Interim Govt made serious mistake: economist

www.fijilive.com - Tuesday October 23, 2007

The interim Government's policy of insisting on a deficit of two per cent is a serious mistake, says an economist at the University of the South Pacific.

USP Professor and Head of School of Economics, Biman Prasad says the policy is one that will further contract the economy this year and will make it even harder to recover in 2008.

Prasad says it is "not sensible" to reduce spending when all other sectors of the island country's economy are performing poorly.

"If exports are down, if private investment is done, if consumption is down because wages are being cut, unemployment is rising and poverty is increasing, the only option is government spending to keep the economy afloat until other components of the national output begin to show improvement," Prasad told fijilive.

He made the comments when asked on his expectation of the 2008 National Budget, to be announced on November 23 this year.

He says the interim Government policies in the 2007 revised mini-budget in last March will take time to have an effect on the economy and "it is possible that some of the policies put in place by the interim Government could have an impact by next year."

He says the situation this year still looks bleak. Fiji's central bank maintains its forecast of a negative growth of three per cent.

Prasad agrees with commentators like Emeritus Professor of the Australian National University (ANU), Ron Duncan, who says governments should not be driven foolishly to cut deficits and further contract the economy.

"Borrowing in a contractionary period should be considered a sensible policy," he says.

Prasad says the policy adopted with respect to deficit has not worked.

He says if government spending through borrowing is not adopted, Fiji could expect a less than expected recovery in 2008.

"I am hoping the (interim) Minister for Finance (Mahendra Chaudhry) will take the situation into consideration and borrow more in 2008 to, especially, spend on developing infrastructure (if not new) then improving the deteriorating state of infrastructure in the country."

He says spending on infrastructure will send a positive signal to private investors and farmers and could spur investment activities and improve production.

"Increase government spending is also needed to combat increasing levels of crime, cushion the impact of high levels of unemployment through providing relief to those below the poverty line," Prasad says.

He adds these spending are vital to maintaining stability and social cohesion in the community.

When colonies come of age

WESLEY MORGAN

www.fijitimes.com - Sunday, October 21, 2007

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The EU sidelining the Sugar Protocol in the EPA discussions has put Fiji in a corner

AS the deadline for a new trade deal with the European Union approaches, the question on people's minds is: Are developing countries in the Pacific still willing to play?

Europe is negotiating new free trade deals with 76 ex-colonies in Africa, the Caribbean and the Pacific (ACP countries).

For decades, ACP countries have had a preferential trading arrangement with the EU, recognising the development challenges facing ACP countries.

Preferential trading arrangements also acknowledge the historical debt owed by European nations for hundreds of years of colonial exploitation which helped to grow Europe's own economy.

But now negotiations are underway to replace those trading agreements with a model that is compatible with the trade rules of the World Trade Organisation.

The EU is offering new trade and development agreements, called Economic Partnership Agreements (EPAs), to six ACP regions the Caribbean, West Africa, East and Southern Africa, Central Africa and the Pacific.

Leaders in the Pacific entered the EPA process in good faith, believing the EPA was about a real economic partnership and providing new avenues for sustainable development. They worked hard to develop a balanced and pro-development EPA legal text which was presented to the EU in mid-2006.

It took the EU 15 months to get back to the Pacific and when they did, the Pacific Islands Forum secretariat complained their draft was "lacking in a number of critical details".

The secretariat said the EU's offer set out the European demands while "reflecting almost none of the key written proposals" of the Pacific countries.

The EU's draft EPA text was a slightly amended version of an EPA proposal put to one of the African ACP regions which only added to suspicions the EU was not genuinely interested in pro-development proposals being put forward by the Pacific island countries.

Turning the screws

As time runs out, (the EU claims December 31, 2007 is an absolute deadline for EPA negotiations) West African trade ministers have said it would be impossible to conclude an inclusive and balanced trade deal by the end of the year and are backing out of the negotiating timeline.

However, the EU has continued to turn the screws on Pacific negotiators to try and squeeze out a face-saving deal by refusing to guarantee continued preferential market access if the Pacific doesn't sign up before the end of the year.

In a divide and rule move, the EU has also unilaterally denounced the Sugar Protocol in the final months of negotiations.

This has forced Fiji into a corner, because if Fiji wants to continue to enjoy preferential market access for sugar exports, Fiji must negotiate sugar as part of the EPA, abandoning a "red line" position of Pacific-wide unity in trade negotiations.

This week, the EU spokesman for trade, Peter Power, re-iterated the threat to reduce ACP export earnings if an EPA is not signed by the end of the year.

"If they are not signed by the end of the year, we will no longer be able to offer our current preferential access and will have to move to an alternative, which will give less market access in Europe for many ACP countries," said Mr Power.

The EU claims that it is a legal requirement of the WTO that they will have to raise tariffs on Pacific exports if the EPA is not signed this year.

However, a group of international development experts, including the coordinator of the economic and trade co-operation program at the European Centre for Development Policy Management and the head of Oxfam International, said on Thursday, "The Commission is incorrect to claim that it has no legal choice but to raise its tariffs in January 2008".

They said if the EU imposes a wide range of tariffs on many of the world's poorest nations, "it will be by choice, not by legal compulsion".

Pacific livelihoods will be threatened if the EU does choose to raise its tariffs at the end of the year.

For example, tuna from Papua New Guinea would be charged a 20 per cent duty on entry to the EU.

That would put the PNG fishing industry and thousands of jobs at risk.

The Pacific's own regional watchdog on trade, the Pacific Network on Globalisation (PANG) said the EU was not behaving like a true development partner.

PANG coordinator Roshni Sami said Pacific leaders had shown again and again that the Pacific wants to work with EU to create real development partnership.

"But we need the time to find a trade deal that will actually have development outcomes," said Ms Sami.

Even the secretary-general of the Commonwealth, Don McKinnon has said the EU was "creating a crisis" by placing undue pressure on its ex-colonies.

"This sort of thing is of concern to us because you are dealing with a heavyweight against many flyweights," said Mr McKinnon.

"They are not equal," he said.

"The deadline is all about creating a crisis, and in those situations the big guy is always going to win."

Real leadership

Pacific regional NGOs meeting in Tonga last week issued a strong statement to Pacific leaders, calling on them to stand up for the rights of Pacific people in the EPA negotiations.

The NGOs urged Pacific Ministers to adhere to 'red line' minimum negotiating positions and stressed the 'absolute necessity' for Pacific unity in the EPA negotiations, to prevent bilateral agreements dividing the Pacific's position.

The statement also called on Pacific trade ministers to take enough time for consultation and scrutiny of the implications of the EPA, including incorporating the results of a recent social impact assessment.

The Pacific has indicated they may be willing to sign an interim agreement on goods before the years end but Pacific NGOs are concerned this would undermine the Pacific's ability to get what it really wants out of the EPA.

Ms Sami said the EU's "staggeringly unfair" demands that any trade preferences granted to other nations be granted to the EU as well, indicated the EU was interested in free trade and not development and poverty reduction.

"Somehow we have to get Pacific leaders to put niceties aside and challenge our 'development partners' to stop trying to exploit our markets and give the Pacific a chance at achieving real development, good governance, gender equality and human security; because economic justice underlies all these things," said Ms Sami.

"We have to understand trade is important, because trading arrangements the Pacific has had in place in recent decades have provided wealth for a whole generation of Pacific Islanders and have helped provide for things like public education and public health.

"Signing a bad trade agreement will dramatically undercut our all of our futures." The author is the Information, Education and Communications Officer at the Pacific Network on Globalisation (PANG), a regional NGO committed to fair trade in the Pacific.

Wrong Govt polices worsens recession

Thursday October 18, 2007

An academic says that wrong polices adopted by Fiji’s Finance Ministry and the Central Bank in the wake of the 2006 coup has worsened the recession in the country.

Professor Ron Duncan, executive director, Pacific Institute of Advanced Studies in Development and Governance at the University of the South Pacific in Suva says that essentially, the major shock to the economy from the (December 5) coup was the adverse impact of the foreign travel advisories on the tourism industry.

“So we had an economy suffering a major external shock and consequently a recession.

“The policies adopted by the MOF and the Central Bank only served to make the recession worse than it needs to have been.”

Professor Duncan noted that stringent capital controls were put in place by the Central Bank, fearing capital flight.

But he pointed out that the 2006 coup was different from the 2000 government takeover, which threatened the business sector.

“The 2006 coup did not have the same impact on the business sector. There should not have been the same worry about capital flight.”

He notes that the Central Bank has since eased the stringent capital controls, under pressure from business.

“But I think that it still doesn't really understand the nature of the crisis.”

Professor Duncan says the bank reports that its policies are successful because imports are declining. “But here we have an economy in recession. It is only natural that imports will decline.”

He says the main reason for the bank's focus on capital controls was to prevent a further run-down in foreign reserves, which would force a devaluation.

But he pointed out that Professor Satish Chand (of the Australian National University) had estimated that the Fiji dollar was over-valued by 12 percent or more following the coup.

“The bank resisted devaluation. It is too late now to devalue as an adjustment of the economy had to be made in some form, and if the adjustment was not allowed to take place through the exchange rate then it had to take place somewhere else.

“The most likely place where the adjustment has taken place is in the loss of jobs.”

According to him, one of the Bank's arguments for resisting devaluation is that it will not lead to increased exports because Fiji's exports are "supply constrained".

He says this is true for agricultural exports.

“But Fiji's main export is tourism and devaluation of the Fiji dollar would have had a positive impact on tourism, which is not subject to the domestic supply constraints the Bank is properly concerned about.”

He says that prior to December 2006, the Fiji economy was showing symptoms of an increasing current account deficit and pressure on foreign reserves.

But, he says these were symptoms largely of the political impasse over agricultural land tenure and issues scaring foreign investors such as the law and order problem and the proposed Qoliqoli legislation.

“It was an economy supported by tourism and remittances but suffering from the shock of the loss of exports and employment in the garment industry.

“The Fiji economy was not what I would call an unstable economy. But it was one certainly in need of better management.”

UTOF wants its Momi money back

Tuesday October 16, 2007 -www.fijitimes.com

A winding up notice has been sent to Muanirewa Resort Ltd, the company linked to the Momi Bay developers Matapo Ltd, after it defaulted on a $12 million loan repayment to the Unit Trust of Fiji.

“We have had meetings, and promises have been made and not honoured. At the moment we are commencing our legal process to recover the money because there is no concrete evidence that they have got money to pay,” Unit Trust lawyer Sosefo Inoke says.

He said the company has been given 21 days to pay up.

Muainirewa was to have paid the loan back to Unit Trust by September 30 but the deadline was extended to October 10, but no money was forthcoming.

Inoke says there is no indication as to when the money would be paid.

For its part, Matapo Ltd says it would make a statement when the issue is resolved.

Inoke says this is money owed to the small investors whose savings are invested with the Unit Trust of Fiji.

“They are not rich people ... they are ordinary working people.”

He says investors come from overseas, take big loans and don’t pay it back. “We spend a lot of money trying to recover it.”

Late last month, Fiji's interim Government had said it would be requesting financial institution, the Fiji Development Bank to give a further $15 million to Matapo Limited in respect of the Momi Bay development project. (The multi million dollar project has been at a standstill since early this year due to lack of funds.)

However, Government said the funds were to be held in escrow until Matapo repaid all debts owed to the Unit Trust of Fiji, and Matapo sources $36 million from offshore which was required to develop the project.

It is unclear at this stage whether Matapo has been able to source the funds.

The project is divided into two phases. Stage 1 is owned and managed by Matapo Ltd and stage 2 by Muainarewa Resort Ltd.

Stage I of the project has to date been financed by $90m contributed by shareholders of Matapo Ltd together with funds provided by the FDB/FNPF syndicate approved total loan facility of $74m.

Unit Trust of Fiji provided a loan of $12m to Muainarewa Resorts Ltd for the purchase of 422 acres of land required for Stage II.

“At the end of the day, we want the money back and that is the normal commercial terms under the contract,” Inoke says.