Pacific Islands: Fiji New Caledonia Samoa Solomon Islands Tonga … · 2007-08-23 · COUNTRY...

COUNTRY REPORT

Pacific Islands:

Fiji

New Caledonia

Samoa

Solomon Islands

Tonga

Vanuatu

March 2002

The Economist Intelligence Unit15 Regent St, London SW1Y 4LRUnited Kingdom

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1

EIU Country Report March 2002 © The Economist Intelligence Unit Limited 2002

Contents

3 Summary

The region

6 Outlook for 2002-03

7 The political scene

7 Economic policy and the economy

Fiji

9 Political structure

10 Economic structure

10 Annual indicators

11 Quarterly indicators




New Caledonia







Samoa








Solomon Islands




2

EIU Country Report 1st quarter 2002 © The Economist Intelligence Unit Limited 2002





Tonga








Vanuatu








List of figures

15 Fiji: gross domestic product

15 Fiji: Fiji dollar real exchange rates

27 Samoa: foreign trade

27 Samoa: consumer prices

28 Samoa: gross domestic product

28 Samoa: Tala real exchange rates

34 Solomon Islands: foreign trade

34 Solomon Islands: foreign reserves

35 Solomon Islands: gross domestic product

35 Solomon Islands: Solomon Islands dollar real exchange rates

42 Tonga: gross domestic product

42 Tonga: Tonga dollar real exchange rates

49 Vanuatu: gross domestic product

49 Vanuatu: vatu real exchange rates

3


Summary

March 2002

The region

Prospects for the small island countries remain subdued in the light of adverseexternal events and regional problems. The prospect of OECD sanctions loomsover tax haven operators.

The Pacific Islands Forum secretariat has once more protested to the OECDabout the demands imposed on tax haven operators under the “harmful taxinitiative”. Regional police commissioners have sought to enhance co-operation.

Concerns have been raised about the social impact of the Pacific IslandCountries Trade Agreement. A German medical study has found a link betweenkava and liver disease, but experts claim the problem is caused by the pro-cessing of kava, not by the product itself.

Fiji

Fiji faces another period of acute uncertainty and tension. The Court of Appealhas ruled that the prime minister, Laisenia Qarase, acted unconstitutionally in2001 when he refused to appoint members of the Fiji Labour Party as govern-ment ministers. Mr Qarase remains defiant and has launched an appeal to theSupreme Court.

The terms of the Court of Appeal’s judgement provide little comfort for thegovernment as it pursues its final appeal. George Speight, the front man in theplot to overthrow the government led by Mahendra Chaudhry in May 2000,may spend between five and ten years in prison, following his conviction fortreason. This outcome, following a rapid trial in which there was no oppor-tunity to learn more about Mr Speight’s backers, has produced a mix of cynicaland dismayed reactions. Mr Chaudhry himself has described Mr Speight as ascapegoat.

In its December Quarterly Review, the Reserve Bank of Fiji (the central bank)forecast growth of 3.5% for 2002 and gave an optimistic outlook for mostsectors. According to the report, most tourist markets had improved, and thenon-sugar agricultural sector was growing, but many skilled workers hademigrated.

The political scene

Economic policy and theeconomy

Outlook for 2002-03

The political scene


Outlook for 2002-03

4


New Caledonia

With its nickel industry under pressure and tourism in decline, NewCaledonia’s economic outlook is not bright. However, the country is assured ofdevelopment funds from France. The political scene has become morecomplex, with the main local parties both experiencing internal problems.

There are differing views on collegiality between the anti-independence coali-tion, Rassemblement pour la Calédonie dans la République, and the pro-independence parties joined in the Front de libération nationale kanaksocialiste (FLNKS). The FLNKS has agreed on an internal joint leadershiparrangement. Long-simmering tensions between Kanak and Wallisian com-munities on the outskirts of Nouméa erupted into violence in early December.

The nickel industry has received support, amid closures and cutbacks. TheInstitute territorial de la statistique et des etudes économiques reported inDecember that the average monthly income was CFPfr255,000 (US$1,880).

Samoa

The economic outlook has improved since the first assessment of prospects inthe wake of the terrorist attacks on the US. Growth is likely to exceed 4% in2002. The political scene is stable.

An independent MP, Tamala Uilisone Leuluaialii, has called on the governmentto limit the number of Asians and Indians being allowed to work in Samoa.Fishers have been warned of new American Samoa fishing regulations. Aceremony has marked the end of an election candidate’s banishment.

The economy is robust, despite external problems. Monetary policy has re-mained loose and export and import growth has been strong. The AsianDevelopment Bank is helping to fund a major electricity upgrade. Fish stocksare in decline. Coconut producers are trying to take over the management of acoconut oil mill.

Solomon Islands

The new government has been received without much enthusiasm, eitherdomestically or among the country’s main aid donors. With the economybarely ticking over, the government is struggling to maintain the most basic ofservices.

A civil society network expressed its concerns prior to the December 5thgeneral election. Sir Allen Kemakeza defeated four other candidates to becomeprime minister; he has named 14 new ministers in his cabinet.

Outlook for 2002-03


Outlook for 2002-03

The political scene


Outlook for 2002-03

The political scene

The political scene

5


In its monthly report for December, the Central Bank of Solomon Islandsobserved that domestic production and exports remained “negligible” com-pared with pre-conflict levels. The government is planning to restructure thecopra industry. The minister responsible for mining, Walter Naezon, has beenlooking at ways to resume mining activity.

Tonga

The political scene was frenetic ahead of the parliamentary election onMarch 7th. The short-term focus for most Tongans is likely to be on theproblems of the weak economy, which has suffered a setback from a tropicalcyclone.

Supporters of the Human Rights and Democracy Movement won seven of thenine seats provided for “people’s representatives” in the election. The govern-ment has denied allegations that the king holds great wealth overseas, andforgery charges have followed police raids. The governments of Tonga and NewZealand have been engaged in a row over alleged corruption.

Tropical cyclone Waka caused estimated damages of T$104.2m (US$48m).Relief has flowed for those affected by the cyclone.

Vanuatu

The prime minister, Edward Natapei, is keen to win an outright majority withhis Vanua'aku Pati in the general election scheduled for April 30th. This wouldgive the best prospects for stability and would be welcomed by those financingthe country’s reform programme. However, another coalition is seen as a morelikely outcome.

The Supreme Court ruled on March 7th that the current parliament had endedat midnight the previous day—the government had wanted to dissolveparliament on March 16th. There has been opposition to naturalised citizensbecoming MPs. The opposition leader, Barak Sope, was committed for trial onFebruary 22nd. He will face two charges of forgery.

A powerful earthquake caused extensive damage in the capital, Port Vila, andthe surrounding areas on January 3rd. The Department of Provincial Affairspublished the budgets of the six provinces for the first time in January.Vanuatu is awaiting the next step by the OECD after the expiration of theFebruary 28th deadline for changes in tax haven operations.

Editors: Danny Richards (editor); Graham Richardson (consulting editor)Editorial closing date March 12th 2002

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] report: Full schedule on www.eiu.com/schedule

Outlook for 2002-03


Outlook for 2002-03

The political scene



The political scene

6 The region


The region

Outlook for 2002-03

Prospects for the small island countries remain subdued, in the face of adverseexternal events and regional problems. The economic fallout from the terroristattacks on the US of September 11th 2001 has been less severe than expectedin some respects, but the tourism industry has suffered from a sharp decline inair travel. This has been exacerbated by cutbacks in services by Air NewZealand, which is suffering financial troubles, and by the collapse of the air-line’s Australian subsidiary, Ansett Airlines. Soaring insurance premiums havealso become a problem for many types of businesses, including those involvedin the tourism industry. Fortunately, the economies of the islands’ maintrading partners, Australia and New Zealand, have grown reasonably robustly,despite the global situation.

A new threat to trade growth has arisen from European bans on kava products.The Federal German Institute of Drugs and Medical Devices found suspicionsof a link between kava use and liver damage in 2001. This has prompted banson kava products in Germany, Switzerland and France, voluntary restrictions inthe UK and a formal investigation by regulatory authorities in the US. Vanuatu,Fiji, Tonga, Samoa and Solomon Islands are all exporters of kava.

The countries in the region that run tax haven operations, which boost theirrevenue bases, face an uncertain period on two fronts. The OECD hasdemanded that these countries accept changes to the operations of thesehavens, or face sanctions. The changes include opening transaction records ondemand. Some governments have said that they cannot afford to do this,because it would destroy their competitiveness. At the Commonwealth Headsof Government meeting in Australia in March, New Zealand’s foreign minister,Phil Goff, told journalists that small Commonwealth states under threat ofOECD sanctions had been granted a reprieve. He said that the deadline forcomplying with the proposed new regulatory regimes had been extended tomid-2003, after lobbying by Commonwealth OECD members, particularly theUK, Canada, Australia and New Zealand. Mr Goff said that the small tax havenregimes needed time and assistance to pass new laws and set up financialintelligence units.

The US government’s backing of the OECD initiative has cooled recently, butthe US has created another problem for the small tax havens by adoptinglegislation aimed at denying terrorists access to the mainstream financialsystem. To avoid risking their licences, US banks must now take extreme carenot to sanction shady deals. Vanuatu, for example, has found that rather thanundertake the costly and time-consuming business of extensive checking, USbanks are simply preferring not to deal with the tax havens.

Island countries facesubdued prospects

OECD sanctions loom overtax haven operators

The region 7


The political scene

The secretariat of the Pacific Islands Forum (PIF) has once more protested tothe OECD about the latest demands made on tax haven operators under theorganisation’s “harmful tax initiative”. At the end of February the PIF secretary-general, Noel Levi, said that the threat of “defensive” measures againstjurisdictions such as the Cook Islands, Nauru, Niue, the Marshall Islands,Samoa and Vanuatu was a cause for concern. He noted that the leaders of PIFmember countries, at their annual meeting in 2001, had strongly objected tothe creation of any blacklist by the OECD prior to reaching a negotiatedagreement. Pacific island leaders are also aggrieved about having to follow adifferent regime to OECD members and certain other countries. Mr Levi saidthat the OECD was failing to address the economic impact the required actionswould have on small economies such as the Pacific island nations, which havea narrow economic base and limited options for economic development. Thesecretary-general hoped that it would still be possible to negotiate an outcomethat satisfied all concerned, in an atmosphere free of the threat of sanctions.He considered an OECD offer of technical assistance, to help the smalljurisdictions in the Pacific meet the costs of adjustment, to be a positive move.

Regional police commissioners from 13 of the 15 PIF member countriesattended their 30th annual meeting in December in Samoa, along withcommissioners from American Samoa and French Polynesia. They agreed to setup a small unit to oversee co-operation in law enforcement and the maximumexchange of intelligence. Papua New Guinea’s police commissioner, JosephKupo, said that the unit was needed because of the increasing prevalence oftransnational crime. He said that it would also assist with the implementationof resolutions and policies agreed at multinational conferences. The policechiefs discussed developments in money laundering, people smuggling,financial scams, Internet paedophilia and the movement of drugs. They saidthat tougher action on the routes traditionally used by people smugglers wouldprogressively push more of the traffic through the Pacific islands.

More than 300 kg of heroin, with a value of several hundred million USdollars, was seized in Fiji in January, following co-operative action betweenagencies in several countries. Mr Levi said that this indicated the need forregional governments to take action on the legislative priorities required for co-operation in law enforcement. He noted that many Pacific island countriesneeded to introduce modern legislation on illicit drugs and on the forfeiture ofassets garnered by the proceeds of crime and money laundering.

Economic policy and the economy

The secretary-general of the Pacific Islands Forum (PIF), Noel Levi, issued astatement in February rebutting the claims by some regional non-governmental organisations (NGOs) that the regional free-trade area to beimplemented in 2002 would cause widespread social disruption. He said thatthe initial impact would not be significant, because existing trade between the

Police commissioners seekto enhance co-operation

There are concerns over thesocial impact of free trade

Forum secretariat protestsagainst OECD moves

8 The region


Forum island countries was extremely limited. However, he advisedparticipants to be aware of the possible future effects of free trade and to takeearly steps to monitor and counter problems. An initial social impact assess-ment carried out under the Pacific Island Countries Trade Agreement (PICTA)found that free trade could lead to the decline of uncompetitive sectors,resulting in localised job losses and declining output. The removal of tariffswould also require governments to find alternative revenue sources, for ex-ample through consumption taxes. The assessment was a prelude to a pro-gramme of similar studies to be conducted periodically over the next 20 years.

Problems in the region’s kava industry first surfaced in November 2001, but ithas taken many months for their potential impact to be fully recognised. TheFederal German Institute of Drugs and Medical Devices (known as BfArM)announced in late 2001 that it intended to ban kava in herbal medicines,owing to evidence that it could cause liver disease. (Kava is a substanceextracted from the root of the Piper methysticum plant.) The institute isregarded by many as the world’s leading authority on herbal medicines. Themain kava products are those used for treatment of urinary tract infections,anxiety conditions, stress and restlessness. In 1997 some 146,000 prescriptionswere written by German doctors for the most popular kava product, themanufacturer of which grows its own kava on the Vanuatu island of EsperituSanto. The institute’s report on a limited number of cases was vigorouslycontested by the pharmaceutical industry. Drug manufacturers said that thereport did not take into account the possible effects of other medication beingused by patients, or of manufacturing processes. They said that there was noproof that kava itself caused liver disease. The substance has been used intraditional Pacific cultures for more than 1,000 years to make a cloudy drinkused for ceremonial and recreational occasions. Demand for kava in variousforms has been booming in Europe and the US, both for pharmaceutical useand as a food additive.

One reason for the identified liver problems could be the way in which thekava has been prepared by the manufacturer. An international expert on kava,Vincent Lebot, based in Vanuatu, has said that many pharmaceutical productstraded as kava are not really kava in the traditional sense of the name.According to Mr Lebot, they have been made without any understanding ofthe traditional, cultural methods of preparing kava for drinking. In many cases,kava lactones for use in the finished product have been extracted by the use ofpoisonous solvents, creating a problem unrelated to the kava plant. He saidthat the BfArM tests showed that for every 1m doses of kava medicationadministered, 0.23 people had suffered some adverse effect. Nevertheless,France and Switzerland followed the German ban, and the UK asked for thevoluntary withdrawal of kava medications.

German medical studyraises kava threat

Experts say the problem iswith processing

Fiji 9


Fiji

Political structure

Republic of Fiji Islands

Parliamentary

The president, appointed by the Great Council of Chiefs (Bose Levu Vakaturaga),appoints the prime minister, who selects the cabinet

The president, Ratu Josefa Iloilo

Bicameral parliament comprising an appointed upper house, or Senate (34 members),and an elected House of Representatives (71 members). The 1997 constitution preventedthe dominance of parliament by indigenous Fijians and abolished the requirement thatthe prime minister be an indigenous Fijian. There is universal suffrage for all citizensaged over 21. Voting is compulsory and preferential

Local administration is on a divisional basis with separate councils for urban areas. Thereis a separate local government system for the indigenous Fijian population

Magistrates’ courts, High Court and Court of Appeal, presided over by the Supreme Court

August 25th-September 1st 2001

Soqosoqo Duavata ni Lewenivanua (SDL, People’s Unity Party); Fiji Labour Party (FLP);Matanitu Vanua (MV, Conservative Alliance); National Labour Unity Party (NLUP);National Federation Party (NFP); United General Party (UGP)

Laisenia Qarase, the leader of the SDL, was appointed prime minister on September 10th.The cabinet comprises 15 SDL members, two from the MV, two from the NLUP and oneindependent. In defiance of the constitution, Mr Qarase named a cabinet that does notinclude any members of the FLP. In February 2002 the Court of Appeal ruled that actionto be unconstitutional. The government has appealed to the Supreme Court

Prime minister & minister for Fijian affairs Laisenia Qarase

Agriculture, sugar & land resettlement Jonetani GaluinadiCommerce, business development & investment Tomasi VuetilovoniEducation Ro Teimumu KepaFinance & national planning Ratu Jone KubuabolaForeign affairs Kaliopate TavolaHome affairs & immigration Joketani CokanasigaLabour & industrial relations Kenneth ZinckLands & mineral resources Ratu Naiqama LalabalavuMulti-ethnic affairs George Shiu RajNational reconciliation & information Josefa VosanibolaPublic enterprises & public-sector reform Irami MatairavulaRegional development Iliaitia TuiseseTourism & civil aviation Konisi YabakiWomen, social welfare & poverty alleviation Adi Asenaca Caucau

Savenaca Narube

Form of state

Official name

The executive

Head of state

National legislature

Regional government

Legal system

National elections

Central bank governor

Main political parties

National government

Key ministers

10 Fiji


Economic structure

Annual indicators

1996 1997 1998 1999 2000

GDP at current pricesa (F$ m; at factor cost) 2,553 2,616 2,805 3,139 3,085

Real GDP growtha (av; %) 3.1 –0.9 1.4 9.7 –2.8

Consumer price inflationa (av; %) 2.4 2.9 8.1 0.2 3.0

Populationa (m) 0.78 0.79 0.80 0.81 0.81

Exports fobb (US$ m) 672.2 535.6 428.9 537.7 n/a

Imports fobb (US$ m) 839.9 818.9 614.6 653.3 n/a

Current-account balanceb (US$ m) 13.5 –34.1 –59.9 12.7 n/a

Reserves excl goldb (US$ m) 427.2 360.3 385.4 428.7 409.7

Total external debtc (US$ m) 218.1 219.1 192.9 162.7 n/a

Debt-service ratio, paidc (%) 3.6 2.8 3.5 3.5 n/a

Exchange rateb (av; F$:US$) 1.403 1.444 1.987 1.970 2.129

March 7th 2002 F$2.271:US$1

Origins of gross domestic product 2000a % of total Components of gross domestic product 2000a % of total

Agriculture, forestry & fishing 16.8 Private consumption 62.0

Mining & quarrying 2.5 Government consumption 17.9

Manufacturing 14.6 Fixed investment 11.2

Construction 4.3 Stockbuilding 1.2

Electricity & water 4.3 Exports of goods & services 59.6

Transport & communications 13.3 Imports of goods & services –52.9

Wholesale & retail trade, restaurants & hotels 18.8 Statistical discrepancy 1.0

Other services 25.4 Total 100

Total incl imputed service charge 100.0

Principal exports 2000a F$ m Principal imports 2000a F$ m

Garments 346.7 Manufactured goods 486.4

Sugar 237.5 Machinery & transport equipment 345.5

Fish 88.8 Mineral fuels 298.1

Gold 75.7 Miscellaneous manufactured articles 239.2

Timber 44.9 Food 220.7

Total incl others 1,217.2 Total incl others 1,772.3

Main destinations of exports 2000d % of total Main origins of imports 2000d % of total

Australia 34.2 Australia 38.9

US 19.6 New Zealand 16.4

UK 14.3 Singapore 5.7

Pacific Islands 11.4 Japan 4.5

New Zealand 4.8 US 4.5

Japan 3.8

a Reserve Bank of Fiji, Quarterly Review. b IMF, International Financial Statistics. c World Bank, Global Development Finance. d IMF, Direction of TradeStatistics (derived from trading partners’ records).

Fiji 11


Quarterly indicators

2000 20011 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Government finances (F$ m)Total revenue & grants 234.2 220.1 207.4 249.2 189.5 260.8 194.4 n/a Income taxes 134.6 117.2 118.0 117.7 60.5 63.7 70.0 n/aExpenditure 232.4 245.5 264.5 399.2 236.7 326.4 310.7 n/aBalance 1.8 –25.4 –57.1 –150.0 –47.3 –65.6 –116.4 n/a

PricesConsumer prices (1995=100) 114.8 116.3 116.4 116.7 120.9 121.3 120.5 121.5 % change, year on year –0.8 0.9 2.2 2.0 5.3 4.3 3.5 4.1

Financial indicatorsExchange rate F$:US$ (av) 2.016 2.095 2.152 2.252 2.230 2.298 2.285 2.293 F$:US$ (end-period) 2.043 2.078 2.224 2.186 2.333 2.333 2.334 2.309Interest rates (%) Bank (end-period) 2.50 15.00 10.00 8.00 6.00 6.00 6.00 1.75 Deposit (av) 0.98 0.84 0.92 0.85 0.80 0.76 0.79 0.77 Lending (av) 8.37 8.39 8.43 8.40 8.48 8.36 8.32 8.22 Money market (av) 1.35 4.13 3.70 1.14 0.97 0.80 0.57 0.83 Treasury bill (av) 2.00 5.00 5.00 2.53 1.69 1.43 1.35 1.56M1 (end-period; F$ m) 575.3 529.1 570.8 593.7 618.9 598.1 595.3 620.9 % change, year on year 8.2 3.5 5.9 –14.5 7.6 13.0 4.3 4.6M2 (end-period; F$ m) 1,471.6 1,437.8 1,487.2 1,513.8 1,504.2 1,466.0 1,465.7 1,467.1 % change, year on year 5.2 5.6 6.6 –2.1 2.2 2.0 –1.4 –3.1

Sectoral trendsSugar exports (‘000 tonnes) 20.4 27.0 106.5 176.3 0.0 34.0 117.1 n/aTourism Visitor arrivals ('000) 95 79 45 74 70 83 103 92 Length of stay (av; days) 8.1 9.2 9.1 8.4 8.3 8.5 9.1 8.4 Gross earnings (F$ m) 123.3 126.2 66.2 97.8 99.9 116.7 166.8 n/a

Foreign trade (F$ m)Exports foba 261.5 243.7 365.9 372.6 228.7 261.4 362.4 n/aImports cif –462.4 –438.3 –391.3 –464.3 –411.0 –417.0 –492.1 n/aTrade balance –200.9 –194.6 –25.4 –91.7 –182.3 –155.6 –129.7 n/a

Foreign reserves (US$ m)Reserves excl gold (end-period) 412.5 397.4 373.4 409.7 347.3 333.1 333.9 366.5

a Includes re-exports.Sources: International Sugar Organisation (ISO), Statistical Bulletin; Fiji, Bureau of Statistics; IMF, International Financial Statistics; Direction of Trade Statistics; Reserve Bank of Fiji, Quarterly Review.

12 Fiji


Outlook for 2002-03

Fiji faces another period of acute uncertainty and tension. The Court of Appealruled on February 15th that the prime minister, Laisenia Qarase, acted un-constitutionally in 2001 when he refused to appoint members of the FijiLabour Party (FLP) as government ministers. Under the 1997 constitution,parties that gain at least 10% of the seats in the House of Representatives areentitled to cabinet representation in proportion to their numbers. After thegeneral election in August-September 2001, Mr Qarase’s Soqosoqo Duavata niLewenivanua (SDL, People’s Unity Party), which secured the support of mostindigenous Fijian voters, had 32 seats. The FLP, which draws its support fromIndian Fijians, had 27 seats. Initially, Mr Qarase offered the FLP the six seats incabinet dictated by their numbers, but later reneged on this and formed acoalition government with members of the Matanitu Vanua (MV, ConservativeAlliance), the National Labour Unity Party (NLUP, a breakaway from the FLP)and an independent member of parliament (MP). The predominant view in thelocal and regional legal community is that every action and appointment ofthe government since its installation in September 2001 is, if not illegal, opento challenge. These, and the actions that must be taken to resolve the situation,presumably could be legitimised by statutory action. However, that wouldrequire the active co-operation in parliament of the FLP, which so far has notbeen prepared even to constitute the official opposition.

The situation following the court ruling is fraught with uncertainties. WhenMahendra Chaudhry, the leader of the FLP and former prime minister, instig-ated legal action to challenge the government, Mr Qarase said that he wouldaccept the court’s decision, ostensibly in the interests of constitutional clarity.However, following the February judgement, the government launched anappeal to the Supreme Court. Mr Qarase said that the Appeal Court decisionwas too narrow and failed to take into account the practical difficulties ofallowing the FLP into government. The Supreme Court has not operated forseveral years, and re-establishing it presents difficulties, as does organising theappeal. Although the court’s jurisdiction is clear, its membership is not.

Should the appeal to the Supreme Court prove unsuccessful, Mr Qarase appearsdetermined to bypass the judgement. He has suggested that he might increasethe size of the cabinet by the number of FLP seats, leaving all his currentministers with their existing responsibilities. The implication is that trivialduties could be devised for the new ministers. Alternatively, Mr Qarase may beforced to call a fresh election. Such an outcome would plunge the country intodeeper political uncertainty and further inflame racial tensions. A former primeminister, Sitiveni Rabuka, has urged Mr Qarase to accept the court ruling, giveup his nationalistic extremist approach and give multi-ethnic co-operation atrial. He said that the cause of the country's problems was not the constitution,but greed. However, Mr Qarase, a merchant banker rather than a career poli-tician, and an avowed indigenous supremacist, has long condemned thepower-sharing formula in the constitution as unworkable. He is supported bymany across the political spectrum. Even the group that drafted the 1997

The government is declaredunconstitutional

Mr Qarase remains defiantand launches an appeal

Fiji 13


constitution was quick to point out that the formula was not of their makingbut was added during the political process.

The political scene

The terms of the judgement passed by the Court of Appeal on February 15th,ruling that the prime minister, Laisenia Qarase, acted unconstitutionally in2001 by refusing to appoint members of the Fiji Labour Party (FLP) asgovernment ministers, provide little comfort for the administration as itpursues its final appeal. In a 32-page response to a series of questions referredto it by the High Court, the five judges were unequivocal in ruling that the FLPwas entitled to be represented in the cabinet in proportion to its numbers inparliament. They said that the constitution required the prime minister to issuean invitation to qualified parties and that the obligation placed on the primeminister was clear and precise. Any practical difficulties that might arise in theworking of a multi-party cabinet, they said, could not affect the clear meaningof the words of the constitution. The judgement stated that Mr Qarase’s initialletter to Mahendra Chaudhry (the previous prime minister and head of theFLP), offering him six seats in the cabinet, complied with the constitution andwas without conditions. Mr Chaudhry’s reply was equally unconditional andconstitutional. The appeal bench comprised three judges from New Zealand,one from Australia and a British judge, who is chief justice of Tonga. The courttook the unusual course of handing down its judgement on a Friday night, tohelp minimise security concerns. The reading of a summary of the judgementby Sir Thomas Eichelbaum, of New Zealand, was broadcast live on television.

George Speight, the failed businessman who acted as the front man in the plotto topple the Chaudhry government in May 2000, may spend between fiveand ten years in prison following his conviction for treason. There had beenexpectations that his trial would last for weeks and possibly implicate manyprominent people. However, it was over in an hour and the opportunity tolearn more about who backed and organised the action disappeared. As the

Court judgement gives thegovernment little comfort

George Speight pleadsguilty to treason

14 Fiji


result of a plea-bargaining agreement between lawyers for the two sides,Mr Speight pleaded guilty and was given the mandatory death sentence withall the traditional drama inherited from the British legal system. Mr JusticeMichael Scott donned a black silk cap and read the order that Mr Speight behanged. Within hours the sentence was commuted to life imprisonment, withvarying interpretations of what that may mean in practice. A “life” sentencehas come to mean ten years in most areas of Fiji criminal law.

A few days before Mr Speight’s appearance, the government announced that itwould abolish the death sentence for treason, the only capital offence re-maining on the statute book, replacing it with a maximum term of seven years.The legislation was being introduced in parliament as Mr Speight stood in thedock. The lawyers agreed that in return for a guilty plea from Mr Speight, thecharges of treason against most of his associates would be reduced to those of“knowingly detaining people illegally”. Ten men were given sentences rangingfrom 18 months to three years. Two others pleaded not guilty to treason andfaced trial in March.

After Mr Speight’s sentencing, Mr Chaudhry described him as a scapegoat andsaid that there was a clear need to discover the identities of his backers. Thepolice commissioner, Isikia Savua, urged Mr Speight to tell the truth about hisbackers, after he accused the police of exercising double standards in theirinvestigations. Mr Savua said that all files from the investigations had beensent to the director of public prosecutions, who had formed the judgementthat it was not possible to lay charges because of a lack of evidence tocorroborate police reports. He said that the files were still open and that if newevidence emerged they would be reassessed and resubmitted to the prosecutor.Mr Savua himself faced an internal investigation in 2000, following allegationsthat he was involved in the action against the government.

Government members staged a walk-out of parliament on February 22nd afterthe prime minister was accused of having prior knowledge of the May 2000attack on the Chaudhry government. Police, still nervous about the generalsecurity situation, immediately sealed the building and its precincts. Lekh RamVayeshnoi of the FLP said that he believed many people in, or connected with,the government knew who had instigated the action, including Mr Qarase.However, he offered no supporting evidence for this, and Mr Qarase vigorouslydenied the claim.


More than most of its counterparts, the Reserve Bank of Fiji (RBF, the centralbank) relies on consultation (often labelled dismissively by these counterpartsas “anecdotal evidence”) in forming its published views. The bank’s December2001 Quarterly Review thus notes “an optimistic outlook across most sectors”,despite a crisis in the sugar industry and the closure of several export-earninggarment factories, with the likelihood that more will follow. The bank arrivedat a forecast for GDP growth in 2002 of 3.5%, largely on the basis of the

MP accuses Mr Qarase ofprior knowledge of “coup”

Rumours abound of acover-up

The Reserve Bank isoptimistic

Fiji 15


government’s pump-priming activity, which is unlikely to be sustainable.Domestic demand, stemming from household and government spending, werecontinuing to support growth, it said. Indicators such as the collection ofvalue-added tax (VAT) and currency in circulation remained strong and, despitethe decline in business credit, credit growth to private individuals for housingwas still positive. The bank also expected wage increases in late 2001, togetherwith Christmas spending, to have boosted consumer demand. Private-sectorwage awards in non-garment industries ranged from 3% to 7%, mainly as aresult of cost-of-living adjustments. Public-sector wage increases varied from3% to 12%.

In the 12 months to November 2001 inflation was 4.9%. It was pushed up bybudget-induced increases in service charges and the reimposition of VAT onbasic foodstuffs. Revenue from taxes and excise on tobacco and alcoholproducts rose, more than offsetting the effects of cheaper fuel. However, thebank said that the base-related effects in the consumer price index (CPI) wouldhave worked through by the end of December, bringing inflation down toabout 3%. Bank lending rates are at historical lows, with the averagecommercial lending rate at 8.27% in October.

The RBF has been framing recent economic news in the most positive languagepossible. In its review, it said that the tourism sector performed “reasonablywell” for the year, given the external shocks of a global downturn and theevents of September 11th. Visitor arrivals were 18% higher than in the previousyear, but the reason for this was the disastrous base year—the industry almostceased to operate in the months after the violent overthrow of the electedgovernment in May 2000. According to the statistics bureau, there were287,327 visitors to the country for the year to the end of October, althougharrivals in the month of October were 6.6% below those in September. Most ofthe main tourist markets shared in the revival, with the main exceptions beingNew Zealand and Japan. The improvement in the US market was described asmarginal.

The sugar industry’s failure to meet production targets contributed to a 9%decline in merchandise exports in January-November 2001, compared with thesame period of 2000. The sugar season ended on November 30th, with a totalof 2.8m tonnes of cane crushed at the country’s four mills, 26% down on the2000 season. The sugar yield was down by 14% to 293,000 tonnes. The non-sugar agricultural sector grew by 5.2% in the 12 months to September, led bygrowth in European markets for kava products. However, this growth has beenhalted abruptly by actions by the regulatory authorities in France, Germanyand Switzerland (see The region: Economic policy and the economy). Timberproduction to the end of September was about 9% higher year on year (withoutput of 351,000 cu metres), with a significant rise in pine pulp production.The RBF said that timber production for the full year was expected to be up by3%, with a further increase of 10% likely in 2002. Fish production rose by 10%to the end of September (to a total of 26,000 tonnes), thanks to successfulmarket penetration in Asia and the US. Full-year output was expected to be upby 10%, with a further 7% increase forecast for 2002.

Most tourist markets showimprovement

Non-sugar agriculturalsector is growing

16 Fiji


The most ominous figures released recently are those registering the loss ofskills from the country. Based on the RBF’s figures, almost 1% of the popul-ation left Fiji in 2001, with professional and technical workers dominating theexodus. It is believed that about 10,000 skilled workers have emigrated sinceMay 2000, a loss that will be extremely difficult to redress.

The government decided in December to set up a National Council for Scienceand Technology, to co-ordinate the implementation of its technology policy.This is the latest step in a long-running process. The minister for commerce,business development and investment, Tomasi Vuetilovoni, said that a con-sultant from the UN Industrial Development Organisation (UNIDO) hadreviewed the country’s technology and related policies in 1996, and presenteda draft technology policy statement the following year. This was furtherdeveloped by local consultants, whose work was reviewed in 2001. The resultwas a plan of action presented to the government in August 2001.

Mr Vuetilovoni also announced in December that the government hadapproved his proposal to review the “reserved” and “restricted” categories ofbusiness activity under the foreign investment act. The review will be based onsubmissions put to the minister by both the private sector and governmentagencies. Local business interests want to preserve as much “territory” aspossible, but government agencies are concerned about observing World TradeOrganisation (WTO) agreements and avoiding measures that discourageforeign investment. The minister said that extensive consultations had beenundertaken with all stakeholders to define the parameters of the review.

The fisheries minister, Solomone Naivalu, announced in January that tunacatches would be restricted for the next two years, as the government developsa sustainable management regime for the fishery. The total allowable catch(TAC) for albacore, yellowfin and bigeye tuna would be set at 15,000 tonnes for2002 and 2003 and the number of tuna long-line licences would be limited to90. Mr Naivalu said that the TAC would help to restore stocks to levels capableof producing maximum sustainable yields. Strict catch reporting requirementswould be imposed as part of licence conditions from 2002, and the tunafishery in Fiji's exclusive economic zone (EEZ) would be closed once the TACwas reached. Tuna stocks would be reassessed in 2004.

National technology policyplans move forward

Foreign investment act willbe reviewed

Tuna fishery will facerestrictions

Skilled workers dominateexodus

New Caledonia 17


New Caledonia

Political structure

New Caledonia

A largely autonomous territory within the French state, except in areas such as foreignrelations, defence, justice, currency and credit. The Nouméa Accord, signed in May 1998,provides for the devolution of power to New Caledonia. It was approved in a referendumin November 1998; a further referendum on complete independence will follow 20 yearsfrom that date

The High Commissioner of the French Republic in New Caledonia, Wallis and Futuna,Thierry Lataste

The president of France, Jacques Chirac

The Territorial Congress, comprising the combined elected membership of the threeprovincial assemblies (15 members from the Northern Province, 32 members from theSouthern Province and seven members from the Province of the Loyalty Islands).Members are elected for terms of six years by universal suffrage

Three provincial assemblies plus 32 basic local government units known as communes

The French system, augmented by mandatory consultation with the Advisory Councilon Custom (Conseil coutumier territorial, comprising 40 members drawn from the eightcustom areas) in matters of customary and land law. Magistrates preside over thedecentralised lower courts. The Court of Appeal is based in Nouméa and there is accessto the higher appeal court of France in certain matters

July 1995; provincial elections, May 1999

The first president, Jean Lèques, resigned in March 2001 and was replaced by PierreFrogier. Both are members of the RPCR, which holds 24 of the 54 seats in the Congress. Incoalition with the FCCI, it commands a majority, with seven of the 11 executivepositions in the government. The FLNKS and its affiliate party, the UC, hold the otherfour places

The two main groupings are the Rassemblement pour la Calédonie dans la République(RPCR) and the Front de libération nationale kanak socialiste (FLNKS). The RPCR,affiliated with the Rassemblement pour la République (RPR) in France, comprises theCentre des démocrates sociaux (CDS) and the Parti républicain (PR). It is allied with theFédération des comités de coopération indépendantistes (FCCI). The FLNKS comprises theUnion calédonienne (UC), the Parti de libération kanak (Palika), the Rassemblementdémocratique océanien (RDO), the Union progressiste mélanésienne (UPM) and the Unionnationale pour l’indépendance (UPI). The Libération kanak socialiste (LKS) is strong in theLoyalty Islands

President of the executive government Pierre Frogier (RPCR)President of the Northern Province Paul Néaoutyine (FLNKS)President of the Southern Province Jacques Lafleur (RPCR)President of the Loyalty Islands Robert Xowie (FLNKS)Vice-president Déwé Gorodey (FLNKS)Deputies to the French Assemblée nationale Jacques Lafleur (RPCR)

Pierre Frogier (RPCR)Representative to the French Senate Simon Loueckhote (RPCR)

Official name

Form of state

The executive

Head of state

Territory legislature

Local government

Legal system

National elections

Main political organisations

National government

18 New Caledonia


Economic structure

Annual indicatorsa

1996 1997 1998 1999 2000

GDP at current prices (CFPfr m) 335,482 349,260 338,782 342,170 n/a

Real GDP growth (av; %) 0.5 2.0 –3.2 0.9 n/a

Consumer price inflation (av; %) 1.7 2.1 0.2 0.1 n/a

Population (‘000) 196 199 203 206 n/a

Exports fob (US$ m) 553.6 542.4 406.6 399.7 n/a

Imports cif (US$ m) 1,000.9 928.1 996.3 1,007.9 n/a

Exchange rate (av; CFPfr:US$) 93.0 106.2 99.9 112.0 129.4

March 7th 2002 CFPfr135.8:US$1

Origins of gross domestic product 1997 % of total

Agriculture 3.7

Mining & metallurgy 10.7

Construction & energy 4.0

Miscellaneous industries 5.0

Transport & communications 6.7

Commerce 43.7

Other services 26.2

GDP at market prices 100.0

Principal exports fob 1996 US$ m Principal imports cif 1996 US$ m

Ferro-nickels 212 Machinery, appliances & electrical supplies 180.3

Nickel ore 76 Foodstuffs 179.7

Foodstuffs & animal products 9 Minerals & chemicals 174.0

Metal & metal products 1 Vehicles & spare parts 170.7

Total incl others 554 Total incl others 1,000.9

Main destinations of exports 2000b % of total Main origins of imports 2000b % of total

Japan 30.4 France 50.6

France 17.0 Australia 13.7

Taiwan 12.5 Singapore 9.0

Spain 9.3 New Zealand 4.1

South Korea 9.1 Japan 1.8

a Bank of Hawaii, An Update on New Caledonia, August 2000. b IMF, Direction of Trade Statistics (derived from trading partners’ records).

New Caledonia 19


Outlook for 2002-03

With its nickel industry under pressure and tourism in decline, NewCaledonia’s economic outlook is not bright. However, the country is assured ofdevelopment funds from France. The French government renewed its commit-ment to New Caledonia at the latest meeting in January of the signatories ofthe Nouméa Accord. (This agreement, signed in 1998, provides for theprogressive transfer of powers from France to local institutions in five-yearsteps, leading to a referendum on independence after either 15 or 20 years.)After the talks in Paris, France’s overseas minister, Christian Paul, said that allparties had confirmed their commitment to the accord. He said that dis-cussions had included the concept of collegiate leadership, training, furtherintegrating New Caledonia into its regional environment and the developmentof national symbols and emblems. Mr Paul confirmed that France would injectFFr20bn (US$2.7bn) into New Caledonia over the next ten years for economicdevelopment, particularly in the nickel industry, in tourism and througheducation.

The local parties to the Nouméa Accord—the anti-independence coalition,Rassemblement pour la Calédonie dans la République (RPCR), and the pro-independence parties joined in the Front de libération nationale kanaksocialiste (FLNKS)—both have internal problems. The RPCR leader, JacquesLafleur, who is also president of the Southern Province, did not attend the talksin January and offered no real reason for his absence. He remains firmly incontrol, but speculation about his retirement from politics in favour ofbusiness is never far from the surface. The FLNKS is in disarray and is uncertainabout how to deal with its problems. Most of these stem from the emergenceof a group determined to win greater recognition in the New CaledoniaCongress for the Union calédonienne (UC), the largest party within the FLNKS.Regarded at first as an aggressive minority, the “UC group” was accepted by theUC and the other parties in the coalition to avoid an open split in the pro-independence movement (December 2001, page 21). Its leadership nowrepresents the majority sentiment in UC, threatening the stability of the coali-tion. The group’s leader, Pascal Naouna, succeeded Roch Wamytan, a veterancampaigner, as UC leader in November 2001.

The political scene

The president of the executive government, Pierre Frogier, headed thedelegation from the Rassemblement pour la Calédonie dans la République(RPCR) at the meeting of the signatories to the Nouméa Accord in January. Hereportedly expressed the view that consensus had been established in NewCaledonia, in line with the power-sharing arrangement set out in the accord,and said that harmony was developing within the population. Pascal Naouna,who led the delegation from the Front de libération nationale kanak socialiste(FLNKS), was less positive. He said that the FLNKS had a view of collegialitydifferent from that of the RPCR. It wished to share in the decision-making

France earmarks FFr20bnfor economic development

The political scene isbecoming more complex

There are differing viewson collegiality

20 New Caledonia


process, not just implementation. He apparently also expressed concerns aboutthe preparation of electoral rolls for future elections. For the duration of theNouméa Accord (20 years), voting rights are restricted, in broad terms, to thosewho were eligible to vote in 1998. A constitutional amendment to this effectwas to have been enacted at a joint sitting of the two houses of the Frenchlegislature in 2001. However, the meeting did not take place and there hasbeen no indication of when the legislation will be addressed.

The FLNKS, which is suffering from internal difficulties, notably a leadershipproblem, assembled for a special meeting on December 22nd. The positions ofthe group’s two largest constituents were unchanged. The Union calédonienne(UC) supported the re-election of Roch Wamytan as president, despite havingdropped him as party leader. The Parti de libération kanak (Palika) proposedthe appointment of its leader, Paul Néaoutyine, who is also the president of theNorthern Province. Unable to break the deadlock, the FLNKS political bureaueventually opted for joint leadership, through an unwieldy committee of eight,composed of two representatives from the four main constituents—UC, Palika,the Rassemblement démocratique océanien (RDO) and the Union progressistemélanésienne (UPM). Each party will provide the group’s president for a periodof three months, starting with the UC.

A spokesman for the FLNKS, Victor Tutugoro, said that the arrangement wouldcontinue for one year, until the next annual congress. He described it as thebest response to the current political situation. The compromise seeks to pre-serve the FLNKS’s role as a political entity and as a signatory of the NouméaAccord. However, Mr Tutugoro said that the FLNKS was keenly aware of itsinternal difficulties, with the leadership issue only part of a “vast” problem.Neither Mr Wamytan nor Mr Néaoutyine are members of the new leadershipgroup, but the conference in December reaffirmed its confidence inMr Wamytan in matters of external relations, including contacts with regionalorganisations and countries.

In early December long-simmering tensions between Kanak and Wallisiancommunities on the outskirts of Nouméa erupted into violence, resulting inone death and many injuries. The Wallisians, who live in the village of Saint-Louis, originally came from the French territory of the Wallis and FutunaIslands, north-east of Fiji. It was claimed that the violence began with a fightbetween student groups on December 8th. Gunshots were later exchanged andeach side erected roadblocks. Three armoured vehicles and 130 gendarmes triedto maintain peace, while the French high commissioner and local governmentofficials attempted to mediate. It was the largest deployment of securityservices since the grave crisis related to the independence campaign in themid-1980s.

Mr Wamytan, a high chief in the area, was among the many communityleaders who eventually persuaded the two sides to end their blockades andallow normal traffic to resume. There were suggestions that the trouble flowedfrom a dispute over land use. However, after talking to his Melanesian Kanakconstituents, the Mont-Dore mayor, Réginald Bernut, told the newspaper LesNouvelles that they simply wanted the predominantly Polynesian Wallisians to

Violence breaks out on theoutskirts of Nouméa

FLNKS agrees on jointleadership

New Caledonia 21


leave the area. The communities involved in the violence comprise about1,200 Kanaks and 1,000 Wallisians. The situation has wider implications, withthe Wallisians accounting for around 10% of New Caledonia’s population ofsome 200,000.

The French government is pressing New Caledonia to negotiate a formal agree-ment on the status of Wallisians in the country and is funding a developmentprogramme in Wallis and Futuna to stem the outflow of people. There are nowmore Wallisians in New Caledonia than in their home islands. They wereoriginally encouraged to move for economic reasons some 50 years ago. In the1980s the RPCR-dominated territory of Mont-Dore encouraged further immi-gration to shore up its political base and provide greater numbers in the eventof riots during the independence-related violence then sweeping the country.Wallisian community leaders announced in January 2002 that they wereprepared to relocate, provided they were given suitable land. Kanak leaderssupported them, saying that their presence had been a problem for 40 years.However, the French authorities fear that relocation would be seen as akin toethnic cleansing and clearly contrary to the “common destiny” concept en-shrined in the Nouméa Accord.


Closures and cutbacks in the hard-pressed nickel industry have led to block-ades and the occupation of mining company offices. The Société minière duSud Pacifique (SMSP), which is owned by the Northern provincial government,suffered from industrial action and vandalism by unionists in the first twomonths of 2002. Aware of the potential impact on investors, the Unionsyndicale des travailleurs kanak et des exploités (USTKE), together with theFront de liberation nationale kanak socialiste (FLNKS), organised a differenttype of demonstration in February, to show public support for the proposednew nickel projects. Organisers claimed that 3,000 people took part, but policeestimated numbers at half that figure. The event was claimed to have“reassured” Falconbridge, a Canadian nickel company, which is entering into ajoint-venture project with SMSP to build a new nickel smelter and associatedinfrastructure at Koniambo in the Northern Province. Falconbridge’s localrepresentative, Bruce Dumville, told a delegation from the demonstration thatthe Koniambo project remained a priority in the company’s developmentstrategy and that it was fully satisfied with its partnership with the SMSP.

The Institute territorial de la statistique et des etudes économiques (ITSEE)reported in December that the average monthly income was CFPfr255,000(US$1,880). However, it noted significant differences between sectors. Theaverage income in primary industry, mainly farming, was CFPfr130,000,whereas in the services-dominated tertiary sector it was CFPfr273,000. Therewere also geographical variations. The average for the Southern Province wasCFPfr261,000 (CFPfr265,000 in Nouméa), for the Northern ProvinceCFPfr201,000, and for the Loyalty Islands Province, CFPfr216,000. On average,the report said, women were paid 19% less than men in similar positions.

ITSEE finds largedifferences in salary levels

France seeks to ease theWallisian problem

Nickel industry receivessupport amid job cuts

22 New Caledonia


Club Med brought forward the closure of its Château Royal resort in Nouméain late December, after demonstrating workers occupied its main hall. Theemployees from the USTKE were protesting at what they regarded asinadequate severance payments. They demanded payments on the basis ofCFPfr250,000 for each year of service. About 50 employees covered by otherunions had accepted the severance terms. The management closed the resortseveral weeks earlier than planned and transferred 138 tourist bookings to anearby Novotel hotel. Club Med’s manager of operations for Oceania, FrédéricTartour, said that the turn of events was regretted, but that the closure wasnecessary because of difficult economic conditions. He added that thepremature closure would not help the country’s image with internationaltourists. Negotiations were continuing in March.

By mid-January all the bank branches formerly known as Bank of HawaiiNouvelle Calédonie were renamed under their new ownership by Caissed'Epargne. They are now called Banque de Nouvelle Calédonie (BNC). Caissed'Epargne acquired the branches in late 2001 after the Bank of Hawaii (BOH)decided to withdraw from most of its Pacific islands business to concentrate onthe US market. The BOH said that the eight New Caledonia branches, inaddition to 17 in French Polynesia operating as Banque de Tahiti, representedUS$940m in combined deposits and about US$1bn in total assets. The newmanagement announced that there would be no immediate changes thatwould affect clients.

Club Med closure isbrought forward

Bank of Hawaii NouvelleCalédonie gets a new name

Samoa 23


Samoa

Political structure

Independent State of Samoa

UK-style cabinet government

The prime minister, chosen by a majority in the Fono (parliament), selects 12 ministersto form a cabinet; cabinet decisions can be reviewed by the Executive Council, whichconsists of the cabinet and the head of state

HH Malietoa Tanumafili II until his death, when a successor will be elected by the Fonofor a five-year period

Unicameral, 49-member Fono; 47 members are elected by all Samoans aged 21 or over torepresent 41 constituencies, while the remaining two members are elected from electoralrolls made up of non-Samoans; elections are held every five years

System of lower courts leading to the Court of Appeal

March 2001

The Human Rights Protection Party (HRPP), led by Tuilaepa Sailele Malielegaoi, holds 28of the 49 seats in the Fono

Human Rights Protection Party (HRPP); Samoa National Development Party; Samoa AllPeoples’ Party

Prime minister, minister of foreign affairs & public service, immigration, police & prisons Tuilaepa SaileleMalielegaoi

Deputy prime minister & minister of finance Misa Telefoni Retzlaff

Agriculture, forests & fisheries Tuisugaletaua Sofara AveauCustoms Faina TinoEducation Fiame Naomi Mata’afaHealth & labour Mulitalo SiafausaJustice Seumanu Aita Ah WaLands, survey & environment Tuala Sale Tagaloa KerslakeSports & culture Ulu Vaomalo KiniTrade & industry Hans Joachim KeilTransport Palusalue Faapo IIWomen’s affairs Tuala Ainiu IuisitinoWorks Faumuina Liuga

Papali’i Scanlan

Official name

Form of state

The executive

Head of state


Legal system

National elections

National government


Central Bank governor

Key ministers

24 Samoa


Economic structure

Annual indicators

1996 1997 1998 1999 2000

GDP at current pricesa (Tala m) 555.5 625.3 659.4 703.0 773.7

Real GDP growtha (av; %) 11.6 0.8 2.5 3.1 7.3

Consumer price inflationb (av; %) 5.4 6.8 2.2 0.3 1.0

Populationb (m) 0.17 0.17 0.17 0.17 0.17



Current-account balanceb (US$ m) 12.28 9.13 20.09 –18.79 n/a




Exchange rateb (av; Tala:US$) 2.462 2.556 2.943 3.012 3.271

March 7th 2002 Tala3.545:US$1

Origins of gross domestic product 2000a % of total

Agriculture & fishing 16.2

Manufacturing 15.2

Electricity & water 2.2

Construction 0.9

Trade, transport & communications 31.4

Government & other services 34.1

GDP at constant prices 100.0

Principal exports fob 2000a Tala m Principal imports 1996d % of total

Fresh fish 24.7 Intermediate goods 50.5

Coconut oil & cream 4.7 Industrial supplies 26.4

Beer 2.7 Consumption goods 38.1

Copra & copra meal 2.3 Food & beverages 26.0

Taro 0.7 Capital goods 11.4

Total incl others 45.1 Transportation equipment 3.8

Total 100.0

Main destinations of exports fob 2000e % of total Main origins of imports 2000e % of total

Australia 61.9 Australia 27.4

Indonesia 12.7 US 26.3

US 11.1 New Zealand 14.1

New Zealand 3.2 Fiji 11.5

American Samoa 3.2 Japan 8.9

a Asian Development Bank. b IMF, International Financial Statistics. c World Bank, Global Development Finance. d IMF, Samoa: Statistical Appendix.e IMF, Direction of Trade Statistics (derived from trading partners’ records).

Samoa 25




PricesConsumer prices (1995=100) 115.4 116.4 119.3 115.0 116.8 118.9 126.2 n/a % change, year on year 0.3 –0.4 3.3 0.8 1.2 2.1 5.8 n/a

Financial indicatorsExchange rate

Tala:US$ (av) 3.108 3.219 3.311 3.467 3.407 3.486 3.471 3.527

Tala:US$ (end-period) 3.131 3.206 3.439 3.341 3.560 3.519 3.531 3.551Interest rates (av; %) Deposit 6.5 6.5 6.4 6.4 6.4 5.5 5.1 5.1 Lending 11.5 11.5 10.7 10.3 10.3 9.9 9.8 9.8M1 (end-period; Tala m) 73.87 80.60 85.43 93.28 99.59 88.67 88.65 86.84 % change, year on year 24.6 18.4 16.8 16.1 34.8 10.0 3.8 –6.9M2 (end-period; Tala m) 249.47 256.60 273.07 289.93 300.47 308.27 310.65 307.62 % change, year on year 18.0 13.4 14.2 16.3 20.4 20.1 13.8 6.1

Foreign trade (Tala ’000)Exports foba 10,211 9,891 14,234 12,497 9,362 15,783 17,215 n/aImports cif –74,517 –73,179 –96,007 –104,904 –101,827 –110,199 –111,669 n/aTrade balance –64,306 –63,288 –81,773 –117,401 –92,465 –94,416 –94,454 n/a


a Includes re-exports.Source: IMF, International Financial Statistics.

26 Samoa


Outlook for 2002-03

Samoa’s economic outlook has improved since the first assessment of prospectsin the wake of the terrorist attacks on the US. The tourism industry has beenaffected by the decline in air travel, but the impact on other sectors has beenless severe than previously expected. Economic growth in 2002 is thereforeforecast to exceed 4%. That would be a respectable outcome for any country,particularly under the current global conditions, but it would be less than halfthe growth rate achieved by Samoa in the first half of 2001. The financeminister, Misa Telefoni, introduced a supplementary budget in late Decemberproviding for additional spending of Tala361.5m (US$100m) and revenue ofTala322.1m, with the gap covered comfortably by concessional loans. Theminister described the economic outlook as “robust”, with infrastructureprojects under way that will further strengthen the economy. The AsianDevelopment Bank (ADB) is helping to fund a much-needed expansion ofelectricity generating capacity and the transmission system, while Japan isfinancing a two-year project to increase wharf capacity in Apia.

There has been growing concern about the level of drug-trafficking and use inthe country, although this is mostly confined to marijuana. The chief justiceobserved in February that there had been a “drastic” increase in marijuanacases and one of his colleagues on the bench said that they were now commonoffences in the country. Several boxes containing marijuana have beenintercepted at the international airport, consigned to American Samoa. Arrestswere made at both ends. The overall law and order situation, however, gives nocause for alarm, and the political scene has remained calm in the first year ofthe current government’s term.

Economic growth willexceed 4% this year

The political scene is stablebut there is a drug problem

Samoa 27


The political scene

An independent member of parliament (MP), Tamala Uilisone Leuluaialii, hascalled on the government to limit the number of Asians and Indians beingallowed to work in Samoa. He said that their growing numbers represented a“potential disaster”. Mr Tamala first raised his concern during parliament's con-sideration of the supplementary budget in January. The labour minister,Mulitalo Siafausa Vui, assured him that there were clear criteria for grantingworking visas and that proper procedures were being followed. The primeminister, Tuilaepa Sailele Malielegaoi, said that most of the Asians and Indiansseen in the country were probably tourists, but that some had specialist skillsand were working for foreign companies. Mr Tamala claimed that many wereworking as salespeople and labourers and were not experts. In a subsequentinterview with the Samoa Observer newspaper, he said that he feared a situationcould develop in Samoa comparable to that in Fiji.

A delegation from American Samoa's Department of Marine and WildlifeResources (DMWR) visited Apia in March to explain new fishing rules to localfishers. The US Secretary of Commerce has approved an exclusive economiczone (EEZ) of 50 nautical miles around the territory and from March 1st boatsof more than 50 ft in length have been prohibited from fishing within it.Offending fishing boats face fines of up to US$1m, depending on their size.The DMWR director, Ufagafa Ray Tulafono, said that it was clear that Samoanfishers were unaware of the federal regulations and possible penalties. He saidthat at the start of the new regime a 91-ft boat from Samoa had beenapprehended in the prohibited zone. Its catch had been confiscated and theowner fined US$120,000, the largest penalty ever levied on a Samoa-basedvessel. He acknowledged that the owner had not been aware of the regulationsand was negotiating with the authorities to have the fine reduced. Mr Ufagafaacknowledged that the two Samoas had shared boundaries for many centuries,and had the same language and culture, but said that the fishing regulationswere federal law and had to be observed.

In a solemn ceremony on March 1st chiefs of the village of Falelatai, on Upolu,accepted the return of Afioga Tuimalealiifano Vaaletoa Sualauvi II. In 2000Mr Tuimalealiifano resigned from the Council of Deputies and campaigned forthe seat of Falelatai in the 2001 general election. The Council of Deputies is agroup of no more than three senior clan chiefs that acts in place of the head ofstate if that office is vacant or the office holder is absent or incapacitated. Thelocal chiefs, as in many areas of the country, claim the prerogative of decidingwho will represent their area. Mr Tuimalealiifano and his extended family werebanished from the village for his defiance of authority—a type of action that israrely reversed. However, the action created widespread criticism for being un-democratic and beyond the proper boundaries of chiefly authority. Theceremony of reconciliation and acceptance was dubbed Falelatai Peace Day.Among those attending was the deputy prime minister, Misa Telefoni, whowon the seat of Falelatai.

MP wants limit on numberof foreign workers

Fishers are warned of newfishing regulations

Ceremony ends electioncandidate’s banishment

28 Samoa



At the end of 2001 official statistics confirmed that the Samoan economy hadexperienced a remarkable burst of growth in the first half of the year, and waslikely to be less dampened by the events of September 11th than had at firstbeen thought. In an end-of-year speech to the Samoa chamber of commerceand industry, the Central Bank governor, Papali’i Scanlan, said that real growthto the end of June was 10.6% and that the economy had continued to grow inthe third quarter, despite the global downturn. The emerging problems werehigher inflation and lower foreign-exchange reserves. The consumer priceindex (CPI) had been trending upwards since March 2001, with the year-on-year inflation rate reaching 2.5% at the end of September. At the same time,foreign assets had trended downwards, reaching a low of Tala169m (US$48m)in September. Mr Scanlan said that he expected Samoa’s export and tourismrevenue to decline in the aftermath of the events of September 11th, whileimport prices were likely to rise, in line with increasing freight and insurancecosts. Remittances from Samoans overseas could also fall, because of theeconomic slowdown in the US.

Mr Scanlan said that before September 11th the Central Bank had intended totighten monetary policy for the rest of the year, to slow bank lending.However, after the terrorist attacks it decided to allow banks to continuelending at the current levels. The banks were also asked to look moresympathetically at requests for loans from the export and tourism sectors. Thegovernor noted that regulatory legislation had been amended during 2001 togive the Central Bank power to supervise non-bank financial institutions,subject to the approval of the minister of finance. Approval has been given inthe cases of the National Provident Fund, the Development Bank of Samoa andthe major insurance companies.

For the first nine months of 2001 exports were 20% higher than in the sameperiod of 2000, according to the finance minister, Misa Telefoni, led by sales offresh fish, garments, coconut cream and beer. Imports rose by 31%, reflectingstrong domestic demand. The balance of payments recorded an overall deficitof Tala8.3m for the first eight months of the year and foreign reserves wereequivalent to just over five months of imports. Earnings from tourism were 8%higher in the first eight months and private remittances were up by 1%.

The Asian Development Bank (ADB) has provided a loan equivalent to US$6mto boost hydro-electricity generation capacity and expand the electricity dis-tribution system in the country. The package also includes policy reforms,including further commercialisation of the government-owned Electric PowerCorporation (EPC). The ADB is providing a technical assistance grant ofUS$150,000 to strengthen the EPC’s management capacity. In an announce-ment in December, the bank said that Samoa’s economy had performedrelatively well in recent years, but that an inadequate electricity supply and theEPC’s lack of financial viability were holding back development. The newproject will expand the Afulilo power scheme, increasing water storage by 50%

The economy is robustdespite external problems

Export and import growthis strong

ADB helps to fund majorelectricity upgrade

Monetary policy remainsloose

Samoa 29


to 15m cu metres. A third 2-mw generator will be installed at Ta’elefaga powerstation. The total cost of the project will be US$7.5m.

In recent months traders and fishermen have reported a sharp decline in thequantity of reef fish available at the Savalalo fish market in Apia. This has beenblamed on over-fishing and the destruction of coastal mangroves. A steadydecline in fish stocks in the area has been evident for several years. Thedepletion of mangroves is reportedly a factor in declining fish stocks, withmany people unaware that mangroves are an important breeding habitat forreef fish.

The Samoa Aufaipopo Society, a co-operative organisation of coconut growers,is negotiating with the government to take over the management of the Vaitelecoconut oil mill. Established almost 30 years ago by the government, the millwas once the country’s main foreign-exchange earner. However, successiveyears of cyclones at the beginning of the 1990s caused such extensive damageto coconut trees that the mill was forced to close. When it was reopened fiveyears ago, its management was contracted to an Australian company, ElanTrading. The government has been considering putting a new contract out totender.

Fish stocks are in decline

Coconut producers areseeking to run an oil mill

30 Solomon Islands


Solomon Islands

Political structure

Solomon Islands

Constitutional monarchy

UK-style cabinet, led by the prime minister, who is chosen from and by parliament

Queen Elizabeth II, represented by a governor-general who must be a Solomon Islander;Sir John Ini Lapli currently holds the position

Unicameral, 50-member national parliament; elected for four-year terms

The islands are divided into eight provinces and one town council (Honiara)

English-style system; a series of lower courts leads to the Court of Appeal

August 6th 1997; December 5th 2001

Bartholomew Ulufa’alu was forced to resign from the premiership in June 2000 after thearmed takeover of the capital, Honiara, by elements supporting the opposition parties.Manasseh Sogavare, who had been opposition leader, was elected prime minister at asitting of parliament on June 30th 2000. A new government headed by Sir AllenKemakeza was formed following the general election in December 2001

People's Alliance Party (PAP), People's Progressive Party (PPP), Association ofIndependents, Solomon Islands Alliance for Change (SIAC), Liberal Party (LP), SolomonIslands Labour Party (SILP)

Prime minister Sir Allen Kemakeza

Deputy prime minister & minister for national planning Snyder Rini

Agriculture & primary industries Stephen PaeniCommerce & trade Edward HuniehuEconomic reform & structural adjustment Daniel Fa’afunuaEducation Mathias TaroFinance Michael MainaFisheries & marine resources Nelson KileForeign affairs Alex BartlettForests, environment & conservation David HolosiviHealth Augustine TanekoHome affairs Clement RojumanaLands & survey Siriako UsoMines & energy Walton NaezonNational unity, reconciliation & peace Nathaniel WaenaPolice & national security Patrick UnaProvincial government Nollen LeniTourism & aviation Trevor OlavaeTransport, works & communication Bernard GiroYouth, sports & women’s affairs Augustine Geve

Official name

Form of state

The executive

Head of state


Local government

Legal system

National elections

National government

Key ministers


Solomon Islands 31


Economic structure

Annual indicators

1996 1997 1998 1999 2000

GDP at current pricesa (SI$ m) 1,226 1,391 1,449 1,376 1,239

Real GDP growtha (av; %) 2.4 –1.0 0.8 –1.5 –14.5


Populationb (m) 0.39 0.40 0.42 0.43 0.45



Current-account balanceb (US$ m) 14.6 –37.9 8.1 21.5 n/a




Exchange rateb (av; SI$:US$) 3.566 3.717 4.816 4.838 5.089

March 7th 2002 SI$5.505:US$1

Origins of gross domestic producta 2000 % of total

Agriculture 42.1

Mining 3.1

Manufacturing 4.9

Electricity, gas & water 1.3

Construction 2.8

Trade, finance & transport 21.1

Public administration & others 24.7


Principal exports fob 2000a SI$ m Principal imports cif 1997a SI$ m

Timber 224.4 Machinery & transport equipment 258.6

Fish & fish products 41.2 Manufactured goods 138.4

Copra 34.7 Food 95.0

Cocoa 9.3 Mineral fuels 59.0

Palm oil & kernel 6.6 Chemicals 33.7

Total incl others 352.6 Crude materials 6.7

Total incl others 685.9

Main destinations of exports fob 2000d % of total Main origins of imports fob 2000d % of total

Japan 22.3 Australia 25.3

China 14.9 Singapore 23.7

Philippines 13.2 Japan 6.2

UK 12.3 New Zealand 5.4

South Korea 11.8 US 4.8

Thailand 4.7 UK 3.1

a Asian Development Bank. b IMF, International Financial Statistics. c World Bank, Global Development Finance. d IMF, Direction of Trade Statistics(derived from trading partners’ records).

32 Solomon Islands



1999 2000 20014 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

PricesConsumer prices (1995=100) 149.9 151.0 n/a n/a n/a n/a n/a n/a % change, year on year 7.7 6.9 n/a n/a n/a n/a n/a n/a

Financial indicatorsExchange rate SI$:US$ (av) 5.061 5.077 5.088 5.094 5.097 5.118 5.238 5.362 SI$:US$ (end-period) 5.076 5.084 5.094 5.094 5.099 5.181 5.285 5.362Interest rates (av; %) Deposit rate 2.50 2.67 2.50 2.50 n/a n/a n/a n/a Lending 14.42 15.19 15.58 15.58 n/a n/a n/a n/a Treasury bill 6.00 6.33 7.00 7.17 n/a n/a n/a n/aM1 (end-period; SI$ m) 266.54 251.37 240.23 242.80 n/a n/a n/a n/a % change, year on year 25.7 12.3 –7.0 –5.7 n/a n/a n/a n/aM2 (end-period; SI$ m) 460.62 453.69 442.94 462.37 n/a n/a n/a n/a % change, year on year 7.0 –0.8 –8.1 –0.7 n/a n/a n/a n/a

Foreign tradea (US$ m)Exports fobb 37.5 26.4 24.4 23.3 21.2 17.3 22.0 24.9Imports fob –47.5 –41.8 –32.6 –21.6 –29.1 –30.1 –24.2 –29.5Trade balance –10.0 –15.4 –8.2 1.7 –7.9 –12.8 –2.2 –4.6


a DOTS estimates. b Includes re-exports.Sources: IMF, International Financial Statistics; Direction of Trade Statistics (DOTS), quarterly.

Solomon Islands 33


Outlook for 2002-03

The new government of the Solomon Islands has been received without muchenthusiasm, both domestically and among the country’s main aid donors. Thenew prime minister, Sir Allan Kemakeza, is the leader of the People’s AllianceParty (PAP), which formed part of the coalition led by the outgoing primeminister, Manasseh Sogavare. Sir Allan was the deputy prime minister until afew months before the election, when he was sacked over irregularities incompensation payments. The new deputy prime minister, Snyder Rini, was thefinance minister in the previous government and was largely responsible forgranting tax and duty remissions that created huge gaps in the administration’srevenue base. The Australian foreign minister, Alexander Downer, congrat-ulated Sir Allan on his appointment. However, he warned that a commitmentto transparency, the restoration of law and order and the adoption ofresponsible economic policies were vital to arrest the country’s deterioration,establish conditions for recovery, and ensure the support of donors.

Despite the government’s promises to restore order and turn round the econ-omy within 100 days, there is no evidence that this has taken place. With theeconomy barely ticking over, the government is struggling to maintain themost basic of services. Most government departments, and even the parlia-ment, have no telephone services because of unpaid bills amounting tomillions of dollars. The students that had been sent to Fiji to resume theirstudies at the University of the South Pacific were denied enrolment because ofthe government’s failure to pay the fees. Hundreds more public employees willbe laid off when the government finds the money to pay them. A medicalcrisis is looming, with almost 40 doctors having left the country. The author-ities freely acknowledge that some 500 high-powered military-style weaponsare still held illegally, despite an agreement in 2000 that they would besurrendered. Criminal gangs operate with apparent impunity in Honiara andother parts of Guadalcanal. Sporadic violence and killings have continued.International peace monitors have been threatened and will soon withdraw.

There is little enthusiasmfor the new government

The economy is barelyticking over

34 Solomon Islands


The political scene

The Honiara Civil Society Network, which represents churches, business,women’s groups, trade unions and non-governmental organisations (NGOs),has emerged as the most representative body in the country. It appealed to MPsin the new parliament not to “sell the country” when they voted for a primeminister. The network said that it knew that some candidates were prepared tooffer parliamentarians thousands of dollars for their votes and it warned that ifthe wrong person were elected prime minister, aid donors would find it hard tohelp the country. Most members of the new cabinet are new to formal politicsand some have strong links to the forces that drove the elected governmentfrom office in 2000.

Only 19 members of the previous parliament retained their seats in theelection on December 5th, which were fair and reasonably well conducted,according to international observers. A week after the election, five candidatesfor prime minister had emerged. Sir Allan Kemakeza declared his candidacyearly. Snyder Rini, the finance minister in the outgoing People’s ProgressiveParty (PPP) government, also declared his candidacy as the leader of theAssociation of Independents and began discussing a possible deal with SirAllan. The Solomon Islands Alliance for Change (SIAC) coalition voted for achange of leader, electing Patteson Oti and nominating him for prime minister.Mr Oti was the foreign minister in the SIAC government led by BartholomewUlufa’alu, which was toppled by the coup in 2000. Mr Ulufa’alu then withdrewhis six Liberal Party (LP) members from the SIAC coalition, and was dulynominated by them for the premiership himself. Mr Ulufa’alu said that hedeplored the way in which the SIAC leadership nomination had beenorchestrated. The fifth candidate was Gordon Lilo from the Western Province.

When the new parliament met on December 17th Mr Rini withdrew hisnomination in line with an agreement he had reached with Sir Allan (he waslater appointed deputy prime minister and minister for national planning inthe new government). Mr Oti came second in the ballot with 13 votes, andbecame leader of the opposition. Mr Lilo received five votes. Mr Ulufa’alusecured just three votes. He said in December that he had no doubt that hischances of being elected were being damaged by rumours that there would beanother coup if he were successful.

The prime minister named 14 new members of parliament in his 20-membercabinet. The new foreign minister, Alex Bartlett, is one of them, although heserved as a minister in the 1980s. He was the secretary-general of the so-calledjoint operation of the Malaita Eagle Force and the paramilitary police that tookover Honiara and toppled the Ulufa’alu government in 2000. The financeminister, Michael Maina, was the minister of national planning and develop-ment in the outgoing government led by Manasseh Sogavare and had served asfinance minister and tourism minister in previous governments. Sir Allan toldthe voters that their search for a better government had not been in vain, andpromised that the first 100 days of his government would see law and orderrestored and the economy set towards recovery.

Sir Allen defeats four othercandidates

14 new MPs are named inthe cabinet

Civil society networkexpresses its concerns

Solomon Islands 35


In a final speech before he handed over power, Mr Sogavare thanked Taiwanfor its continued support of the Solomon Islands government. Without itsfinancial assistance, he said, the country would have been in a far worsesituation. He also made a parting criticism of the churches, which had beenstrong critics of his government on several grounds. One was the extensiveduty remissions permitted by Mr Rini on imports of alcohol. Another wasMr Sogavare’s efforts to extend the life of the previous parliament to avoid anelection. Mr Sogavare declared that the church and the state should be firmlyseparated and said that history had shown that when churches over-influencedstate policies, oppressive laws often followed.


In its monthly report for December, the Central Bank of Solomon Islandsobserved that domestic production and exports remained “negligible” com-pared with pre-conflict levels. Export earnings in December were SI$22m(US$4m) and the import bill was SI$38.8m, resulting in a trade deficit for the19th successive month. The bank said that unless all the industries that hadclosed resumed operations, prospects of a return to a sustainable trade per-formance in 2002 would be even worse. The bank stated that it was essentialthat the new government tackled the law and order problems, restored investorconfidence, reactivated the idle industries on Guadalcanal, and introducedsound fiscal measures and credible economic policies to redirect public fin-ances and the economy. The overall balance of payments recorded a deficit ofSI$29.5m in December, up from SI$27.3m in November. The bank said thatfiscal operations in December were characterised by falling revenue and risingdebt and arrears. Total debt arrears were SI$95.2m at the end of December.External reserves declined by a further 22.3% to SI$102.8m, or about twomonths of import cover. The weighted average deposit rate for December stoodat 0.52%, compared with an average weighted lending rate of 15.65%.

Production in the fishing industry fell for the third consecutive month, to just1,606 tonnes of tuna. Total production for the year stood at 17,669 tonnes,compared with 45,090 tonnes in 1999 and 21,163 tonnes in 2000, when theindustry closed down for six months after the coup.

The commerce minister, Edward Huniehu, announced in February that thegovernment was planning to restructure the copra industry, to improve itsfinancial basis and encourage private-sector investment. A central feature ofthe overhaul would be the removal of the monopoly of the CommoditiesExport Marketing Authority (CEMA). The government would also encourageimproved management and greater involvement of provincial and ruralauthorities. The proposed action follows reports that both CEMA and the largecopra producer, Russell Islands Plantation Estates (currently closed), are in apoor financial condition. The prime minister’s office had previously issued astatement noting that the copra industry was almost bankrupt and that small,rural producers were struggling to get their produce to the marketplace.

Production and exportsremain negligible

Government plans torestructure copra industry

Mr Sogavare thanksTaiwan for its support

36 Solomon Islands


The minister responsible for mining, Walter Naezon, announced the formationin January of a task force to discuss ways of reopening the Gold Ridge goldmine in north-eastern Guadalcanal. He said that the mine was important tothe economy, but that a number of difficult issues needed to be addressed. Themine’s Australian owners, Delta Gold, have expressed doubts about theviability of reopening, owing to the extensive damage caused to the mine andits equipment from vandalism. Mr Naezon noted the need for discussions withDelta and local landowners, who are arguing between themselves as to whichof them should profit from the project. Law and order also needed to be re-established in the area.

Mr Naezon said that the government would take a similar approach to effortsto reopen palm plantations on the Guadalcanal Plains, formerly operated bySolomon Islands Plantations. The emphasis would be on partnership withresource owners, ensuring that all stakeholders were included in negotiationsand developments.

New minister looks forways to resume mining

Tonga 37


Tonga

Political structure

Kingdom of Tonga

Constitutional monarchy, with the monarch retaining significant power

The king appoints a cabinet, led by a prime minister, comprising the governors ofHa’apai and Vava’u and ministers of the crown; ministers are appointed permanentlyuntil retirement age

King Taufa’ahau Tupou IV

Unicameral Legislative Assembly with limited powers, comprising the speaker, thecabinet, nine nobles chosen by the 33 nobles of Tonga, and nine representatives electedby all Tongans aged 21 or over; three of the representatives are elected from Tongatapu,one each from Niuatoputatu and Niuafa’ou, two from Ha’apai and two from Vava’u; thenobles are chosen to represent similar areas

Modelled on the English system, with the Privy Council (consisting of the cabinetpresided over by the king) sitting as the Court of Appeal

March 7th 2002

Tonga Human Rights and Democracy Movement (HRDM, formerly the People’s Party)

Prime minister, minister of agriculture, fisheries & forestry, communications & civil aviation, foreign affairs & defence Prince ’Ulukalala Lavaka Ata

Deputy prime minister, minister for environment, marines & ports, & minister for works Cecil Cocker

Education Paula BloomfieldFinance Siosiua ’UtoikamanuHealth Viliami Ta’u TangiJustice & attorney-general Aisea TaumoepeauLabour, commerce & industry, tourism Masaso PaungaLands, survey & natural resources Honourable FielakepaPolice, fire services, prisons & immigration Clive Edwards

Honourable Malupo

Honourable Tuita

Siosiua ’Utoikamanu

Official name

Form of state

The executive

Head of state


Legal system

National elections

Main political organisation

Key ministers

Governor of Ha’apai

Governor of Vava’u

Governor of the NationalReserve Bank

38 Tonga


Economic structure

Annual indicators

1996 1997 1998 1999 2000

GDP at current pricesab (T$ m) 209.8 210.2 221.4 242.6 251.1

Real GDP growthab (av; %) –0.2 0.6 2.5 4.6 6.2

Consumer price inflationc (av; %) 3.0 2.1 3.2 4.5 5.9

Populationc (m) 0.1 0.1 0.1 0.1 0.1

Exports fobc (US$ m) 13 10 8 13 n/a

Imports fobc (US$ m) 75 73 69 73 n/a

Current-account balanceab (US$ m) –47 –13 –26 n/a n/a

Reserves excl goldc (US$ m) 30.62 27.49 28.66 26.15 26.99

Total external debtd (US$ m) 63.8 57.3 61.5 63.6 n/a

Debt-service ratio, paidd (%) 3.9 7.7 7.3 10.8 n/a

Exchange ratec (av; T$:US$) 1.23 1.26 1.49 1.60 1.76

March 7th 2002 T$2.19:US$1

Origins of gross domestic product 2000ab % of total

Agriculture 28.5

Mining 0.4

Manufacturing 5.5

Electricity, gas & water 1.7

Construction 7.5

Trade 14.6

Transport & communications 8.6

Finance 9.8

GDP at current prices incl others 100.0

Principal exports fob 2000a T$ ‘000 Principal imports cif 1999a T$ ‘000

Squash 5,162 Machinery & transport equipment 20,434

Fish 4,986 Basic manufactures 19,936

Vanilla beans 580 Mineral fuels, etc 14,839

Total incl others 16,373 Miscellaneous manufactured goods 9,184

Chemicals 8,938

Total incl others 116,466

Main destinations of exports 2000e % of total Main origins of imports 2000e % of total

Japan 50.4 New Zealand 29.8

US 31.6 Japan 18.6

New Zealand 4.1 Australia 12.7

Australia 2.1 US 12.7

Fiji 1.7 Fiji 12.2

a Asian Development Bank. b Fiscal year ending June 30th. c IMF, International Financial Statistics. d World Bank, Global Development Finance.e IMF, Direction of Trade Statistics.

Tonga 39




PricesConsumer prices (1995=100) 117.1 120.3 121.9 123.3 126.1 128.3 132.0 n/a % change, year on year 4.7 5.7 6.6 6.6 7.7 6.7 8.3 n/a

Financial indicatorsExchange rate T$:US$ (av) 1.640 1.689 1.757 1.948 2.016 2.108 2.172 2.198 T$:US$ (end-period) 1.656 1.688 1.874 1.968 2.083 2.151 2.230 2.207Interest rates (av; %) Deposit 5.33 5.30 5.30 5.47 5.47 5.47 5.47 5.47 Lending 10.21 10.34 10.17 10.69 10.33 10.45 14.68 9.88M1 (end-period; T$’000) 26,615 27,901 31,542 33,072 29,878 32,998 34,275 4,174.4 % change, year on year 21.3 13.1 18.1 10.6 12.3 18.3 8.7 26.2M2 (end-period; T$’000) 96,096 98,564 116,900 122,114 117,755 124,083 134,975 14,024.9 % change, year on year 9.2 8.3 17.5 18.8 22.5 25.9 15.5 14.9

Sectoral trendsTourism Receipts (T$’000) 3,403 4,585 n/a n/a n/a n/a n/a n/a Cruise visitors (No.) 872 0 n/a n/a n/a n/a n/a n/a Air arrivals (No.) 6,578 7,289 n/a n/a n/a n/a n/a n/a

Foreign trade (T$ m)Exports foba 3.9 n/a n/a n/a n/a n/a n/a n/a Fish 2.4 n/a n/a n/a n/a n/a n/a n/aImports cif –25.1 n/a n/a n/a n/a n/a n/a n/aTrade balance –21.2 n/a n/a n/a n/a n/a n/a n/a

Balance of payments (T$ m)Merchandise trade balance fob-fob –20.0 –24.0 n/a n/a n/a n/a n/a n/aServices balance –1.3 –0.1 n/a n/a n/a n/a n/a n/aIncome balance 0.4 0.4 n/a n/a n/a n/a n/a n/aCurrent-account balance –6.2 –7.7 n/a n/a n/a n/a n/a n/aReserves excl gold (end-period; US$ m) 23.91 21.30 23.55 26.99 22.91 23.92 23.33 26.10

a Includes re-exports.Sources: IMF, International Financial Statistics; National Reserve Bank of Tonga, Quarterly Bulletin.

40 Tonga


Outlook for 2002-03

The political scene was frenetic in the run-up to the parliamentary election onMarch 7th. In recent months, the government has been obliged to engage inan extraordinary defence of the royal family and the near-feudal system overwhich it rules. Although King Taufa’ahau Tupou IV attracts little criticism, hisoffspring are not so well regarded, and the king’s age (83) and frailty havefocused attention on them. The government has also been involved in a dam-aging slanging match with the New Zealand government. The sharp exchangesbetween the two countries regarding political reform and corruption were partof the fall-out from allegations that the king has a huge fortune in secret bankaccounts overseas. The allegations first appeared in a publication owned by theleader of the Tonga Human Rights and Democracy Movement (HRDM), ’AkilisiPohiva, an MP and long-time critic of the political system. It now seemspossible that the allegations were concocted by people at the heart of thedemocracy movement, on the basis of long-standing urban myths.

There was keen competition for the “people’s representatives” parliamentaryseats in the election (see The political scene), but those elected will not affectthe political balance in the short term. Over the longer term, however, thebalance of power is likely to shift, as indicated by the intensity of recentdiscussion of the royal family’s finances. Crown Prince Tupouto’a, for example,personally owns the country’s leading Internet domain name and is reportedto run it from the country’s consul-general’s office in San Francisco. The princealso runs a telecoms company in competition with that of the governmentand, in February, took over the management of the country’s electricity grid.Princess Pilolevu runs the country’s satellite slots through a company based inHong Kong. Both have declined to publish details of their finances andbusiness operations, on the grounds that such information would be usedpolitically. In the near future, however, the focus is likely to be on problems ofthe country’s weak economy, which has suffered a significant setback fromtropical cyclone Waka. The cyclone struck the northernmost, and least popul-ated, islands over the New Year, causing damage estimated at almost US$50m.

The short-term focus willbe on the weak economy

The government defendsitself ahead of the election

Tonga 41


The political scene

Supporters of the Tongan Human Rights and Democracy Movement (HRDM)won seven of the nine seats provided for “people’s representatives” in theparliamentary election on March 7th. The movement’s leader, ’Akilisi Pohiva,was the largest vote-winner and the successful candidates for Tongatapu, themost populous island. Mr Pohiva said that there had been a strong campaignagainst him by the Kotoa movement, which supports the monarchist system,but that the people had sent a clear message demanding change. The HRDMdirector, Lopeti Senituli, later said that the movement intended to introducelegislation to create an upper house in the parliament, which would bereserved for nobles, and to allow all 21 members of the lower house to beelected by popular vote. The secretary of the Kotoa movement, Semisi Kailahi,dismissed any suggestion of a mandate for the HRDM, saying that 80% of thepeople of Tongatapu had not voted.

In the private voting by the 33 nobles for their nine representatives, there wasa surprise defeat of the outgoing parliamentary speaker, Noble Veikune. He isexpected to be replaced by Prince Tu’ipelehake, who was elected for the Ha’apairegion. For the third seat in Tongatapu two candidates tied, and the outcomewas decided by the toss of a coin. In Vava’u, all candidates appeared to vote forthemselves, and the two successful candidates were chosen by lots.

A political newsletter, Ko e Kele’a, owned by Mr Pohiva, published a letter in itsNovember-December issue in which it was claimed that the king hadconfidential, private bank accounts overseas containing US$350m. Some of themoney was said to have been the proceeds of gold bullion, perhaps from a19th century shipwreck, found on the island of Ha’apai in the early 1900s. Theletter was purported to have been written in November 1991 by a formerprivate secretary to the king and sent to a prominent citizen who acted as aroyal adviser on financial matters, both of whom died some time ago. After thenewsletter was distributed in January, the government information unit issueda flat denial. It also cast the first doubts on the authenticity of the letter,pointing out that it had been written on plain paper, not the official letterheadthat the Palace Office used for all its communications. It said that no copy hadbeen found in the Palace Office and that the letter was not an official docu-ment. A copy of the letter published by the Times of Tonga newspaper wasapparently on the Palace Office letterhead. However, the cabinet secretary,Eseta Fusitua, pointed out that neither letter carried the office’s official stamp,used routinely on correspondence, and that the signatures on the twodocuments were completely different.

The king gave an interview to an official weekly newspaper, The TongaChronicle, also denying the claims and deploring their publication withoutproof. He acknowledged that he had a bank account in Hawaii, where he has afarm that produces vanilla beans. He said that the account handled theproceeds of his vanilla exports, but that the money involved was far below theamount alleged.

Government denies chargesof king’s overseas wealth

HRDM wins seven out ofnine seats

42 Tonga


On February 25th police raided Mr Pohiva’s home and the office of the HRDM,searching for the originals of the letters published in his newsletter and theTimes of Tonga. They seized computer drives and documents and arrestedMr Pohiva, his son, Po’ohoi Pohiva, an HRDM liaison officer and ’Isileli Pulu, aformer Treasurer of the movement. Mr Pohiva was released after five hours, butthe others were charged with uttering a forgery, with other charges likely, andkept in custody. The HRDM director, Mr Senituli, said that the executiveofficers of the HRDM met the following day and agreed that if the letter atissue was a forgery, the movement had made a serious error of judgement, andwould apologise unreservedly to the king and the people of Tonga. Themovement promised to co-operate fully with the police.

Not surprisingly, despite the denials, the story attracted foreign media interest,especially in New Zealand. One newspaper questioned why New Zealand wassending aid and relief funds to Tonga when the king had such enormouswealth overseas. New Zealand’s associate foreign minister, Matt Robson, said ina media interview that the government of Tonga “and those close to it”showed all the signs of endemic corruption and that only the royal family hadbenefited from New Zealand aid (of around NZ$6m—US$2.7m—a year). All thesigns were, he said, that such aid entrenched an elite who sent their children toschools overseas and lived an opulent lifestyle. Mr Robson said that he took a“conservative” line on withdrawing aid because others would probably step into replace it.

The Tonga government responded to this “bitter attack” with a statementquestioning the status of Mr Robson’s views. If New Zealand suspectedcorruption, it said, the system should be reviewed, as aid projects were fundedby mutual agreement. The statement added that the associate minister’scomments about the effects of withdrawing aid reflected the reality that Tongabought more than one-third of its imports from New Zealand, for over T$43m(US$19.6m) a year, while New Zealand’s purchases from Tonga were usuallylittle more than T$1m a year. Mr Robson quickly stated that he had beenmaking personal observations, that were not government views or policy. TheNew Zealand foreign minister, Phil Goff, readily agreed.

In the course of the exchanges, Mr Goff said that controls had been imposed toprevent New Zealand aid being “subverted by corruption” and also that therewas “regrettably little sign of major constitutional change on the horizon” inTonga. This further infuriated the Tonga establishment and its numeroussupporters in New Zealand. Some letter writers to New Zealand newspaperssuggested that New Zealand was encouraging revolution in Tonga. InNuku’alofa, the prime minister, Prince ’Ulukalala Lavaka Ata, said that remarkssuch as these could be seen as foreign interference in Tonga’s parliamentaryelection. He told a press conference that the government was extremelydisappointed at the comments. Asked whether the country could do withoutNew Zealand aid, the prime minister said that the people of Tonga should haveno illusion that foreign aid was provided only for their benefit; it was for thebenefit of the donor as well. He said, for example, that the current systemprovided New Zealand with the opportunity to dump mutton flaps (cheap and

A New Zealand ministersuspects corruption

New Zealand publiclysupports reform

Forgery charges followpolice raids

Tonga 43


fatty cuts of older sheep) in Tonga that were, in his view, not fit for humanconsumption and were responsible for increasing health problems such asdiabetes, high blood pressure and heart disease (mutton flaps have become adietary staple with most ordinary Tongans). Mr Senituli, however, said that thecriticisms from New Zealand were valid and might serve to hasten democraticreform in Tonga, starting with a constitutional review commission, as advo-cated by his movement for more than three years.


The Tongan economy has suffered a setback from tropical cyclone Waka,which caused estimated damages of T$104.2m (US$48m), according to theNational Disaster Management Committee (NDMC). The government declareda national disaster in order to assist with rehabilitation activities. The cyclone,the most severe for 40 years, hit the northernmost island, Niuafo’ou, atmidnight on December 30th, striking the Vava’u island group 24 hours later,before moving away from Tonga. Sustained wind speeds were estimated at 100knots, with gusts to 140 knots. The NDMC report at the end of January notedextensive damage to all types of buildings in the two island groups; 60% ofstructures in Vava’u were affected, with about 350 houses destroyed and 746damaged. There was extensive damage to cash crops such as vanilla and kava.Food crops—bananas, taro, sweet potatoes, tapioca, yams and breadfruit—werewiped out and access roads to most plantations were restricted by fallen trees,especially in Vava’u. There was also extensive damage to electricity and watersupplies and to telecommunications. The government-owned wharves on boththe Niua islands were damaged, as was Vava’u airport.

Within three weeks of the cyclone, the government had provided almost T$1min emergency relief and many forms of assistance had arrived from Australia,New Zealand, the US, France and French Polynesia. Most of the immediatesupplies were food, water purification tablets, tarpaulins and tents. In the nameof “Polynesian solidarity”, French Polynesia allocated a special budget ofCFPfr100m (about US$765,000) for cyclone relief, and sent 90 tradesmen tostay for three to six months for rehabilitation work, as well as 100 tonnes offood and about 1,000 tonnes of construction equipment. French Polynesia’spresident, Gaston Flosse, made a three-day visit in early February to initiate therelief work by setting a foundation stone for a new Fangatongo primary school,which had been the largest on Vava’u before the cyclone wrecked it.

On December 22nd the king officiated at a ceremony marking the extensiveupgrade of the International Dateline hotel. The work follows the acquisitionof a majority interest in the hotel company by the China Huawen EnterpriseDevelopment Corporation. The restructured company has authorised capital ofT$14m. The Jianjin Construction Engineering Group was awarded the contractto refurbish and expand the hotel, which is the country’s premiumaccommodation venue. Construction materials will be sourced from China andmuch of the workforce will be Chinese.

Tropical cyclone Wakawreaks havoc

Relief flows for cyclonevictims

Dateline hotel is beingexpanded in joint venture

44 Vanuatu


Vanuatu

Political structure

Republic of Vanuatu

Parliamentary, based on the UK model

Council of Ministers, made up of 12 members of parliament chosen by the primeminister, who is in turn elected by parliament from among its members

The president, John Bani, was elected in March 1999 for a four-year term by an electoralcollege drawn from members of parliament and heads of local government

Unicameral parliament of 52 members, elected for four-year terms on a universalfranchise containing an element of proportional representation

The National Council of Chiefs, elected from the district councils of chiefs, existsalongside parliament to discuss and be consulted on matters relating to customand tradition

A system of magistrates’ courts leading up to the Supreme Court

March 6th 1998; the next election is in April 2002

Edward Nipake Natapei, the prime minister, has led a coalition comprising his ownVanua’aku Pati (VP) and the Union of Moderate Parties (UMP) since April 2001

Melanesian Progressive Party (MPP); Union of Moderate Parties (UMP); National UnitedParty (NUP); Vanua’aku Pati (VP); Vanuatu Republican Party (VRP); John Frum group;People’s Progressive Party

Prime minister & minister for public service Edward Natapei (VP)Deputy prime minister & minister for trade & business development Serge Vohor (UMP)

Agriculture, forestry & fisheries Willy Posen (UMP)Comprehensive reform programme Willie Ollie (VP)Education Jacques Sese (UMP)Finance Joe Carlo Bomal (VP)Foreign affairs Alain Mahe (UMP)Health Clement Leo (VP)Infrastructure & public utilities Jacklyn Rueben Titek (VP)Internal affairs Joe Natuman (VP)Land & mineral resources Sela Molisa (VP)Ni-Vanuatu business development Danial Bangtor (VP)Youth & sports Henry Taga (UMP)

Official name

Form of state

The executive

Head of state


Regional legislature

Legal system

National elections

Main political organisations

Key members of theCouncil of Ministers

National government

Vanuatu 45


Economic structure

Annual indicators

1996 1997 1998 1999 2000

GDP at current pricesa (Vt m) 26,711 27,565 29,289 29,206 n/a

Real GDP growtha (av; %) 2.5 1.5 2.2 –2.5 2.8


Populationb (m) 0.17 0.18 0.18 0.19 0.20



Current-account balanceb (US$ m) –26.9 –19.3 14.7 –3.1 n/a




Exchange rateb (av; Vt:US$) 111.7 115.9 127.5 129.1 137.6

March 7th 2002 Vt144.5:US$1

Origins of gross domestic product 1999a % of total Components of gross domestic product 1999a % of total

Agriculture 25.6 Private consumption 61.3

Manufacturing 6.3 Government consumption 29.0

Electricity, gas & water 1.7 Fixed investment 22.4

Construction 5.9 Stockbuilding –0.2

Trade 30.8 Exports of goods & services 48.4

Transport & communications 6.9 Imports of goods & services –62.7

Finance 6.6 Statistical discrepancy 1.8

Other services 16.2 GDP at market prices 100.0


Principal exports fob 2000a Vt m Principal imports cif 2000a Vt m

Copra 1,497 Machinery & transport equipment 3,371

Beef 448 Food & live animals 2,102

Timber 393 Mineral fuels 1,799

Cocoa 165 Basic manufactures 1,710

Total incl others 3,644 Miscellaneous manufactured goods 1,238

Total incl others 12,205

Main destinations of exports 2000d % of total Main origins of imports 2000d % of total

Japan 32.2 Australia 28.5

US 17.2 Singapore 13.7

Belgium 16.8 New Zealand 7.9

Germany 8.5 Japan 3.8

US 1.4

a Asian Development Bank. b IMF, International Financial Statistics. c World Bank, Global Development Finance. d IMF, Direction of Trade Statistics(derived from trading partners’ records).

46 Vanuatu




Financial indicatorsExchange rate Vt:US$ (av) 131.4 136.5 139.0 143.7 142.9 146.6 145.6 146.1 Vt:US$ (end-period) 133.2 135.3 141.6 142.8 149.8 146.8 148.8 146.7Interest rates (av; %) Deposit 1.25 1.25 1.25 1.25 1.33 1.25 1.25 1.25 Lending 10.00 9.92 9.75 9.75 8.58 9.00 9.33 9.50 Money market 5.83 5.50 5.50 5.50 5.50 5.50 5.50 5.50M1 (end-period; Vt m) 7,654 7,668 7,821 8,082 8,236 8,906 8,060 8,041 % change, year on year 3.7 3.5 –4.9 6.1 7.6 16.1 3.0 –0.5M2 (end-period; Vt m) 32,461 31,559 31,541 33,768 33,619 35,403 35,190 35,684 % change, year on year –4.3 –7.9 –8.3 5.5 3.6 12.2 11.6 5.7

Foreign trade (Vt m)Exports foba 669 n/a n/a n/a n/a n/a n/a n/aImports cif –2,563 n/a n/a n/a n/a n/a n/a n/aTrade balance –1,894 n/a n/a n/a n/a n/a n/a n/a

Balance of payments (US$ m)Merchandise trade balance fob-fob –12.10 –10.54 n/a n/a n/a n/a n/a n/aServices balance 18.10 20.46 n/a n/a n/a n/a n/a n/aIncome balance –3.17 –4.43 n/a n/a n/a n/a n/a n/aNet transfer payments 2.60 2.59 n/a n/a n/a n/a n/a n/aCurrent-account balance 5.43 8.09 n/a n/a n/a n/a n/a n/aReserves excl gold (end-period) 36.10 36.80 33.91 38.92 34.74 41.83 35.51 37.66

a Includes re-exports.Source: IMF, International Financial Statistics.

Vanuatu 47


Outlook for 2002-03

Vanuatu’s prime minister, Edward Natapei, is keen to win an outright majoritywith his Vanua’aku Pati (VP) in the general election scheduled for April 30th.However, while this is Mr Natapei’s preference, there is no suggestion that hehas ruled out the possibility of forming another coalition, if re-elected. Hischances of success have improved recently, with most of the other well-established parties experiencing problems, at a time when the VP hasconsolidated. Mr Natapei took a chance by deciding to emphasise goodgovernance and continued implementation of the—domestically unpopular—comprehensive reform programme, which is supported by the country’s majoraid donors and international financial institutions, led by the AsianDevelopment Bank (ADB). The strategy seems to have succeeded, according tolocal media commentators, who also agree that the VP will be the party withmost seats after the election. However, the party is relying on a tight andconcentrated campaign in its homeland areas. It is fielding 28 candidates andneeds to gain 27 seats to form the next government in its own right.

A VP government would provide the best prospects for stability, and would bewelcomed by those financing the reform programme, but another coalition isstill seen as a more likely outcome. Mr Natapei’s VP formed a coalition with theUnion of Moderate Parties (UMP), following a successful no-confidence motionagainst Barak Sope, the leader of the Melanesian Progressive Party (MPP), inApril 2001. The new People’s Progressive Party, meanwhile, is attractingdisaffected UMP and MPP members in the northern islands and is likely tohave some impact on the outcome of the election.

A new coalition is the mostlikely election outcome

48 Vanuatu


The political scene

The Electoral Commission announced in February that it was preparing for ageneral election on April 30th, although the government had at that timemade no announcement about when it proposed to seek the dissolution of thecurrent parliament. Instead, the government called a special sitting to start onMarch 7th to deal with essential legislation, in accordance with its view thatthe term of the parliament expired on March 16th. The move was heavilycriticised by the opposition and some members on the government’s side, whobelieved the expiry date to be March 6th. Following a petition by MP SilasHakwa, the Supreme Court ruled on March 6th that the term of the parliamentexpired at midnight that night. The special sitting of parliament due to startthe following day was therefore annulled. The ruling was upheld a week laterby the Court of Appeal. The special sitting had been called principally toappropriate funds to pay overdue allowances to the police, who were threaten-ing to withdraw security services during the election campaign. There was noimmediate police reaction to the court decisions.

The parliamentary leader, Willie Jimmy, who is also the deputy leader of theopposition, was at the centre of a pre-election debate over whether naturalisedcitizens should be members of parliament (MPs) or hold senior publicpositions. There is no current barrier to naturalised citizens doing so, butMr Jimmy spoke out strongly against this, attracting considerable support. Thedebate was sparked by the decision of a former ombudsman, Marie-NoelleFerrieux Patterson, to seek appointment as police commissioner and then tostand as an independent candidate in the election. She failed to win the policepost, but has a good chance of becoming an MP. As ombudsman, she wroteseveral scathing reports about the conduct of Mr Jimmy. In turn, he said thatMrs Ferrieux Patterson’s reports reflected a racist, colonial mentality and con-tained unfounded and malicious allegations. He said that expatriate citizens ofEuropean descent should not be employed in the public service administrationor in constitutional posts. There are likely to be at least two other expatriateelection candidates. Nominations close on March 25th.

The opposition leader, Barak Sope, was committed for trial on February 22nd.He will face two charges of forgery over letters of guarantee with a face value ofUS$23m, issued while he was prime minister in December 2000 and early 2001(December 2001, page 50). His trial in the Supreme Court will start on July15th. The public prosecutor’s office has engaged a senior New Zealand counsel,Gus Andre Wiltens, a fraud expert, to conduct the case. Mr Sope failed toappear at the start of the February hearing before a senior magistrate, KawiKewei-lu, after telling his lawyer, John Malcolm, that he was obliged to attenda parliamentary committee meeting. As the magistrate listened to submissionson the non-appearance, he received a note from the clerk of parliament sayingthat no parliamentary committee meetings were taking place. Mr Kewei-luadjourned the hearing for an hour and directed Mr Malcolm to clarify thesituation. At the resumption, Mr Sope was present, saying that there had been

Mr Sope is committed fortrial

More controversy erupts inthe run-up to the election

There is opposition tonaturalised citizens as MPs

Vanuatu 49


a misunderstanding. He was ordered to report to the court on July 12th toconfirm his presence in the country.

The government faces a huge compensation pay-out following a SupremeCourt decision in February that police acted illegally during a controversiallaw-and-order crackdown on Esperitu Santo in January 2000. Judge OliverSaksak found that 33 men and women were arrested unlawfully and detainedillegally in an operation known as “Klinim North” (clean up the north). Theoperation was conducted in Luganville at the direction of the governmentthen led by Mr Sope. The government and the police commissioner were jointdefendants in the action. The plaintiffs called themselves the Working Groupfor Justice. The judge was scornful of defence evidence and named a successionof police and health department witnesses who “lacked credibility”. He saidthat it was a case involving breaches of fundamental human rights, includingthose to liberty, security, protection of the law, freedom of movement, pro-tection of privacy and equal treatment before the law. Individual com-pensation was to be assessed at a later hearing. The Working Group for Justicesaid that it would seek compensation exceeding Vt660m (US$4.6m).


A powerful earthquake measuring 7.3 on the Richter scale caused extensivedamage in the capital, Port Vila, and the surrounding areas on January 3rd.There were no serious casualties, but many people were treated for minorinjuries. The most serious effect was damage to roads, bridges and the wharfsystem in Port Vila. The capital was cut off from the main part of Efate islandfor almost a week, affecting most of the island’s tourism facilities, even thoughthey suffered no structural damage. The earthquake was followed by a 0.8-metre-high tsunami (tidal wave) 15 minutes later, which was amplified as highas three metres by local effects within the harbour. The earthquake lasted forabout one minute, although aftershocks were felt for six hours.

In line with the principles of transparency and accountability in the compre-hensive reform programme, the Department of Provincial Affairs published thebudgets of the six provinces for the first time in January. The acting director ofprovincial affairs, Martine Tete, said that this year each province would beentitled to an equal share of grants totalling Vt33.7m (US$200,000). However,he said that such equal sharing would probably not continue for much longer,and should have ended several years ago. The Decentralisation ReviewCommittee (DRC) recommended in 1997 that grants should be distributed inaccordance with factors such as population, size, isolation and development.However, that recommendation was deferred when others were enacted.Mr Tete said that after public consultations, the DRC firmly believed that thesystem should reflect the real needs of each province. In the meantime, thedepartment was releasing grants on a monthly basis to maintain control ofprovincial spending. Provinces are required to submit monthly reports on theirspending to qualify for the following month’s release.

An earthquake causesextensive damage

Provincial governmentfunds are made public

Government faces hugecompensation pay-out

50 Vanuatu


US banks ended direct dealings with Vanuatu in late February in response tolegislation—the Patriot Act—enacted in the US after the terrorist attacks onSeptember 11th. The law is designed to help US law enforcement agencies tracemoney used to finance terrorism and to identify instances of money launder-ing. US banks face the possible loss of their licences if they are found to havetaken part in a transaction involving “dirty” money. As a result, they havedecided to terminate transactions with small tax haven operations, such asVanuatu. The Australian-owned banks operating in the country, Westpac andANZ, have not been affected, because they are able to channel businessthrough their head offices.

Vanuatu is awaiting the next step by the OECD after the expiration of itsFebruary 28th deadline for substantial changes to tax haven operations. Theorganisation said that it would impose sanctions where the deadline was notmet. In a last-minute letter to the OECD secretary-general, the prime minister,Edward Natapei, said that in recent years Vanuatu had shown its commitmentto effective international co-operation in multilateral, regional and bilateraldiscussions. The government remained willing to continue such discussions.However, it was forced to reject the OECD demands for change because OECDmember states were not committed to them, and they would therefore createeconomic distortions to the disadvantage of countries such as Vanuatu.

The finance minister, Joe Carlo, said that the OECD was demanding that taxhavens provide information on demand on bank transactions, individuals andcompanies. He said that he considered this to be blackmail, based on a neo-colonial attitude. The minister noted that Vanuatu’s finance centre and taxhaven operations provided revenue of some Vt300m a year and that thegovernment was not prepared to dilute the limited resources available to it.

The government turnover tax on businesses in the finance centre was increasedfrom 2% to 5% in January. For the three commercial banks in the centre,licence fees were also raised by 250%, to US$10,000. The Bankers Associationspokesman, Tim Scala, said that the higher turnover tax would oblige banks topay the government an additional Vt70m and that they would have no choicebut to pass the extra cost on to customers. Interest rates could rise by 0.5percentage points. Other members of the finance centre expressed concern thatthe added cost would damage investor confidence and make tax haven oper-ations in Vanuatu less competitive. However, a finance department spokesmansaid that the businesses in the centre were making large profits and were notaffected by the introduction of VAT, as they dealt with offshore customers.

Telecom Vanuatu is to introduce a new pricing regime from April 1st that willmake inter-island and international phone calls cheaper, but increase the costof local calls. The company’s general manager, Rick Hall, announced inFebruary that all calls on the fixed network would be charged at a new rate ofVt20 (US$0.14) for two minutes during peak hours or for four minutes in off-peak hours. Inter-island calls are currently charged on the basis of Vt120 for sixminutes between adjacent areas (Santo/Malekula, Efate/Epi or Efate/Tanna) andVt220 between non-adjacent areas (Banks to Tanna or Santo to Efate).

US banks will no longerdeal directly with Vanuatu

Tax haven businesses willpay 5% tax on turnover

New Telecom fees createboth winners and losers

OECD tax haven deadlinepasses

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