MANILA, PHILIPPINES - Developing Pacific nations must intensify their structural reform efforts to achieve sustainable economic growth and protect themselves from the global economic crisis, a new Asian Development Bank (ADB) study says.
The Pacific's banking system is well shielded from the most immediate effects of the global financial crisis, as it has generally sound health and raises and invests most of its funds within the region. However, the island economies are not immune to the ripple effects of a global slowdown - with exports and tourism likely to weaken, overseas remittances expected to decline, and pricing to international capital seen to rise. Offshore investments of national trust funds and pension schemes have fallen in value.
"The impact of the financial crisis on the Pacific may be lessened through sound economic management," said S. Hafeez Rahman, Director General of ADB's Pacific Department in the foreword of "Navigating the Global Storm" which was published recently.
"The key response to the global financial crisis should be to reinvigorate structural reform, which is crucial to achieving sustained economic growth," he said. "The priority is to address constraints to private sector-led economic growth in the region."
Efforts to improve rural productivity are important for the bulk of the population in the agriculture-based economies. Structural reform should include initiatives to improve transport and communications and other basic services including agriculture extension in Federated States of Micronesia, Papua New Guinea, Solomon Islands, Timor-Leste, and Vanuatu.
Private sector investment is important, especially for tourism-based economies. The deregulation of the air transport industry in Cook Islands, Samoa, and Vanuatu and competition among new telecommunications operators have lowered transport and communications costs for the local population who are still coping with relatively high oil and food prices.
Once the immediate global financial crisis subsides, there are likely to be international moves toward a tighter regulatory system that is more integrated, involving cross-border coordination and collaboration among supervisors, regulators, and central banks.
Closer engagement with financial institutions and new strategic approaches to managing the region's offshore investments need serious consideration, the study further suggested.
"Through it all, ADB remains firmly committed to help the region mitigate risks and alleviate adverse impacts of the crisis in close cooperation with our development partners," said Mr. Rahman.