 18.0 n/a Commercial banks: total depositsc F$ m 1,390.7 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 loans & advances “ 1,088.4 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 Foreign trade & payments Qtrly totals Exports fobd F$ m 261.4 165.4 176.1 290.0 238.5 180.6 232.9 297.1 206.0 n/a Imports cif “ 329.5 289.8 303.1 303.0 323.1 291.4 327.8 359.9 348.6 n/a Government revenue Total F$ m 198.7 160.3 170.2 182.0 202.5 150.3 186.3 189.8 225.6 n/a income taxes ” 109.9 86.9 96.5 100.6 109.8 84.4 100.5 107.4 125.3 n/a Exchange holdings End-Qtr Foreign exchange US$ m 247.8 223.3 225.6 291.1 322.8 338.3 302.0 350.2 401.3 365.5e Exchange rate Official rate F$:US$ 1.409 1.402 1.389 1.413 1.429 1.408 1.404 1.397 1.384 1.411

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

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

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 47

Solomon Islands: quarterly indicators of economic activity

1994 1995 1996 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr Prices Monthly av Consumer prices: 1990=100 161.5 162.2 166.2 170.2 175.2 179.2 190.2 n/a n/a n/a change year on year % 15.3 13.7 10.4 9.0 8.5 10.5 14.4 n/a n/a n/a Money End-Qtr M1, seasonally adj: SI$ m 152.03 162.88 156.89 163.43 146.01 170.79 187.99 181.09 190.13 197.55 change year on year % n/a 31.6 16.1 17.3 –4.0 4.9 19.8 10.8 30.2 15.7 Foreign trade Qtrly totals Exports foba US$ 30.9 34.8 38.5 41.3 41.0 37.5 48.2 33.9 45.8 19.0b Imports fob “ 31.1 34.1 33.3 33.6 38.7 34.7 36.3 33.9 43.0 15.5b Exchange holdings End-Qtr Foreign exchange US$ m 21.9 16.6 16.9 16.7 16.3 15.1 19.8 28.0 28.6 31.8 Exchange rate Official rate SI$:US$ 3.316 3.329 3.366 3.400 3.450 3.476 3.514 3.550 3.587 3.622

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

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

Tonga: 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=100 121.2 122.1 123.2 124.2 124.5 127.1 127.9 127.1 126.8a n/a change year on year % –2.3 1.0 1.3 0.7 2.7 4.1 3.8 2.3 n/a n/a Money End-Qtr M1, seasonally adj T$’000 23,901 24,299 25,235 24,073 21,530 24,625 23,303 21,487 20,363 n/a change year on year % 3.2 18.1 22.6 –0.3 –9.9 1.3 –7.7 –10.7 –5.4 n/a Foreign trade Qtrly totals Exports fobb T$’000 11,223 1,991 1,811 3,946 10,695 1,545 1,499 1,881 n/a n/a Imports cif “ 25,570 21,593 24,616 26,666 25,158 20,661 22,517 24,379 n/a n/a Exchange holdings End-Qtr Foreign exchange US$ m 33.07 23.60 24.39 22.69 26.85 24.03 25.06 22.32 28.77 26.54c Exchange rate Official rate T$:US$ 1.258 1.277 1.277 1.267 1.270 1.238 1.232 1.219 1.213 1.230c

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

Source: IMF, International Financial Statistics.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 48 Quarterly indicators and trade data

Vanuatu: 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=100 118.1 121.9 118.2 119.8 120.1 120.9 121.6 122.0 120.0 n/a change year on year % 2.6 4.9 0.3 2.1 1.7 –0.8 2.9 1.8 –0.1 n/a Money End-Qtr M1, seasonally adj: Vt m 5,683 5,776 5,491 5,619 6,256 6,387 6,334 6,353 6,476 5,955a change year on year % 0.8 4.5 –2.8 –10.5 10.1 10.6 15.4 13.1 3.5 n/a Foreign trade Qtrly totals Exports fobb Vt m 916 640 755 962 816 530 1,002 890 636 n/a Imports cif “ 2,542 2,437 2,918 2,487 2,818 2,459 2,748 2,988 2,693 n/a Exchange holdings End-Qtr Foreign exchange US$ m 39.63 39.27 40.32 41.66 44.16 40.62 44.43 39.87 39.82 40.54 Exchange rate Official rate Vt:US$ 112.1 113.2 113.5 112.6 113.7 111.8 111.4 111.2 110.8 112.8

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

Source: IMF, International Financial Statistics.

Western Samoa: 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=100 127.9 127.6 133.1 127.7 132.3 137.2 138.3 140.7 144.0 149.2a change year on year % 15.7 1.7 1.1 –2.1 3.4 7.5 3.9 10.2 8.8 n/a Money End-Qtr M1, seasonally adj: Tala m 41.51 42.30 48.80 55.88 53.55 50.27 47.95 52.34 53.40 55.14b change year on year % 7.8 2.7 26.1 37.7 29.0 18.8 –1.7 –6.3 –0.3 n/a Foreign trade Qtrly totals Exports fobc Tala ’000 2,606 3,320 3,931 7,322 7,274 5,287 6,242 7,552 5,787 7,291d Imports cif “ 53,126 51,352 47,939 66,386 69,676 62,021 56,378 66,231 62,496 42,726d Exchange holdings End-Qtr Foreign exchange US$ m 46.92 44.59 44.52 45.77 51.28 45.99 48.92 52.84 56.82 56.70b Exchange rate Official rate Tala:US$ 2.452 2.467 2.431 2.503 2.527 2.452 2.452 2.434 2.434 2.472

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

Source: IMF, International Financial Statistics.

EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Quarterly indicators and trade data 49

Direction of trade Fiji Solomon Islandsa Vanuatu Western Samoaa F$ m SI$ ’000 Vt m US$ m Jan-Dec Jan-Dec Jan-Jun Jan-Jun Jan-Marb Jan-Marb Jan-Dec Jan-Dec Imports cif 1995 1996 1993 1994 1994 1995 1993 1994 Germany 13.78 12.45 2,489 1,690 n/a n/a 2 1 Netherlands n/a n/a 52 686 n/a n/a 0 0 UK 25.28 24.72 2,336 3,766 n/a n/a 1 0 Singapore 87.01 69.65 29,279 16,646 63 269 1 1 Australia 473.35 613.02 72,186 89,170 981 794 17 16 New Zealand 193.90 204.01 23,705 17,550 213 194 40 30 Japan 87.67 72.36 38,746 40,426 207 257 11 8 USA 121.44 128.77 9,324 8,484 n/a n/a 11 9 Total incl others 1,253.83 1,380.07 216,104 208,593 2,487 2,313 103 80

Jan-Dec Jan-Dec Jan-Jun Jan-Jun Jan-Sep Jan-Sep Jan-Dec Jan-Dec Domestic exports fob 1995 1996 1993 1994 1994 1995 1993 1994 Germany 3.57 2.20 2,952 3,133 Netherlands n/a n/a 12,745 21,380 546 c 442 c 0 0 Spain n/a n/a n/a n/a } UK 175.35 142.81 24,588 26,656 China 8.47 13.30 n/a n/a n/a n/a 0 0 Australia 198.88 264.29 3,677 2,428 136 197 1 0 New Zealand 40.81 35.59 546 621 9 10 3 2 Japan 50.10 67.68 79,188 92,749 308 376 0 0 South Korea 5.89 9.29 30,839 34,221 59 50 0 0 USA 99.29 79.28 1,258 350 n/a n/a 1 0 Total incl others 764.48 790.96 193,577 232,102 1,673 1,880 6 4 a Including re-exports. b Imports cleared for home consumption. c Total EU.

Source: National Sources.

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.