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p. 20 of 46 BACK | NEXT Moving the Poverty Reduction Agenda Forward: Priorities and Outcomes Strategic Priorities Crosscutting Strategic Themes Regional Perspectives East and Central Asia Mekong The Pacific Cook Islands Fiji Islands Kiribati Marshall Islands Federated States of Micronesia Nauru Papua New Guinea Samoa Solomon Island Timor-Leste Tonga Tuvalu Vanuatu South Asia Southeast Asia

Annual Report 2003 : Moving the Poverty Reduction Agenda Forward: Priorities and Outcomes

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The Pacific

The aggregate GDP of the Pacific DMCs—Cook Islands, Fiji Islands, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu—increased by 2.7%, as all economies except Nauru and Timor-Leste expanded. Global economic growth accelerated and underpinned generally higher international prices for Pacific DMC primary exports. Higher oil, gold, and copper prices in particular benefited the largest economy— Papua New Guinea. Solomon Islands emerged from 3 years of recession as primary production grew rapidly and law and order were restored under a multicountry rehabilitation assistance mission. Tourism rebounded despite the conflict in Iraq and the outbreak of SARS, stimulating service sector activity and encouraging investment in infrastructure, especially in the Fiji Islands.

Weak international financial markets kept returns on trust funds held by Kiribati and Tuvalu low, but these markets strengthened toward the end of the year. Timor-Leste’s contraction mainly resulted from drought and from the scaling down of United Nations activities, while Nauru remained afflicted by economic and financial mismanagement.

Political uncertainty and poor governance continued to be concerns in several Pacific DMCs. Renewed attention was given to pooling resources in governance, air transport, security, and international crime. The Pacific Island Countries Trade Agreement, which provides for a move toward free trade among 14 Pacific countries over a 10-year period, came into force in April, and at the subsequent forum for economic ministers, delegates agreed that a core of economic policies should address poverty. ADB’s effort to assess the extent of poverty in the Pacific and to contribute to its reduction continued in 2003 through a regional technical assistance project that included interviews of the poorest segments of the population in several Pacific countries. Provision of basic social services, job creation, and access to markets were identified as the highest priorities of the poor in the region.

At the national level, the main policy focus in the majority of Pacific DMCs was on maintaining macroeconomic stability through sound fiscal management as a key condition for encouraging private investment and economic growth. Government efforts to consolidate gains from economic and public sector reform programs varied. The governments of the Marshall Islands and the Federated States of Micronesia finalized negotiations for a new 20-year phase of the economic and financial conditions under the Compact of Free Association with the United States (US). The donor community continued providing significant assistance to Timor- Leste, the newest country in the region, which is making slow but steady progress in building new institutions and capacity and in establishing a national legal and regulatory framework.

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