Standing Firm Despite Pressure

One of the few national institutions still standing proud in Solomon Islands as the "cooperative intervention" force steamed in to Honiara in July was the embattled central bank.

Rick Hou...knows something about pressure.

Rick Hou, the 44-year-old governor of the Solomon Islands' Central Bank, knows something about pressure.

Politicians often ask him to give them money ("the normal thing", as he puts it) or else, more creatively, they expect him to invest in pyramid schemes, guarantee schemes and "whatever other schemes ministers and other cronies get involved in, and want to bet the central bank on them".

Members of the public have demanded money too, harassing the 70 staff and bashing the bank's doors, calling at the homes of the governor and others after hours.

But the bank has withstood these pressures, and Hou is now being relied on as a key player in stabilising the country.

Stephen Grenville, the former deputy governor of the Reserve Bank of Australia, says: "I knew Rick pretty well. I first met him when I helped run a central bankers' course in Bangladesh in the mid-1980s.

He took a special interest in what later became quite famous the Grameen Bank for small-scale rural credits, often to village women. He got on the back of a motorbike and went out to see it in action. His opinion of it does not matter, the fact that he had the energy to go and see does.

"Since then I have seen him maybe once or twice a year, and each time I have been impressed by his solid honesty, his real feeling for his country." After 10 gruelling years as governor, following 10 in other roles at the bank, Hou had planned to step down in mid-August.

The Solomon Islands government has not responded to his contract expiry. But he told me he would consider staying on for a period if asked.

This has been a decade of living dangerously for Hou, who took a commerce and accounting degree at the University of Technology in Lae, Papua New Guinea, before a graduate diploma from the Australian National University. The economic rot set in during the tempestuous prime ministership of the late Solomon Mamaloni (1981-84, 1989-93 and 1994-97), who started selling off the country's pristine rainforests to Malaysian loggers, then sucked much of the money from the domestic market as the government ran up ever bigger deficits, prompting some epic run-ins with the bank governor. Hou says the ethnic rivalry that prompted the coup three years ago and the ensuing collapse of the rule of law are the result of a longer-term failure to address fundamental economic problems. These range from government mismanagement to structural issues such as the land tenure system, lack of skills and remoteness from markets.

Macro-economic indicators have picked up over the last few months, Hou says. "But bear in mind, they come from the bottom of the pit."

The balance of payments has turned positive for two quarters, with the export sector up 15 percent and imports down 20 percent.

"People are still cutting all our forests down," the governor says, and " fisheries have revived although still below half capacity."

There has been a return to traditional tree crop farming, chiefly of copra and cocoa, with the most productive area, northern Guadalcanal‹Honiara's hinterland‹more calm, and with dislocated returnees to Malaita depending on re-establishing cash crops.

The government's finance, however, remains "very, very precarious", he says. Part of the problem is that "we don't know what the government figures are...because the statistics office has hardly been functioning. They don't have equipment, and the staff are demoralised".

The bank helps out by providing a phone, computer and vehicle for a statistician, and is thus starting to resurrect some figures including the inflation rate, now estimated at 14.4 percent.

The Solomon Islands dollar is in a "dirty float" calibrated with some government input against a basket of currencies: the Australian dollar, the greenback, the yen and sterling.

Adopting the Australian dollar would not help at this stage, the governor says. "We have to resolve the fundamental problems of our economy, and then we might think about dollarisation.

"Our government is very keen on it, but the problems we have experienced here are nothing to do with whether we have whichever dollar as the currency. Look at Nauru‹ and it uses the Australian currency.

"Our problems are all to do with perennially mismanaging the economy. And the heart of this is fiscal policy."

Budgets have been put together at the last minute and with not a lot of intelligence, Hou says. And ministers have aimed only to pass their budgets. Governments slowed down their domestic borrowing until the Townsville Peace Agreement two years ago, when the "cheques for peace" approach sparked a borrowing spree.

That has now stopped because the lenders, including the central bank, have shut their doors to the government because "it has defaulted on interest and principal repayments".

The government now owes $SI1.7 billion ($A347 million), 70 percent of it overseas, chiefly to international institutions. Banks have taken the government to court and won orders, but have ended up with only acknowledgments of the debt.