December 12, 2009

Central Banks' Challenges

Dr T.K Jayaraman

www.fijitimes.com - Saturday, December 12, 2009

AT no time were the challenges faced by central bankers greater than the ones faced today.

The challenges are due to extraordinary circumstances created by the global recession.

Under a fixed exchange rate regime adopted by Fiji, maintenance of international reserves at a desirable level of around four to five months of imports is critically important.

With foreign reserves reaching a record level at F$1.1billion, which are considered equivalent to 4 months of imports, the Reserve Bank of Fiji RBF) took two major decisions, after its Board of Directors meeting in late November.

One related to relaxation of foreign exchange controls.

For example, effective January 1, 2010, the limit for a traveller overseas can take with him has been revised upwards to F$10,000, as compared to F$5000 previously.

Exchange controls were imposed in April 2009 to meet an unprecedented decrease in foreign reserves.

As these controls proved effective fully serving the purpose behind the controls, RBF relaxed them.

The goal of economic recovery has now become more focused.

Effective September 1, 2009, RBF removed credit ceilings, which were imposed in December 2006.

The credit ceilings were imposed following the overheating of the economy during 2006, when there was a credit boom leading to fast depletion of foreign reserves.

Interest spread

Another major decision taken in the November board meeting was on lending rates.

Effective January 1, 2010, the restrictive lending rate policies were also removed, keeping intact however the maintenance of spread of 4 percent between lending and deposit rates.

Earlier, following the rise in net foreign assets, there has been an increase in liquidity in the banking system as well.

The RBF felt it appropriate to raise the statutory deposit ratio effective December 7 to 7 per cent from 5 per cent of deposit liabilities.

The IMF Mission at the end of its visit to Fiji in late November noted the departure from the usual approach for mopping up liquidity by selling RBF notes.

If we look at the central banks in the advanced economies, there are striking differences between New Zealand and the US, which are still under recession, and Australia which is the only industrial country coming out of recession.

While Australia raised its indicator interest rate last month as a preemptive measure, to fight inflationary tendencies, Reserve Bank of New Zealand (RBNZ) and the Federal Reserve (the Fed) in the US decided to hold on to the current indicator rates of zero to 0.25%

The challenges

In the see-saw of bilateral exchange rates, the kiwi dollar was appreciating against the US dollar, hurting its dairy and other agricultural exports, besides tourism.

The leader of the opposition Labour Party wanted an end to the 20-year bi-partisan accord on monetary policy targeting inflation.

He urged RBNZ to give up its anti-inflationary bias and resort to a loose monetary policy.

A cheap monetary policy would depreciate the exchange rate.

He argued that RBNZ's policy targets did not help exports and growth.

In the US last week, the Fed came under severe criticism, when Chairman Ben Bernanke sought confirmation to a second term.

His opponents in the US Congressional Committee were vocal that the Fed failed to manage the economy.

The critics blamed the Fed for creating the financial crisis by easy monetary policies and lax supervision of banks.

Bernanke's supporters were arguing that his crisis-response is restoring financial stability and the crisis was caused by errors committed by previous Chairman, Greenspan.

Bernanke succeeded Greenspan in February, 2006. The critics however argued that like Greenspan, Bernanke did nothing to curb the rising real estate prices.

Defenders say that Bernanke moved very aggressively to exert government power and use all the tools at his disposal once the crisis began.

Curbing Fed's independence

The US Congress wants to introduce an audit system to control the Fed.

The defenders are worried that it would destroy central bank independence.

In his Senate testimony, Bernanke was against the idea of new audits on the Fed's monetary policy, saying the Fed is transparent about its overall balance sheet.

No doubt, a recovery may be in sight.

More importantly, when and where are the jobs going to come back?

Bernanke faces great anger for bailing out banks. Americans are under the crush of high unemployment, stagnant incomes and rising foreclosures.

Yet there is no alternative.

President Obama, a Democrat decided to give another term to Bernanke, a Republican.

Perhaps, he would have recalled President Theodore Roosevelt's memorable words:

"It is not the critic who counts; not the man who points out how the strong man stumbles or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly".

Dr T.K Jayaraman teaches economics at USP. The views expressed are his own.

December 11, 2009

New Tourist Targets Set for 2010


www.fijisun.com.fj - 11/12/2009

Tourism Fiji has set a target of 600,000 visitor arrivals for 2010 while announcing its marketing strategy at the InterContinental Fiji Golf Resort and Spa in Nadi yesterday.

The figures are the same as what they had projected for this year.

However, the flash floods in January had a massive impact on visitor arrivals.

Tourism Fiji Chief Executive Officer, Josefa Tuamoto, said 2009 was one of the toughest years for the tourism industry.

"We basically just dropped (this year) and the hope for next year is to achieve the target of 2009. We had a very solid plan for 2009 but come January, the whole plan was out of the window because of the disaster that struck us," he said.

Government allocated a budget of $23.5 million to Tourism Fiji which will be used to market the country abroad.

Tuamoto said they were expecting a growth in the industry next year.

"This year has been a very tough year. We were able to gather together as an industry to work to create strategies in our different markets. Some of the strategies did work, some fell on their faces but we have learnt from it. We are moving together as a destination to try and break that so that in the future when we are faced with these calamities we will be able to look back and see the lessons of the past.

"Performance to date from a global perspective is tough. It has been a tough year UNWTO projects about 7 per cent down this year compared to last year but in 2010 we are looking at a slight growth of 2 per cent. In our managers meeting we have discussed some of our plans for 2010 and one of our colleagues said in her region, there would be a growth of 0.2 per cent. We are very excited about that because at least it's a growth and not a decline."

Don’t rely on Australia, says tourism chief

11/12/2009

The tourism industry’s dependence on the Australian market is a concern for Tourism Fiji.

Australia is one of the biggest players having 42 per cent of the overall visitor numbers to the country with New Zealand second on 18 per cent and Europe on 15 per cent.

Tourism Fiji Chief Executive Officer, Joe Tuamoto yesterday said they would need to look at other markets to strengthen its future.

Mr Tuamoto said should the Australian economy collapse it would be catastrophic for Fiji.

He said in order to safeguard the tourism industry, they would have to look at markets like Japan, Korea, China and India.

“The concern from Tourism Fiji's perspective is on the over reliance on one single market at 42 per cent.

“If the Australian economy goes down than we are in trouble,” said Mr Tuamoto.

“We need to be looking at other markets to be able to prop up should something happen to the Australian market.”

Mr Tuamoto said they hope the arrival of new airlines, V Australia and Jetstar, would bring a higher number of arrivals from Australia.

“With confirmation that V Australia is coming in on December 18 as well as noise being made by Jetstar, we see that might be an issue with the Australian market,” he said.

“My wish from Tourism Fiji that these new players coming into the market will not only just take market share, but I hope they can increase the market because we are already getting some good lifts out of the eastern sea board.

“I’m hoping that these new players will be able to open up Australia with their distribution strength otherwise we will just be stuck with the numbers that we have now.”

Tourism Fiji on a mission

11/12/2009

Tourism Fiji has adopted the mission statement, 'Taking the quantum leap,' as its goal to achieve one million visitor arrivals by 2016.

Tourism Fiji Chief Executive Officer, Josefa Tuamoto, said next year would prove to be vital if they were to reach the target in seven years.

Mr Tuamoto said Fiji has the resources to fulfill the desired visitor arrivals.

He said having more visitor arrivals during off-peak period would increase the number.

"We are taking the quantum leap trying to move to 2016 with one million visitors. That's really the quantum leap that we are talking about but we have to start somewhere and 2010 for us will be the key.

"It has taken us about 50 years to reach 500,000 or 600,000 visitors. Our hope and the lead that we want to take it from 500,000 to one million visitors in less than seven years. We have put the stakes on the ground and we need everybody's help to be able to deliver this.

"We can deliver this if we all work together to try and achieve these numbers. We have about 10,000 rooms on the ground and just targeting the off season, we will be able to reach 800,000 to 900,000."

Tourism Fiji's budget theme for 2010 is, Strengthening the foundation for economic growth and prosperity.

The marketing arm of the tourism industry announced its 2010 marketing strategy at the InterContinental Fiji Golf Resort and Spa yesterday.

December 8, 2009

Expert condemn lack of transparency

Rawfijinews - December 7, 2009

An economic governance expert from the University of the South Pacific says Fiji’s interim governmemt is showing an increasing lack of transparency in its economic management.

Dr Haruo Nagakawa, who works for the School of Government, Development and International Affairs, says the lack of details accompanying the recently released national budget gives analysts like himself little to work with.

However he knows that with dwindling revenues, the interim prime Minister Commodore Frank Bainimarama is struggling to balance his outgoings as well as cut growing deficit.

“But no details are coming out. I’ve heard that the Commander increased compensation for the military and the police. It’s not really a good sign of high quality of governance. I think the economic governance has been really deteriorating.”

Dr Haruo Nagakawa says it’s also clear that the interim regime is borrowing too heavily from the National Provident Fund without a guarantee that investors will get returns.

News Content © Radio New Zealand International.

The Reserve Bank is way off the mark in its inflation forecasts which is likely to be running closer to an unprecedented high of 15.2% and not the RBF-claimed 7%.

Likewise, to claim that devaluation of the Fiji dollar has resulted in benefits to the economy is a horrendous misrepresentation. In fact, devaluation has not benefited the economy. Nor has it enhanced Fiji’s Foreign Reserves.

The practice worldwide is to express Reserves in one of the globally accepted international currencies. The US dollar is the most commonly used currency in this respect. Devaluation of the Fiji dollar by 20% last April resulted in the depreciation of our currency vis a vis the US dollar. Thus, our reserves received an artificial boost but the in actual fact there was no change in our foreign reserves position when measured in US dollars or in the currencies of our major trading partners.

All our imports are paid for in foreign currency, largely in Australian, NZ, US dollars or the Japanese Yen. The net effect of the devaluation, therefore, is that more Fiji dollars will now be needed to settle our import bills in these foreign currencies. Devaluation will also add to the burden of servicing our foreign currency debts. Over a longer period, it will have done more harm than good to the economy.

The argument that devaluation has increased our competitiveness in the international market place is of little significance if we look at what we export. Hardly any of our exports would have benefited from the devaluation. Not even the tourism sector. With its heavily discounted rates, tourism is not likely to bring in any enhanced earnings. Indeed, tourism receipts for 2009 are estimated by official sources to be significantly below that of 2008.

On the other hand, devaluation has inflicted greater hardship on the local people. It has resulted in galloping inflation as prices of virtually every thing went up significantly, hitting the poor amongst us the hardest. As a direct consequence of the devaluation rub off, traders and vendors of local goods and services also jacked up their prices. These increased prices are way above any increase one would expect from a 20% devaluation.

It is obvious that the business community has taken undue advantage of the devaluation to send prices skyrocketing

The claim therefore that inflation is “currently running at around 7% and will moderate at around 2% by the end of 2010” is absolutely ridiculous. Ask anyone on the street and he/she will tell you that prices of almost everything have soared beyond belief since devaluation.

A recent survey by the Consumer Council of Fiji revealed that prices of many items in daily use in every household had gone up by 100% and, in some cases, by as much as 200%.

So where does the 7% inflation rate fit in? In the past three months bus fares and electricity rates have gone up. So has the price of fuel. Food, energy and transport are the major components of the Consumer Price Index. When prices have doubled or even trebled how can the RBF talk about 7% inflation rate? It is laughable.

With the removal of price controls as announced in the 2010 Budget, inflation is going to worsen. A weak economy and a subdued export sector will exert more pressure on the dollar and likely further erode its purchasing power.

So to be more accurate inflation is more likely to be running in double digits rather than the 7% and 2% projected by the Reserve Bank.

It would be a lot more palatable if the RBF were to admit the truth rather than engage in vain attempts to paint a bright picture of a bleak scenario.


2007 damage lower as GDP revised

December 08, 2009

The base year for Fiji’s Gross Domestic Product has changed from 1995 to 2005, affecting some of Fiji’s previously announced GDP figures.

The Reserve Bank of Fiji said that as a result, the real GDP growth for 2005 was 0.5 percent while the growth rate for 2006 is now estimated to be 1.9 percent.

In 2007, the economy is now estimated to have contracted by a much lower rate of 0.5 percent than the 6.6 percent decline that was estimated earlier under the 1995 base, the RBF said.

For 2008, the economy is now estimated to have declined marginally by 0.1 percent as opposed to the previous estimate of 0.2 percent growth.

New forecasts released as part of the 2010 Budget released this month indicate the economy is anticipated to contract by 2.5 percent this year and then grow at a rate of 1.9 percent next year, the RBF said.

“The change in base reflected transformations in the structure of the economy from 1995, the previous base year, to 2005. Over this period, the weights of some sectors/industries would have changed while new sectors/industries have emerged.”

The figures were released by the Fiji Islands Bureau of Statistics.

RBF Governor Sada Reddy said 2009 was a tough year with the full impact of the global economy and the adverse effects of the floods passing through the economy.

He said that as a result of the weak economy, the current account deficit had improved to an estimated 8.6 percent of GDP from 17.7 percent in 2008.

Reddy reiterated the need to reduce the current account deficit to 5 percent of GDP in the medium term.

December 7, 2009

Programme will spur investment

www.fijisun.com.fj - 7 December 2009

The Fiji My Second Home Programme which allows foreigners to stay in Fiji on a multiple entry social pass will inject investment and growth, says Tourism Fiji board chairman, Patrick Wong.

The initiative was part of policies introduced by Government.

Others include the reduction of fiscal duty, and tariffs on marine vessels used extensively by foreigners as part of their leisure time in Fiji.

Mr Wong said the programme encouraged investment into Fiji because it was the hub of the South Pacific.

He said the programme would also give birth to new market development in the tourism industry like retirement villages, medical tourism and educational tourism.

The criteria requires those below the age of 50 to have a minimum deposit of F$150,000 (reduced from $300,000) and maintain the deposit in Fiji for a minimum of two years) to qualify.

After two years, a participant can withdraw up to F$100,000 (reduced from $250,000) to purchase properties and meet approval expenditure.

The participant must maintain a minimum balance of $50,000 (reduced from $100,000) from the third year onwards and throughout the entire stay in Fiji under the programme.

For ages below 50-years require a minimum deposit of F$100,000 (reduced from $200,000) and maintain the deposit in Fiji for a minimum of two years.

After two years, the participant can withdraw up to F$50,000 (reduced from $150,000) to purchase properties and meet approval expenditure.

The participant must maintain a minimum balance of $50,000 (reduced from $100,000) from the third year onwards and throughout the entire stay in Fiji under the programme.

Mr Wong said the initiative would encourage former Fiji professionals to return home to take up residence and use their skills in Fiji.

"It will encourage more foreigners investing in properties, holiday houses and villas. That will see more developments like integrated resorts like Denarau, Natadola and Momi.

Ratubuli enjoys pawpaw farming

www.fijisun.com.fj - 12 November 2009

Semi Ratubuli is a devoted sugarcane farmer in Sigatoka.

He is from Volivoli Village.

Through his farm and what he said as hard work, he has managed to build a house, buy a car and tractor and farming equipment.

"At one point I was thinking of expanding my farm; make it big to earn a lot of money. I started encouraging my friends to take up sugarcane farming.

"I found that physical labour of working under hot sun on the cane farm isn't worth any more.

"People were leaving the field. I know some people who venture into small vegetable farming to keep food on the table.

"Most of us (Fijians) who were planting sugarcane didn't bother any more," Mr Ratubuli said.

Like most of his friends, Mr Ratubuli left sugarcane farming top to become an Ambulance driver at the Sigatoka Hospital.

It was to make ends meet for five solid years.

He said those were the hardest time of his life.

Two years ago, a Ministry of Primary Industries officer advised him to develop pawpaw farming.

Mr Ratubuli took a small loan from the Fiji Development Bank and his farm started all over again.

He currently has three hectares of pawpaw of sunrise breed and harvests around 1000 kilogramme in a month, which is sold at $1.50 a kg to a Nadi-based exporter.

The 53-year-old farmer said pawpaw farming was the latest craze for farmers in Sigatoka.

"It still requires hard work and dedication but it, is much better than sugarcane farming."

However, Mr Ratubuli said fertilizer was expensive. A 40kg bag cost $93.

Ministry of Primary Industries director extension services division, Kalisito Biaukula, said 270 farmers in the district were engaged in pawpaw farming.

Ninety-eight percent of these farmers plant Sunrise solo variety while five percent farm Waimanalo breed.

Mr Biaukula said New Zealand and Australia are our major markets and exporters are currently buying at $1.20 - $1.50 per kg for the hermaphrodite fruit and $0.80 - $1.00 per kg for the female fruit (round fruit).

He said if husbandry practices were followed, farmers could harvest their pawpaw within eight months

"Well drained and aerated fertile soil is preferable for a good pawpaw farm," he said.

Mr Biaukula said 10 percent of farmers in the Olosara Sector were planting pawpaw.

"About 30 percent of farmers are farming on slope land. We have 120 farmers in the Olosara Sector," he added.

He said pawpaw could be an alternative to farmers planting on flat land.

December 5, 2009

Dubai's desert dream demolished by debt

T.K. Jayaraman

www.fijitimes.com - Saturday, December 05, 2009

THE Dubai desert dream now stands shattered.

Dubai World Group, a public enterprise of Dubai, was building a paradise with artificial indoor ski slopes, similar to the Swiss Alps.

Dubai World owns an iconic palm-shaped island on the reclaimed islands of Palm Jumeirah with the world's tallest tower. Another wing, DP World, runs 44 port operations around the world.

The bubble burst when its estate division, Nakheel, found out it cannot meet a US $3.52billion bond due December 14.

The sun sets on Dubai

Along with it, the famous slogan "The sun never sets on Dubai World" became a vain boast.

Dubai World has US $59billion of liabilities, out of Dubai's total debt of $80billion.

On December 2, the emirate of Dubai announced it would ask creditors of Dubai World and Nakheel, builder of its palm-shaped islands, to "standstill and extend maturities until May 30, 2010."

That was enough to shake confidence among Western investors who had expected the oil-exporting Gulf region to rescue the battered rich nations during the global financial crisis.

The asset prices of the rich and famous, who own luxurious villas on Palm Jumeirah plummeted.

The reported owners are movie stars including Bollywood's Shah Rukh Khan, Hollywood's Brad Pitt and Denzel Washington, soccer star David Beckham and Afghan President Hamid Karzai.

The list may also include the "ugly rich", the unreported money laundering ones.

The debts of public enterprises are known as contingent liabilities. Creditors were hoping the Dubai Government would meet them.

On Sunday, Dubai's Finance Minister, Mr al-Saleh dropped the bombshell that Dubai would not guarantee the debt of Dubai World , as it is not part of government.

He warned: "Creditors need to take part of the responsibility for their decision to lend to the companies."

Next step

Dubai is one of seven states of a federation called the United Arab Emirates (UAE).

The other six are Abu Dhabi, Ajman, Fujairah, Ras al Khaimah, Sharjah and Umm al Qaiwain.

The UAE is administered by a Supreme Council of Rulers made up of the seven emirs, who appoint the prime minister and the cabinet.

Before oil was discovered in the 1950s, the UAE's economy was dependent on fishing.

But ever since 1962, when Abu Dhabi started exporting oil, the UAE became rich.

The oil industry attracted foreign construction workers and expat professionals who are 75 per cent of its population with per capita income of US $23,770.

Dubai has no oil.

Its main economic activities are real estate business funded through borrowing from international and domestic lending institutions.

External debt of an emirate has not been a threat so far, as UAE's standing in financial markets was high.

However, the latest crisis has really hit the financial credibility of UAE hard.

So, the oil rich emirate Abu Dhabi has decided to bail out Dubai. The UAE central bank has promised to stand by foreign and domestic banks with holdings in the country.

The negotiations are on.

If creditors reject proposals for postponement until May 2010, there will be a fire sale of international real estate.

Dubai will have to switch to another model of development away from heavy real estate investment.

Weapons of Massive Debt

The International Monetary Fund (IMF) gives advice to member countries.

Last month, the IMF team, at the end of its visit, reminded Fiji that its debt level at over 50 per cent of GDP is "high by regional standards."

IMF's harsh "conditionalities" attached to structural adjustment loans to troubled nations are well known.

Known as the Washington Consensus, conditionalities require tightening of the belt and low level of public debt.

Of course, IMF knows some nations are more equal than others. The Washington Consensus does not apply to Washington D.C.

Its failure to detect and forewarn US of trade deficits and effects of reckless bank lending cannot be forgotten.

It was left to Communist China to dish out advice to capitalist USA to keep its current public debt and budget deficits low.

That is to promote its own interest: the dollar value of its dollar holdings should not go down.

The global financial instability was caused by "weapons of massive debt (WMD)".

The latest case is Dubai.

There are many WMDs lurking around.

The reports are that Greece, Latvia and Russia are heavily indebted to foreigners.

Debt has humbled the superpowers. Now even opulent sheikhs can go "broke."

Debt, like death, is the "leveller".

Taking liberty of James Shirley's famous poem, we get this:

'Debt' lays his icy hand on kings;

Sceptre and Crown

Must Tumble Down,

And in the dust be equal made

With the poor crooked scythe and spade.

Dr Jayaraman teaches at the University of the South Pacific. The views expressed here do not reflect those of USP

December 2, 2009

Tourism earnings to fall $50m

www.fijitimes.com - Wednesday, December 02, 2009

TOURISM, Fiji's largest foreign exchange earner, is expected to earn $50m less this year than last year.

The 2010 Budget estimates tourism arrivals to be 540,000 - about 45,000 less than 2008; earnings are expected to drop from $853.1m to $802.4m at the end of this year.

The industry received a budget of $23.5m for its 2010 operations and $500,000 for marketing in Asia.

This week, Air Pacific will start direct flights to Hong Kong and is expected to boost the Asia market with the connection.

The route will benefit the European market, particularly London.

The Government, meanwhile, is expected to introduce a Tourism Management Act.

Last week, Fiji Islands Hotels and Tourism Association chairman Dixon Seeto said the Government had listened to the industry calls for the Fiji Visitors Bureau to have a "roll-over" budget over three years.