Catalog

Pacific Dilemma
Swim Together or Sink

By Ian Gill (igill@adb.org)
Principal External Relations Specialist

Background

SUVA, FIJI ISLANDS

INNOVATIVE IDEA Subsidy bidding is being promoted to encourage interisland ferry services

The 14 Pacific developing member countries of the Asian Development Bank (ADB) face a painful dilemma: make the jolting transition to join the new global economy or stick to traditional ways and risk being left further behind.

The eight million people who inhabit islands scattered over an area larger than Asia have distinctive economic challenges that include a limited resource base, small markets, and high costs of trading over great distances.

As a result of external shocks, internal mismanagement, and corruption, Pacific countries—once regarded as tropical paradises with balmy climes, ample food, rich timber, mineral, and marine resources—have seen steady erosion in the quality of life.

“The crux of the problem is that the regional population has expanded at 3% annually for three decades, while gross national product has grown at less than 1% a year—this means living standards have declined for all except the urban elite,” says Jeremy Hovland, Director General of ADB’s Pacific Department.

ADB is preparing a new Pacific strategy to respond to disappointing growth and rising poverty, particularly in Papua New Guinea (PNG), Solomon Islands, and Vanuatu.

In addition, the strategy will aim to promote the private sector by reducing the heavy reliance on government, reverse the alarming rise in environmental degradation, and strengthen the role of women politically, economically, and socially.

Due to be approved in early 2004, the strategy will be reinforced by ADB’s new Pacific Subregional Office in Suva, Fiji Islands. The office, scheduled to open in February 2004, will improve ADB’s services delivery throughout the region.

In the Pacific, ADB’s goal of poverty reduction is focused on attacking “the poverty of opportunity,” says Mr. Hovland. “This is because people lack access to education, health, and other opportunities to improve their lives.”

A major thrust of the new strategy is to encourage governments to gradually turn over many of their responsibilities to the private sector.

“We are moving away from the ‘nanny government’ that provides everything, and governments are accepting the role of encouraging the private sector to play a bigger role in economic growth,” says Peter King, ADB Director (Area B), Pacific Operations Division.

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Innovative Incentives

MORE BUSINESS Creating a register of assets will help small entrepreneurs when seeking loans (above); ADB is preparing its first regional loan to promote regional aviation safety (below)

The plan is aimed at helping governments get out of unprofitable businesses, providing incentives, and removing red tape for entrepreneurs replacing them.

This includes privatizing or corporatizing stateowned enterprises and promoting competition while ensuring that governments have appropriate regulations in place.

For example, ADB is helping the Fiji Islands develop an independent water authority that will adopt corporate practices, including cost-recovery measures.

Mr. King is quick to point out, however, that the public interest will be safeguarded. The authority’s performance will be measured against benchmarks and “the threat of being replaced by a competitor should help keep it honest,” says Mr. King.

An example of innovative incentives for entrepreneurs being considered by ADB is “subsidy bidding,” which means that, for a socially desirable but commercially doubtful venture such as a shipping service for a thinly populated island, businesspeople will bid for the least amount of subsidy needed to provide the service.

ADB will also help address the critical issue of customary land. Tribes or customary owners communally own the great majority of land in the Pacific, which means that it cannot be used effectively as collateral.

“This is a major constraint to private sector development as well as to foreign investment,” says Mr. King.

Without ownership transfer, land can be leased for entrepreneurial purposes, and ADB will help improve the current land leasing system. It will assist in registering land and defining boundaries; registering leases against the land to avoid multiple leases on the same land; and enhancing the system of land valuation to provide landlords with incentives to develop land and provide tenants with more security.

In addition, ADB is helping develop ways for people to use crops or movable assets (such as vehicles and household appliances) as collateral. This involves creating a register of assets and establishing a credit reference bureau that banks and other lending institutions can use when assessing loan applications.

Most importantly, Pacific countries, lacking significant internal markets and with minuscule intraregional trade—as they produce similar products—need to set up a regional quasi-trading bloc to reap the benefits of economies of scale.

“It’s a question of ‘divided we fall, united we stand’,” says Mr. King. “It’s like a man standing astride a picket fence with one foot steeped in tradition and the other in the global economy. He will be hurt whichever step he takes, but we’re trying to make it as least painful as possible.”

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Bringing Islands Closer Together

WORKING TOGETHER Financial sector restructuring is being supported through regional cooperation

ADB already supports regional cooperation in fisheries; air transport; financial sector restructuring, including addressing money laundering; public sector management; and governance.

The new strategy will seek to extend such connectivity to bring the islands closer together. In aviation, for example, ADB is preparing its first regional loan of up to $3 million to establish a Pacific aviation safety office in Vanuatu to provide safety and security checks for all aspects of airline operations, including passenger and freight services and catering.

“Instead of each country doing this and shouldering high costs, there will be a regional body to do this on a fee-for-service basis,” says Mr. King. “It may not be earth-shattering, but getting countries to work together will make them realize the benefits of cooperation in the aviation industry, and they could then apply the same approach to areas such as air space management, which is highly fragmented.”

Similarly, ADB is trying to boost regional shipping by modernizing ports (see story, p. 20) to boost efficiency and cut turnaround times for vessels, including those of the Forum line, owned by Pacific countries.

In fisheries, People’s Republic of China, Japan, Republic of Korea, and United States have bilateral agreements to fish in Pacific nations’ exclusive economic zones, “but the Pacific would benefit from a regional agreement so one country cannot be played off against another,” notes Mr. King.

CONNECTING PEOPLE Internet access is limited and expensive in the Pacific— but has exciting potential

Regional trade also provides scope for further rationalization, says Mr. King, in fields ranging from seabed mining to coconuts. He cites as an example the establishment of a coconut oil processing facility that receives raw materials from several countries.

Another example would be upgrading an existing abattoir in Vanuatu to provide a regional service—to which countries would send live animals—rather than setting up suboptimal abattoirs elsewhere.

Despite limited and expensive Internet access, the most exciting potential for connectivity lies in information and communication technology, including electronic government, says Mr. King.

“Tourists on the outer islands in the Fiji Islands, for instance, who want to extend visas have to fly to an immigration office in Suva. Under an e-government, they could get the visa online, saving time and costs.” The same could apply to renewing licenses or paying taxes.

“Pacific countries have to make excruciating decisions, but they have little choice,” says Mr. King. “They can move toward greater connectivity, or there is the possibility that they could revert to tribal rivalries, which we have seen in parts of Papua New Guinea and Solomon Islands.

When people start fighting, people lose confidence, foreign investors flee, and there are huge economic consequences.

Such conflicts are the result of discontent, and it is these underlying causes of discontent—difficult or unequal access to opportunities—that we are trying to address.”

Find out more about ADB's activities in the Pacific

Learn about Pacific Region Environmental Strategy - PRES

Read the news release - Palau Becomes 63rd Member of the Asian Development Bank

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