Regions and Countries

	Table of Contents
p. 3 of 9 BACK | NEXT Executive Summary I. Introduction II. Current Development Trends and Issues III. Pacific DMC Development Strategies IV. ADB's Development Experience V. ADB's Strategy VI. Delivering the Pacific Strategy VII. Risks and Performance Monitoring and Evaluation Appendixes

Responding to the Priorities of the Poor: A Pacific Strategy for the Asian Development Bank 2005-2009

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II. Current Development Trends and Issues

6. This Pacific Strategy has been developed at an important juncture for the region. The development performance of the PDMCs over the past decade has been mixed. Modest growth and social progress have been evident for a few, but minimal progress has been made in many PDMCs and a measurable decline in key economic and social indicators has occurred in some. In most PDMCs, outcomes have been less than hoped for by governments, the people, and development partners, underperforming targets set in development plans. A small number of PDMCs have experienced conflict and severe pressure on the rule of law, including two coups in recent years. International concern over money laundering and terrorism financing in some PDMCs has placed other PDMCs in an unwelcome spotlight. Nor, in many PDMCs, is there evidence of the capacity to deal with an increasing range of emerging social and economic challenges. The smallest, most resource-poor PDMCs, and outer-island groups within PDMCs have limited development options and marginal viability without significant external assistance. Notwithstanding some success stories, many Pacific islanders and development partners are therefore searching with greater urgency for appropriate solutions to the development challenges facing the people and countries of the region.

A. Economic Growth

7. There are significant differences among the economic circumstances and performance of the PDMCs. To some degree, these differences are growing. However, the most common picture is one of disappointing economic growth since the period of macroeconomic and fiscal reforms in the mid- to late 1990s. In six of the 14 PDMCs, economic growth is not keeping pace with high rates of population growth, so per capita incomes are declining, quite steeply in a few cases (see Table 1; see also Appendix 2, section A for country economic indicators).⁶ Conversely, Cook Islands, Kiribati, Samoa, and Tuvalu have achieved gross domestic product (GDP) per capita growth averaging about 3% per annum since 1995, although in the cases of Kiribati and Tuvalu this result is due largely to the strong performance of external receipts in the late 1990s, rather than to domestic economic expansion. Taken as a whole, the Pacific is significantly underperforming other developing regions of the world, both in terms of economic growth and in furthering its integration with the global economy (Table 2).

8. The fortunes of PDMC economies are closely tied to external events and conditions. All are highly open to trade, relying heavily on imports for many essential supplies while relying on a narrow range of commodity and natural resource exports and/or international tourism for their export receipts. Many PDMCs, especially Cook Islands, Samoa, and Tonga, have significant diasporas in neighboring industrial countries—Australia, New Zealand, and United States (US)—and remittances comprise a significant portion of the economy, fueling domestic consumption. Government receipts are likewise substantially influenced by external factors. Kiribati, Nauru, and Tuvalu are heavily reliant on earnings from their external trust fund investments. The Federated States of Micronesia (FSM), Republic of the Marshall Islands (RMI), and Palau are very highly dependent on aid provided through their Compact of Free Association agreements with the US. Thus, a key feature (and a key vulnerability) of most PDMC economies is their relatively low degree of reliance on domestic economic growth, and therefore on productivity improvements in the private sector, to drive the development process.

9. Economic success stories in the Pacific are scattered across sectors and countries. Tourism has been the key to Cook Islands success, with extensive foreign direct investment leading to capacity expansion (though this has not been sufficient to stem the flow of Cook Islanders migrating to New Zealand in search of greater opportunities). Recently, tourism has also rebounded strongly in the Fiji Islands. Agricultural export production in Papua New Guinea (PNG) has proven responsive to price incentives, and vanilla and palm oil have joined coffee and cocoa as important exports. Examples of successful entrepreneurship in fisheries can be found in several PDMCs. Only Samoa has demonstrated broad-based growth, albeit at relatively modest levels. This growth is based on microeconomic efficiencies generated by its significant public sector reforms and on moves toward economic liberalization. Even so, investment levels remain below those desired by the Samoan Government.

10. PDMCs have some advantages that can be exploited in a globalizing world, especially if transport and communications costs decrease: a relatively pristine natural environment, highvalue marine resources, various other natural resources (in some PDMCs), and tourism potential, backed by English language capability.

11. Unfortunately, beyond the isolated examples noted above, weaknesses in the economic performance of the PDMCs are pervasive. The private sector has generally been constrained in leading economic growth. Job creation for growing young populations has been minimal: this is an issue of growing concern among Pacific island leaders and people alike. Agriculture and fisheries, key sectors for many Pacific islanders and especially the poor, have not generally provided strong growth. Savings are at very low levels, and both domestic and foreign investment levels have been declining, despite liquidity in the banking sector. Most PDMCs are handicapped by extremely low competitiveness, low productivity, and inadequate infrastructure.

12. The Pacific faces natural constraints that contribute substantially to these problems of competitiveness, productivity, economic growth, and revenue generation. Small, highly dispersed land areas and populations are located a long way from major world markets. Natural resource bases are fragile and primary production options are narrow in most PDMCs, to an extreme degree in the atoll PDMCs. PDMCs are highly vulnerable to natural disasters, such as cyclones. These factors in turn combine with societal norms that prioritize communal sharing of resources as a safety net (risk-mitigation) strategy. The apparent end result is to substantially reduce incentives for individual entrepreneurship, labor, and wealth accumulation.

13. However, ADB governance and private sector assessments suggest that internal constraints, related to the quality of policies and institutions, are also highly significant to the growth prospects of the PDMCs. With a large proportion of revenues coming from external sources, such as remittances, fishing license fees, and returns on investments in foreign financial markets, some PDMC governments may be too focused on resource distribution and insufficiently focused on the requirements for private sector-led domestic economic growth.

B. Private Sector

14. The five private sector assessments conducted to date⁷ highlight that the natural and, arguably, cultural constraints to PSD are greatly exacerbated by a policy and institutional environment that is highly unfriendly to business, be it small or large, formal or informal, domestic or foreign owned. Although the details are specific to each PDMC, the general conclusion is that improving policies and institutions is essential, in order to create an environment for private sector-led growth (see Appendix 3, Section A). Common issues include:

1. The role of the state is pervasive, both in its requirements for registration and for licensing of businesses and in its widespread (and often unsuccessful) ownership of businesses
2. In many sectors, the inefficiencies of state-owned enterprises (SOEs) are protected by an injunction against private sector competition. The result is that: (a) the services that are especially important for small and isolated economies (such as communications and transport) are provided at unnecessarily high cost and low quality, and (b) the scope for private sector development is unnecessarily limited
3. The institutional, commercial, and legal framework for the private sector is inadequate to support modern business transactions, and implementation of laws is often inadequate
4. Financial markets do not function effectively to finance investment. There is often no mechanism for the pledging of collateral as security for loans. This particularly disadvantages indigenous entrepreneurs
5. Specifically, inadequate security of land tenure raises a large barrier to investment. Land, which is one of the principal assets of indigenous Pacific islanders, cannot be mobilized for productive economic purposes. Land tenure is a contentious and complex issue requiring culturally sensitive and innovative approaches, but most PDMC governments are not actively seeking solutions.

15. In summary, the environment for PSD is hampered by most governments failing to do what they should do (providing property rights, ensuring the rule of law, and underwriting a conducive policy and institutional environment), while doing what they should not do (restricting business opportunities and operating inefficiently in markets). In some PDMCs for example, tax concessions and incentives (which reduce revenue returns to governments) are used to attract foreign investors on the one hand, while the lengthy approval process drives them away on the other. Indigenous and small private enterprise is most heavily affected by the problems in the policy and institutional environment. Nevertheless, some examples of tangible progress are evident. For example, both Samoa and Tonga have approved policies on SOE ownership and have started programs to clarify objectives, strengthen management and accountability, and divest themselves of SOEs that do not contribute to government objectives for SOEs.

16. Another critical issue that emerges in consultation with private sector representatives is the skills gap, in which professional, technical, and often basic trade skills are highly limited in supply. Education and training programs that are responsive to labor market demand would therefore be a valuable complement to policy and regulatory reforms which enable PSD.

17. Ambivalent attitudes to the private sector exist to varying degrees in the PDMCs, as does an interventionist philosophy among political leaders and officials. This is so partly as a consequence of an earlier, now discredited, policy consensus (including among development economists and partners) that a dominant state role is needed to overcome the challenges of smallness. The fact that foreign investors or ethnic minorities are often predominant in the private sector may also shape attitudes and policies.

18. The conclusion from ADB’s private sector assessments therefore is that PDMCs are not yet testing where the natural constraints to PSD lie in the Pacific. A significant reorientation of thinking by governments is necessary, focusing on providing a supportive environment for domestic and foreign entrepreneurship and initiative, reducing the role and increasing the efficiency of government, and avoiding targeting of “priority sectors” and other market distortions. Sensitive policy issues, including approaches to land tenure and foreign investment, will need to be carefully considered and addressed as part of this process.

19. It is important to highlight the potential role of the private sector in the Pacific’s development, while having realistic expectations of the private sector’s response to an improved operating environment. There are limits in two areas. First, levels of foreign investment may grow to a degree, but are likely to remain modest no matter how effectively a PDMC reforms its enabling environment for business. This is especially so as the tariff advantages of PDMC products in Australia, Europe, and New Zealand erode. Niche foreign investment is most likely. Domestic investment and entrepreneurship are where the greatest potential lies. However, even the domestic private sector cannot be expected to rapidly capitalize on all possibilities. PSD will require a long-term change in attitudes and expectations of government, the development of new skills, and periods of trial and error.

20. Second, in the smallest and most resource-poor countries and in outer-island groups of the region there are clearly natural limits to the growth potential for the private sector. However, increasing the efficiency and effectiveness of the use of scarce resources even in these environments is an essential development objective. Here, irrespective of ownership, private sector participation in the provision of public goods and services may have a role, by increasing contestability, as a potential means to increase the productivity and reliability, and reduce the cost, of service provision. Provided that the incentives and regulatory arrangements can be structured appropriately, competition for the market (e.g., auctioning a license to provide services such as interisland shipping for a set period, if necessary on a minimum subsidy basis) offers potentially important efficiency gains in these environments. These options have not been sufficiently tested in the Pacific to date.

C. Poverty

21. Largely unrecognized in previous decades, poverty is now a significant and growing issue in many PDMCs. Although data are unreliable, more than 25% of the population are believed to be living in poverty in Fiji Islands, Kiribati, FSM, PNG, Solomon Islands, Timor- Leste, Tuvalu, and Vanuatu (Appendix 2, sections A-C). Previously, poverty in the Pacific was mitigated by social safety nets within rural villages. However, traditional systems are breaking down. High rates of migration, internationally and internally to major towns in search of (largely nonexistent) jobs, are creating poverty in both unplanned and unserviced peri-urban settlements as well as among the less productive (older and younger) populations left behind in rural areas and outer islands.

22. In 2002 and 2003, ADB conducted participatory assessments of poverty (referred to as “hardship” in some PDMCs) in eight PDMCs,⁸ in order to improve its understanding of the nature of poverty and of the priorities of the poor in the Pacific. While there are growing pockets of real destitution in some PDMCs, in most cases the issues raised relate to the difficulty of insufficient cash to purchase basic goods and meet community obligations, along with inadequate access to basic services, such as health care, clean water, and schooling. A broad definition of poverty for the Pacific was recommended by Pacific Islanders as part of this work:⁹
An inadequate level of sustainable human development, manifested by:

1. a lack of adequate resources (including cash) to meet the basic needs of the household or customary obligations to the extended family, village community and/or the church
2. a lack of access to basic social services
3. a lack of opportunities to participate fully in the socioeconomic life of the community.

23. These poverty surveys and analyses have yielded a clear understanding of the priorities of the poor in Pacific countries. As set out in Table 3, two priorities emerge consistently from these surveys of the poor across eight PDMCs:

1. access to cash income-generating opportunities
2. access to basic social services, especially primary education, health care and clean water.

D. Social Development

24. Social indicators present a distinctly mixed picture in the Pacific. Human development indicators and human poverty indicators show wide disparities among the countries, with the lowest-ranking PDMCs at similar levels to some of the least-developed countries in the world (Table 4). In other PDMCs, human development levels are relatively good. As set out in Appendix 2, sections B and C, several PDMCs are not on track to achieve the Millennium Development Goals (MDGs). Particular weaknesses are evident in PNG, Solomon Islands, Timor-Leste, and Vanuatu, while FSM and RMI have to date generated poor social development outcomes from high levels of US government funding under their Compact of Free Association agreements. HIV/AIDS is a serious threat in PNG, and presents significant risks to other PDMCs.

25. In the PDMCs with relatively good performance in meeting the MDGs, maintaining service quality and responding to emerging challenges are significant issues, and are ranked as high-priority concerns in ADB’s strategy consultations in Cook Islands, Samoa, Tonga, and Tuvalu. Tuvalu, for example, has seen high school enrollment rates rise but pass rates fall precipitously. Many PDMCs are struggling to deal with rapid increases in the incidence of noncommunicable diseases, such as diabetes.

26. Provision of basic education for all remains a challenge for a handful of PDMCs, with Nauru, Solomon Islands, PNG, RMI, and Timor-Leste having gross primary enrollment rates below 85%. Six PDMCs have drop-out rates greater than 50% at secondary level. Adult literacy rates are generally good except in FSM, PNG, and Vanuatu, but the above enrollment information and widespread concerns over the quality of education suggest that adult literacy rates may be on shaky foundations. Vocational education programs in the Pacific are of mixed quality, and are too often driven by supply rather than demand.

27. Tensions associated with weak economies, changing societies, and the uneasy coexistence of “traditional” and “modern” cultures have led to an expansion of social problems such as drug and alcohol abuse, domestic violence, and teenage pregnancies in many PDMCs. RMI, Samoa, and segments of Fiji Islands’ population¹⁰ have some of the highest youth suicide rates in the world.

28. Conflict and insecurity have become increasing features of the Pacific landscape in the past decade. PNG and Solomon Islands have experienced protracted civil conflict and, especially in PNG, high levels of crime. Fiji Islands had coups in 1987 and 2000. In addition to the profoundly negative consequences of conflict and insecurity for economic and social development, conflict, crime, and physical insecurity cause significant damage to social trust and interaction.

E. Gender

29. Three major areas of gender inequality are experienced across the Pacific: unequal rights to property, sexual and family violence, and severe under-representation in public life (see Appendix 3, Section B). In addition, many of the economic and social development challenges confronting the Pacific have important gender dimensions, such as women’s predominant role in generating cash by selling produce in local markets. Priority issues identified in the national plans of action of Pacific government women’s agencies¹¹ closely reflect the priorities of the poor elicited by ADB. PDMCs with the lowest human development indicators are also those with the most severe gender inequalities.

30. Institutional arrangements for promoting gender equality have proven problematic in the Pacific. Government women’s development agencies have had great difficulty in implementing the international commitments of PDMCs. All are starved of resources and human capacity, and are given low priority in budget allocations. Renewed attention on the question of best approaches to promoting gender equality is warranted. Women’s CSOs can be locally effective and have been important in addressing conflict in Bougainville and Solomon Islands, but more often have had little influence on policy at the national level.

F. Environment

31. Pacific islanders are heavily reliant on fragile land and in-shore marine environments and, in most cases, a limited natural resource base. Increasing environmental challenges threaten to undermine sustainable development in the Pacific. Population growth, urbanization, and an increased demand for cash income contribute to the emergence of localized environmental and natural resource management concerns. Climate change is a significant Pacific concern of global origin. Although problems are increasing on the whole, some success stories are evident, including solid waste management in the Cook Islands. Kiribati has also set a good foundation for progress through its national water resources management strategy.

32. An ADB Pacific Region Environmental Strategy (see footnote 4; also summarized in Appendix 3, section C), identifies eight critical environmental issues facing the region: (i) dwindling supply and quality of freshwater resources; (ii) degradation of the coastal and marine resources that form the ecological and economic foundation of many Pacific communities; (iii) depletion of forest resources and related habitat destruction, soil loss, reduced water quality, and the sedimentation of lagoon areas; (iv) pollution associated with rapid urbanization (e.g., ineffective waste management and contamination of scarce groundwater resources); (v) increasing pressures on biodiversity, which underpins both formal and subsistence economies; (vi) sustainable and affordable supply of energy; (vii) adverse impact of climate change; and (viii) weak environmental governance.

33. The Intergovernmental Panel on Climate Change has confirmed that the PDMCs, already highly vulnerable to natural disasters, may be among the most susceptible to the adverse impacts of climate change, and therefore the first to be forced to adapt. Impacts include reduced security of fresh water supply due to higher variability of rainfall and rising sea levels; coral bleaching; disturbances to agricultural production; changed human disease patterns (e.g., the spread of malaria to areas currently unaffected); and increased climatic extremes, such as unusually intense and unseasonal cyclones, flooding, droughts, and other natural phenomena. Appropriate responses involve mainstreaming climate change adaptation strategies (or “climate proofing”) into development strategies, in order to assess and address risks to the natural environment, infrastructure, and human development. These measures will involve additional costs to PDMCs.

G. Political Environment

34. The PDMCs have diverse political systems that provide divergent outcomes. The majority of PDMCs operate a form of Westminster-style democratic political system,¹² but the details (such as electoral systems) vary in ways that have a significant impact on the operations of the political system. Traditional authority is recognized through the democratic system in varying ways in Fiji Islands, Samoa, and Vanuatu, but in general it can be said that “modern” and “traditional” governance systems tend to coexist uneasily.

35. Continuity of constitutions and democratic systems has been a relative strength of the Pacific in its post-colonial period, with only Fiji Islands and Solomon Islands experiencing unconstitutional overthrow of elected governments. However, this is not to say that the current political systems have served the PDMCs well. In the Melanesian,¹³ and more recently some Micronesian,¹⁴ countries, political instability has become a perennial feature and has severely limited the scope for effective and far-sighted governance. The record of most political systems in addressing misbehavior among politicians is weak. Constitutional change was introduced in PNG in recent years to address these concerns, but to date has proven ineffective in practice.

H. Governance and Institutional Capacity

36. The preceding analysis suggests that policy and institutional constraints are, alongside natural constraints, at the heart of the constraints to growth and poverty reduction in the Pacific. If so, why are policies poor and institutions weak, to varying degrees, in many PDMCs?

37. A key governance challenge in the Pacific is for leaders to pursue the public good and merit-based approaches within small societies in which traditional family and clan obligations remain very important. It is also essential that leaders and communities balance demands for priority treatment for local interests with support for policies and approaches that address broad national concerns. This balance is not always achieved, especially in ethnically diverse Melanesia, where tribal allegiances remain strong and national loyalties are often of secondary importance. At the same time, provincial and local governments founder due to lack of resources and capacity to meet local demands.

38. Weaknesses in policy formulation and implementation processes are also widespread. Policy formulation often follows a top-down approach, with little participation or recognition that stakeholders beyond senior levels of government, including women and youth, may have valuable experience or perspectives to add. Furthermore, policy is too infrequently developed on the basis of careful data gathering and analysis. Policy processes are sometimes haphazard and sometimes externally driven, by development partners or specific interest groups. A widespread problem with the policy environment in the Pacific is that even when effective and appropriate policies are in place, implementation through effective institutions is a major challenge.

39. The appropriateness of current institutions, often legacies of colonial systems and supported by development partners, may also be an issue. Such institutions may be ill-suited to very small countries, may coexist uncomfortably with traditional institutions, or may be unable to adapt to modern realities. Unnecessary complexity has sometimes been introduced, often with development partner support, despite shortages in some of the very basic competencies required for effective government. Even when institutions are appropriate in design, they have often been starved of resources or have failed to nurture and develop staff capacity in critical areas, such as public financial management or policy analysis and formulation. When available, these skills can atrophy easily if not demanded by political and official leaders.

40. One notable and important bright spot among the institutions of the Pacific has been the judiciary, which is generally independent, competent, free of corruption, and reasonably resourced. Although there are concerns about maintaining adequate numbers of capable judicial service personnel, the use of external judges to provide independence, and the sharing of regional resources have been successful approaches.

41. The role and scope of civil society in the Pacific appears to be broadening. A range of Christian denominations have traditionally played a very important role at the community level and in the delivery of education and health services. This role continues, although in some cases financing for church-based service delivery, whether from international, government, or community sources, has been increasingly constrained. In some countries, trade unions have also played a significant role in representing the interests of their members in the formal public and private sectors. More recently, a much wider array of CSOs has emerged, with a variety of interests and approaches, ranging from service delivery to advocacy on issues such as the environment and good governance. From their various perspectives, these newer CSOs wish to strengthen their capacity to contribute to the development of the Pacific.

42. Six country governance assessments¹⁵ and a regional governance assessment workshop¹⁶ have provided more specific detail on the issues that underpin the broader concerns about the quality of policies and institutions in the Pacific. While governance standards vary significantly across the PDMCs, the surveys highlight quality of leadership, levels of corruption, accountability and transparency of government, and societal ownership of (and participation in) reform programs as the key factors in the quality of governance in the region (Appendix 3, section D). Concerns are widespread, but progress is also evident in a range of areas, for example: the PNG Ombudsman Commission has been active and independent in strengthening the accountability of political leaders, and the Fiji Audit Office has successfully taken court action to ensure the transparent management of all public funds.

43. Leadership is a difficult and complex task in the Pacific, with traditional loyalties to family and clan mixing uneasily with Western economic systems and structures of government. It is required at all levels of society and throughout the public sector. Women are insufficiently represented in leadership positions in many PDMCs. For political leaders, the financial expectations of constituents usually exceed available resources; they often receive little guidance or support in executing their roles and responsibilities. In some PDMCs, these factors can combine to create a political leadership model that prioritizes distribution of resources to constituents over national considerations or generating long-term growth; it may also be tolerant of corruption and fuel endemic political instability. Political systems that allow rapid turnover of elected representatives can create incentives to capture and allocate resources as quickly as possible. Weak accountability and civil society institutions find it difficult to curb these influences, and breaches of existing laws and codes of conduct are not always punished. Pacific leaders therefore face great challenges, both to envisage a way forward for their societies and to determine how to rise above competing pressures at a personal level.

44. Leaders would have stronger incentives for good governance if they were more often held accountable for national development outcomes. Unfortunately, community participation in formulating national development policies has often been surprisingly weak for small countries with strong consultative traditions. After a post-independence period of placing great trust in political and bureaucratic leaders, popular concern over the quality of Pacific governance began to rise in the 1990s and several reform-oriented governments were elected. However, this trend has not, in most cases, resulted in sustained community demand for good policies, appropriate institutions, and accountable government in the national interest.

45. Limited awareness and ownership of the objectives of reform programs are likely to be among the factors for this failure to maintain broad-based demand for reform.¹⁷ The breadth and depth of community understanding of complex, essentially “foreign” systems and processes of government are also limited. Developing a critical mass of people with the confidence to speak on these subjects is a further challenge. Practical challenges also abound: effective mechanisms to encourage citizen’s participation in the legislative process are largely lacking, with information on the legislative agenda rarely available in advance and draft bills seldom published prior to parliamentary consideration. Weak ownership may also be influenced in part by the fact that few PDMC citizens pay income tax and a high proportion of the development budget is aid funded.

46. The failure of most PDMCs to sustainably build and retain human capital is another central and long-standing issue for the quality of governance and institutions. A “brain drain” arises from the inability of PDMCs to retain many of their most skilled and motivated people, especially in Polynesia,¹⁸ but increasingly in other countries too. Out-migration erodes the level of skills and capacity in PDMCs, in government, the private sector, and civil society, though it also has clear benefits, and some PDMCs pursue an active policy of exporting their people in order that remittances can support the economy. The influence of returning migrants exposed to different societies and economies can also have important benefits. ADB has supported the promotion of remittances as an economic strategy in the smallest PDMCs, e.g., by strengthening maritime training in Tuvalu. International expert views on the long-term costs and benefits of this strategy are mixed, and further study in the Pacific context is warranted. In any event, there appears to be no quick fix to the brain drain. The only sustainable solution for most countries is the long-term task of providing opportunities, through growing economies, for Pacific islanders to use their skills productively and profitably at home.

47. The combination of the above weaknesses plausibly explains a failure of policies and institutions in some PDMCs to meet modern challenges and demands. In these circumstances, it is perhaps not surprising that at times the rule of law has come under pressure, and crime and ethnic tensions have risen. The international community is increasingly concerned about money laundering, transnational crime, and opportunities for terrorist activity in the region. These conditions provide a significant challenge to PDMC governments and development partners. Establishing the fundamentals of the rule of law is a prerequisite for strengthening policies and institutions, not least for PSD, and therefore for promoting economic and social development and attacking poverty.

I. Regional Cooperation

48. Regional cooperation has long been recognized as having the potential to address many of the constraints to development in the Pacific, by improving economies of scale, sharing the costs of (and human resources for) providing specialized public goods, jointly addressing common development challenges, and speaking with a common voice beyond the region. This recognition has led to the development of an extensive network of regional institutions.

49. However, there has been little evidence, until very recently, that the PDMCs are taking significant ownership of the deepening and broadening of regional cooperation. Regional organizations are largely funded by external agencies, with PDMCs making minimal contribution. Nor, with the possible exception of the University of the South Pacific, do PDMCs hold the regional institutions strongly accountable for their performance. Where possible, PDMCs have chosen national approaches over regional solutions, sometimes at great expense. A concern to maintain sovereignty is often given as the reason for national approaches. Nevertheless, there are many fields, ranging from aviation to fisheries, in which PDMCs can and do gain substantial economic and social benefits from regional cooperation, including reducing risk and vulnerability. Some important further opportunities are being missed. For example, expansion of the Pacific Island Countries Trade Agreement to trade in services would significantly enhance the agreement’s benefits, and liberalized regional labor market arrangements would complement such an expansion. Of course, there are also limits to regional cooperation—in some economic spheres the PDMCs are competitors for external markets—and there are many cases in which cooperation will have differing benefits and costs among the PDMCs. Careful calculation of these costs and benefits is required.

50. A potentially significant political development has been the decision of the Pacific Islands Forum leaders in 2003 to review and reinvigorate regional cooperation. Leaders will adopt a “Pacific Plan” in 2005, in order to create stronger and deeper links between the countries of the region and identify practical steps in the (now revised) focal areas for the Forum: economic growth, sustainable development, good governance, and security.

J. Conclusion

51. The challenges facing the Pacific are significant, for the region as a whole and for weakly performing PDMCs in particular. For example, it will take Solomon Islands many years, perhaps decades, to rebuild its severely weakened institutions. Nauru faces a difficult future, with few remaining assets or resources. The risk of further deterioration in the economies, social development, and governance of some PDMCs should be treated seriously. However, significant opportunities also exist. Sound public sector reform progress in Samoa and strong private sector performance in Cook Islands and Fiji Islands, and advances in agriculture in Papua New Guinea are all valuable platforms on which to build. Incremental improvements in the quality of policies and institutions in other PDMCs can unlock the potential for much improved performance. Such improvements will be crucial to assist the PDMCs to tackle a range of emerging trends: poverty, youth unemployment, noncommunicable diseases, and HIV/AIDS. A degree of urgency in improving development outcomes is required in all PDMCs.

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