Business
The bank changes its ways with the islands
New approach to getting governements, economies going.
Since the mid-1990s, the Asian Development Bank has been at the forefront in pushing sometimes reluctant Pacific Islands countries to act drastically in fixing up their rickety styles of government and floundering economies.
The Philippines-headquartered bank pumps US$100-150 million a year in loans to its 12 Pacific islands members and another US$15 million in technical assistance grants.
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10 of the 12 are being shepherded through jolting reforms of their government and economic systems. The Asian Development Bank, in a new policy document, says that:
-overall, despite the high level of foreign aid they receive, Pacific islands still show disappointing growth, and worsening poverty, especially in Papua New Guinea, the Solomon Islands and Vanuatu;
-continuing reliance on heavy government investment due to lack of private investment;
-worsening environment problems; and little progress in giving women more significant roles in politics, business and social matters.
What has been learnt in the 1990s, the bank says, is that Pacific islands need to have more say and control of reforms and investment projects. Local culture and capacities must be ignored when planning reforms, that reforms must not be rushed if they are to work and that Pacific islands must not be left dependent on foreign consultants.
In March, the Asian Development Bank announced changes of policy in applying its money and ideas to solving Pacific Islands governmental and economic difficulties.
During 2001-2003 it will channel US$386.8 million the way of the islands. Aid will be concentrated on continuing with economic, governance and public sector reforms, helping private business development, promoting roles for women and backing sustainable environmental management and poverty reduction.
The policy puts aid recipients into three categories:
- Melanesia (Papua New Guinea, Solomon Islands, Vanuatu‹resource rich, but relatively poor with high population growths): Aid to be focussed on governance, public sector reforms, poverty reduction and strong support for women- More economically advanced countries (Cook Islands, Federated States of Micronesia, Fiji, Samoa ‹ they have higher skills, moderate resources, relatively low poverty): Aid to be focussed on private business growth and physical and financial sector growth.
- Atoll countries (Kiribati, Marshall Islands, Nauru and Tuvalu - all badly handicapped by small size, isolation, weak resources): Aid to be targeted at support for trust funds for sustainable financing of basic services; supporting niche tourism; and sustainable use of marine resources.
The commentary attached to the bank policy paints a general view of the condition of its 12 island members:
- They had disappointing economic performances in the 1980s and early 1990s, despite the high ratio of aid that went to them.
-Annual 1980s growth averaged only two percent and was about 3.5 percent in the 1990s.
- The five years to 1999 were the ³most volatile² with serious economic instability and bad fluctuations of productivity caused by the East Asian economic crisis and hurricanes and other natural disasters.
- Many Pacific Islands embarked on economic reforms from 1995 with gradual recovery beginning in 1998.
- 1999 became a "year of recovery" for them with the highest collective growth (4 per cent) since 1994.
- Papua New Guinea's growth of 3.8 percent surpassed expectations
- And after two years of recession Fiji rebounded. Recovery was brought by the end of a long bad drought, economic reforms, better commodity prices and growth of world trade and output.
- 2000 opened with a good outlook, but then political trouble in Fiji and the Solomon Islands drastically changed not only their national prospects but those of the region since they together accounted for about 30 percent of Pacific islands output
- With Fiji and the Solomons facing "deep recession", the Asian Development Bank says regional growth will drop from more than 4 percent to a negative 2 percent.
- Pacific islands still depend too heavily on foreign aid. To ease that dependence they need to promote more domestic savings and more efficient financial systems.
Fiji is the least dependent on aid and Kiribati the most dependent, with grants averaging 40 percent of its Gross Domestic Product.
Aid allows countries to continue consuming more while saving less. Poverty, until recently not much of a problem for Pacific islands countries, is now Œsignificant and growing² because of two decades of poor economic performance, fairly high population growth, urban drift and growing inequalities.
"Traditional support mechanisms are under strain and in some instances are breaking down," the bank says.
Melanesia has the worst poverty. The Cook Islands, Samoa, Tonga and Tuvalu show "little". The Federated States of Micronesia, Kiribati, Nauru, and Marshall Islands are in the "middle range" but need studying to discover the real nature and extent of it.
In Fiji and Papua New Guinea poverty is worse than figures based on old studies suggest.
If Pacific islands countries are to move ahead, more foreign investment has to be brought into places where opportunities for it are often limited. Political trouble is currently, perhaps, the main factor hindering development, the bank says.
In the Cook Islands and Vanuatu recent political changes show that reformed governments need to be "far more inclusive and participatory" with reform projects so that these carry on despite changes of government.
Political trouble in Fiji and the Solomon Islands show that governments have to be more aware and responsive to growing inequalities between different parts of society.
In the past 12 months, seven of 12 Pacific islands countries have had changes of government and "the volatility of political changes in the Pacific appears endemic and must be taken into account of when working with governments to plan and implement reforms and development strategies".
The bank has a gloomy view of the Pacific islands' abilities to rule themselves.
Weak human and institutional capacities are perhaps the worst stumbling block to achieving efficient social and economic system, it says. "Weaknesses range from the weak capacities of parliaments to debate policy issues and to effectively oversee government administration to the limited professionalism of the civil service, the weak capacity of sectoral agencies to regulate and manage critical public services and the inability of the private sector to engage in the necessary businesses and technical skills."
Fixing problems is a "long-term task" with "serious risks in being overly ambitious, given the weak base in most countries."
Cultural attitudes have to be allowed for in tackling major development challenges. At the root of the population problem is the inability of education services to reach out to the people, particularly the women, and particularly in Melanesia and Micronesia, the bank says.
It says that Pacific islands countries can harness informational technology to beat some of their problems of vulnerability and isolation and smallness Information technology can increase the size of markets, reduce the costs of distance, enable access to sources of learning and advice and bring jobs to skilled people even in remote locations. It does not need much land and has low environmental impact
