Report No.11 351-EAP Pacific IslandEconomies: TowardEfficientand Sustainable Growth (in NineVolumes) Volume 1: Overview March 8,193 Country Department III East Asia and ?acific Region FOR OFFICIAL USEONLY t I ~ -~~ L> ~~~~'0 ~ ~ ~ ' hai wkw,~~~~~~~~~~~~~~~~~~~~~ - MI of~ ctWosed~~~~~~~~~~~~~~~ Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Report No. 11 351-EAP
Pacific Island Economies:Toward Efficient and Sustainable Growth(in Nine Volumes) Volume 1: Overview
March 8, 193
Country Department IIIEast Asia and ?acific Region
FOR OFFICIAL USE ONLY
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FOR OF1CIAL USE ONLY
TITLE Pacific Island Economies:Toward Efficient and Sustainable Growth
COUNTRY Pacific Islands
REGION East Asia
SECTOR : Regional Economic
REPORT* TYPE CLASSIFICATION MM/YY LANGUAGE
11351-EAP ERA Official Use 03/93 English
ABSTRACT This report is the second of its kind for the seven Pacific isWand countries that aremembers of the World Bank (PMCs)-Fiji, Kiribati, Marshall Islands, SolomonIslands, Tonga, Vanuatu, and Western Samoa-and for the Federated States ofMicronesia (FSM), which is in the process of joining the member;hip of theWorld Bank. The report is organized in nine volumes: a regional overview pluseight country economic reports. The regional overview analyzes the economicperformance in the PMCs and recommends specific action programs forachieving sustanable economic growth. In doing so, it focuses on public sectorreform, efficiency in the use of foreign aid, the role of the private sector inachieving sustainable growth, human resource development, and environmentalissues. The eight country economic reports provide more detailed reviews of therespective economies, discuss co4ntry-specific issues, and recommend specificaction programs for achieving sustainable economic growth. Medium-termgrowth prospects as well as external financing requirements are also assessed.
This document has a restricted distribution and may be used by recipients only In the performance ofoffdal duties. Its contents may not otherwise be disclosed without World Bank authorization.
Preface
This report is the second of its kind prepared for the seven Pacific Island Member Countries(PMCs)-Fiji, Karibati, Marshall Islands, Solomon Islands, Tonga, Vanuatu, and Western Samoa-andfor the Federated States of Micronesia (PSM), which is in the process of joining the membership ofthe World Bank Group. The report deepens the analysis of economic performance in the PMCs andselected issues and themes identified in the first regional economic report, entidtled Pacifc IslandEconomiep: TowardHigher Growth in the 990s (1991), and it recommends specific action programsfor achieving sustainable economic growth. The report focuses on public sector reform, efficiency inthe use of foreign aid, the role of the private sector in achieving sustainable growth, human resourcedevelopment, and environmental issues. The number of countries covered has also increased since thelast report by the inclusion of Marshall Islands and FSM.
The report is organized in nine volumes-a regional overview plus eight country economicreports. The regional overview (Volume 1) examines the factors underlying what may be called thePacific Paradox of relatively low growth rates despite favorable natural resource endowments and highlevels of external assistance. In doing so, it identifies physical as well as policy-related constraintsaffecting the PMCs and recommends ways of addressing these. Following an introductory chapter ongrowth performance in the PMCs, their development potential, and future prospects, the reportdiscusses the reforms needed for the public sector to play a more supportive role in developmentincdn the better utilization of external assistance (Chapter 2). Specific actions needed to tap privatesector initiative and exploit the potenal for sustainable economic growth in the PMCs are discussedin Chapter 3. The importance of human resource development, from the standpoint of both humancapital required for sustainable economic growth as well as the need to improve living conditions isdiscussed in Cbapter 4. Environmentl issues and specific actions needed to ensure enviromentalysustainable growth are discussed in Chapter 5. The eight country economic reports provide moredetailed reviews of the respective economies, discuss country-specific issues related to the above-mentioned themes, and recommend specific action programs for achieving sustainable economic growth.The country economic reports also assess medium-term growth prospects as well as external financingrequirements.
The World Bank would like to express its appreciation to all member Governments, bilateraldonor agencies, the Asian Development Bank, and several research organizations for their cooperationin preparing this report. The World Bank also acknowledges, in particular, the valuable support forthe study provided by the Australian Intrational Development Assistance BIreau (AIDAB) SouthPacific Facility.
The main authors of Volume I were Hilarian Codippily (Task Manager), Steven Tabor, andPeter Johnston. John Caldwell, Farrukh Iqbal, Badrul Haque, Kari Bookin, Peter Osei, and DouglasAdkins contributed to the report. The country economic reports were prepared by eight economicmissions led by Hilarian Codippily (Western Samoa and FSM), Steven Tabor (Fiji, Solomon Islands,and Tonga), Uoyd Kenward (Vanuatu and Kiribati), and Dipak Dasgupta (Marshall Islands). Themissions included: John Caldwell, Xan Vongsathorn, Lity Hale, Cyrus Talati, Kari Boolan, RosariaTroia, Hjordis Bierman, Peter Osei, Douglas Adkins, Te'o Fairbairn, Peter Johnston, Ian Morris,Savenaca Siwatibau, David Dunlop, Samuel Lieberman, Ronald Hood, Andrew Elek, and Jesse Floyd.The report was prepared under the guidance of Marianne Haug and John Shilling. Deana Canlasprovided administrative support and coordinated the processing of the report. Mary Kepferle providededitorial assistance during the final stages of the report.
i veoa 1: Ow0 iew
OVERVIEW
ACRONYMS AND AMRREVIATIONS
ADB - Asian Development BankAIDAB - Australian International Development Assistance BureauCA - Conservation AreaDAC - Development Assistance CommitteeDFI - Development Finance InstitutionEEC - European Economic CommunityEEZ - Exclusive Economic ZoneEIA - Environmental mpact AssessmentEIB - European Investment BankESO - Enterprise Support OrganizationFSM - Federated States of MicronesiaFTIB - Fiji Trade and Investment BoardGATT - General Agreement on Tariffs and TradeGEF - Global Environment FacilityGSP - Generalized System of PreferencesHRD - Human Resource DevelopmentIBRD - International Bank for Reconstruction and DevelopmentiDA - International Development AssociationIFC - International Finance CorporationMF - International Monetary FundIUCN - International Union for the Conservation of Nature and Natural
Resources (now World Conservation Union)NEMS - National Environmental Management StrategyNGO - Non-Govenmnent OrganizationNIC - Newly Industrialized CountryNLTB - Native Land Trust Board (Fiji)O&M - Operations and ManagementODA - Official Development AssistanceOECD - Organization for Economic Cooperation and DevelopmentPMC - Pacific Island Member CountryPSIP - Public Sector Investment ProgramREER - Real Effective Exchange RateRERF - Revenue Equalization Reserve FundSOE - State-Owned EnteipriseSPARTECA - South Pacific Regional Trade and Economic Cooperation AgreementSPFDP - South Pacific Forestry Development ProgramSPPF - South Pacific Project FacilitySPREP - South Pacific Regional Environment ProgrammeSTABEX - Export Earning Stabilization SystemUNCED - United Nations Conference on Environment and DevelopmentUNDP - United Nations Development ProgrammeUNEP - United Nations Environment ProgrammeUNESCO - United Nations Educational and Scientific OrganizationUSP - University of the South PacificVAT - Value-Added TaxWHO - World Health OrganizationWWF - World Wildlife Fund
Volm 1: Open*w iv
CONTENTS
Page No.
Preface ... ..... .. iiiExecuaive Sammay.ix
I Economic Perfonnnce aond Development Prospects 1
A. Background and Introduction. 1The Pacific Paradox .1Sources of the Pardox. 2
A. The Role of the Public Sector .19Evolution of the Public Sctor .19Refocusing Effort on Core Public Servces .20
B. Structure and Organiaion of the Public Sector ..... .......... 21The Size of the Public Sector .......................... 21Staffing Practices ............ ..................... 21Strucre of the Civil Service .......................... 22Reversing Growth in the Public Sector ...... .............. 23Pay Policies ... i ......................... 24Overcoming Ski lhl t ........ ................... 25
C. Public Expenditure Management ........................ 27Strengthening the Budget Proces .29
D. Public Enterprise Reform .30E. Managing the Public Sector Reform Process .32F. Aid Coordination .32
v V0Iwne 1: Oen*w
3 Pnvt Setor Development ...... ................. 37
Introducdon ........... . 37A Framework for Private Sector Development.37
A. Macroeconomic Stability and Competitiveness .38B. Environent for Private Sector Development .40
The Icntive and Regulatory Framework .40Financial Sector Framework ., 43
C. Investment Promotion .44D. Infrastructure Support .49
A. Human Resource Development for Growth and Welfare 55B. Labor Market Demand in the South Pacific ................. 56
Tlhe Demographic Seting . ................... 56Emigrtion ....................... ...... 56Labor Force Development. .58Welfare Status ......... 58
C. Priorities in the Provision of Education Services .59Overview ..... .... ,. 59Education Qadity and Relevance .60Priorities for Action .61Retning Skiled Manpower .................... 62Financing Education Development .62
D. Priorities in the Provision of Health Care Services .63overview ........,.,,,....................... 63Family Planning Services .66
E. Policy Making and Planning for HumanResource Development .............................. 67
5 Eonomic Growth and the Environment ........ .. ........ 69
A. Introduction ..................................... 69B. Environment as ........l. ...................... 69C. Responses to Environental Isues ...................... 77D. Issues, Interventions, and Recommendations for the 1990s ........ 79
Map
TABLES L ExEcuTvE SUMMARY
1 Pacific Island Country Data ............................. x2 Selected Economic and Social Indicators ... ................. xi
Voelm 1: O0eviw w
TAPLS 1N 7W
1,1 Average Growth Performance, 1980-90 ................... 21.2 Comppdvelacators ........a...................... 31.3 Infla and Key Macrocoomic Balances, 1981-91 ........... 41.4 Avera,_ Investment Ratios, 1982-91 ..................... 41.5 Extemnal Debt Burden Ratios, 1982 and 1990 ................ 51.6 Pacific Member Countries: Growth Rates of Real GDP, 1980-92 ... 61.7 Selected Econonic Indicators (period average 1987-91) .... ...... 81.8 Pacific Member Countries: The Structure of Production, 1991 ..... 141.9 Medium Term Prospects, 1996-2000 ..................... 161.10 External Financing Requirements and Sources, 1996.2000 ........ 17
2.1 International Comparison of Size of Government ...... .. ...... 222.2 OrgMizational Characteristics of PMC Governments ........... 232.3 International Comparison of the Composition of
Government Speing ................ .............. 272.4 Chracteristics of State Owned Enterprises PMCs ........... 31
3.1 Land Ownship in Pacific bsland Countries ........ .. .... 413.2 Types of Financial Institutions in the South Pacific ......... .. 433.3 Pacific Member Countries: General Institutional Afrangement ..... S0
5.1 Marine Pollution in Pacific Island Harbors and Lagoon .... ...... 725.2 Pacific Island Signatories to Environmental Conventions ......... 80
BonEs N TEXT
2.1 The Maldives: Flexible Solutions to Skill Shortges .... ........ 262.2 Administrative Reform: Singapore Style ................... 33
3.1 The Maldives: A Development Partnership in Fisheries and Tourism . 383.2 Tuvalu: Prudent Policies and Economic Success .... .......... 393.3 Successful Export Promotion Programs .................... 453.4 Project Preparation Services ........................... 463.5 Cook Islands: Some Lessons For Other Island Economies ........ 48
5.1 Global Warming: The Most Serious Long-Term Threatto the Pacific Islands? ...............9 ......... 71
5.2 Tapping Traditional Land Tenure Systems for SsainaleDevelopment: Marovo Lagoon, Solomon Islands .... .......... 74
vii Vobme 1: Overvew
5.3 The GEF/SPREP South Pcfic Biodiversity Conservaon Program:A Regional Approah to Preserving Biological Diversity 7......... n
5.4 Conservation and Ecotourism: Lessons for the Pacific .... ...... 785.5 NEMS: A Pacific Regiona Approach to Enviromental Action Plans 79
FIG ReS iN TMXT
1.1 Real Effective Exchnge Rates in r ..ac.fic Islands, 1980-89 71.2 Source and Allocation of External.: istance ..... ........... 11
Vo.we 1: Oveivw viii
Executive Summary
The Pacife PaAidox comarison, per capita income grewi m theCaribbean island countries at 2.4 percent per year
i. The seven Pacific Island member countries and in the Indian Ocean islands at 3.6 percent per(PMCs) and the Federated tates of Micronecia year durng the same period. The low growth rat(FSM) face a unique set of development of the PMCs can be pardy explained by smallchallenges.' Like other small island economies, domestic market size and adverse external shocks,their development is constrained by small domestic including low terms of trade and severe stormmarets, a narrow resource and production base, damage. Other factors that have had an impacthigh unit costs of infatuct, heavy dependence include inward oriented development strategies,on external trade, and vulnerability to external limited success in encouraging productive privateshocks and natural disasters. In paticular, the investment, political instabiliy and politicization ofPMCs do not enjoy the proximity of the Caribbean economic policy making, and low returns on publiccountries to the large, high income American investment. Nevertheless, the past decade of lowmarkets. Nevertheless, they have achieved a growth and continued stagnation despite high levelsrelatively high standard of living- owing in part to of foreign resource inflows and high rates oflarge inflows of workers' remittances, generous investment remains paradoxical.foreign aid, and favorable natural resources forsubsistence living. GNP per capita in 1991 ranged Growth Potentialfrom US$1830 in Fiji to US$560 in the SolomonIslands. Social indicators generally compare iii. Agriculture, fisheries, tourism, and small-favorably with developing countries at the same or scale manufacturing appear to hold the mosthigher levels of income. promise in terms of future development
opportumities. Squash exports from Tonga, tourismH. These islands enjoy a relatively high level and textiles in Fiji, automotive wire assembly inof basic subsistence income, sufficient to ensure Western Samoa, and tuna fishing in the Solomonthat there is little or no absolute poverty. Their Islands offer examples. In pursuing growth, theclimate, except for occasional cyclones, is PMCs have little option but to seek exportfavorable. Although thvir resource base is limited, oppornmities (and efficient import substitutes) tomost have benefitted from substantial concessional drive domestic economic activity. Development ofaid flows and remittances. These flows have the small and scattered PMCs' economies can comepermitted the countries to run large fiscal and about only through effective economic engagementcurrent account deficits, maintain large with the rest of the world. However, while thebureaucracies, and undertake large public sector PMCs need such investment and trade links toinvestment programs. Substantial progress has develop their resources and to diversify economicbeen made in improving human capital. The acdvity, the rest of the world does not have acombination of external resource availability, comparable need for economic links with theopenness to trade, and generally sound fiscal and PMCs. The goods and services currently ormonetary management has ensured relative potentially offered by the PMCs can be readilyexchange rate stability and control over inflation. obtained elsewhere. Therefore. PMC economicDespite these generally favorable factors, per capita policies should be guided principally by theincome has stagnated in the 1980s. Population objective of enhancing internationalgrowth rates average above 2 percent per year, competitiveness. This will require a stable politicalwhich is not sustainable on these small islands. By and economic environment, satisfactory economic
ix Volume 1: Overview
Tal 1: PACIC ISAN COUNT DATA
ON?pet -apla
Popion Land Area Sea Amea 1991fOO00)l (sq. km) (sq. km) (US$)&
Sources: World Bank: Ada 1991, Word Devopwmu Repoit 1992. and lntmradonAl Economics Depzmm.e 1991 or most ecct esimate.t Wodld Bank Atas metodology.
nd huan inast and a business v. The rapid and ad hoc expsioa of publicenvironment tat is conducive to trde and foreign service Rn the PiMCs, togetber with the creaton ofinvestmt PMCs should contn to build upon new agencies or departments in response to politcalthe special trade pnvileges they have been accorded forces or to manage commercil ventues or foreignm tradffitonal export markets. However, they funded prqecs, has led to much duplication,should bW aware that there are changes afoot in coiupartmenion, bua on, and poorworld trading rules that may reduce the value of quality of government activities. On average, thetheir special pnvileges over time. To cope with public sector accounts fP. nearly half of aU formalthis eentalty and to benefit from chaes in the sector employment, more than half of allpattern of world trade, especially the growing investment, and well in excess of haf of non-importance of new regional markets such as East agricultural GDP. Restuctrig goverment so asAsia, PMCs should also seek to broaden their trade to reduce duplication and comp lizonand investment links. among tbh, many ministies, authorities, and
agencies will lower costs, impr -e communicationPubl Sector Manaement flows, and stimulate creative organizational
approaches to public service delivery. In thisiv. Historicay, the public sector has respect, down-sizing, consolidation, and affordabledominated the economies of the PMCs. However, severance terms are key elementts of public sectorlImits to growth have emerged because of the heavy reform strategies, but country-specific differencescarrying cost and efficiency-drag imposed by large wil require some flexibility in implementaton.and unwieldy public sectors, as for example in theSolomon Islands. In some counries, the issue is vi. Withlimited sources of domestic financing,one of a public sector wage biU that simply cannot PMCs must come to tenms with the high and risingbe financed from domestic resources; in others, it cost of government actiities. Costs can be reducedis the undtaking of investments that impede rather without lowering service standards, by eliminatingthan promote private activity; whfile in still others, excess employment (particularly in middle-manage-it is the limiation of the scope for private ment and capital city aministation), by privatizingenterprise resulting from the reservation of key non-viable and more commercialy oriented enter-sectors of economic activity for government. The prises, and by setng public sector wages at a levelhistorical record suggests that the experiment with more in line with the living standards of the generalpublic sector-led growth strategies was successful in population. Unless costs are contained, in parti-mobilizing and absorbing lage quaities of foreign cular the wagebill, there is the risk that the risingassistance. It was much less successful, however, financing requirement for the public sector wil pre-in generating growth, and this remains the key clude attempts to stimulate private activity. Suchchallenge for the 1990s. retrenchment programs would only be feasible,
however, if conditions existed for a growing private
VOkune 1: Ove0w x
Table 2: SLECD ECONOMIC AND SOAL INDICATORS
Gowdh of GrossRea GDP Investmen Foreign AMd Cumrt Accont Ppuaion LifePer Capit GDP GDP O BabeDP Db Growwt Rate Expetancy1987-91 1987-91 FY90-92 1987-91 19690 at Birth /b
Sources: World Bank: Ats 1991, cuauty eonomlc reports and Sodal Iicatos of Devetopment 1991-92.
l As repd in the main txt, development assistance covens all foms of aid expenditre by donots, irchWiug overseas rainng,paymes to mtanagin agencies, and other direct paymesms by donors as weD as in-country costs. On thLc basis, aid flows are greatrth those recorded n fthe national balance of paymens.
l Befole official tsers.Ic 1990 or most recent esimate./ On a fiscal ya basis.
sector to offer employment opportnities to those a lack of accurate expenditure and revenuedisplaced wrom the public sector. estimates, the fragmentation of spnding authority
across a wide range of ministries and statunyvii. Wage policies in the pvblic sector deserve bdies, and the ad hoc nature in which aid flowsspecial attention. In some PMCs, civil servants are chneled and accounted for by vanous publicear well in excess of averge national incomes, bodies. Tightening control over expendus willwhile in others, the disparities are not very great. require a number of long-term instiuonal reforms.In practice, public sector wages set a marker for the A start in this direction could be made by uniigwages paid by the private sector for unskiiled and expendiu authority, automating budgeting andsemi-skilled labor, particulady in fields where there accountng functions, linkig personnel andwere perceived shortages of labor. Through this budgetig functions, increaing the frequency andmechanism, public sector wage policies have an accuracy of auditing capabilities, and sandizgimportant influence on aggregate demand, the real in al procedures for the commitment, accrual,excbange rate, and hence the competitiveness of the and drawdown of aid receipts. In planning,economy as a whole. The large spilluver effect that emphasis should be placed on developig sub-public sector wage setting bas on the private sector sectoral priority investments that are cast within aargues for caution in establishing government pay clearly ariculated macroeconomic framework andaccords. There is no evidence to suggest that in the that emphasize high economic retums.past, public sector wages have been linked toproductvity or to national carrying capacity. Pay Axteral Aid and Its Effectvenesspolicies will be most effectve if they rewardperformance, allow the flexibility needed to obtain ix. Aid flows remain a key source of publicsk1is in short supply, are set at a level that does investment financing for most PMCs. With a slownot impede the competitiveness of the private recovery from the recession in the industialsector, and are consistent with overall resource countries, prospects for growth in the level ofconsiderations. traditional aid donors' programs are not promising,
and the focus of external aid is changing. Theviii. Planing, budgeting, accounting, and issue is not so much finding additional sources ofauditing practices exhibit a host of deficiencies, aid as it is making more effective use of what ismanly of which can be attributed to the excessive avaflable. Indeed, in mows nountries, the level ofscope of public activities and the structural gras in real per capita terms is likely to decline.fragmenaton of PMC administrtons. In many Since aid is such a large component of GDP, anyPMCs, the conduct of fiscal policy is hampered by decrease in its growth will have a pronounced
Xi VoAwe 1: Overview
negaeve effect on GDP growth. Thus a majorchallenge will be to adjust to less reliance on aid A Framework for Private Sector Developmentflows and the large governments they support, Thelarge aid flows are a legacy of the colonial past of xii. Standard economic models andthese islands as well as continued regional interests. prescriptions cannot be appliud to small economiesTo a certain extent, the content and allocadon of such as the PMCs without adaptation. Publicthe aid flows reflect the inerests and priorities of sectors are inevitably large, domestic marketsthe donors, or the donors' perception of the small, and financial sc:tors limited. Simplerecipient interests, and not necessarily the interest attempts at import substitudon or public .nterpriseor absorpdve capacity of the beneficiaries. This growth have not fared well, nor would completecan be particulaly troublesome when the recipient recourse to market capitalism in such imperfectis not in a position to establisb and articulate its markets. Some form of mixed model of public-priorities. Some countries lack offices that private cooperation would serve best. In thisconsolidate and coordinate investment projects and respect. the East Asian success story of nearaid flows, and consequently individual departments quadrupling of per capita incomes during the pasttend to follow indepencint programs. 2f years has evoked considerable interest and has
a number of lessons to offer. Apart from relatvelyx. The juxtaposition of !hese factors high levels of domestic savings and investmt , t andconbutes to ineffective and inefficient use of aid extraordinary efforts in human resourceflows. To assure mo1 e effective use of aid, the development, an importauc feature common to theseprimary responsibility falls upon the recipient. But Asian countries was the development partnershipdonors also have a responsibility to encourage and that existed between the state and the private sector.cooperate in such coordination. First, with 2 view The state was market-friendly and complementedto avoiding the risk of distorting public sector the private sector rather than supplanting it, and byinvestment programs by donor-driven aid doing so, led these countries to impressiveallocations, countries need to improve artculation economic results. Such a partnership is by noof their development policies, implementation means charatistic of large countries; experiencesstrategies, and sectoral investment priorites, of island economies also demonstrate how aSecond, where the administradve management of development partnership between tbs state and thWaid activities is shared among departments, private sector can be adapted to produce hearteinggovernments need to establish small coordination results. For example, the Maldives has shownmechanisms to help ensre a consistent and spectacular growth over the past ten years based onstructured approach to aid management and tourism; and Barbador during the 1970s and earlyutilizadon. 1980s diversified away from a sugar-based
economy to a middle income economy based onxi. Effectve coordination of donor assisted tourism, manufacturing, and off-shore services.actvities can help to reduce costs and increase thedevelopment pay-off of externaly funded programs. xiii. Governments should first ensureIncreasingly, aid wil be required not for new macroeconomic stability as a precondition forinvestments, but to ensure that effective use is made private sector activity. Although PMCs have hadof existing public sectcr assets. This implies that a reasonably good rfcird of macroeconomicdonors should be sensitive to the need for recurrent management, sizable fiscal deficits have beencost support, which may well have a sectral, recorded in some (e.g. Solomon Islands andratber tan a project specific focus. The degree to Vanuatu). These deficits have, in turn, led towhich PMC governments and externai donors share monetary expansion. If needed adjustments are nota common vision of sectoral growth strategies, made promptly, foreign exchange shortages andneeds, and objectives will influence the size and restrictions on trade and payments are likely tocomposition of external financial support. Effective emerge with an attendant adverse impact on privatedonor coordination, led by the PMCs themselves, investment.can belp forge such common understdings. Also,the changing role of the public sector will imply a xiv. Second, governments need to establish sup-need for new forms of external assistance. Donor portive insdttutional, regulatory, and financial sectoragencies can play an important role in helping to frameworks. The key objectives should be to:restruture the public sector. Increasingconsideraton should also be given to making more * streamline and shorten private investmenteffective use of non-government organization approval procedures (along the lines adopted(NWO) channels for implementaton of aid projects. by Tonga for example), ensuring transparency
and avoidance of possible discriminton;
VOlWOe 1: O0eM xii
* improve kld leawing procodures through production processes and changes in consumerchanges in legislation and regulation (the 30- preferences or tastes could also lead to rapidyear lease system in Fiji is a good example) to disappearance of niche markets. Thus, reliance onencourage better use of land; such industries as long-term sources of employment
has to be approached with caution.* in the area of trade policy, assure that tariffs
are not distortional and streamine customs lho brasureprocedures so as to release goods moreexpeditiously for bona fide importers; xviii. Govermnents need to provide supporting
infrastructure, especially transport facilities,* lower corporate tax rates and offset the revenue energy, and telecommunication services. For the
loss through broadening of the tax base by PMCs, the combination of low traffic volumes andextending coverage across more goods and lumpiness of some infrastructure, principally inservices (Western Samoa, for example, has marine transport and aviation, implies thatbegun such a process); and utilization of infrastructure will be low and unit
fixed costs will be high. Nevertheless, provision of* relax minimum wage regulation so as to adequate infrastructure is needed as it affects the
encourage employment creation. viability of many enterprises and the pace ofeconomic growth. In this regard, it would be
xv. T/ird, government could play a useful role useful to develop a strategic agenda for sustainablein promotional and information disseminadon development of the infrastucture sector, as well asactivities. Access to important economic to assess reallocation of aid to productive sectors.information is critical in encouraging both domestic Where it is feasible for the private sector to developand foreign investment. Investors will generally the infrastructure, this should be facilitated withtend to be risk-averse if unable to access appropriate economic incentives and regulation.informadon necessary for risk assessment. In thiscontext, investment ventures originating from xix. To address effectively the key issues inremittances will be a powerful indicator of investor their infrastructure sectors, PMC Governments needconfidence and interest. Greater efforts must also to take action on two broad fronts. First, eachbe taken to make information on support services PMC Government should concentrate its scarceand incentives available to local entrepreneurs in managerial and professional resources on overallremote areas of the PMCs to encourage the growth management of infrastructure activities. Second,of domestic investment. each should establish a program of institutional
strengthening and staff training-a programxvi. Experience to date shows that the PMCs systematically designed for, and inttgrated with, thehave the potential to develop agricultural and other necessary managerial and professional skills.niche export products. Further niche export market Governments should focus on the following tasks:development would allow the countries to continueto shift away from dependence on primary product * identification of priorities for maintaining andexports with internationally determined prices. rehabilitating existing facilites, together with aNiche markets are not generally obvious, and program of financing that includes both costgovernments should not attempt to pick winners. recovery and exeral assistance;Two broad approaches that governments couldsupport are: (a) the use of "export catalysts'-i.e. * adoption of explicit guidelines for thcexperts in thc identification and development of preparation, evaluation, implementation, andproducts who could also help in gaining niche future maintenance of projects;market access; and (b) the use of investmentpromotion tours in-country and overseas. * safety regulation and enforcement;
xvii. It should be noted, however, that niche- * resource planning for the sector, includingtype activities are known to shift frequendy and to manpower needs and training;be pracdcally impossible to predict. In any evem,the success of such ventures will depend on global * monitoring sector performance; andtrading arrangements such as GATT-which, ifconcluded, will have the effect of gradually e formulation of guidelines for the protection ofreducing tariff and non-tariff barriers and thereby environmental quality, and development andgenerating more competition and reducing the value exercise of local capability to assess and addressof preferential access. Technological changes in the environmental impact of projects.
idu Vekme 1: Overview
Hun RJesomc Develnet care, and far too little is spent on qualityimprovements for primary and secondary education,
xx. The principal resource of the Pacific Island preventative health care, family planning, andeconomies is its popuation. The skills and primary treatment. Rebalancing publiccompetitiveness of the PMC labor force will have e es to correct the elitist biases of socila considerable influence on prospects for growth service delivery systems is a necessary reform.and development over the long run. International Second, with the core social services, focus shouldexper e suggests that a public policy of investing be on quality, cost-efficiency, and sustainabilitin people is necessary to create the sldlls, abilities, Third, as both Government and NGOs (includingand awaness needed to transform opportunities churches) provide social services, the system ofinto action. PMC governments have demonstrated private and public provision and financing has to bea commitment to the establishment of modern considered as a whole, and thus optimized.education and health care systems. In a difficultfiscal envronment, PMC governments will be xxiv. Quality can be improved by placing in-challenged to make those systems more responsive creasing emphasis on teacher/nurse training,to the needs of the market, to improve the quality providing adequate education supplies (particularlyand efficiency of service delivery, and to increase texlbooks), and better preparing secondary studentscost recovery efforts, especially for highly in mathematics, language, and scientific concepts
eiaized social services. necessay for priority and responsive vocational orskdll training program. Due to cost considerations,
xxi. Job creaton in the formal sector has been such skill programs should be only for high priontyalarmingly slow during the past decade. As a national needs, with other needs undertken coope-result, a large share of the population is involved in ratively among PMCs. Cost-efficiency can be im-either traditional agriculture or the public sector. proved by consolidating under-utilized service cen-During the 1980s, a major source of employment ters, shedding uneconomical services (e.g. hospitalsgrowth for Pacific Islanders was in overseas and universities), maximizing use of low-cost front-occupadons, either as fishermen (e.g., Kiribati), or line service centers (e.g. health clinics), andas migrants to Pacific rim economies (Tonga, making more effective use of NGOs or otherWestern Samoa, Fiji). In the 1990s, the, public private service providers.sector will be a less important and declining sourceof employment growth. For the private sector to xxv. Ensuring that social service deliveryabsorb a greater share of the rapidly growing PMC systems are sustainable is a medium-tern challenge,labor force, the skills will have to be more in line requiring better understanding of the recwurent costwith what is required in the market. consequences of present and past investments and
the development of financing systems dtat can meetxxii. The quality of social service delivery the ongoing costs of delivering these services.systems varies widely. In Fiji, Tonga, and Western Such sustainability will be difficult to realize unlessSamoa, social indicators are favorable, while those cost recovery programs, while paying attenfton toin the other PMCs suggest a need for continued equity issues, are implemented. For some of theinvestment and improvement. A key issue is the PMCs, the susinability of social service deliverylack of cost recovery for pubHly provided services systems will require a far greater degree of privateand effective use of available resources. Quality of sector financing, either directly or in the form ofservice is a cridt problem, manifested in the form training-scholarships and insurance-paid health care.of high school drop-out rates, poor achievement For others, the challenge will be to down-size theresults, supply shortages, parally-qualified staff, scope of delivery systems to meet the long-termand ealatig sanitation and lifestyle-related health carrying capacity of society and increaseproblems. Finally, the quality of service has been cooperative efforts.lowered by weak management and policy making-demonsraed by an inability to plan for recurrent xxvi. To date, the provision of social servicescost or staffing requiemen and a pronounced has been largely supply driven, with little attentionurban/capital city bias in service provision. accorded to the needs of the clients served, the
labor market requirements, or the fmancingxxiii. Despite considerable progress, there capacity of the country. As budget constraintsremains much need for improvement in social tighten and as the public sector no longer absorbsservice progms. The principal challenge is to excess trained labor, policy makers will come underimprove the effectiveness of social service speding. increased pressure to improve the relevance andIn general, far too much is spent on cosdy terdary effectiveness of publicly provided services. Aeducation and training and hospital-based health reoientaton of planning and policy making-with
V*UW 1: Orersvw xiv
emphasis on meeting forward demands, investing in exm Ie, is of the greatest concern in the Solomontrue public goods, reducing costs, raising quality, Islands. Watershed management is a key policyandprovidinglong-lastiservices-willbe needed. concern in Western Samoa and Fiji. Coastal
pollution is a problem in practically all the PMCs,xxvii. Local level paticipation in the provision of but is most severe in Kiribati, Marshall Islands,educational and health services by communities, Solomon Islands, and Fiji. And nearly all majorchurch groups, or other NGOs is very importat urban agglomerations face difficulties in wasteand should be encouraged. In any event, given the disposal and the provision of clean drinking water.wide role they play in providing social services, a While the solution to each of these problems isstrategy for securing their cooperation will be country specific, there is a common need toessential for expanding and imprcving services. upgrade environmental planning, regulatory, and
implementation capacity in all countries. In orderxxviii. Ingeneral,thepolicyframeworkforfamily to present unnecessary duplication, it would beplanning services is satisfactory in most of the desirable to use the services of SPREP morePMCs. The results to date, however, have been effectvely and improve its capacity to deliverquite limited. What remains to be done is to advisory services.provide substance to publiz policy by implementingfamily plaming programs, particularly in rural xxxi. A positive start has been made in thisareas, and by incorporating family panning into the direction with the preparation of country-specifichealth outeach system and into the process of environmental action plns for the 1992 UNCEDgeneral education. In some PMCs, access to Conference. The next step is to translate thesecontraceptive materials is highly restricted, costly, plans into operational stategies, projects, andand only sporadically available. Experience programs, with the aim of halting and reversingelsewhere suggests that at the initial stages of enviomental damage while gradually building upencouraging the use of family planning services, the the capability to set and enforce policies designedready availability of contraceptive materials, at a to encourage sound use of the PMCs' uniquelow or negligible cost, Is a key ingredient of natural resource endowments. In fact, traditionalsuccess. Improving access to, awareness of, and beliefs and practices provide a wealth of expencefnancial support for family planning initiatives is and methods for policy makers to incorporate intoworthy of both country and donor support. the design of appropriate environmental regulation.
Environmental Issues xxxii. Urban water supplies tend to be unsafe orat a high risk of becoming unsafe. Often, water
xxix. Environmental preservation takes on a entering an urban distribution system is ofspecial importance in the PMCs because of the reasonable quality, but fluctuating water pressurefraglity of the resource base and the major role and leaky pipes result in contamination fromthat the environment plays in agriculture, fisheries, unsanitary groundwater. Fairly large capitaland touism. While the South Pacific has not investments will be required to improve water andescaped its share of environmental mishaps, the sanitation ifastucture and should be linked todamage done has been relatively less, on average, effective cost recovery systems, both to raisethan in more industrialized and commercially revenues and to sensitize local communities to theoriented island states. New pressures and strains importance and cost of clean drinking wateron the environment will arise, particularly to the supplies.extent that increased private sector activitycontributes to a restoration of higher rates of xxxiii. Marine pollution and coastal degradationeconomic growth. In the future, careful have a deleterious effect on fish supplies and reduceenvironmental management will take on an added options for investment in tourism and relatedimportance because practically all likely sources of service activities. Nutrient contamination is theeconomic growth will involve more intensive use of most deleterious marine pollutant in the region,fragile natural resource bases. resulting largely through sewage dumping, land
clearing, and deforestation. Coastal degradation isxxx. Internally, the PMCs face the challenge of caused by these factors plus careless sand mining,improving resource management. Deforestation, use of corals for construction purposes, and thesub-standard management of critical watersheds, destruction of mangrove forests by poorly designedcoastal pollution, and solid waste disposal in urban causeways. The rapidity with which damage toareas have already proven to be problematic in coastal resources can displace populationmany countries. Not all of these problems are settlements has spurred PMC governments to playequally severe in all countries. Deforestation, for a more acfive role m the protection of coastal
xv Volume l: Overview
resources. Better infrastucture design, more result in a rise in fte mean sea level and ancareful ateion to sewage disposal methods, better increase in the severity and variability of tropicalland clearing practices, and restrictions on the use storms. Since most of the PMC population residesof coral for building purposes have all contributed on low-lying coastal lands, global warming couldto improvements in the protection of coastal potentially force relocation of a considerable shareresources. of the population. PMC states have been at the
forefront of international calls to reduce the risks ofxxxiv. Solid waste disposal, particularly by urban global warming. While these efforts have achievedpopulations, is another common problem area. The a measure of success, a modest amount of coastalmajority of solid waste is buried, burned, or reinforcement may well be required to offsetscattered. Disposal at poorly controlled and often changes in the tides.over-flowing dumpsites results in leaching of metalsand toxic wastes into the marine environment and, xxxvi. The large sea expanse of the PMCs-in some cases, into urban drinking supplies. covering nearly a third of the world's surface-actsImprovements in urban waste disposal need to be as a magnet for activities too hazardous to bebuilt around higher collection ratios, improved conducted in more densely populated populationlocation of dump sites, better management of public settlements. With few exceptions, the disposal ofdump facilities, and encouragement of recycling hazardous waste in their waters has been resisted byefforts. PMC governments. A rapid increase in hazardeus
waste disposal could quickly preclude otherxxxv. Global warming is of special concern to the development options. Regional cooperation inPMCs. Although the scientific evidence is far from setting and enforcing regulatory policy in this areaconclusive, it appears that climate change could may be beneficial.
ENDNOTES
The seven are Fiji, Kiribati, Marshall Islands, Solomon Islands, Tonga, Vanuatu, and Western Samoa.The Federated States of Micronesia is in the process of joining the World Bank Group. For the rest ofthis report, "PMCs' will be used to include all eight countries.
Volume 1: Overvew xvi
1: Economic Performance and Development Prospects
A. BACKGROuND AND INRODCuION 1.3 Notwithstandingtheconstraintsmentionedabove, the PMCs have achieved a relatively high
1.1 The seven Pacific Island member standard of living, owing in part to large inflows ofcountries (PMCs) of the World Bank-Fiji, workers' remittances and generous foreign aid.Kiribati, Marshall Islands, Solomon Islands, Tonga, GNP per capita in 1991 ranged from US$1,830 inVanuato, and Western Samoa-and the Federated Fiji to US$560 in Solomon Islands. SocialStates of Micronesia' face a unique set of indicators compare favorably with developingdevelopment challenges. Like other small island countries at the same or higher levels of income.economies, their development is constained bysmall interal markets, a narrow production base, The Pacifc Parwdoxhigh unit costs of infrtrue, heavy dependenceon external trade, and vulnerability to external 1.4 Development performance in the PMCsshocks and natural disasters. In particular, the during the last decade or so has been marked by aPMCs do not enjoy the proximity of the Caribbean paradox: virtualy no growth occurred in averagecountries to the large, high-income American real per capita income during ts penrod despite amarkets. favorable natural and human resource endowent,
high levels of aid, and reasonably prudent1.2 The total land area of the PMCs, economic management. Per capita real GNP grewdispersed among hundreds of small islands and by a mere 0.1 pement annually, which was in sharpatolis, is only 64,046 square kIlometers, equivalent contrast not only to intrinsic potenfal but also toto twice Belgium, while the total sea area controlled the performance of other island nation groups; thethrough an exclusive economic zone (EEZ) agree- Caribbean islands, for example, grew at 2.4 percentment is 124 times the land area. The total and the Indian Ocean islands at 3.7 percent (seepopulation of the PMCs is roughly 1.6 million, Table 1.1).with Fiji acounting for nearly half while MarshaliIslands has only 3 percent of the total. The 1.5 Natural and Human Resourcepopulation growth rate has been relatively high, Endowments. The naural endowment of the PMCsaveraging 2.1 percent for the group. The fragmen- is reflected in a high ratio of land per person and intation of the land mass and dispersion of population their possession of vast areas of ocean conainingcontributes to transport problems, even to reach the significant mineral and fishery potendal. Averagesmall internal markets of each PMC. International sea area is over 24 times that in the Caribbean andtransport costs are also relatively high by virtue of at least twice that in the Indian Ocean group, adistance from major markets, low traffic density, feature that is probably both a blessing and a banevariations in demands, and transhipment (see Table 1.2). For, while the archipelagic naturerequirements. Natral disasters have had an impact of these islands gives them command over vaston growth; all the island economies except Kiribati ocean resources, it also leads to high unit costs ofhave suffered major devastation from cyclones at transport, thereby making it difficult to achieveone time or another in the past decade. Political domestic economic integration.instability has also adversely affected economicperformance. On the other hand, geographic 1.6 Human resource endowments are alsospread does provide the PMCs with certain natural relatively favorable. For the most part, these ariseadvantages in a variety of climatic, agronomic, and from the comfortable living derived by the bulk ofoceanographic conditions. the populations from subsistence activities. There
1 Volume 1: Overview
is litle hunger orpovertyto speakof. Furthermo, Sourc of he ParadDxty 1.8 By sandards of the broader developiag
groups, and official aid agenis have aeto 18 B 8 fthbrdsevlpnfocus on human resource development so that world, the exteral nviroment for the PMCs wasliteracy and enrollment tes wc atively generaUly favorable in the 1980s. The terms ofhigh a decade or so ago when most of the PMCs trade were volatile, but aid flows enabled the PMCsachieved d . This emphasis has to substantially cover their domestic resource gapscontiued to chara_wize aid acdvity, and the and maintain high invesment levels relative toisands as a goup have experienced significant GDP. So far, however, high investment rates haveimprovements in social indicators such as schooling not led to correspondingly high rates of growth.and health status. This is not to say that there are Factors in the Pacific Paradox are examined below,no significant challenges left in this field-only tdat including developments in macroeconomic manage-poor human resource endowment Is an unlikely ment, real exchange rate movements, public andexplanation for the Pacific pardox. private investments, human resoutce development,
environment, exal debt, and other factors.TABLE 11: AVRAGE GROWr
NR1ORANCE, 1V9690 1.9 E wamic Mwemment During thein pe per _anum) 1980s, the PMCs had reasonably good macrocono-
Afiria & mic management. For example, during 1981-91,Pacific Canbbean Ia mflation was only around 8 percent on average (seeblands Ocean Table 1.3) which, in turn, was based on generally
low fisal deficits of around 3.3 percent of GDP onPopuaon 2.1 1.2 2.1 average. Also, conservative monetauy managementReal GNP 2.1 3.6 5.8 penmntted only modest growth in money supply.
Pndeed, it might be said that the PMCs have beeneaGNP C4 7 more successful in achieving macroeconomic
Real GNP 0.1 2.4 3.7 stability than in achieving growth. Where fiscalSource: World n Aks 1991. deficits have ocwcred, they have generally not been
allowed to run out of control. The origins of largefiscal deficits can be traced not to lack of discipline
1.7 External Assla*tmce. There is no but to transitory effects of natural disasters, such asque1 on.7 hat the level of 4 e.malber asIs from cyclones which damage infrastructure. Typically,question that the level of extnal assistance from such emergencies have been managed through aboth official and unofficial sources has been temporary increase in spending financed largelygenerous. Official development assis_e per through external aid. Monetay management hascapita has been among the highest in the world. In tended to be conservative, conditioned in part by1988, it amounted to US$225 in the Pacific Islands the opemess of the economies and in part by theas compared to US$170 in the Caribbean and, of rudimentary state of domestic capital markets.course, much lower levels in some of the very poor Domestic disequilibria are quickly transmittednon-island counries of the world. While there are through capital movements into pressures on theno firm estimates of unofficial assistnce, it is not itenational reserve position. This gives both adoubted that this is high, especially when non-cash quick and a strong wang to the authontiestransfers are considered. Insofar as the use of aid Furthermore, the ability to borrow domestically tois concerned, official assistance has been the major sustain ambitious fiscal policy is limited by the lackf source of public invesmfit, in most cases of domestic savings due to relatively highunderpinnig the entire development budget. With consumponp ies. Finay, exchange ratethe notable exception of Fiji, most of the PMCs has generas.y been successful inmounted large public investment programs in the maiaining constancy in the real effective exchange1980s, averaging over 20 percent of GDP. Finally, ratesuch assistance has typically been provided on easyterms, predominamly in the form of grants. As a 1.10 Pablic Inveshnet High rates of publicresult, debt servicing burdens have tended to be 1.10s Puelt c havesi ben H ig s of plidid not exercsecaodragoonc ivnvetents have generally been mainaied in alllightanddd notexercise ad mg roeconomc the PMCs with the exception of Fiji (see Tableperformance during the 1980s. Given these aspects 1.4). Even in Fiji, the size of the public investmentof extenal assistance, the development performance program, while small relative to the other PMCs,of the PMCs is aU the more surprising; there must has been m keeping with the levels observed inbe odter dimensions to extral assistance that have other developing counties. Despite all thisa bearing on developmentu pact. investment, growth has been dismal. Several
Vobei I.: Opvew 2
facters may expan the lack of a stroqg correlaton investment has ge ay been orent towardsbet*vnm public investment and econoric growth. long-ges$aion projecs (roads, schools, and healthFit b the existence of natuml constaits iposed faciites), returns from which are yet to beby the size, spread, and mote of the PMCs. realized. Tird, it is possible that such investmentTwese aspects raise the unit costs of economic has been of low efficiency because of both pooractivities there and make it expensive to deliver choice of projects and wealnesses inpublic services. Second, the composition of public imple ion. These factors, and especially the
Table 1.2: COMPARATVE INDICAOWS
Population GNP Life InfantGrowth Rate GDP per capia Expecancy Mortality
Population 1980-90 Land Area Sea Atea 1991 1991 k/ at Birth A/ Raze A/('000) LI (percent) (sq. km) ('000 sq. km) (USS mU.) (US$) (years) (('000 births)
Dom. Cred. Exp.IGDP 3.9 -0.1 5.5 3.1 0.8 -2.9 3.1Source: Country economic reports.atOn a fiscal year basis.li Before officW transfers.
last mendoned, are examined at greater length in credit regimes, which supported high-cost andChapter 2 of this report. uncompetitive investments. Thus, even where pn-
vate investment rates were high, as in the Solomon1.11 Pivae Invesutnent Private investment Islands, they did not have a noticeable effect onraes have tended to be modest in comparison with overall growth performance. These issues are dis-publi investment rates X the PMCs as well as in cussed at greaer length in Chapter 3 of this report.comparison with rates observed in other developingcountries at similar income levels. This may be 1.12 Popaldion and Hwna Resourcesdue to the crowding out effect of public investment, Issues. Embdded within the development paradoxa poor policy enviromnent, and the natua of the PMCs is atilemma which has its origin inconstraints imposed by scale and geography. There population dynamics. Over the past decade,was a clear tendency in the PMCs, at least through improvements in health have led to declining deaththe first balf of the 1980s, for the public sector to rates and increasing life expectancy. In tum, thisbecome involved in many commercial areas. As a has led to relatively high population growth as theresut, private enterprises might have been rate of faU in death rates has exceeded that in birthdisplaced or their entry discouraged. Crowding out rates. This has, in turn, offset the growth incould also have occurred through factor market national income that has occurred over the lasteffects, wherein public sector activities resulted in decade. Until this demographic transition is com-the pushing up of wages and interest rates and the pleted and birth rates fall, the PMCs will find it dif-pre-empting of credit availabiLity. As far as the ficult to achieve high enough overall growth ratespolicy environment for private enterprise is con- to generate more satisfactory per capita growth.cerned, the key issue is not that it may have dis-couraged investment in some cases, but that it 1.13 Another dilemma is posed by the affluentencouraged inefficient investment in many cases. subsistence character of the economies of theThis was the result of distortions in trade, tax, and PMCs. The comfortable supply and fertility of
TABLE 1.4: AMERAGE INVESTMENT RATos, 1982-91(in peet of GDP)
Fiji Kiribati Solomon Tonga Vanuatu Western PacificIslands Samoa Islands
(weighted)
Public 8.3 28.8 16.1 20.9 16.5 23.2 11.8
Private 8.7 1.8 13.8 7.7 15.0 4.2 9.2
Sources: Country economic reports.
Voeke 1: Overviw 4
constraint as such on Fiji's development program, Deatmen during 1993. Alternatively, thethere is scope to improve its development impact Government could more effectively call for jointand to reduce the workload of Fiji officials and aid discussions with donors, and use this approachdonors in administing aid programs. Steps to more often to improve program efficiency. Aidfurter improve aid allocation and delivery include: coordination could be improved and the aid
administrive workload reduced through discussion* a clear definition of govement sector of investment priorities and strategies at sector
priorities and development strategies; spcCific country/donor meetn designd to helpframe donors' sector assistance programs.
* a stegtee program and project planningand design capacity; 1.41 It would also be useful for donors to
improve their information exchange and so develop* better communicaton between Government and a better knowledge of each other's programs. At
donors; present, there is no formal mechanism to achievethis, but there is some ad hoc exchange on specific
* more careful design and implemention of aid proposals and activities. This could best betechnical assistance activities; inorporated into a government-sponsored arrange-
ment with minimal effort.* icorporaion of the tol life cycle costs into
investment decision making with pardeular 1.42 More effective use could be made ofemphasis on recurrent costs; and available technical assistance. Donors should
ensure an effective match between task require-* adequate support for local cost financing. ments, selected personnel, and method of imple-
mentation. Consideration could perhaps be given1.40 There are a number of options open to to increased use of more experienced personelGovernment to raise these issues with donors. The (sometimes volunteers), who would make frequentrecent re-establishment of the Policy Implemen- short visits rather than provide full time support.taion Committee will help the Government toprovide donors with development assistance oppor- 1.43 The economic and investm entimplications oftuities (within a macroeonomic framework) that inadequate recurrent cost fmancing are well known.are consistent with and conform to public In a mmber of extnal assistance activities, aid isinvestment priorities. These priorities should already being provided to support recurrent costemerge from the medium-term public investment expenditure items. Some donors have expressed aprogram to be prepared by the Cental Planning wllingniess to increase this element in their
Table 1.7: EXrERNAL F GIANCIG REQUIR;Em S AND SOURCES, 1987-2001(US$ mMion per annum at cuet prices)
1987-91 1992-96 1997-2001
Re nuwv= 125 155 197Merchandise Imports 435 654 1,059Merchandise Exports -349 -457 -640Principal Repaymets /a 46 39 27Interest Payments La 25 16 22Other Service Payments (net) -54 -114 -290Change in NFA 22 16 18
Table 16: PACIFC MEmER CouwrS: G(Rowr RATES OF REAL GDP, 1980-92
Average Average 19921980-89 1990-92 1990 le91 (eWt.)
Fiji 1.6 3.0 4.9 -0.1 4.2
Kiribati 1.0 -0.2 -4.5 2.4 1.5
Marall Islands al 8.4 0.9 3.2 0.1 -6.0
Solomon Islands 3.7 2.6 1.8 3.0 3.0
Tonga a/ 1.2 2.3 -0.3 6.3 1.0
Vanuatu 2.0 5.2 5.2 2.0 1.0
Westem Samoa 2.3 -4.4 -7.4 -1.6 -4.3
All Ilands 2.1 2.2 3.3 0.6 2.7
Sources: National authorities and Bank staff estimates.al On a fiscal yc basis.
some model derived elsewhere, but to adapt and provisional, indicate a more sluggish economicaroaches to the paradoxical situation we find and performance. In 1991, owing to a nearly flat realto increase prospects for improving stndards of output in Fiji and a sizeable decline in the Marshallhving and wefe in th ese islands. Trational Islands, the combined output sagnated despitemeans of increasing modern production and improved growth performances in Kiribati,rcoded GDP will be only part of the answer. Solomon Islands, and Tonga. In 1992, combinedBetter adaptation to the envbromental constri output recovered, largely reflecting Fiji's growthand enjoyment of the unique feaures will also performance. In both Kiribati and Tonga, outputfigure in improving PMCs' living standards. performance was more sluggish and, in Kiribati,
fell short of the population growth. Output in theMarshall Islands fell in the second consecutive year
B. RECENT ECONOwC DEVELOPMES as construction activities fell following the post-IndependeCe boom in the late 1980s. Finally, out-
1.18 Economic growth remains volatile on a put in Westem Samoa condnued its decline for theyear-to-year basis across the PMCs, around a trend third consecutive year, with a cumulative drop ofin growth rates of real GDP in most cunties that 13 percent reflecting the effects of two devastatingbarely keeps pace with population growth (Table cyclones and recession in its trading partner1.6). Real GDP growth has remained virtually countries.unchanged in the 1990s compared with the 1980s.The lack of gmwth is due largely to a severe 1.20 By and large, the PMCs were quitecontraction in Western Samoa owing to the effects successful in maintimng macroeconomic stabilityof cyclones. In this envient of quite modest in 1990-91. Fiscal policy is the main instrument ofregional growth, some countries (notably, Kinbanti macroeconomic management, owing to limitatonsand Vanuatu) improved their growth performance on monetary policy in small, open economies withrelatve to the previous decade. Average annual relatively high levels of exteal grants and workergrowth rate has varied from a negative 4.4 percent remittances. Although current govemmentin Western Samoa to 5.2 percent in Vanuatu. expenditures are high in relation to GDP, revenue
mobilization (including inflows of foreign grants1.19 In 1990, output in the PMCs grew by 3.3 and remittances) has been generally sufficient topercent, outpacing population growth by about 1.2 cover expenditures in all except Tonga. Comparedpercen. This improvement in performance came to the 1980s when the Pacific Islands' weightedabout because of higher growth in Fiji, which fiscal deficit (after gra;ts) averaged 5 percent,accounts for nearly two-thirds of the region's selected countries have made some improvements inoutput. In contrast, Kiribati and Western Samoa their fiscal performance. Kiribati turned a nearexprienced output decline by 4.5 and 7.4 percen, balanced budget into a surplus of 3.6 pent ofrrspectively. Data for 1991 and 1992, incomplete GDP, and Vanuat reduced its deficit from about
Veluse 1: Ovkw 6
gue 1.1: REAL E1WTM EXcIANGE RATES IN TIE PACIFIC ISANDS, 19809(1985 100)
Sooom Island, * * * *Wgean SufOa C 00 0 Combined &A&&
10 percent of GDP in 1989-90 to about 7.5 percent generous ransfer payments. Nevertheless, earmingsof GDP in 1991. Fiji also improved its fiscal are less than those in sinilar island economies inperformance. In Tonga, the deficit ratio remained which the authorities L wve pursued a more outward-high as reveme mobilization was not enough to rentd developlm suegy and have moreoffset a S0 percent wage and salary settlement vigorously exploited natural wdowments. In 1991,granted by the Govement to the civil service. per capita GNP in six PMCs-FiJi, Kiribati,
Solomon Islands, Tonga, Vanuatui, and Western1.21 The use of monetary policy is also Samoa-averaged US$1,o48comparedtoUS$3,320restricted in the PMCs since (a) any domestic in the Caribbean and US$1,598 in the Africa anddisequiibrium will soon be transmitted through Indian Ocean island economies (Table 1.2).capital movements into pressures on the external Moreover, per capita GNP within the PMCs variesreserve position; (b) there is a large nonmonetary widely, ranging from US$560 in the Solomonsector; (c) the capital markets are rudimenay; (d) Islands to US$1,830 in Fiji.there is a shortage of monetary itruments toimplement policy; and (e) high consumption 1.23 Per capita GNP in the PMCs remains apropensities limit the savings flowing into the poor indicator of welfare because of the widefinancial system. Monetary policy has become disparities in income distributions. These dispa-somewhat more accommodatng in the 1990s rities occur as a rev!n't of (a) the presence of acompared with the 1980s. Domestic credit substantial resident expatriate population; (b) aexpansion reached a level of 5.5 percent of GDP in small, educated, urban-based indigenouspopation;1990-91, compared to 2.3 percent in the 1980s. and (c) traditional patuerns of asset allocation. OnHowever, the inflation rate slowed slightly from the other hand, national income accounts tend to7.8 to 7.3 percent per annum, in line with the fall under-estimate the value of nonmarketed goods andin inflation in the major trading partner countries. services, which represent an important share ofThree PMCs for which the IMF publishes the real consumption in the large, nonmonetized segment ofeffective exchange rates (REER)-Fiji, Solomon the PMC economies. Absolute poverty is virtuallyIslands, and Western Samoa-broadly maintined nonexistent, although relative poverty is stiU atheir competitiveness in 1990; data on more recent concern, particularly in Kiribati, Solomon Islands,movement in the REER are not available yet and Vanuatu.(Figure 1.1).
1.24 Other selected welfare indicators compareLiving Sawndars favorably with similar Africa and Indian Ocean
economies. The average life expecuncy at birth is1.22 Income levels in the PMCs are high 63 years, the same rate as in the comparablecompared to other developing countries, owing to economies of Afric. and Indian Ocean but less thanlarge workers' remittances from abroad and in the Caribbean (72), where income is higher.
7 VoWm= 1: Overiew
Table 1.7: SRZID ECONOMIC INDICATORS(period average 1987-91)
/ Fiscal years 1987-91.hb FY87-91. Gross mvestment and domestic savings atios are FY88-91 average.I/ Based on real GDP at factor cost for Fiji and Western Samoa, producers prices for Vanuatu, and constn market prices
fot oher countries.dl Before official tansfers.sl FY9O-92. As reported in the main text, development assistance covers all forms of aid expenditure by donors, including
overseas training, payments to managing agencies, and other direct payments by donors as well as in-country costs. Onthis basis, aid flows are greater than those recorded in the national balance of payments.
Similarly, as a group the PMCs fare better than the output growth. Average gross investment to GDPAfrica and Indian Ocean island economies, where ratio in the 1987-91 period generally ranged fromthe infant mortality average is 52 per one thousand 27 percent in Kiribati to 35 percent in Vanuatu,births. However, infant mortality is high at 44 per with the exception of Fiji's, which was low at 16thousand at birth compared with 25 in the percent. Yet, real GDP grew at only 2 percent perCaribbean ecnomes. The infant mortlity rates annum in Fiji, 1 percent per ammm in Tonga andate lower in the Fiji (20) and Tonga (12), and 2.6 percent per annum in Vanuatu. This lack of aWestern Samoa (25), but they are quite high in the linkage between high investments and growthother five countries. reflects the preponderance of public investment in
large projects that do not provide commensurate1.25 As with life expectancy and infant morta- output growth in the short run. The high ratios oflity rates, the quality of life differs substantally investments in these countries have been maitainedamong the PMCs. For example, in Fiji, Marshal by external savings. Domestc savings ratios haveIslands, Tonga, and Western Samoa literacy rates frequendy been negative and large, ranging from aare high, primary education coverage is fairly negative 51 percent in Marshall Islands to a positivecomplete, and access to qualified medical staff is 18 percent in Fiji. Only in Fiji does domesticcomparable to that in many middle-income coun- savings exceed gross investment. In the remainingtries. Also, modem transport and communications countries, generous external support-which rangedinfrastructure are readily available, and a large part from 10 percent of investment for Tonga to 97of the population has access to safe water supplies. percent for the Marshall Islands-financed theThe literacy rate is also high in Kiribad. In the savings-investment gap. The generous grants haveremaining PMCs, a large part of the adult also financed the oigh fiscal deftcits in mostpopulation is illiterate and access to safe water is countries, which ranged between 65 percent ofavailable to only about half the population. GDP (before grants) in Marshall Islands and 12
percent in Solomon Islands. Again, Fiji has beenOther Selected Economic Outcomes an exception; its fiscal deficits averaged a little over
2 percent of GDP, and this compares with the1.26 Other selected eco±omic indicators show foreign aid of only 1.3 percent of GDP.wide variation in the region (Table 1.7). A strikingfeature of the PMCs is high investments with low
Volme 1: Ovenrew 8
1.27 Measured in terms of the standard indica- itg to a changing environment. Indeed, while thetors of indebtedness. the PMCs have a modest debt industrial countries were in recession, strongexposure. For the combined group the average domestic demand and rapid growth in regional tradedebt outstanding and disbursed for 1990 was only contibuted to high rates of economic growth in the38 percent of GNP (Table 1.5). With the exction East Asian region. For that region as a whole, theof the Marshall Islands, the PMCs' emergence from volume of exports grew four times faster than didthe 1980s with little external debt is the result of a world trade. By adopting forward-looking policiescautious fiscal and monetazy stance, good access to oriented more toward this region than towardexternal grant financing, and increased worker traditional industrial tradi.g partners, PMCs couldremittnces. In the case of the Marshall Islands, benefit from the growth of the Asian economies,high extera debt reflects borrowings against both as an outlet for experts and as a source ofinstallment funds to become available under the foreign direct investment and tourists. With theCompact agreement with the USA. The possibility right outward-looking policies, PMCs could alsoof further borrowing against this facility has been tap some of the growing foreign investment flows,neariy exhausted. Nevertheless, excepting Fiji, the especially in tourist-related developments.PMCs are constrained in their creditworthiness bytheir narrow production and export base and bytheir small size. In any case, given that the past C. Am CLIMATEhigh levels of public investment have not raised percapita GDP since Independence, it would be 1.30 Development aid has been the maindfflicult to justify commercial borrowing to finance source of investment financing in the PMCs sincepublic investment. Independence. Practically all economic infra-struc-
ture and social and economic services have receivedEtrnal Environent external flnancial support. Although the effective-
ness of foreign assistance has been ques-tioned,1.28 Experience shows that economic there is little doubt that aid flows have made andconditions in the devel'oping countries are strongly will continue to make an important, or even crucial,dependent upon the external environment, including contribution to economic and social progress in thethe strength of demand in the industrial countries, South Pacific. With the exception of Fiji, donorterms of trade developments, the level of world assistance-including all forms of aid expenditureinterest rates, and the availability of external by donors on their programs to PMCs, and loansfinancing. These are mainly exogenous factors by multilateral agencies to Fiji-remains at overover which small developing countries have little or 20 percent of GDP for South Pacific member coun-no control. In the PMCs, they are adversely tries. External assistance to Fiji is a less importantaffected in the 1990s by low copra prices and by source of development finance and remains at aboutthe recession in the industialized countries, which S percent of GDP. Total aid expendiure to Worldaffects tourism and certain agricultural niche Bank member countries in the South Pacific regionmarkets. If the PMCs can maintain low inflation is estimated to be above US$250 million perrates, their export prospects may improve as their annum, and covers verseas training, payments totrading partners recover. managing agencies, and other direct payments by
donors as well as in-country disbursements.1.29 Looking ahead, the industrial countries Measured on this basis, aid flows are greater thanare projected to grow slowly during the 1990s, but those recorded in the national balance of payments.their import volume is projected to grow by 5.6 Aid support is concentrated among four mainpercent in 1993 compared with 2.5 percent in 1991. donors or agencies: Australia, Japan, EEC/EIB,Although weak, the historical linkage-between the and the ADB, which together account for aboutgrowth of industrial countries' output, trade, and 60 percent of assistance. Australia is the largestper capita output in developing countries-is suffi- single donor in the region and makes up aboutcient to support timely policies in PMCs to take 25 percent of external assistance.better advantage of opportunities created by poten-tial expansion of industrial country trade and eco- 1.31 Prospects for growth in the level ofnomic activities in order to achieve faster and sus- traditional bilateral aid donors' programs are nottamined growth. Given the slow growth expected in promising. The programmable component of Newthe industrial countries and increased competition Zealand's aid program has fallen by about 3 percentfor foreign direct investment, countries that take for FY93, and the United Kingdom's assistance isappropriate measures early are likely to benefit declining in real terms and is being restructuredmost. East Asia's experience emphasizes the value into a more focussed program. Australianof vigilance, pragmatism, and flexibility in respond- assistance is likely to be at least maintained in real
9 Volume 1: Overdew
terms. Greater use could be made of concessional Kiribati and Solomon Islands. The relative size ofsoures of multlatera aid with improved aid funded infsucture investments and theirmanagement and performance in public investment indivisibiliy result in somewhat lumpy investmentprograms. However, the possible use of additioal programs over time. However, the sector's sbareloan funds needs to be approached with some of total aid expenditure has been kept at around 20caution. In addition to the hacal and overaU debt to 25 percent. With incmreased focus on the socialburden, use of loan funds generally increases the services sector and the preference for newdemand on a country's management capacity above infrastucture development, there is a risk thatthat required for grant aid and necessitates greater management and maintenance of existinginvolvement of line ministries in the planning, infrastructure assets will be neglected.implementation, and review of aid projects.
1.35 Direct assistance for the productive sector1.32 In addition to these official aid flows, has inainiy been provided through agriculture,PMCs also receive substantial net inflows of forestry, and fisieries projects and through loans toassistance-partly in the form of aid-in- the development banks. External aid to thekind-through a number of non-government productive sectors has dropped to aroundorganizations (NGOs), including churches and 15 percent of total aid and is likely to remain at thisvolunteer workers. Although some support is level. While attempts have been made to channelprovided through NGO programs by donors, assistance more directdy to private sector,estimates of the total level of community support difficulties have been experienced in starting newprovided through these chanels are not available. projects, and performance of the development banksNGOs play an important role in national has been disappointing.development programs and fill a key gap incommunity development activities not covered by 1.36 Aid Effectveness. Public investment,Government or official external aid programs. supported through generous provision of foreignChurch groups play a key role in the education aid, has not resulted in strong, sustained economicsector and provide an important part of secondary growth. Part of the reason for the weak linkschool places in many of the member countries. between aid-financed investment and growth mayAssistance is also provided by NGOs in a wide well be the long gestation period between invest-range of activities including health, local ments i infrastructure and social services and ac-community development, women's issues, and the tual economic activity. An important part of theenvironment. Stronger linkages are developing explanation, however, rests in the low level of effi-between NGOs and government programs. These v. ncy with which aid resources have been utilized.offer opportunities to develop complementaryprograms. Key factors in the success of NOOs in 1.37 A number of factors explain why extemalprogram implementation are their well-developed assistance has contributed less than expected toLework and their effectiveness in delivering development objectives. Foremost is the lack ofreliable services at the village and community level. strong, clear, and consistent statements on Govern-
ment policies, development strategies, and sector1.33 Volunteer aid workers, supported by investment priorities. This is compounded in somebilateral and multilateral donors and NGOs, provide cases by weak coordination and consensus betweena potential reservoir of technical assistance that the government ministries and planning officials, asneeds to be used effectively. A large part of this well as by limited coordination with aid donors.support is provided from sources other than thetraditional major donors (such as the United States 1.38 Second, limited capacity to plan andPeace Corps) and emerging donors such as Japan. oversee development assistance in PMC
governments has resulted in a high degree of1.34 The sector focus of offcial donor reliance on donors to define, design, and implementprograms is changing. Social services already aid projects. The lack of PMC participation hasaccounts for around 28 percent of all aid and, if resulted in a number of projects that are ill-suitedplanned activities are realized, over one third of to local social and economic conditions.external assistance will shortly be concentrated inthe social services sector (see Figure 1.2). Three 1.39 Third, remoteness, the lack of localquarters of this is allocated to education. construction and consulting capacity, and skillAssistance for training students overseas is a large shortages in government have led to very high unitcomponent. In the health sector, support is often costs of aid projects. In many instances, it hasconcentrated on construction or expansion of central been difficult to locate and interest qualified frmstreatment facilities, such as hospitals in Fiji, to undertake development activities in the Pacific.
Volume 1: Overvnw 10
Figure 1.2: SOURCEi & ALLocATION OF rmeRNAL ASSTANCr($)(1991/92)
Social ServicesEcononmic28
I nfrastr uct ure
Productive Svctor16% 33%
Ca) Includes assistance to FiJI, KIrlbat, Solomon islands, Tonga, Vanuatu and western Samoa.
oata Includes non-concessionai multilateral aid flows where available.
Co() includes administrative and other expenditures where InsuTfl'clentinformation is availaoie for sector allocatfon.
Source: Bank staff estimates.
1.40 Fourth, frequent storms and hurricanes and delivery include:have destroyed a great deal of the economic andsocial infrastructume supported under aid programs, * a clear and concise articulation of Gov.,,..ient'sraising the need for costly repai and rehabilitation agreed development policies and sectorprograms. investment priorities;
1.41 Fifth, a shortage of recurrent cost * ag improved management approach to theiesources has led to sub-opmal utilization and selection and use of available sources and formssho.- life-spans of aid-financed investments. of aid;
1.42 Finally, aid programs have inadvertently * more extensive use of NGOs;retarded the competitiveness of the PMC states bycontributing to a buildup of a high-cost public * better developed coordination within memberservices and an appreciation of the real exchange countries;rate. The latter results when aid resources areexpanded on domestic goods and services, driving * more appropriate design of aid activities;up the cost of non-tradeables vis-a-vis tradeables.
* effective coordination at the country/donor1.43 Improving Aid Effectiveness. The level.oulook on the availability of external assistance isthat current levels can be maintained, but it is clearthat more effective use can be made of donor 1.44 A common problem is the relativelyresources. Steps to provide enhanced aid allocation limited articulation of countiy development policies,
11 VeI olum : Overvkw
implementption strategies, and sectoral investment climate conditions; to encourage use of domesticpriorities by the PMC governments themselves. In construction and project management concerns; tothe absence of prioritized investment programs search for lower cost alternatives to overseasanchored in a sound macroeconomic framework, training and technical assistance; and to carefullydonor interests tend to drive aid allocations with the scrutinize lon,-xtern recurrent costs associated withattendant risk of distorting the public investment different development initiatives. Such initiativesprogram. This tends to be more acute for the represent an important first step towards providingsmaller economies where investment planning an economic environment in which aid resourcescapacity is relatively weaker. Strengthening local can be better directed and utilized.capacity to better manage the project preparationcapability and to improve implementation, 1.48 Country/donor aid coordination at amonitoring, and reporting (within reasonable national level remains problematic. Existingrequirements) would assist in speeding mechanisms have not proven effective, and there isimplementation and increase the effectiveness of a reluctance by member countries to participate inavailable aid resources. further meetings. The need and form for
coordination at this level should be carefuly1.45 A more deliberate approach to the examined and alternative mechanisms explored.selection of aid sources and forms of aid has the Countries already put considerable resources intopotential to improve the development impact of bilateral coordination meetings and internationalextenal assistance flows. A conscious strategy to fora. A reluctance to allocate scarce resources tomatch project proposals with particular donors a process where perceived gains are low is(including NMOs) has the potential to enhance understandable. As discussed later, reform andprogram effectiveness. Some PMCs have made strengthening of key elements of public sectorprogress in this regard on a geographic and/or management is critical to improving aidsector basis. Some of the aid management and coordination and utilization. Willingness to reviewfnancial issues of grant and loan assistance have policy and quality issues more openly is crucial.been canvassed above and need to be taken in to Focussing on a limited number of priorityaccount. Finally, a range of aid delivery development sectors, with the Government takingmechanisms is available to PMCs, including project an increased responsibility for the management ofaid, technical assistance, recurrent cost financing, the coordination process, has the potential tooverseas training, and to a lesser extent budget and improve aid effectiveness. Ownership of thebroader program support. The bulk of grant funds process by the country will be central to the successare contributed and administered by the donor, of any coordination effort, as will an effectivewhile loan funds create considerable administrative mechanism for balancing the needs of differentand contracting costs and delays as the countries sectors in an overall strategy. Donors also need tocarry full implementation responsibility. The mix support this process by demonstrating moreof these aid delivery mechanisms needs to be flexibility in the composition of their programs tobalanced in relation to their likely impact on fit country-articulated priorities.achieving development objectives, their financialand management burden, and the likelihood ofensuring quality services. Greater use could be D. DEVELOPMENT STRATEGIESmade of the NGOs and their extensive communitynetworks. The task, though, is to integrate this 1.49 The growth process is about choices, andresource into development programs without despite small size and dependence on externaldiminishing NGOs' strengths or their independence. inflows, policy makers in the PMCs make .Aoices
every day that influence the pace and pattemn of1.46 Further progress in managing aid needs to economic growth and development. It has beenbe made in countries where responsibility for argued that minimal intervention and slow rates ofadministrative management of aid activities is split economic g-owth may be the best choice for manybetween departments. Establishment of coordinat- living in the South Pacific, on the grounds that theing mechanisms is vital to help ensure a consistent relative abundance of natural resources provides aand structured approach to aid management, aid comfortable level of subsistence for those living offresource utilization, and aid quality. of the land; absolute impoverishment is relatively
rare; and a limiting of contact with the rest of the1.47 Donors and govermnents alike have world may help preserve locally-valued, indigenousbecome sensitive to the need to improve aid cultures.effectiveness. Efforts have been made to designinfrastructure projects that can withstand erratic
Valme 1: Overvew 12
1.50 Such a low growth scenario is one of the absorbing large quantities of foreign assistance. ftchoices that policy makers can make in the was not successful, howevcr, in generatingmanagement of economic affairs. However, this is sustained per capita growth. This is the keyunlikely to be a viable option because of rising challenge for the 1990s.expectations, considerable and long-standing contactwith outside forces, and the rising presure on 1.53 All PMCs but Fiji remain highlynatural resources resulting from rapid populaton dependent on large inflows of foreign assistancegrowth and urbanization. Furthermore, while a and private remittances. While such transfers helpstraegy of slow growth may appear to have certain maintain living standards above levels which couldadvantages, it is the case that living standards in the otherwise be domestically supported, the situationSouth Pacific are buffered by generous provision of is by no means sustainable. The danger of a highaid and private remitances. A fall in these flows degree of dependence on grant-aid flows and pri-would result in a significant decline in living vate remittances is that, at a certain level of eco-standards, and thus countries cannot count on their nomic progress, assistance terms will harden, ac-continued growth. cess to grants will be scaled back, and overseas mi-
grants may become reluctant to send generous re-1.51 In fact, PMC policy makers have mittances. This argues for a concentaed focus onuniformly opted to pursue policies and programs the need to build a growth strategy around domesticsupportive of higher rates of growth and develop- resources in an environment of macroeconomicment, fully cognizant of the tradeoffs which may competitiveness and private sector incentives.emerge and the need to preserve traditional cul-tures. In pursuing growth, the PMCs have little 1.54 As noted above, changing globaloption but to seek export opportunities (and effi- conditions are forcing a shift in growth strategiescient import substitutes) to drive domestic economic away from a high degree of dependence on aactivity. Development of the PMC ecolomies, narrow range of primary commodity exports.with small populations scattered over vast geogra- Diversification of the export mix will be aphical distances, can come about only through necessary complement to growth strategies aimed ateffective economic engagement with the rest of the encouraging private sector development. Pespiteworld. However, while the PMCs need such in- such formidable challenges, the natural assets of thevestme and trade links to develop their resources PMCs, combined with a substantial degree ofand to diversify economic activity, the rest of the external support, provide the basis for a potentiallyworld does not have a comparable need for eco- sound growth strategy.nomic links with the PMCs. The goods and ser-vices currendy or potentially offered by the PMCs 1.55 Remoteness and the high reserve wage ofcan be readily obtained elsewhere. Therefore, labor (resulting from relatively plentiful subsistenceadequate investment and export opportnities will activities) imply that growth must be based onbe secured only if the PMCs provide a stable poli- activities which link available natural resourcestcal and economic environment, provide satisfac- with growing supplies of skilled and semi-skilledtory economic and human infrastrct, and labor. Key areas of potential growth include niche-manage economic affairs in a fashion designed to agriculture, fisheries, tourism, and small-scalereward initiatve and competitiveness. manufacturing. A reasonable objective would be to
achieve positve per capita growth rates on average1.52 During the past two decades, the public of 1-3 percent per year. This would permit livingsector has been the dominant actor in the economic standards to improve and generate resources toscene of the PMCs. In each and every PMC, limits support the important continued improvements into growth have emerged because of the heavy human resource dev-dopment and quality of life.carrying cost and efficiency-drag imposed by large Recent performance suggests that even theseand unwieldy public sectors. In some PMCs, the objectives will be challenging and subject toissue is one of a public sector wage bill that simply considerable variability.cannot be fnanced from domestic resources; inothers it is the undertaking of investments that Sectoral Growth Potentialimpede rather than promote private activity; whilein still others it is the regulatory barriers to 1.56 Agriculture, fisheries, small-scale manu-productive activity resulting from the reservation of facturing, and services including tourism are thekey sectors of economic activity for government. dominant sectors in the PMCs. However, as TableAt best, the historical record suggests that the 1.8 would indicate, there are significant differencesexperiment with public sector led growth strategies in the relative shares in GDP among the PMCs.was moderately successful in mobilizing and
13 Vowne 1: Overkew
Table 1.8: PACIFIC MEMBER COUNTRIES: Tim STucruRE OF PRODUCIION, 1991
Sources: National authorities and Bank staff estimates.g Including forestry and isheries. bI 1989._i Commerca fishing. 41 Monetized sector only, at constant 1984 prices.pi For fiscal year 1990/91, at constant 1984/85 prices.
1.57 Agriadture is the largest employer in the 1.59 Despite the fact that the sea-rights of thePMCs and is dominated by a combination of semi- PMCs are very large, relatively litde domesticsubsistence rootcrops and garden vegetables, and by investment has gone into the fisheies sector. Forproduction of copra, corma, sugar, and coffee for several countries, a choice has been made not toexport. The sharp fall - the prices of traditional develop indigenous fisheries capacity but to lease-PMC export crops has stimulated producers to out fishing rights to foreign ships. Increasingly,diversify into non-taditional products, such as however, the PMCs are shifting strategies andsquash, vanilla, melons, coconut cream, and range- beginning the long and arduous process offed beef for export markets. Falling prices have developing domestic fisheries industries. This willalso encouraged producers to seek export markets require improved skils, an expansion of collectionfor traditional staples. Many countries have, in and marketing facilities to serve the indigenousfact, developed flourishing export markets for local fisheries sector, a greater participation by theroot crops and kava, in part to their emigrant private sector based on improved incentives, and-communities overseas. eventuaUy-reservation of a part of each country's
Exclusive Economic Zone (EEZ) for its domestic1.58 Unlocking the potentidal of the smalLholder fisheries sector. In the inerim, a strategy basedsector is the key to increasing rural incomes, around fostering improved linkages betweenexpanding agro-exports, and diversifying into new domestic and foreign fishing interests could help inniche markets. Past attempts to support agricultural the transition to a more dynamic and broad-basedgrowth through directed credit schemes and public fisheries sub-sector.sector marketing arrangements have met with littlesuccess. Where public sector support has been 1.60 Tourism holds considerable potential formore successful, however, is in reducing the costs the PMCs. At present, only Fiji and, to a lesserof agricultural operations by providing supportve extent, Vanuatu, have made any real strides in thisinmfrastc and new technologies. Private sector direction. High air access costs, a limited supplymarketing and distrbution, in all PMCs, have of quality accommodations, and political/culturalproven to be absolutely essential in highly volatile objections to tourism development have hinderedniche markets. Where government can play a role growth in this sector despite the fact that the naturalis in ensuring that quality standards of high-value resource endowment of the region, with itsagricultural products are maintned and providing multiplicity of cultures, unspoiled waters, andadeque transport infascture.
Voeme 1: O kiew 14
uncrowded beaches, make it ideal for a host of E. MEDIUM-TERM MACROECONOMICrecreadonal service activities. PROSPEC1S
1.61 The PMCs attract less than 2 percent of 1.63 Despite an increasingly competitivetotal tours visitors to the Asia Pacific region each extrnal environment, those PMCs that undertakeyear. Furthermore, while visitor arrivals are the needed reforms recommended in this reportsubject to considerable variability, this market is should exhibit sound, susained rates of grow inslated to expand by 8-9 percent per annum during economic activity, employment, and incomes by thethe balance of the decade. Simply to maintain this latter half of the decade. First and foremost,tiny market share, tourist arrivals to the PMCs higher rates of private sector investment will bewould have to more than double over the next needed to transform potial capacity in thedecade. For this to happen, air access costs Will productive sectors into viable economic activities.have to come down, accommodation stock will need More effective public investment can be used toto expand, beachfront property will have to be set support private investment and also provide a boostaside for development, and a competitive to aggregate demand in its own right. As impedi-environment for investing and operating tourisi ments to the free flow of goods and services arefacilities will need to be established. In some reduced, resources will tend to flow more freelycountries, special problems, such as malaria in the into those areas of highest return, enhancing com-Solomon Islands and religious prohibitions on petitiveness and raising the productivity of privateSunday activity in Tonga, wil require creative investment-although it should be noted that wheresolutions. Even in these circumstances, however, competition is nauraly limited and extrnaltourism activities can be designed to overcome or competition not possible, a good reguatoryavoid particular cultural or environmental factors. environment is important. Increasing theThe main task is to identify each PMC's particular competitive environment is likely to accelerate thetourism mche and to set about alleviating those process of technological diffusion, which, overfactors that are, in each nation, the most critical tme, can make significant contrbutions toconstraints to tourism development. productivity in practically all spheres of PMC
activity. Finally, as the skills, abilities, and market1.62 Manufacturing also has a role to play in awareness of the PMC labor force improve, so willthe South Pacific. As mentioned above, a special its productivity. Each of these potential engines offeature of the PMCs is that they require only a very growth-more effective investment, market-friendlysmaU number of successful private investment efficiency gains, speedier technological diffusion,projects to make substantial gains in growth, and improvements in the quality of the laboremployment, and income generation. A case in force-will be most effective in combination withpoint is the development of the export-oriented one another.garments industry in Fiji in 1987. Manufacturinginvestments in the PMCs wil likely be niche 1.64 Tackling the growth challenge will ot beoriented; as such they are likely to experience a easy. Remoteness, isolation, vulnerability to theshort half-fife and are practically impossible to vagaries of climate and primary product prices,predict with any accuracy in advance. Past inward oriented policy regimes, and high-costexperience with govermnent-sponsored industry in public sectors, together with gaps in physical andthe South Pacific, however, provides ample human capital constitute a powerful set ofevidence that trying to pick and fund specific impediments to sustained growth. Overcoming thisindustries is not a viable strategy for the future. challenging set of constraints will require concertedFor this reason, the most sensible course of action action on several fronts at once. Even so, theis for the governments to provide an environment nature of the constraints implies that the coresupportive of private sector development, to focus growth potential of the PMC economies may not bepublic investment on infrastructure and human as great as, for example, that of several of theresources, and, above all, to foster a promotional rapidly growing east Asian economies. Still, realattitude towards private investment. A growth growth rates of 3-5 percent per year may well bestrategy based on getting public policy right, which within reach, but only with a combination of ais often advocated as the best possible option for favorable policy environment and expected externallarge economies, is in fact the only option for the developments.small states of the South Pacific.
1.65 Table 1.9 presents medium-term growthprospects drawn from an assessment of each PMC'seconomic potential and prospects. Growth rates ineach of the countries could reach between 3-6
15 Vo.1we 1: O,ernw
Table 1.9: MEDIm TERM PROSPECT, 199-2000
Marsball Solomon WesternFiji Kiribati Islands al Islands Tonga h Vanuatu Samoa
Ratios to GDP (percent)Gross Investments 19.4 23.7 34.8 34.1 27.0 39.2 25.0Domestic Savings 18.9 -51.1 .. 15.8 .. 24.5 -7.5
Source: World Bank staff estimates.
Al Exports and imports refer to: goods and nonfactor services in Fiji, the Marshall Islands and Western Samoa;merchandise for Kiribati and the Solomon Islands; and goods and services for Tonga and Vanuatu.
percent by the latter half of the 1990s. Growth is share of total investrent undertaken by the privateexpected to be relatively more rapid in the Solomon sector (see Chapter 3).Islands and the Marsh-il Islands because of ananicipated increase in forestry product prices and 1.68 In Fiji, Solomon Islands, and Vanuatu,volumes in the former, and becease of scheduled domestic savings will be an important source ofcompact fund inflows in the latter. Relatvely resources to fmance investment. The need toslower rates of growth are forecast for Tonga and mobilize domestic savings in support of theWestern Samoa. In these states, outward investment effort points towards the importance ofemigration will check growth in populaion, sound taxation regimes and the encouragement of acontributing to growth in per capita incomes. banking system that offers savers a positive and
competiive return on deposits. In Kiribati,1.66 Strong growth in exports is forecast to Marshall Islands, Tonga, and Western Samoa, alead the growth process, with export earnings combination of private remittances, trust fundexpanding faster than GDP in each of the PMCs. resources, and compact funds will finance the greatHigher export earnings, in urn, will provide the bulk of investment. In these countries, the moreresources required to fuel an increase in imports of important challenge is to ensure that exalmachinery, other capital goods, and raw materials. financial flows are channeled to high-priorityIn several countries, exports of services, mostly domestic uses. Particular care will be needed torelated to an expansion in tourism, are slated to ensure that external resources are used to financemake an important contribution to export earnings. private sector investment in the productive sectorsLikewise, for those countries in which tourism is rather than consumption outlays.expected to become increasingly important, importsof consumer goods should rise to meet visitor 1.69 Maintaining external balance will becomerequirements. These projections depend critically increasingly important as trading and economicon sound policy in the PMCs, and are unlikely to opportunities expand. In all of the PMCs, thebe realized in the absence of strong policy action. deficit on the balance of trade is forecast to widen,
as a result of a lag between growth in imports1.67 The problem in most PMCs has been one related to private and public investment and thenot of inadequate investment but of inefficient export capacity created as a result of improvedinvestment. With the exception of Fiji, most PMCs economic performance (see Table 1.10). Servicehave had high public investment rates, but their payments are also expected to grow rapidly in mostgrowth impact has been negligible. Thus, the main PMCs, reflecting an increasing contribution ofchallenge will be to increase the efficiency of tourism, transport, and financial services to theinvestment. This can be accomplished by external activity of the islands.improving the management of public investment(see Chapter 2 for details) and by increasing the
Voeime I: Overview 16
Table 1.10: ExTERNAL FINANCING REQuMETA AND SOURCES, 1996-2000(US$ mi.=n per annum at current prices)
at Public MLT debt.b/ Includes Revemne Equalization Reserve Fund (RER) interest of US$33.1 million.
1.70 Large flows of pnvate and aid resources of Compact funds5 will create a difficult externalwiil continue to be required to meet the balance of payments problem. In this case, a diversification ofpayments needs of the PMCs. External donor resources, increased mobilization of privaterequirements are largest in the case of Fiji, where finance, and demand restraint wiDl be needed toaid flows are expected to rise substantialy as overcome the looming decline in aid finance.government rebuilds its public investment program. Given, however, slow growth forecast in aidPar higher levels of private investment and availability from the PMCs major donors, growthremittances are forecast for Kiribati, Marshall in aid flows incorporated in the projections areIslans, Tonga, and Vanuatu. In each of these slated to be far slower than that experienced duringcountries, the degree to which outside investment the 1980s. This points to the need to improve aidcan be tapped will determine, to a great extent, the effectiveness and to icrease the share of foreignlevel of domestic private investment that can be private inflows to finance private sector activity.supported. For the Marshall Islands, the expiration
17 Volume 1: OvervIew
ENDNOTES
The Federated States of Micronesa is in the process of joining the World Bank Group.
2 The Pacific Island countries are Fiji, Solomon Islands, Tonga, Vanuatu, and Westem Samoa;Caribbean countries are Belize, Dominica, Grenada, St. Kitts & Nevis, St. Lucia, St. Vincent & theGrenadines, and Trinidad & Tobago; and Africa and Indian Ocean countries are Cape Verde,Co'noros, Mauritius, Sao Tome & Principe, and Seychelles.
3 On page 21.
4 Western Samoa has been hit by two further cyclones in the 1990s: Ofa in 1990 and Val in 1991.
5 Compact funds are monetary assistance provided by the United States to the FSM over an initial 15-year period that commenced in the faU of 1986 when the Compact of Free Association Act of 1985became effective. All amounts necessary to fund the Compact Payments for the entire initial periodhave been appropriated by the United States Congress.
VoIw,e 1: Overview 18
2: Public Sector Management
A. THE RoLE oF THE PUBLIC SEcToR market-friendly reforms-including macroeconomicstability, fiscal prudence, competitiveness through
2.1 The past two decades have witnessed appropriate exchange rate and labor marketsteady growth in the scope of govermment in the policies, and an emphasis on social and economicPMCs, financed in large part by foreign aid and infrastructumr-were instrumental in the success oftransfers. As a result, the public sector has become the East Asian island economies. The PMCs mustthe single largest source of employment, especially find their own way in managing the partnershipfor skilled Pacific Islanders. Likewise, government between the public and private sectors: the Eastspending has come to dominate non-subsistence, Asian experience does suggest, however, that thenon-agricultural economic activity. As noted in the ability of the public sector to forge a supportiveprevious chapter, this has not led to sustained high relationship with the private sector is of the utmostrates of growth. importance.
2.2 The coexistence of a large, economically Evolution of the Public Sectordominant public sector and a thin, under-developedprivate sector is a dilemma for policy makers. 2.4 Following independence, PMCPMC governments recognize that it is the private governments faced the task of localizing semorsector that must shoulder the burden of economic positions within the civil service while reorientinggrowth and employment creation, but often it is the public service to better reflect local needs andpublic sector that has access to the financial and development conditions. The combination of atechnical resources needed to undertake complex localization of senior public service posts togethertasks. It is the private sector that must search for with a refocusing of public activity to meetand exploit new sources of growth, yet it is the domestic needs contributed to the great sense ofpublic sector that has established footholds in the urgency with which newly independent PMCkey commercial segments of the economy. Governments tackled deficiencies in economicIncreasingly, the private sector has come to depend infrastructure and social services. Wide rangingon support and assistance from government, while public investment programs were undertaken,over time it wiU be the private sector that must requiring a vast expansion in government spendingfinance public sector actvity. To strike an appro- and personnel. The ranks of government werepriate balance between public and private participa- quickly filled with partialy-qualified individuals,tion in economic affairs is a difficult challenge, both to meet the short-term imperatve of rapidparticularly when faced with weaknesses in public implementation of public investment programs andsector management on the one hand, and the limited in response to pent-up demands for greater localcapacity of the private sector on the other. participation in the political process.
2.3 Good government does not necessarily 2.5 Generous inflows of foreign assistancemean a small or a large government, but one which also contributed to the buildup of the public sector.has a clearly defined role, which plays that role Numerous mimstries, parastatal enterprises, andeffectively, and which is supportive of and administrative bodies owe their origin to foreign aidcomplemnentary to the private sector. For example, projects. In an attempt to expand the frontiers ofthe public sector in East Asia has been a net saver development services, foreign aid has led to ansince the 1960s, rarely crowding out the private expansion in the role and mandate of government.sector. However, government action in the form of Aid-supported institution-building efforts have
19 Volwme 1: Oven*iew
almost always succeeded in increasing the ranks of plantations, timber mills, aviation concerns, hotels,the public service, but not necessarily in improving and a wide range of other quasi-commercialthe scope or quality of public services. In activities. Many different arms of governmentretrospect, the 'soft' budget constraint of large aid were created to oversee and execute this wide rangetransfers has resulted in the financing of a great of commercial activities.number of well-meaning but uneconomic andinappropriate public investments and in the creation 2.10 Such a great number of responsibilitiesof administrative positions. would be difficult to manage effectively in large,
technically sophisticated economies. For the2.6 The ease with which PMC governments PMCs, plagued by shortages of technical skills andwere able to capture domestic revenues through managerial resources, the result has been sub-border taxes-a common feature of economies standard performance and a diffusion of limitedbased on primary commodity exports-also government skills and abilities over a great manycontributed to the growth of government. Most fronts. The solution to this has been to over-staffPMC governments were able to use a smaU set of government agencies with partialy-qualifiedexport taxes and import duties to yield 10-15 personnel, to spend heavily on overseas training,percent of GDP. Combined with other revenue and to rely on outside technical assistance to filsources and foreign aid financing of development gaps. This approach, however, has not been effec-outlays, govemments were able to command as tive in improving performance. Instead. over-much as 40-50 percent of GDP for public sector staffing and poorly qualified civil services haveoutlays. With few financial constraints to brake become accepted as part of the public sector statuspublc sector expansion, PMC administrations quo; technical assistance has become (in certainstruggled to build the institutional capacity needed services) a permanent feature of government; andto undertake large spending programs. the more qualified public servants tend to be over-
whelmed by the wide range of matters to address.2.7 Political forces have also had a role toplay. Following independence, local government 2.11 Improvement in the human resources is abodies were strngthened in order to encourage long-term proposition (see Chapter 4). Even withfuller participation of tribal authorities in the best-designed training programs, the PMCs maygovernment. Public utilities and large foreign continue to lose large numbers of trained managerscommercial ventures were nationalized. and technicians to the more affluent economies ofGuaranteed employment in public service was the Pacific rim. Meanwhile, the clash betweenoffered to all highly educated PMC citizens, both to shortages of skilled technicians and managers andaugment scarce skdlls in the public sector and to the wide-ranging responsibilites assumed by thecreate valuable allies in the development process. public sector remains unsolved.
2.8 As a result, the size and composition of Refocusing Effort on Core Public Servicesgovernment in the PMCs tends to reflect a greatnumber of factors, many of which bear little 2.12 One way of better balancing limited PMCfunctional relation to actual development needs of skldl availabilities and public sector activities wouldthe island communities. In recognition of this, be to focus the efforts of the public service on aPMC governments have atmpted to reform the more narrow, core set of responsibilities. Whileoperations of the public sector by reducing staff, the definition of core government services will tendupgrading skills, improving job descriptions and to differ by country, certain activities, such asrecruitment pracies, adjusting salary structures, macroeconomic management, maintenance of lawtightening budget and project implementtion and order, and provision of public health services,procedures, separating commercial and administra- basic education, and economic infrastructure, wouldtive arms of government, and divesting non- likely command a high pnority. Sheddingessential assets. While these reforms have achieved responsibilities for non-essential activities wouldsome measure of success, further efficiency gains release financial, administrative, and manpowercan be obtained by remolding government to better resources for private sector development and allowsuit the development needs of the PMCs. skilled civil servants to concentrate their attentions
on high-priority tasks.2.9 In addition to providing core publicservices, PMC governments are also involved in 2.13 Various approaches could be used toutlity services, development finance, commercial identify non-core govermment responsibilities.credit, and overseas trade. They market agricul- First, those services and activities that compete withtural goods and operate fishing fleets, mines, or displace private sector actvity are clearly non-
Voklwe 1: Overview 20
core. Examples of these would be government economic programs. Government has proven to berestauran services, hotels, agricultural operations, a magnet for the highly educated Pacific Islanders,pring services, and construction operations. In providing employment to more than two-thirds ofthese cases, withdrawal of the public sector is likely all persons with post-secondary education. Into result in efficiency gains from application of addition to occupying a large role in total formalprivate-sector style management to commercial employment, the PMC public services are relativelyventures, well-paid compared to the rest of the economy.
Average PMC public sector salaries are 4-6 times2.14 A second-and possibly more per capita income-moderately high by developeddifficult-set of public sector responsibilities that country standards, where the range is 1.5- to 2.5-could be shed are those that require highly times average per capita incomes, but more in linespecialized technical skills which the public sector with low-income developing countries.is unlikely to be able to retain and which, in anyevent, could be more cost-effectively provided at a 2.17 The large size of the public sector and theregional level or in neighboring economies. In this very large size of public spending vis-a-vis GDPcategory, one could include a range of curative point towards a need for cost containment. In termshealth care services, tertiary education training, and of the public sector work force, down-sizing maythe opration of rapidly-evolving, technology- be requind in conjunction with a narrowing of theintensive services such as telecommunications and operational focus to release resources for theaviation. For some of the more skill-intensive private sector and to ensure that the level of publicactivities, the challenge will be to shift from direct services provided is affordable in the long run.public service provision to public provision of International experience, however, suggests that ainformation regarding service availability in mechanical, across-the-board approach to reducingneighboring states; for others, the challenge will be the size of the public sector is unlikely to yieldto engineer a handover to private management positive benefits, in terms of either fiscal savings orwitin a regulatory framework designed to offset improved public sector performance.the adverse features of non-competitve privatesector activity. Also, in most PMCs, local Staffing Praacicescommunities, churches, and other NMOs have beeninvolved in the delivery of social services. Thus, 2.18 Improved accounting of civil service staffa strategy to secure their cooperation will be crucial size and remuneration is a first step towardto improving the delivery of services. rationalizing the size and composition of the public
service. In many PMCs, a civil service register ismaintained, but often this fails to capture
B. STRUCTURE AND ORGANIZATION OF TE individuals working in specialized servicesPURUc SECTOR (education, health, police, defense), in parastatal
bodies, or on a temporary basis. The civil serviceZTe Size of the Public Sector register may or may not distinguish between filled
and unfilled establishmen posts and, if out-of-date,2.15 Relatve to the size and long-run carrying may include individuals who are no longer activelycapacity of the PMC economies, govermment is a providing service. Data-collecting efforts will bevery large economic actor. The high share of GDP required to determine the number, personalrequired to sustain public sector activity, the large charactristics, skils, years of service, and pay ofproportion of government employment compared to personnel in the existing pub'ic service. Besidesthat in the formal sector as a whole, and the assisting in a redeployment exercise, this wouldconsiderable degree to which government has been also provide the data base needed for integratingable to capture a large proportion of the highly personnel data with payroll and budget information.educated labor force provide some indication of the Data collection efforts could be coupled withdominant role of the public sector in the PMCs (see functional audits of selected government agencies toTable 2.1). obtain a more accirate estimate of skill
requirements, as has been done in several PMCs.2.16 With the exception of Fiji, publicspending is equivalent to half or more of GDP in 2.19 As a general rule, the PMC governmentsthe PMCs, and government accounts for 25-50 have too many individuals occupying middle levelpercent of non-agricultural employment. The or administrative positions and too few in thenumber of govemnment employees relative to the delivery of front-line services. For example, insize of the total population is quite high, especially the Solomon Islands, 32 percent of governmentconsidering the limited coverage of soCi and employees are classified as administrators, and only
21 Volume 1: Overview
Table 2.1: INTRNAoNAL COMPARISON OF SIZE OF GOVERNMENT
Criteria (most rtent estimate)Shae of Share ofPublic Gov't Employees Gov't Post-Secondary Ratio of
Expenditures as share of Employees Graduates Employed Central Gov'tin National Non-Agricultural per Hundred by Government Wages to Mean
Souce: Governent mployment and Pay: Some Intenaional Comparisons, Heller and Tait; IMF OccasionalPaper 10; World Bank, World Development Report, 1992; World Bank Country Reports, Volume U;World Bank, Pacific Regional Post-Secondwy Education Stdy, May 1992; and BanK staff estimates.
39 percent provide education and health ce where demand is driven largely by demographics.services. In Fiii, 29 percent of civil servants are As noted in Table 2.3 later, these are already aclassified as adminisUors, while only 25 percent large share of the public service. Even in theseprovide education and health care services. Inter- cases, however, it may be possible to identifycounuy studies show that the share of administra- opportunities for cost-saving and more efficienttive positions should be in the range of 5 to deployment of public sector resources (see Chapter15 percent.' Furhermore, most government 4).officias tend to be located in the main urban areas,despite the fact that the majority of the population Sftrcre of the CMi1 Serviceusually resides in other areas and outer islands. InSolomon Islands and Tongp, for example, between 2.21 Besides being over-staffed, the PMC60 and 70 percent of all civil servants are located in public services are fragmented among a greatthe major urban areas. number of ministries, departments, agencies,
authorities, companies, and the like. Fiji, Solomon2.20 All three factors-over-staffing with Islands, and Tonga, for example, have more thanunder-qualifed personnel, administve bulge, and 30 central government departments and autonomousurban bias-hinder efficient provision of public agencies each. Instead of improving performance,services. A reduction in the numbers of admini- specialization appears to have contributed to a highstrative posts and progressive transfer of govern- degree of compartmentalization of services,ment positions closer to end-users will result ins inhibiting information flow and leading to costlymore efficient and effective public service. During duplication of management and administrativedown-sizing exercises, it remains important to services. Ministerial consolidation could helpprotct key services, such as health and education, correct this situation (Table 2.2).
VoI.e 1: Ovenrw 22
Table 2.2: ORGANTIONAL non-performing or frequendy absent staff.CHAnACTERICS OF Experience in the PMCs for which accuratePMC GOVUN S information i available suggests that such measurs
serve at best -'low growth rather than reduce the-- pamms & Levels size of the civil service. Furthermore, PMC down-DearitmentBodies f Gevels sizing experence suggests that the burden failsCountry Constitutional Bodies of Govt. disproportionately on the lower ranks of the civil
service, temporary employees, or newly hired staff.Job security tends to be protected at the expense of
Fiji 45 2 a well articulated reduction in staff strength. AsKiribati .. 2 such, by reducing the number of field-level orMarshall Islands 9 2 front-line staff, the down-sizing process maySolomon Islands 31 3 actually lower service quality and aggravateTonga 31 1 problems of administrative bulge.Vanuatu .. 2Western Samoa 24 1 2.25 The perceived adequacy of separaion or
retrenchment schemes is a key determinant of theease with which governments are able to reduce
Source: Volume 11, Country Economic Reports. staff numbers. When such schemes are excessivelygenerous, the public service is in danger of losingits most senior and experienced staff. If thisoccurs, there may be little option but to rehire the
2.22 Several PMCs have used agency same individuals, under consultancy or otherrestruciwng reforms to reduce duplication of temporary arrangements. The total costs of staffservices and staff. Too often, however, retrenchment may wel exceed the fiscal savingsreorganization follows a regular political cycle and resulting from releasing the individual from publicis used not to streamline but to expand the scope of service in the first place. Conversely, whengovernment and with it the number of ministries, redundancy benefits are meager, employmentdepartments, and other official bodies. prospects in the private sector quite limited, and
little assistance made available to the unemployed,2.23 A restructring strategy built around the it will be difficult to induce public servants toconsolidation of core-government functions within accept retrenchment, pardcularly at the higher,a small set of ministries has considerable merit in adminis ve ranks of government. The organizedterms of cost-savings, conservation of scarce admi- ranks of the public service are likely to voice theirnistrative and technical resources, and improvement objections to enchmet and pressures may buildof intra-governmental communication processes. to retrench only those with limited job security.One possibility would be to consolidate governmentservices by core functions, into a small mnmber of 2.26 Designing a retenchment program that isinstitutional entities responsible for: (a) economic neither too generous nor too austere is a difficultmanagement; (b) infrastructure development and -aatter. Much will depend on the nature ofoperations; (c) human resource development; (d) employment demand in the private sector and onlaw and order; and (e) economic support services. the capacity of govermment to .provide trainingMinisterial consolidation has helped streamline support to reskill public sector employees forgovermment in a number of Caribbean states. Most alternative occupations. International experiencerecently (1991), Guyana reduced 18 ministries to 11 suggests that those retrenchment programs that areas a means of streamlining the civil service and the most successful combine the followingremoving overlapping functions within the elements:frameworkc of a structural adjustment program.
* one-off payments that are positively related toReversing Growth in the Public Sector length of service and are realistic in terms of
government's financing capacity; and2.24 All of the PMCs have put into practiceprograms to reduce or slow the growth in the size * retraining and employment search programs.of the civil service. Techniques for reducingstaffing numbers vary, although most combine 2.27 Impedia entstoMobi. Impedimentstosome form of outright retrenchment with early mobility between the public and private sectorretrement, hiring freezes, reduction in the use of hinder efforts at restructuring public service. Intemporary or casual employees, and dismissal of several PMCs, civil service pensions are non-
23 Volume 1: Overiew
portable or are heavily taxed if an early draw-down levels of demand. In the Pacific Island economies,is required. Especially those civil servants at a the wage-bill provides a large (50-75 percent) sharemid-career level may be relucta to leave public of total public-sector current spending. Hence,service for fear of losing pension coverage. One wage-seting practices cannot be divorced fromway of overcomng this problem is to establish an considerations of public setor performance,indendent pension fund to which the accumulated competitiveness of the private sector, andbenefits of public srvants can be deposited after macroeconomic stability.their withdrawal from public service.
2.31 In those economies with tight labor2.28 A second factor that reduces mobility a markets (Tonga and Western Samoa), wages forprovision of a large portion of civil serv. unskilled public sector workers lag below those inremuneration in the form of usage-righits to publicly the private sector,2 while in the other PMCs,owned goods and services. The later would wages for unskilled and semi-skilled public sectorinclude housing, vehicles, telephones, concession- employees tend to exceed those prevailing in theary credit, and a host of other non-salary private sector. In the latter cases, high publicallowances. It is mistakenly assumed that it is sector wages flow on to the private sector andmore cost-efficient for Goverment to provide contribute to a reduction in the overallindividuals with special benefits, such as competitveness of the economy.automobiles, rather than to provide individuals withthe salary needed to purchase the same range of 2.32 For skilled and technically trainedgoods. It is argued, for example, that as individuals, the opposite situation prevails. Entry-Government enjoys preferential duties on items level wages for technically qualified individuals insuch as automobiles, these can be supplied at a public service are below those offered in the privatelower cost than individuals could obtain privately. sector. Public sector salaries for skilled civilThis, however, ignores the tax loss to Govemment servants in medicine, law, engineering,from public procmnt of duty-free goods. By ancy, and computer science lag well behindabsorbing this tax loss, the actua cost of (in this remuneration offered in the Pacific rim economiescase) a car supplied to a civil servant would equal of Papua New Guinea, Australia, New Zealand,the direct expenditure plus the tax revenue and the United States. Skilled individuals often areforegone. For those civil servants that are provided obliged to serve in the public sector in exchange fora wide range of non-cash benefits, the loss of post-secondary education support. After suchpublic sector employment implies not only a risk of periods of bonded service are completed, out-income loss but also the need to seek alternative migration becomes a distinct possibility. In Tonga,shelter, means of transport, communication, and Western Samoa, and Fiji, out-migration of skilledpossibly even education for one's family. technicians has contributed to skldl gaps within the
public service.2.29 Cognizant of the need to enhance private-public sector mobility, several of the PMC 2.33 With the notable exception of thegovernments have moved to monetize a higher Solomon Islands, wage compression is a commonshare of public sector benefits. Housing is feature in the salary structure of the PMCs.3provided on a rental basis or mortgage facilities are When wage compression is combined with a largeoffered rather than providing housing directly. In number of pay scales, it becomes difficult tosome instances, civil servants have been offered the distinguish between one position and the oneopportunity to purchase used government vehicles immediately above or below it. This frustratesat a concessionary price instead of being given a efforts to link pay to performance and to definegovernment vehicle for personal use. Further monitorable tasks and career streams within theefforts along these lines will tend to enhance public- public service.private mobility and, in so doing, reduce theresistance to more flexible staffing policies in 2.34 Pubfic/Private Wage Comparisons. PMCGovernment. governments have employed outside agencies to
compare public and private sector remuneration asPay Poces part of regular wage setting practices. Such
reviews have highlighted the wage compression2.30 Civil service remuneration practices play problem and recommended various approached toan important role in three respects: (i) to value achieving a greater measure of public-to-privatepublic service; (ii) as an indicator for wage setting sector parity. Following such reviews (in at leastpractices in the private sector; and (iii) as a fiscal three instances during the past decade), PMCpolicy instrument with which to influence aggregate goverments have provided generous increases in
Voeme 1: Ovenibw 24
remuneration to top civil servants or to consultants more judicious allocation of existing skilled labor.occupying senior line positions. This has triggered While it is quite common for senior officials ofprotests by professional, middle, attd lower level different government departments to perform apublic sector employees. Under pressure, PMC great multiplicity of tasks, it is less common forgovernments have granted catch-up awards to this public sector officials to provide services formuch larger group of public servants, placing several agencies at once. As a result, performanceupward pressure on the wage bil and resulting in in one branch of government may suffer because ofa crowding out of high-priority non-wage outlays. a particular skldl shortage, while other branchesIn none of these instances did salary adjustment may experience a temporary surplus of the ncededincrease public service productivity or reduce the skills. In several PMCs, inter-ministerial taskrate of out-migration by skldled civil servants. forces, project implementation units, and other such
committees are charged to handle cross-sectoral2.35 The basic premise that public and private tasks. Other mechanisms that could be used tosector wages should move in tandem is seriously facilitate a sharing of scarce manpower includeflawed. Differences in job security, skills, more frequent inter-agency staff secondment,accountability, and work practices are so great as to greater reliance on inter-agency teams to undertakeobscure any meaningful comparisons between routine core operations, and establishment ofsectors. Wages should be linked to productivity centralized pools of specialized technicians (e.g.levels, either of the individual or of the work unit, computer scientists, accountants, attorneys,rather than to the performance of the private sector. economists, project design pecialists) to provide
services to several agencies at once. In several2.36 Linking Product*t nd Remuneration. Caribbean states, work groups and task forcesImproving the linkage between public sector comprised of officials from several ministries areremuneration and productivity will require steps to: assigned routine governmental tasks. The use of(1) tighten recruitment systems to ensure that an informal arrangements to solve specific problems isobjective screening process is put into place; (2) a hallmark of flexible small states.4 Going beyondimprove job classification systems, with an em- this, a greater interchange of scarce resourcesphasis on clear definition of work responsibilities; between the public and private sector could help(3) reduce pay scales to provide for meaningful close the skills gap in government. This could bedistinction between different categories of accomplished through management contracts,government employees; and (4) institute regular consultancy agreements, or, as in the case of thereviews of employee performance, with wage Maldives (see Box 2.1), explicit labor-sharingawards linked to the satisfaction of objective agreements between the private and the publicperformance criteria. For those services in which sector.skills are in short supply, such as engineering,medicine, accountancy, and computer science, it 2.38 Regional Service Provsion. Providingmay be appropriate to establish special service specialized services to several countries in a region,streams and remuneration practices to ensure that rather than to each individual nation, has proven tocompetent individuals are attracted to and remain in be an effective solution to public sector skillpublic service. This could include .he use of shortages in fields as diverse as tertiary training,consultancy payments, salary supplements, execu- disaster preparation, fisheries resource manage-tive service appointments, induction allowances, ment, and energy planning. In other cases, theand other non-traditional means of compensating record of regional public scrvice provision is morehighly skllled staff. Caution is required, however, mixed. Given the vast differences among the PMCto ensure that special pay provisions for skilled states, it may be worthwhile to strengthen sub-government professionals are not carried over into regional cooperation mechanisms among nationshigher salaries for senior administrators or with a more similar range of development needs.politicians, whose skills are not in short supply.
2.39 Technical assistance provided under aidOvercoming Skil Shortages agreements is an important means of meeting
specialized skill needs. The track record of2.37 Skills Gaps. Lack of adequate skills technical assistance in the South P2-ific is mixed,hampers performance of the public seator despite with performance sufferire from a blurring of line-heavy investments in training and technical agency, advisory, and training roles; difficulties inassistance. While skills gaps are aggravated by attracting qualified personnel in remote locations;excessively broad mandates, bureaucratic frequent staff turnover; and insufficientcompartmentalization and inappropriate pay performance monitoring. In some instances,policies, there is scope for improvement through a technical assistance appears to be "supply driven"
25 Volume 1: Overvew
Box 2.1: ThE MALDIVE: FlEB SOLUONS TO SKILL SHORTAGES
Since the mid-1970s, the Maldivian economy has grown in excess of 10 percent per amnum. Rapideconomic growth, based on an export-oriented expansion in the fisheries and tourism sectors, created labordemands well it excess of that which the indigenous labor force, of about 50,000 persons could provide.A combination of reliance on expatriate labor, skill-sharing and a heavy public spending on skill acquisitioncharcterize the Maldivian approach to meeting skill shortages.
The private sector employs about 4,500 expatriate workers, the large majority of whom areemployed by hotel operators. Nearly three-quarters of the expatriate laborers perform unskilled, low wagetasks. These workers are drawn from surrounding South Asian states where wages for unskilled labor areabout half of the Maldivian level. Other expatriate laborers, drawn equally from South Asia and Europe,perform a wide variety of skill-intensive tasks. Employers place a high priority on localizing skilledexpatriate posts. The private sector finances numerous in-house training courses, apprentice programs, andoverseas study courses for the local work force.
During the 1980s, the ranks of the civil service and the public enterprises swelled by 5 percent perannum to reach 17,000 persons, or nearly 30 percent of the hired labor force. Some 4,000 expatriateworkers are employed by the parastatal enterprises and the civil service, of which only a very small share(about 200) are financed by foreign aid programs. A large number of the expatriates working for the publicsector provide teaching, nursing, and other technical service. Practically all of the expatriate workersemployed by Govermment are drawn from the South Asian work force.
For most of the past two decades, the civil service offered guaranteed employment to secondaryschool leavers and graduates. Salaries paid to civil servants were fixed and held well below private sectorlevels for long periods of time. To offset the lower salaries, civil servants were encouraged to devote halfof their working time to the private sector. Government office hours are scheduled for only half a day andmost skilled civil servants work the other half for the private sector. To avoid conflict of interest, civilservants are discouraged from working after-hours for private firms whom *hey would regulate in an officialcapacity. Intensive cross-fertilization between the public and private sectors has made a strong, positivecontribution to productivity. In addition, civil servants display a high degree of sensitivity to private sectorneeds, while the private sector has become closely involved with and supportive of the more traditional publicsector activities.
During the period 1979-1989, the share of education in total government spending increased from7 percent to 18 percent. Heavy emphasis was placed on providing basic literacy skills, expanding secondaryschool places, vocational training, and overseas tertiary training. The composition of education spending inthe Maldives compares favorably with neighboring countries. Salaries and allowances account for only 65percent of recurrent expenses, leaving 35 percent for textbooks and other materials.
Source: World Bank, Maldives: Country Economic Memorandum, 1991.
rather than undertaken as a response to a locally commissioner and other centralized over-sightfelt need or demand.5 More effective utilization of agencies. Although the larger nations in the regiontechnical assistance could be achieved by: (a) have tended to decentralize personnel functons todevoting more effort at the design stage to line agencies, limited departmental capacity toidentifying monitorable achievements; (b) upgrading manage such affairs, together with the need tothe selection procedures and performance closely monitor the wage bill for fiscal purposes,monitoring of consultants; and (c) using creative argues for caution in this regard. Indeed, ratherdelivery arrangements, such as establishing than decentralizing personnel functions, greatertwinning relationships between similar institutions emphasis should be placed on improving coordina-or integradng the use of short- and long-term tion between personnel management and budgetconsultants. formulation, upgrading personnel audit capacity,
improving PSC manpower planning abilities, and,2.40 Locus of Personnel Functions. The insti- most important, improving coordination betweentutional responsibility for civil service affairs is the PSC and the line agencies.centralized in the office of the public service
Volume 1: Overvew 26
Table 2.3: INTERNAnONAL COMPARisON OF THE CowosmioN OFGOVERMENT'SPENDING
Capital Health & Public Wages & CapitalExpenditures Education Administration Salaries Expenditures
(as % of total-- (as % of GDP) --------- expenditures)
Source: Govezment Employment and Pay: Some Intemaional Comparisons, Heller and Tait; IMF OccasionalPaper 10; World Bank, World Development Report, 1992; World Bank, Country Economic Reports,Volume II, World Bank, Pacific Regional Post-Secondaiy Education Study, May 1992.
C. PUBLIC EXPFIDIIURE fANAGEMENT planning focus (Fiji, Western Samoa). Thetraditional target-oriented approaches to
2.41 With the exception of Fiji, where public development planning in the South Pacific has notinvestment levels are low by international met expectations, and in two countries (Fiji andstandards, the other PMC governments spend Western Samoa) has been replaced by a morebetween 20-40 percent of GDP on public strategic approach to economic planning.investment. High rates of public investmentprimarily reflect a high level of aid inflows and also 2.43 The shift in emphasis towards strategiccontribute to high public administration outlays (see planning is consistent with a growth strategy thatTable 2.3). In global terms, public investment favors more of a partnership between governmentpnornies are relatively good-public investment is and the private secor. In Fiji, for example,dominated by outlays on economic infrastructure Economic Summits were held in 1989 and 1991and social services. However, this masks during which Govermnent and the private sectorinefficiencies in resource use at the program and jointly formulated sectoral growth strategies andproject level. Improving the effectiveness and defined a policy reform agenda. The benefits ofrelevance of public expenditures can improve such cooperation extend well beyond thegovernment's contribution to the growth process. preparation of a strategic plan: forging a consensusThis will require adoption of more flexible plnning between Govermment and the private sector onprocesses, a strngtiening of budgetary processes, strategy and policy has helped build credibility andand improved aid management. speed adjustment to difficult reforms.
2.42 Planning. The pattern of public sector 2.44 There is a clear division (if responsibilitiesplanning in the South Pacific is split between those in all PMCs between officials responsible forcountries that prepare target-oriented, needs-based macroeconomic management and those responsiblefive-year plans (Tonga, Vanuatu, Kiribati), and for planning and designing public investmentthose that have shifted towards a more strategic programs. While in larger economies this may be
27 Volume 1: Overvew
an effective division of labor, in smal economies it education and public works are implementing morecan be problematic. First, the relatively high levels than 30 projects at any one time. This reflectsof foreign aid result, implicitly, in a large recurrent more an inability to foster cooperation amongbudgetary obligation that must be anticipated and divergent donors than an appropriate use of limitedplanned for. Second, the large size of many PMC project preparation and implementation capacity.development projects compared to the overall In most PMCs, donors dominate projectresource envelope available to government implies formulation, leading to problems of project scalethat errors in project prioritization and and consistency. Pardy because of aid's "softimplementaton can have serious implications for budget" effect, line agencies put forward manyeconomic performance as a whole-an example projects in the hopes of attracting donor supportbeing the high levels of aid-supported public while down-playing longer-term issues of financialinvestment and low rates of economic growth. One sustainability. Few projects are actually subjectedway of ensuring that public initiatives are consistent to rigorous cost-benefit analysis by thewith the macroecononic framework and have a governments; fewer still are evaluated in terms ofhigh priority with the nexus of alternative public the appropriateness of institutional interventions.sector initiatives is to subject all major public Particularly in the very small and low-incomeinvestment activities to careful scrutiny by a broad PMCs, many projects are implemented outside ofrange of officials experienced in both project design the budgetary framework, with implementingand macroeconomic management. Informal but agencies having .ittle notion of the actual costs ofregular consultation between planning agencies, line different donor assisted initiatives. With theministries, and senior officials in core economic exception of Fiji, there is no comprehensive pictureagencies may be one mechanism for promoting of publicsector investments (or PSIP) and hence nonter-agency coordination of new public sector estimate of their impact on macroeconomic targetsundertakings, or their financial implications.
2.45 Macroeconomic Framework. A sound 2.47 Pragmatic solutions are needed to improvemacroeconomic framework is needed to underpin the management of public investments. In view ofthe strategic planning process. Frequent the near-term constraints on planning capacity, itmacroeconomic policy responses may be required would not be realistic for PMC governments to aimin small, open PMCs that depend on a narrow to produce detailed multi-year PSIPs covering allrange of primary product exports and hence are sectors. Instead, it would be more appropriate tovulnerable to sharp swings in export earnings, focus on two or three key sectors which are vitalrevenue availability, and domesdtc demand. With for income-earning activities (such as agriculturefew exceptions, macroeconomic analysis capabilities and transport) and human resource development,are weak and the data base for policy analysis and to develop sectoral strategies and investmentsorely deficient. National accounts are incomplete; programs consistent with a notional sectoralpublic expenditure estimates are not consolidated resource envelope. In several PMCs, roundtableand fail to capture a large share of donor-financed meetings have been called to discuss and coordinateactivity; and external trade statistics capture only a future investments in the education sector. Thispart of actual activity and are unable to distnguish approach was tested with some success in theclearly between trade and remittance flows. Those Solomon Islands education sector in 1991.countries that have invested heavily in improvingmacroeconomic data bases and analysis capabilities, 2.48 The screening criteria for projects can besuch as Fiji, have been able to use economic tightened to eliminate indifferent or bad projects.policies to smooth volatility in growth and incomes. Inmost PMCs, inter-Ministerial Committees reviewA two-pronged approach to improving large development projects. Many projects managemacroeconomic policy formulation capabilities is to bypass this screening process or are screenedneeded, with an equal emphasis on sll acquisition only at a very late ige in the project cycle.and improvement in the underlying data bases. Moving the project i. iIew process upstream, by
requiring inter-Ministerial approval of a core2.46 Publfic Sector Inveshnent Programs program of investments at the project concept stage,(PSIP). Public sector investments are large (in would help guard against inappropriate investments.excess of 15 percent of GDP) and typically exceed Focusing the public investment process on adomestic implementation and maintenance smaller, more manageable set of core investmentscapability.6 Resources are spread thinly over too would also encourage cooperaton among donormany projects, stretching out implementaton and agencies and would enhance the prospects foroverwbelming administrative capacity. In several successful project implementon.of the PMCs, line agencies responsible for
28 Volaw 1: Oerview
2.49 Gettng Projects Right. Few projects in signaling medium-term changes in resourcePMCs are rigorously evaluatd, and most large availability to line-agencies.projects are mmaged by expatriates. As a result,the institutional memory as to workable approaches 2.52 Greater discipline can be exercised overto undertaking effective projects tends to dissipate. spending if all expenditures are brought within theNo other solution exists but to reduce the number budget framework, overruns discouraged, andof projects to a more manageable number (whfle accounting and auditing functions improved.increasing individual project size), localize project Bringing expenditures under the budgetary umbrellamanagement responsibilities, and devote more will be easier to accomplish if there is a clear andresources to project evaluation. mandatory budget cycle that integrates personnel,
non-wage recurrent outlays, and capital spending ofStrengthening the Budget Process all government bodies. Since transfers to public
enterprises and public authorities are often a large2.50 Budgetay processes need to be made (and unanticipated) element in public spending, aconsistent with expenditure priorhies, otherwise special effort should be made to forecast accuratelytwre is a danger that government spending witl and to scnrfinize such requirements. Getting andrift according to its own internal dynamics. accurate estimate of donor spending may beBudget overruns, frequent use of supplementary difficult. Periodic surveys may be needed to elicitappropriations, a large volume of off-budget expenditure plans from donor agencies; suchspending, lack of tnsparency in budgetary information will then have to be molded into a formappropriations, delayed accounting and limited compatible with the budget.auditing of past expenditur, and a weak linkagebetween recurrent and capital spending characterize 2.53 Over-Spending can be discouraged in twobudgetary processes in the PMCs. On the revenue ways. First, opportunities for over-spending can beside, a high degree of reliance on a narrow range reduced by restrictng use of off-budget specialof customs duties and lumpy donor contibutions accounts to selected development projects and bycontrbutes to an income-inelastic and volatile limiting opportumities for supplementary appropria-resource picture. The combination of volatile tions to only very special categories of expenditurrevenues and loose expenditure controls rewards (e.g. disaster relief). And second, expenditurefsal laxity and over-spending. Long accustomed overruns should be highlighted through timelyto such practices, PMC fmance ministries have application of accounting and udittg controls andresorted to the use of cash-balances, monthly penalties applied for unauthorized outlays.spending targets, over-spending penalties, and otherforms of cash-in-hand spending restraint to limit the 2.54 Budget Sucture. PMC governmentssize of the fiscal deficit. Such measures have keep traditional budget strucures, with an emphasisworked reasonably well to restore short-run fiscal on input, or line-item, control of outlays. Thisdiscipline in PMCs as diverse as Fiji, Solomon facilitates cost-control but leads toIslands, and Kiribati. Where expendiure controls "incrementalism": budget makers tend tohave not been adequately applied-as in the concentrate on minor adjustments to last year'sSolomon Islands post-1989-the result has been a figures instead of improving the efficiency withsharp upturn in inflation and a depletion of foreign which resources are used and outputs achieved. Inexchange reserves. some of the PMCs, the budget lacks
transparency-large multi-purpose outlays, such as2.51 A gradual approach will be needed to public enterprise transfers, are reported as singleupgrade expendiure management. Over time, the line-items while wages and salary supplements areresource mobilization effort should become better buried under capital spending headings. For somelinked to income growth, but in a fashion that countries, line-item control is so excessivelyreduces discrimination against economic activity. detailed as to deprive departments of the flexibilityFor the larger of the PMCs, this will imply a shift needed to carry out normal operations.away from reliance on external trade taxes toconsumption taxes: recent efforts to implement 2.55 Progrm Budgeting, wbich stresses aVATs in Fiji and broaden sales taxes in Western clearer definition of goals and a monitorableSamoa and Tonga are part of this trend.7 For measurement of achievements, has been usedthose countries likely to face significant reductions successfully in a small number of cases. In Tonga,in external aid (FSM and Marshall Islands) or for example, the Ministry of Fisheries, upon intro-trade-tied aid (Fiji)", a high priority should be ducing program budgeting, discovered that a greatattached to diversifying revenue sources, number of its outreach efforts were having littleforecasting medium-run revenue availability, and effect, so subsequently divested itself of a large
29 Vokume 1: Ovekiew
mnmber of its fishing boats and redirected its optimal recurrent costs can be a multiple ofactivitis away from the opeation of fishitg boats investment costs. Third, the focus of key linetowads idendfication of new technologies for agencies, such as public works departnents, shouldfishermen. As a geeral nile, program budgeting be shifted from managing capital spendingcan improve the accountability and efficiency of programs to O&M management. Recent donorpublic outlays, but only in an environment where undertakings to finance a greater share of project-budget discipline, cost control, accounting, and related recurrent costs are laudable. The largeauditing capabilities are strong to begin with. The backlog of overdue O&M and the time needed toTonga experience, however, suggests that perfor- restructure public expenditures and buildmance gains from selected application of program maintenance management systems implies thatbudgeting tecniques should not be underestimated. donor support for O&M outlays will be needed for
many years to come.2.56 RecwentErpendwManagement. Allof the PMCs have experienced prolonged periods inwhich a large share of nadonal income was D. PUBLIC ENTERPRISE REFORMallocated to public investment. This, in conjunctionwith excessive growth in public payrolls and costly 2.58 PMC governments play an important roletransfers to state enterprises, has placed heavy in the commercial sectors of the island economies.pressure on budget provisions for operations and Public enterprises are dominant economic actors inmaintenance (O&M). Inadequate spending on Fiji and Kiribati, of moderate importance in TongaO&M has caused an alarming deterioration of and Westem Samoa, and take on a more minor roleinfrastructure assets and resulted in a deterioration in Vanuatu, the Marshall Islands, and the Federatedin service quality, most notably in the education States of Micronesia (Table 2.4). As a group, thesector. A recent review of road transport systems non-finanial public enterprises have experiencedhas estimated that actual maintenance spending has poor financial performance, resulting in a drain onbeen between 20 to 40 percent of that required to goverment resources. In Fiji, for example, nearlymaintain roadways at an optimal level. In the case half of all public capital spending during the 1985-of roads, users bear the costs of insufficient O&M 90 period was in the form of subsidies and transfersin the form of wear-and-tear on vehicles and high to public enterprises and authorities. In theshipping costs. In the education sector, under- Solomon Islands, transfers to public enterprisesfinancing-of school supplies, teacher training, and reached as much as 7 percent of GDP during 1990-curriculum development materials-has seriously 1991. The poor fiancial performance of theundermined the quality of prmmary and secondary parastatal enterprises is a result of several factors,education, resulting in an increase in drop-out rates, including: (a) politicized, non-professionala shortage of suitable candidates for terdary management and boards; (b) a mixture of social andtraining, and unsatisfactory achievement indicators. commercial objectives guiding operations; (c) over-
staffing and civil service like labor policies; (d)2.57 Increasing operations and management inflexible tariff-setting policies; (e) limitedoutlays and building the institutional capacity to autonomy in undertaking investments; and (f)manage efficient O&M will require action on a inadequate capitalization. To offset thesenumber of fronts. First, consolidating and constraints, public enterprises have been providedupgrading the use of existing assets should be a special regulatory teatment, which virtuallyhigher priority for new investment spending before ensures that private firms will be unable to competeundertaking further expansion of services or with government-owned entities.infrastrctue. As part of this approach, manyPMCs are undertaking investments aimed at 2.59 Commraakadon. The problems of theclearing the shelf of deferred maintenance public enterprises differ markedly by enterprise andrequirements. Second, provision for efficient O&M country, suggesting that solutions will have to berequirements should be made at the time tailor-made to fit local circumstances. Experiencedevelopment projects are approved and forward in the Pacific and elsewhere suggests thatestimations of recurrent cost requirements establishing a commercial operting environmentincorporated into the budget framework. Cross- for the state-owned enterprises (SOEs) can help tocountry studies suggest that the recrrent cost ratio improve performance. Along this line, important(spending on O&M to investment cost) should be initiatives include:on the order of 10-20 percent per annum forphysical infriaucue and economic services and * regular, independent accounting and auditing ofbetween 30-50 percen for social services. For financial and technical performance;some services, such are rural health dipensares,
V&nw 1: Ovekew 30
Table 2.4: C}IARACTRusncs OF STATE OWNED ENTERPRISEs IN PMCS(most recet esthuate)
Role in non-Number of Agricultural Direct Transfers
non-financial Commercial from GovenmentCountry SOEs Activity (% of GDP)
* appointment of commercially experienced companies) or that supply public goods (e.g.management and board directors with clearly reforestation/area development companies). It hasdefined responsibilities; become increasingly clear that ownership does
matter in the operation of commercial entities and* imposition of a hard-budget constraint by that govemment is ill s;ixed to be a commercial
reducing subsidies, access to soft credits, and service provider. Flexibility and quick responsegovernment-guaranteed loans; management, hardly traits fostered by governments
anywhere, are essential to the effective operation of* granting of greater autonomy in staffing, commercial enterprises in small, open economies
resource-use, marketing, and investment to SOE where market conditions tend to be volatle.management;
2.62 Divestiture will not be an easy process.* centralization of SOE equity interest in an The very conditions that inspired governments to
economic ministry with strengdtened oversight establish the SOEs-thin capital markets, under-capabilities; developed local private sectors, distrust of foreign
interests-continue to prevail. Many of the* phasing-out of preferential regulatory treatment standard solutions, such aS the use of management
to stimulate competition and clarify operating contracts, sale of enterprise shares, and workerstatus; and buyouts, are stymied (except in Fiji) by a lack of
private savings, non-existent capital markets, and* regular, objective review of public enterprise weak regulatory oversight capacity.'0 Still,
tariffs with greater weight accorded to the successful divestitures have been carried out infinancial viability of the SOE. PMCs as diverse as Vanuatu, Westemn Samoa, and
the Solomon IslaLds, as well as in other small and2.60 Two decades of experience with costly remote economies throughout the globe.SOE restructuring exercises in the South Pacificand elsewhere has produced few positive results. 2.63 Private Subonblctig. Greater use ofFinancial injections (for recapitalization or private subcontractors by SOEs, and by governmentinvestment purposes) into distressed SOEs should departments in general, can help build privatebe held in check, particularly if commercialization sector capacity and set the stage for more completeis viewed as a prelude to divestiture.9 divestitures. The Ports Audhority of Fiji, for
example, sigmficantly lowesed labor costs and2.61 Divesture. The more immediate task improved labor productivity when it switched fromconfronting policy makers in the Pacific is to divest public sector work crews to private subcontingthe many (often poorly performing) commercially and competitive bidding for stevedore crews.oriented SOEs, while remaining control only ofthose that are natural monopolies (e.g. power
31 Volume 1: Overview
2.64 Comprehensive vs. Opportunistc mal conditons, exceed short-term itert rates andApproaches. Most successful divestture programs expected inflation. Experience elsewhere suggestsare conducad in a fairly pragmatic fashion, with that it is the availability of investment fmnane,far more attention paid to observing objective, rather than its cost, that is the more important de-trans t, and fair nldes for SOE sales tban to the tenninant of successful private sector development.number, size, or sequning of fims to bedivested. Ensuring that the divestiture process isconducted in the national interest by underaking E. MANAGiNG THE PUBLiC SECTORsuch operations in an orderly, open, and fair REFORM PROCESSmanner contributes to the credibility andmomentum of the process. Recognizing that the 2.67 Redefming the dimensions and operationsprice received for the sale of SOE assets is likely to of the state is a difficult challenge, especially whenbe very low indeed, but that future efficiency and political leadership derives support from thetax-yield gains are superior to persistent losses, is established bureaucratic order. Achievingimportant to getting the reform process started. meaningful public secr reform is complicated by
the lack of a sharp distinction between political2.65 One of the paradoxes of SqE reform is leadership and public service management, athat PMC governments are owners of quite complex common characteristic of aU the PMCs. Recentcommercial enterprises but lack the managerial and experience suggests that comprehensive publictechnical skills needed to conduct orderly sector management reform programs are most likelydivestitures. Preparatory steps to privatization to be implemented during periods of severeinclude: (a) up-to-date accounting of SOE financial economic crisis or after a high stage of economicstatus; (b) financial restructuring (often conversion development is reached.11 Thanks to generousof government debt to equity) in firms with a develoT)ment assistance flows, the former isnegative net worth; (c) legal conversion of the SOE unlikc y to occur for any meaningful length of timeinto a form of company that could be sold; (d) in t1i . South Pacific and, at the same time, thesolicitation of bids-through open and transparent PY As are still far from affluent. In suchprocedures-to buy all or part of the firm; and (e) circumstances, the impetus for change will have todevelopment of redundancy agreements for the SOE come from within and be engineered in a fashionlabor force. To avoid an upsurge of private appropriate to the changing constellaion of politicalmonopolies in the wake of divestitures, and social forces of the island economies. Thegovernments may need to remove regulatory public sector reform process in Singapore (see Boxbarriers (e.g. import licenses, foreign investment 2.2), for example, has been highly successful duerestrictions) to competition, retain the right to to a combination of clear vision, locally tailoredlicense other competing enterprises, and monitor solutions, and steadfast commitment to positiveprices and service delivery to aid in the early change.detection of non-competitive practices.
2.68 Having contributed to the buildup of the2.66 Develepment ks. As a form of SOE, public sector, donors can also play an importantthe development finance institutions (DFIs) merit role in improving the performance of the PMCspecial attention. In most PMCs, the DFIs are the public sector. For much of the past two decades,only source of development finance available for foreign aid has been used to build institutions,resident entrepreneurs. DPI operations suffer from rather than to work with an appropriately sized andpoor portfolio quality, weak management systems, focused public sector. Assistance efforts that areinterest rate restrictions, use of sectoral credit alto- most likely to succeed are those that are tailored tocation guidelines, and political pressures to under- the particular development circumstances,take uneconomic lending programs. While in larg- administrative realities, and cultural context of eacher economies, one might encourage closure of such individual Pacific Island nation.institutions, the shallow PMC financial marketsindicate it may be worthwhile to attempt to rehabi-litate the DFIs through: (a) a reduction in outstand- F. As COORDINATIONing arrears (through improved collections and writ-ing down losses); (b) tightening of management 2.69 Aid coordination is a special function ofprocedures; (c) abolition of directed lending pro- the public sector in developing countries, and needsgrams; and (d) removal of interest rate restrictions. to be given particular attention in the PMCs: aidIn terms of interest rates, the objective is to price flows are relatively large, and there is the dangerdevelopment finance at a level that reflects the that donor-drivenlong-term cost of capital. This should, under nor-
Voltme 1: Overiew 32
Box 2.2: ADMNSRATvE REFoRM: SiNGAprE ST=
The PAP Government of Swgapore eoutered two major governance problems when they assomed officein 1959: a hostile and comrpt bureaucracy. Four major administrative reforms were undertaken to change thestructures and procedures of the public service, and the atufdes and behavior of the civil servants.
Comprehenive Reform of 1959. The 1959 comprehensive reform included: (1) strura reorganizationof the civil service, (2) dissolution of ineffective statutory bodies; (3) reduction in civil service salaries; and(4) establishment of the Political Studv Center to eradicate the colonial mentality of the civil service. Civilservants were encouraged to voluntarily pardcipate in mass civic projects in their spare time; recruitmentpolicies were reoriented to broaden the ethnic mix in govermment; a Central Complaints Bureau was establishedto provide an opportaity for public complaint about civil service performance; senior civil servants wereselectively retrenched, and seniority was gradually replaced by performance as the basis for promoton,
Anti-Corrupton Reforns of 1960. The Prevendon of Corruption Act (POCA) and the Corrupt PracticesInvestigation Bureau (CPIB) were established in 1960 to overcome weaknesses in existing malfeasancelegislaton. Under POCA, the definiton of corrupt behavior was specified and penalties for such behaviorincreased to include imprisonsent. POCA was further amended in 1963, 1966 and 1981 to widen the scopeof those falling under its jurisdiction and broaden its investigatory authority. To improve enforcement, theCPIB staff was hinreased from 8 officers in 1960 to 71 persons in 1989 and was placed directly under thejurisdiction of the Prime Ministers office.
Budgetary Reforms, 1978 and 1989. At Independence, Singapore inherited a line-item budget system,with a stress on accountability rather than performance. After a series of reviews, a limited program budgetingsystem was implemented, after two years of trial runs, in 1978. This was replaced, in 1989, by a block voteallocation system, in wlich departmental managers are given a high degree of autonomy in the managementof voted funds and manpower resources. Under this system, a balanced budget is enforced when blocks ofresources are allocated. While the Ministry of Finance issues performance guidelines, line-agencies can developmore detailed cost-control procedures to meet their own internal requirements.
Personnel Managemet Reforms of 1982 changed the Singapore Civil Service's personnel managementpbilosophy from a task centered to an employee-centered one. A Public Services Division (PSD) wasestablished to centalize personnel functions and a potential performance appraisal system, within which acndidate's long-term capability and readiness to assume future positions, was implemented. In 1986, amanpower reducdon exercise was launched, with the aim of reducing staff levels by 10 percent over five years.Staff reduction was undertaken in response to rationalizadon of departmeal functions, streamlining of workprocedures, computerization, privadzation, and contracting-out of work. Following up on the down-sizingexercise, Singapore insdtuted a zero-growth manpower policy for the public service in 1988.
The Singapore approach to administrative reform has been considered an overwhelming success becauseof 'the dual emphasis on the insdtutional and attitudinal aspects, its clearly stated goal of enhancing nationaldevelopment, its pragmatic approach of relying on both comprehensive and incremental strategies, and strongpolitical support and sponsorship for the reform effort."
Source: J.S.T. Quah, 'Administrative Reform: Singapore Style," International Review of AdministrativeScience, Vol. 57, 1991.
public investments could overwhelm all attempts to * lessening the administrative burden on memberrationalize public sector activity. countries and donors;
2.70 The benefits from improved aid * helping prevent duplication of effort;coordination are often discussed and are generallywell understood to be, as follows: * increasing implementation efficiency; and
* improving aid management and increasing the * reducing the tendency for donor priorities todevelopment impact of aid; determine the shape of a country's public
investment program.
33 Volume 1: Overiew
2.71 Effective aid coordinaon mechanisms 2.75 A strong and coherent consensus needs tohave been slow to develop in the Pacific region, be developed across Govenment deparmens ondespite active efforts by numerous regional bodies. macroenomic policy, development strategy. andMost PMCs hold regular high-level discussions of priority programs. Difficulties in coordinating aidtheir aid programs with individud donors. Such at the nadonal level are linked to a number ofdiscussions, while productive in mobilizing weaknesses in public sector management, includingassistance, contribute to the fragmentation of the (for many PMCs) the lack of a macroeconomicaid progmn, require a great deal of time, and lead framework and a consistent public sector investmentto a schism between sector strategies and policies program (PSIP). A strategy for inprovingand the agreed portfolio of aid projects. macroeconomic policy making and the design of
public investment programs has already been2.72 In the past, round table meetings have discussed. In relation to this, it is crucial that abeen used as a vehicle for country/donor dialogue PSIP should be compatible with the country'son development strategies and were also used as a macroeconomic framework-in terms of size,means of identfying new donors and sources of composition, r-d financing-as well as withfinancing. However, few new sources or pledges implementation capacity. Internal review of theseof aid have emerged from such metngs, and there policies and program priorities will help lay aare few indications that either the PMCs or the stronger foundation for discussion with aid donors,major donors wish to use the roundtable process to not only by setting out a firmer and more consistentreview macroeconomic policies and coutry direction, but also by closer identification of staeddevelopment strategies. Despite considerable plans with Government intentions. Further, thisinterest shown by the multilateral bodies to reform would help reduce the administrative workloadthe roundtable process, PMC governments continue associated with aid coordination. Additionalto perceive the process as donor-riven and of little documentation to that used in the normal planning
ual value, either in mobilizing greater amounts process should not be needed for national andof exemal aid or in ensuring more effective use of sector aid coordinmaon meetings with donors.external aid.
2.76 The size of donor aid programs relative to2.73 External assistance through official donor the level of a country's resources allocated to theprograms and through other sources such as NGOs PSIP can be used to exert a powerfl influence onis a key source of funds for most Pacific Island the shape and focus of assistance programs. Thiscountries' development programs, and is likely to is particularly true of the relatively smaller islandremain so for the medium term. As discussed, economies, where only a limited financialofficial aid flows make up between 20 percent and Government commitment is sometimes made to80 percent of GDP (with the exception of Fiji), and investment projects and where there is often a lesssignificant net resources are transferred under NGO detailed articulation of development goals,and volunteer activities. Ineffective utilization of strategies, and role of the Government. It is notthese resources can seriously detract from a surprising in these circumstances that externalcountry's development effort, and ultimately lead to assistance can be easily donor driven, and notdiminishing support from external agencies. Aid necessarily in accord with development goals orcoordination, both natonally and between the budget constraints. Under these conditions, themember country and donors, is a key factor in importance of good coordination cannot be over-helping to ensure efficient use of this support. emphasized. A stronger statement of macro-
economic policy, linked frmly to the PSIP, will2.74 A lead role by the member country is help reduce this risk. The large size (andcrucial to the success of the aid coordination. lumpiness) of many projects compared to theWithout this involvement, donor interests may tend Government's budget and its ability to supportto drive the aid process, the composition of the concomitant recurrent costs can result in quite highinvestment program may not reflect national costs, in terms of lower economic growth andpriorities, and there is a high risk of not achieving greater demand on recurrent government expendi-Government development objectives. This role ture, if the policy development and planning pro-needs to be underpinned, however, with a sound cesses lead to inappropriate investment decisions.macroeconomic framework and strengthenedmanagement of the public investment program 2.77 Effective planning in this context does notwhich clearly sets out government priorities and necessarily entail a capacity to provide finelydevelopment strategies. detailed project proposals. Rather, sufficient
information need only be prepared to present anoutline of the activity to ensure its consistency with
Voekwe 1: Overvkw 34
sector objectives and strategy, and within inability for governments to allocate adequateimplementation, operational, and maintenance recurrent cost funding. The cause of this can oftenconstaints. be traced back to the original funding decision and,
sometimes, project design. Some donors have2.78 There are a number of options open to expressed a willingness to fund recurrent costs.Govemment to establish effective aid coordination Although this may address the short term problem,with donors. Counties will need to choose the it may not provide a lasting solution, particularlymost appropriate mechanism to suit their needs and where there is a major imbalance between capitaladministrative capabilities. Efforts, however, are and operating cost budgets. Under-utihization ofrequired to ensure that the donor community available external assistance may be a preferredactively participates in the policy dialogue at the strategy where it is expected that recurrent costsmacroeconomic level through regular external cannot be reasonably met, or where activities arereviews and discussion of the macroeconomic inconsistent with development priorities andsituadon and policy outlook. The development of strategies.assistance programs anchored within prioritizedpublic investment programs will provide a 2.82 To provide more transparency onfoundation for discussion with donors. Using this recurrent cost financing and the budget process,as a base, the Govemment could caU for joint donors will need to take a coordinated stand withdiscussions with donors on its development strategy Governments in the identification of recurrent costs.and develop a jointly coordinaed program of donor With a greater sharing by donors of financingassistance across the economy. recurrent outlays, it wil be necessary to agree on
supportive fiscal and monetary policies.2.79 An alternative approach involves sector-level discussions, where aid coordination appears to 2.83 Examining individual developmentbe particularly effective in developing an assistance projects within a sector-wide framework will aRowprogram that is in accord with government both donors and country governments theobjectives and priorities and achieves parallel opporunity to establish priorities and forecast likelysupport from donors. Further attempts should be recurrent cost scenarios associated with differentmade to define and agree on programs for entire public investment portfolios. Multilateial agenciessectors or subsectors. Such programs should be have a special role to play in this process byconsistent with the macroeconomic envelope of helping countries frame sector-wide developmentresources targeted for the sector, and should be strategies and programs. Placing sector-wide aidbul, around a clearly stated development strategy programs at the center of the coordinationfor the particular sub-sector. Sector development process-with different sectors chosen for reviewstrategies may only need to be reviewed every 3-5 by the PMCs at different points in time-willyears, although more frequent review may be provide an effective match between limited aid-needed in cases of naural disaster, major changes administion capacities and the need to improvein the extemal economic enviromnent, or major the effective use of ample aid resources.political changes. The choice of approach liessquarely with the country concerned. 2.84 Effective country/donor coordination has
the potential to reduce the aid administration burden2.80 Bilateral aid discussions will still be stemming from an excessive number of aid projectsrequired, but for the aid coordination process to be in assistance portfolios. This does not necessarilyeffective, a greater degree of consultation among raise questions on the development effectiveness ofkey donors may be needed before decisions on aid such activities themselves. Rather, it may signal aallocation and composition are to take effect. An need to rationalize performance to keep theeffort should be made to integrate where possible program(s) manageable and to trade off portfolioaid consultations by all key bilateral donors, so as performance against administative feasibility.to provide an informal venue for coordinating coreaid activities and to minimize the administrative 2.85 Donors can assist the coordination effortburden associated with discussing country aid by simplifying procedures and data requirementsprograms. wherever possible, by adopting a more critical
assessment of program development priorities, and2.81 Donor Role. Although ample external by insisdng on economic assessment and evaluationassistance is likely to be available, it may not be of aid financed activities. More generally, donorprudent for Government to utilize this resource agencies will need to tighten their own intemalfully. Recent project experience, particularly with controls to ensure that priority is given tocapital intensive activities, suggests an increasing investments with high rates of return and that the
35 VoJume 1: Owrvew
recurrent cost burden of all projects is clearly and 2.86 Conceited action by donors could alsoaccurately specified and accounted for before assist Government efforts in the key tasks of publicprojects ae undertaken. Above all, donors must be sector reform. Coordinated action in focusingsensitive to the administrative constraints institution-building efforts can lend support toexperienced by small nadons. Attempts made in Government restructuring programs. There mustthe past to augment the administrative capacity of be a willingness on the part of donors, however, tothe PMCs may well have achieved particular work within these programs and resist the pressuresproject goals, but have left the PMCs with to build capacities that are not sustainable in theadministrative structures ill-suited to the longer term.contemporary realities of managing small states.
ENDNOTES
See IMF, Government 4&nloynt and Pay: Some International Conferences, by Peter S. Heller aed AlanA. Tait, Occasional Paper 24, Revised March 1984.
2 Wages provided to casual workers employed by the Government of Tonga are routinely 50 to 60 percent ofthose paid by the private sector.
3 For the other PMCs, wage compression ratios within the civil service range from 4.5 to 8, which comparesunfavorably with that of most sub-Saharan African nations (range of 7 to 19) examined by Nunberg and Nellisduring the 1980s (World Bank, Cvil Serice Reform and the World Bank, 1990).
4 Such informal work sharing pracices are commonly applied in the small Caribbean states of Montserrat andAnguilla (see J.D.E. Kerselly, "Team Management and Development in Montserrat and Anguilia", PublicAdministration and Development, Volume 111, 1990.
' .Supply-driven, in this s.e, refers to the use of technical assistance as a means of temporarily solvinginstitutional or technical gaps in the design of foreign assisted projects.
6 Only in Fiji are public investments less than 6 percent of GDP.
7 Revenue collection capacity in the PMCs is vo..ry weak, even for customs taxes. As tax systems become morecomnplex, a shift towards presumptory payments and private sub-contraciing of selected collection efforts maybe warranted
9 Trade-tied aid refers to preferential market access rights that result in a product price above that prevailingin the world market.
9 M. Shirley and J. Nellis, Public Enterprise Reform: Lessons of Experience, EDI Development Studies, WorldBank, 1991.
to SOE management contracts awarded in the South Pacific have resulted in few improvements in service availa-bility and technical performance. It appears that the generous terms of SOE management contracts are linkedto weaknesses in the public sector's ability to recruit, negotiate, supervise, and regulate foreign management.
World Bank, The Reform of Public Sector Management: Lessons from Experience, Policy and Research Series18, 1991.
Volwe 1: OveviW 36
3: Private Sector Development
Intrlduction tapping such potentia will require supportivepolicies and investments on the part of the Pacific
3.1 .iterto, the role of the private sector in Island governments.the PMCs has been a limited one. In the past,development efforts in the PMCs have been led by A Framework For Prwte Secter Deveopmnwthe public sector and financed largely by donorassistance. While this strategy has produced 3.3 Development Parnsmhip. The Eastnotable results in terms of providing infrastructure Asian success story of near quadrupling of perand improvement in welfare, growth performae capita incomes during the past 25 years has evokedhas been disappointing, as noted in Chapter 1. The considerable interest. The experiences of Korea,expansion of the public sector into a varied range Malaysia, Singapore, Taiwan, Hong Kong, andof activities-especially commercial type Thailand in particular-where the 'Asian miracle"activities-tended to inhibit private sector is more pronounced-have a number of lessons todevelopment. The size of the public sector also offer. Apart from relatively high levels of domesticimosed heavy fiscal burdens, which lowered savmgs and investments and the extraordinarydomestic savings needed for further investments. efforts in human resource development, anAt the same time, sizable overall deficits (after aid important feature common to these countries wasfinancing) in several PMCs placed heavy demands the development partnership that existed betweenon relatively smaU financial markets and thus the state and the private sector. The state wastended to crowd out the private sector. Such an market-friendly and complemented the privateenvironment was not conducive to private sector sector rather than supplanting it; by doing so, it ledgrowth throughout most of the 1970s and 1980s. these countries to impressive economic results.Except in Fiji, private sector activities in the PMCs Such a development partesip is by no meanswere limited to agriculture, primarily for limited to large countries. Experiences of islandsubsistence, small- and medium-scale hotels, small- economies such as the Maldives (see Box 3.1),scale manufacturing, and trading activities. The which has shown spectaculr growth over the pastpotal for commercial-scale agriculture, tourism, ten years based on tourism, and Barbados, whichand export oriented industry remained untapped. during the 1970s and early 1980s diversified away
from a sugar-based economy to a middle-income3.2 Although private entrepreneurship is stil economy based on tourism, manufacwring, and off-in its infancy in the PMCs, some examples in the shore services, demonstrate how a developmentrecent past have shown that private sector partnership between the state and the private sectordevelopment could contribute substantially to can work to produce heartening results even ineconomic growth and employment. Squash small economies.production in Tonga, automotive wire assembly inWestern Samoa, and smaU and medium-scale hotels 3.4 Experience suggests that the role of thein several PMCs are some examples which government in a development partnership should bedemonstrate that a few private sector investments to focus on four objectives. First, governmentscan make significant contributions in the relatively should make greater use of exchange rate, fiscal,small economies. There is potential for private monetary, and wage policies to ensure macroeco-sector-led economic growth in the PMCs, but nomic stabiliy and competitiveness as a pre-
37 Vol,mw I: Overekw
Box 3.1: TmE MAIVEs: A DEvELOpMENT PARTNERsHip INFIS 15 AND TouRISM
The Maldives is an Indian Ocean archipelago of 214,000 persons, occupying an estimated 1,200small coral islands with total land area is 298 square kilometers. Most of the islands are small, few witha land area In excess of one square kilometer, and they are low-lying, with an average elevation of 1.6 mabove mean sea level. Only 10 percent of their area is suited for agriculture. Since the mid-1970s, theeconomy has grown in excess of 10 percent per annum, driven largely by growth in tourism and commercialfisheries, which together account for about one-third of gross domestic prodwt. The Maldivian success inthese two sectors illustrates the potential rewards available from a successful strategic partncrship betweengovernment and the private sector in the economic growth process.
Eishedr. For several hundred years, the Maldives has been a nation of fisherman. In the mid-1970s, the sole foreip investor mponsible for processing and exporting tuna left the Maldives after severalyears of low world market prices. The State Trading Organization (STO), a government SOE, assumedresponsibility for processing and marketing tuna products. In contrast to many SOEs, the STO was wellcapitalized and staffed, and it was provided considerable autonomy in the management of fisheries acdvities.During the nect twenty years, the STO expanded processing capacity, provided credit to fisherman to buynew boats and outboard motors, improved the fish collection network, and stabilized producer prices througha uniform pricing scheme. The Maldive's fisheries development activities were aimed at enhancing theproductIvity of the small scale fisheies sector-large trawlers were banned from the Maldhve's EEZ.During the 10 years ending in 1990, the tuna catch increased from 35,000 mt to 76,000 mt; average realincomes of the nation's 8,000 fishing families have increased in excess of 6 percent per annum; fish exportsexceeded US$41 million in 1990; and the fisheries sector contributes imore than half of total governmentrevenues.
- tllis. During the past 20 years tourism has grown from some 1,100 visitors in 1972 to 195,000 in1990. Over the same period, the number of resorts increased from 2 to 64, while bed capacity grew from280 to some 7,800. During the 1980s, growth averaged 16 percent per annum, as against an increase inglobal international arrivals of under 4 percent a year and above the 9.3 percent per annum average increaserecorded in East Asia and the Pacific. The tourism sector accounts for more than 60 percent of foreignexchange eamings and approximately a quarer of total revenues. In the early 1960s, the Governmentestablished 2 resorts in cooperation with foreign travel agencies. This pattern of joint ventures, in whichMaldivian interests would acquire land rights while the foreign investor would contribute managementexpertise and marketing links, was quickly emulated by the private sector. As private sector activityincreased, Government turned it's attention to infrastructure development to complement prvate sectorinvestment in tourism, including an international airport. To expand access links, the Government activelycourted international carriers encouraged charter companies to fly to the Maldives. In contrast to many othersmall nations, the Government does not operate its own international airlines. This does not impede access,however, for no less than 8 regularly scheduled international carrers and 32 charter companies providedregular service to the Maldives in the early 1990s.
Source: World Bank, Ma4dives: Cowuty Economic Memorandum, 1991
condition for private investment. Se:ond, govern- A. MACROECONOMIC STABILITY ANDments should improve the environment for private COMPETITVENESSsector development by modifyig the regulatory,instiional and fiancial sector frameworks so as 3.5 The maintenance of a stableto remove impediments to private investment. macroeconomic environment, free of foreignThird, governments could play a useful role in exchange shortages or trade and paymentpromotional and information dissemination activi- restrictions, will be crucial for atracting privateties. Fourth, governments should provide support- investment, both local and foreign. Privateing physical and social i. entrepreneurs require the flexibility to purchase
foreign exchange easily for imports of neededinputs and services and to remit profits abroad
VolM: OereW 38
Box 3.2: TUVALU: PRUDENT POLICIes AND ECONOMIC SUCCESS
Tuvalu has a population of about 9,400 and it lies at the center of :he South Pacific region consisting of nine dispersedislands with a total land area of only 24 square kilometens. In colonial times, the country was pan of the former Gilbertand EDlice Islands which have given way to two Independent nations of Tuvalu and Kiribati. The Tuvalu islands are of coralformation and are less than four meters above sea level. Consequently, land-based resources are lmited and are furtherconstrainted by very poor soils, high salinity, and porosity. With an EEZ of some 900,000 square kilometers, Tuvalu's mainnatural resources are its marine resources. Notwithstanding its limited resources and constraints due to its smallness andisolation, since gaining Independence in 1978, real GDP in Tuvalu 5has increased annuaDly by about 7 percent. Majorcontributions to this growth performance came from agriculture, fisheries, manufacturing, and trading activities.
The e.'onomic success in Tuvalu is attributable, in part, to its macroeconomic policy framework, which emphasized:
* wage restraint in the public sector, which employs 68 percent of the work force; and
* maintaining a sadsfctory relationship between fiscal revenue and expenditure, with the bulk ofdevelopment expenditure funded by external aid, and no external borrowing.
Because of the public sector wage policy, real wages declined by some 23 percent in 1980-89. In 1992, a windfallgain in the investment of the Tuvalu Trust Fund-which had been set up to compensate Tuvalu for the previous grant supportfrom the United Kingdom-was used to award an across-the-board 20 percent pay increase. Simulaeously, the authoritiesfilled some vacant positions. Since government wage bill is recurring but windfall gains are not, the wage increaseannounced in 1992 can adversely affect future fiscal balances.
Source: TUVALU: Economic Sinration and Development Prospects, Australian Internatonal Development AssistanceBureau (September, 1992).
without going through a maze of bureaucratic if access is secured, to produce goods of thecontrols. Experience has shown that when govern- required quality at predictable costs. Maintainingment spending has expanded too far, the result has cost competitiveness could be reinforced throughoften been large deficits, excessive domestic bank wage restraint in the public sector, which tends toborrowing, or monetary expansion, leading to influence wage movements in the private sector (seeproblems in the financial sector. Monetary Boi 3.2).expansion, in turn, tends to be quickly followed byinflation, leading to a progressive overvaluation of 3.7 Throughout the 1980s, the PMCs werethe domestic currency, resulting in a loss of export largely successful in maintaining macroeconomiccompetitiveness. Excessive government borrowing stability. In some countries, however,can also lead to domestic and external debt macroeconomic imbalances have begun to appearservicing problems (e.g., Solomon Islands), heavy due either to inadequate domestic policy reforms ordemands on domestic credit, and the crowding out to exogenous factors. For example, in the Solomonof private investment. If needeii adjustments are Islands, large fiscal deficits in recent years have lednot made promptly, through a combination of to sharp increases in domestic credit to theexchange rate, fiscal, monetary, and wage policies, government, which have in tUM fueled inflation andforeign exchange shortages and restrictions on trade reduced competitiveness. As regards exogenousand payments are likely to emerge. Very often, the factors, the two successive cyclones in Westernresulting uncertainty and unpredictability of Samoa, i.e. Cyclone Ofa in 1990 and Cyclone Valgovernment actions become disincentives for in 1991, have severely damaged the country'sprivate sector activity. infrastructure and production base and have led to
large domestic and external imbalances. In Fiji,3.6 The maintenance of a stable, predictable although macroeconomic imbalances are moderate,macroeconomic enviromnent is also crucial for restrictions on external capital transactions and onensuring international competitiveiness. Such an remittances of profits and technical services fees^nvironment will allow private entrepreneurs to abroad are obstacles to rapid growth of privateexplore external markets for local production and, sector activity.
39 VOekm 1: Operplew
3.8 Shocks causd by extnal events such as quantitative restrictions, import licensingprice declines, by ineral events such as coups procedues), the tax system, foreign(e.g. FPi in 1987) or by natural disasters (recent exchange restctions, and labor marketcyclones in Wesn Samoa), can lead to fiscal and issues; andfinmci insabiity. But governments can choosehow to respond to such pressures. Some counties (b) the finandal sector framework: credithave responded by instituting burdesome availability to the private sector, priceexchange, price, and regulatory controls. Others stability, monetary policy, andhave managed to keep their macroeconomic policies strengthening of prudendal financialon course and minimized distortions-and their sector regulation.broader economic performance has benefittedaccordingly. PMC governmens can maintain a The Inceive and Regulatory Frameworkprudent fiscal policy by looking caefully at thedivision of economic tasks between the government 3.10 Pdvate Investnent Approval Procedure.and the private sector. Governments can meet the Experience in developing countries has shown thatgoals of microeconomic efficiency and private investors are very sensitive to the length andmacroeconomic stability at the same time by the process of investment approval. The PMCs, ofreappraising public expenditure priorities, course, have a national interest in controllingimplementing tax reform, reforming the financial investment that may lead to the creation ofsector, privatizing state-owned enterprises, and monopolies, or have adverse effects on therecovering the cost of some state-provided services enviroment. If the approval process is short, thenthrough user charges. the grandng of a license to an investor could speed
UP investment, output, and employment creation.On the other hand, if an investment proposal is
D. ENVRONMENT FOR PRIVATE SECTOR rejected, the investor would need to know it soonDEVELOPMET so that he could either recafy any inherent defect in
the investment proposal or shift his efforts3.9 While macroeconomic stability can elsewhere. Foreign investment, in particular, isprovide a supportive business environment, a key sensinve to the length of processing time and tendsissue to be addressed is how to nurtre a greater to be attracted to counties that offer short and clearresponse from what has been a small and relatively cut investment approval procedures.inward-oriented community of privateentpreneurs. In most island economies, the main 3.11 Some PMC governments have beenproblems relate to lengthy and cumbersome making efforts towards stramlinng investmentnvestment approval procedures, the land temnre predure and reducing the processing time ofsystem, inequity in treatment of potental investors, nvestment approvals and tax exemptionthe shortage of professional manpower-particularly applications. In Tonga, for instance, an investmentin the areas of management, engineering, and other application is considered by the Standing Advisoryprofessional fields, and undeveloped financial Committee chaired by the Mmster of Labor,markets. Fortunately, some PMCs provide a Commerce, and Industry, and approval could berelatively stable political environment and low wage obtained in as little as two weeks. A clear standardrates relative to those in the Pacific rim countries application procedure needs to be set up to avoidbacked by a labor force that has aptitude for possible discrimination among applicants. Inlearning and governments that are very supportive Kiribati, for example, there is no investment code,of foreign investment-all of which help boost the no published guidelines, and no List of pnoritycompetitiveness of the country. To ini"' a greater activities. While Government's intention tomeasure of dynamism into the prim tor, the encourage business ownership of indigenouspolicy environment must be transformw to ensure nationals is a legitimate concern, the setting of thecompetition, transparency, and equality of public exact percentage of local and foreign ownership astreatment. There are a number of economy-wide a criterion for business license approval appears toincentive issues that need to be addressed and inhibit the Government's efforts in encouragingimpediments removed if the private sector is to foreign investment. Ownership criteria for abecome an "engine of growth" in the PMCs. These business license in some PMCs is currently set atbroadly relate to the following two areas: 51 percent local and 49 percent foreign. A more
flexible arrangement needs to be allowed, especially(a) the incentive and regulatory framework: if foreign investors are unable to find a suitable
private investment procedures, land local business pa.-,ar.tenure issues, trade policy (import duties,
Vo"me 1: Overvew 40
3.12 Land Tenvre. One of the major periods of up to 30 years. In addition, the NLTBipdime facing potentia investors is the issue is responsible for zoning of customary lantd toof land availability. In aU PMCs, a large ensure that the land is used in an ecologicallypcentge of land is customay owned-rnging responsible fashion and that rental rates correspondfrom nealy 100 percent in Marshall Islands to to the economic potential of the land. Furthermore,about 40 percent in Kiribati (See Table 3.1). the NLTB, with representation from theProblems encountered by investors include Goverment and the Council of Chiefs, plays aproted negotaons for land settlement, leading role in the settlement of land-relatedunresolved land disputes, and demands for ad hoc disputes. To date, more than 100,000 land leasesincreases in rent by indigenous landowners during have been executed by the NLTB, including nearlya contracted lease. As most land titles are not all the sugarcane land.' But, as elaborated in theregistered, boundary demacations often become the country report on Fiji, some improvements aresource of disputes between villages, and these are needed in land legislation and in the operationalusually difficult to resolve due to the lack of land aspects of NLTB procedures. The main problemsdtle documents. To further complicate the that need to be addressed relate to the multiplicityproblem, the Lands and Tides Courts lack staff of Acts that impinge on land use, low rental rateswith legal experience to handle cases efficiendy, (below marginal productivity of land) set by thethus delaying the resolution of cases. NLTB, inadequate lease period for long gestation
crops, and time-conuming operatons of the3.13 While the inalienability of customary land NLTB.need not be changed, the land leasing system needsimmediate attention. To this end, some 3.14 In many PMCs, governments are alsogovemwents have already taken positive actions. encouraging villages to register their land. At theFor example, efforts are under way to encourage same time, the governments have been emphasizingbetter use of land in Western Samoa, where a that all amendments aim to facilitate the optimumcommittee has reviewed the current land tenure utilizadon of land, rather than change the landsituation and has made recommendations for tenure system. However, governments need toimproving land utilization. One of the simultaneously: (a) launch education campaignsecommendations, if implemented, will allow any through seminars and meetings to better informSaraoan to lease land, instead of only a matai (chief people of the value of land use for commercialof an extended family) as at present. In Fiji, the purposes, and of the environmental impact of landleasing market works reasonably well, compared to misuse; (b) publish the procedures for landother PMCs. The Native Land Trust Board registration and encourage the villages to start the(NLTB) is the sole agency through which Native process; and (c) provide additional staffg for theLand can be leased to both non-Fijians and Fijians respective Lands and Titles Courts and train staffalike. In this role, the NLTB acts as an agent for on legal matters relating to handling land disputes.the traditional land owners in leasing lands for
Table 3.1: LAND OWNERsHiP lN PACIC IsLAND CouNTRiEs
/a In the Line and Phoenix Islands, most land is owned by the Govermnent; in the case of Kiritmati, all land is owned bythe Govemnment
/b Refer only to Pohnpei State. Freehold land refers to land owned by private individuals as well as customary land./ In Tonga all land is owned by the Crown. But user rights have been vested to private families./d In Vanuatu, all rural land is owned by ni-Vanuatu. Roughly half of urban lands are owned by Governnent.
41 Volume I: Overvew
3.15 Tlade Polky. The trade regime in the rates-subject, of course, to the revenuePMCs is relatively free of restricions. There are -requrements of government. In this respect, taxno particlar iumpt or export bans except in a few exemptions for new investments in the PMCs,insances (e.g. resictions on logs in the Solomon typeisly in the range of 10-15 years, appear to beIslands). There are no mport licensing require- over-generous. These need to be reconsidered,ments except for firearms and liquors. Exchange with a view to shortening the exemption period andpemits by the central banks are more for record limiting such concessions only to invesmet withputposes than for controls. Also, there are no non- high economic returns.tariff barers to trade nor export duties. SomePMCs have adopted the Harmonized System of 3.19 Skill. The shortage of professionalTariffs, following the Customs Cooperation Council manpower is a major constrain to private sectorconvention in Brussels. In some PMCs, tariffs development in the PMCs. Entrepreneurial skillsremain high (e.g. in Fiji where the maximum is 40 are scarce, and the lack of managerial, technical,percent), despite the high degree of naural trade professional, and administrative skills is pervasive.prtection offered by remoteness and high tramnsportcosts. High tariff rues need to be progressively 3.20 Possible steps to alleviate the situationreduced. Another problem ncuntred in the include:PMCs is the high degree of import duty exemptionsganted essentially for goods imported by nationals (a) channelling more resources to human resourceabroad. This, in conjunction with high tariffs on development so that the existng educationcertain consumption goods, serves as an incentive system could be reformed to supply future sillto send remitances in the form of "personal demand rairements, either by providingbelongings". In the case of bona-fide imports, traiing facilities in the county or by linkingprocedures for release of goods at custms should with educational institutions abroad (Seebe made more transparent and delays should be Chapter 4); andminimized.
(b) mobilizing t ng facilities at all levels such3.16 Tax Policy. The tax strcture in the as vocational schools, factory training, andPMCs has not been conducive to private sector techmical training institutes in the region.development. It is charactrized by a relativelyhigh rate of taxes faling on a narrow income tax 3.21 Mbimaum Wage ILgwskuon. There isbase, heavy reliance on import duties, early stages considerable variation in the PMCs with regard toof a goods and services tax, and a variety of other minimum wage legislation. In Fiji, for example,taxes (e.g., airport tax, samp duties, and business there are approximately 11 active labor unions,License fees). In an attempt to rationalize tax organized under a Fiji Trade Union Federation.stuctre, some governments are in the process of Until 1991, the trade unions, employers andlaunching a tax reform. Major elements of Government collaborated to set minimum wageproposed reforms include the broadening of the tax levels. These acted to discourage new employmentbase of the goods and services tax to include levies in labor intensive activities. In fact, wages foron aU goods sold, while simultaneously reducing unskiUed labor in Fiji were more comparable toincome tax rates. The rationale for such a scheme those in South Korea, a nation where icomes wereis to spread the tax burden across a wider nearly three times those of Fiji.population and to reach those with high agriculturalicome, without having to face the unpopularity of 3.22 In most other PMCs, labor unions play aintroducing new tax measures. more minor role. Minimum wage legislation is in
place in most PMCs, and statutory wage minimums3.17 PMC governments should also consider have been set. However, in many instances thesecharging a single lower income tax on all are set below prevailing market wage rates and arecompanies, domestic and foreign alike-which rarely enforced. Relaxation of minimum wagecould help attract foreign companies. The resulting legislation is thus a measure that all PMCloss of tax revenues could be offset by removing govermments need to consider from the standpointtax exemptions granted to individuals and to employment creation. In practically all PMCs, thespecific sectors such as agriculture. public sector labor force is well organized, either in
the form of civil-service wide organizations or3.18 In sum, to provide the needed private through a confederation of specialized servicessector incentives, PMC Governments need to within public service. In fact, civil service wagedesign tax structures which are stable, predictable, awards tat on the characteristics of a highlynon-distortionary, and which have moderately low organized tdgaining process. The striking
Volme 1: Overiew 42
Table 3.2: TyP OF FINANCIAL INSTITUnONS IN THE SOUTH PACIPIC
Centfal banks 1 .. .. .. I I I ICommercial banks 4 1 3 2 3 1 3 2Offshore banks ,. .. .. .. .. 81b 100/b 4Devebpmen banks 1 1 1 1 1Savings banks .. .. .. .. .. .. I IHousing fnance inst. 2 .. .. .. IFiance companies I .. .. .. INadoQal Provident Funds I I .. .. I I IOther prOvident fxds . .. .. I yes yesGenaln sirance 5 I 6 4 10 3Life insurance 3 /a 4 .. .. 1 2 2Credit cooperatives 173 .. .. .. yes 65 yes 3Credit unions 395 .. .. 86 44 yes 29
la The same company offers both fie and general msuance.lb Estimated; many may have ceased operation.c Plned.
Sources: Various World Bank and official documents.
difference between PMC wage-setting practices for type of financial institon. The main sources ofthe public and the private sectors is that the former funds are deposits at banks, consisting of crent orappears to operate without any link to national demand deposit accounts and fixed term depositsmeasures of productivity or economic carrying (mainly from the business sector) and savingscapacity. Furthermore, since public sector wage deposits (often raised through a large number ofawards rapidly spill-vrer into the private sector, small passbook accounts). In lending, the bansthere is a strong tendency towards wage outcomes normally offer credit for short-term trade financing,that bear little relationship to changes in either overdraft loan facilities (for working capitalproductivity or profitability. purposes with terms up to two years), and term
financing (three to five years) for asset acquisition.FInca Sector Fiamework In recent years, lending for home mortgages has
been expanding rapidly from a small base while3.23 F *nuag of Priate Investent. The personal lending has been relatively unimportant.financial sectors in the PMCs are suiprisingly Wholesale and retail trade finance are usually thediverse, though still shallow. Most of them (except dominant types of lending, and agriculture is leastKiriati, the Marshall Islands, and the FSM) have important.central banks and typically, they each have two orthree commrcial banks, a development bank, and 3.25 Lack of local sources of equity alsoa national provident fund. Some PMCs also have hinders private sector investment. The lack ofhousing finance institudons and nsurance institutional equity often means that a prospectivecompanies (see Table 3.2). The development of entrepreneur has to fund the entire equitythese institutions has been accompanied by the requirement of a project from his own resources.gradual inoduction of a wider range of monetary The shortage of local equity often means that ainstru. However, scope for monetary policy potent investor does not have access to an exithas been somewhat limited. Also, monetary mecanism at the time he wishes to sell thetargeting has been limited since money and credit enterprise. The institutiona equity can be providedgrowth have not been closely linked.2 from the government provident and an on
funds that currmtly invest mostly in government3.24 In the PMCs, commercial banks (mostly sewrities, and (in Fiji) in a few large and matureforeign-owned) represent by far the most important private sector companies. Redirectng institutonal
43 VolUme 1: Overvew
equity to the new private sector investments on a there is a reluctance on the part of lendingportfolio basis may alleviate the equity funding institutions to lend on the basis of the projectedproblem of an entrepreneur and can serve as the cash flows of the project and to use only the projectbasis for establishing an embryonic over-the-counter assets as security for the loan. To alleviate thismarket in mtg the equity. Such use of provident problem, consideration should be given tofunds, however, should proceed cautiously and providing partial guarantees by the central banks,involve only a small share of the funds. The for which fees would be charged against possibledevelopment of a secondary market for trade of defaults.equities would help deepen the capital market andprovide an indirect valuation of a company, which 3.29 Bank Superviion. Since mostin turn may assist in the divestment of the commercial banks in the PMCs are either branchesinvestment of a future date. or affiliates of major foreign banks, which have
been on the whole well managed, the need for3.26 Several issues need to be addressed if the intensive supervision has not arisen so far.financial sector is to play a meaningful part in Nevertheless, the need for strengthening bankintermediating between the savers and investors in supervision capacity exists, more so with growththe PMCs. These broadly relate to (a) interest rate and diversification of Pacific Island economies andpolicy, (b) loan processing, and (c) bank the progressive establishment of local banks whichsupervision. need more supervision, especially in their early
stages. Bank supervision needs to be targeted to3.27 Intrest Rate Policy and Cri Ceilngs quality of portfolios, management systems, audits,In the past, PMCs have tended to rely on interest and compliance with other central bankrate ceiings and credit targets, both of which requirements.impeded access to credit by private entrepreneurs.The removal of interest rate ceilings would allow 3.30 From the standpoint of private sectorbanks to charge rates that would cover additional development, one area of the financial sector thatappraisal and supervision costs as well as possible needs strengthening is the supervision oflosses in high risk loans. Likewise, the removal of development banks. In some PMCs, developmentcredit ceilings or targets for specific sectors would banks operate under the purview of the Treasury,allow banks the flexibility of lending to sectors and consequently are not subjected to routinewhich generate the demand for funds. The net supervision by the central banks. In general, theeffect of these changes would be a likely increase in development banks are characteized by weakthe volume of lending in response to market management, poor portfolios of projects, interestdemand. Some progress has been made recently to rates which are too low to cover risks, andremove these impediments in the case of medium- inadequate assistance to clients for the developmentterm loans (4 to 5 years). Nevertheless, some of bankable projects. PMC governments need toPMCs suffer from excess demand for credit (e.g. consider measures by which central banks could beFSM) while others suffer from excess liquidity empowered to exercise supervision over the(e.g. Western Samoa), in part due to the lack of development banks.bankable projects as discussed below. Thus,furher reforms are needed to ensure that interestrates are market determined. C. INVESTMENT PROMOTION
3.28 Loan Processing. Access to credit also 3.31 Having experienced the vulnerabilitytends to be limited by the lack of capacity on the stemming from reliance on a few primary products,part of some investors (especially small PMCs in recent years have actively begun tobusinessmen) to prepare bankable projects and diversify into nontraditional crops and lightunrealistic collateral req mets imposed by manufacturng for export markets. Despite thecommercial banks. As regards the former, the multiplicity of advisory services now available, inbanks can assist either by providing advisory many cases it has been found that small enterprisesservices on project preparation (for a fee) directly in the countries do not possess the marketing andto clients or by participating with the prvate sector technological information and experience necessary(e.g. the Chamber of Commerce), private to tap into and create export markets. Facilitationconsultancy fums, and the development banks to of small enterprise development could result inprovide such assistance. With regard to the latter greater diversity in the development of products forissue, commercial banks generally insist on land export. While PMC governments have beenand personal assets of the entrepreneur as collateral reducing their direct involvement in production andfor loans. Project financing is uncommon, and marketing, they need to develop the capacity to
Voel:w 1: Overvkw 44
Box 3.3: SUCCESSWL Ex T PROMOTION PRoGRAM
While many small enterprise projects include the promotion of exports as an objective, thoseprojects which incorporate export promotion programs as major components have tended to be mostsuccessful. Such projects have shared similar strategies which led to their success: subsector studies wereconducted to identify the export potential of selected products; exporters strengthened marketing strategiesby visiting other countries that were successfully exporting similar products; emphasis was placed primarilyon promoting products in new locales and on improving product quality and design to satisfy larger foreignand domestic market requirements; and foreign advisors with subsector technical expertise were consulted tohelp exporters with product adaptation and upgrading.
Projects in Bangladesh, Nepal, Sri Lanka, and Pakistan followed the above strategies which helpedcreate the following success stories:
* The Bangladesh Handicraft Marketing Corporation's training of artisans in production methodsand quality control resulted in a significant rise in exports in targeted subsectors;
* Enhanced designs and increased exposure in American markets due to the establishment of aNepalese test marketing office in the U.S. led to a rise in carpet exports from Nepal;
* Technical assistance to the Sri Lanka Clothing Industry Technical Institute significantlycontributed to the growth of garment exports.
* The test marketing of products in the U.S. by Paidstan's Export Promotion Bureau led togreater demand for Pakistani exports.
The above countries were able to expand their export markets mainly With the support of stronginstitutions, schemes which directy linked producers with buyers, inftrmural development and serviceswhich faciitated support to producers in more remote areas, and a foundation of national efforts withsignificant input from but not total dependence on foreign advisors.
Source: World Bank Discussion Paper No. 113, World Bank Leding for Small and Medium Enterprises:!Rfteen Years of Eperience, Leila Webster, 1991.
create, reform, and stengthen institutions for private sector development. Such policy statmentsimproved export and investment promotion (see or investment codes should be widely circulated andBox 3.3). available within the country as well as abroad.
Private sector input would be an integral part of3.32 Following are primary areas which need developing an appropriate strategy. Governmentto be addressed: (a) detrmination and publicity of institutions such as the Ministies of Finance andclear investment policy guidelines; (b) provision of Trade, Investment Promotion Boards, and Centralsupport services; (c) broad disseminaion of Banks need to resolve conflicting approaches and beinformation; and (d) identification of and support consistent in their message to investors. Criteriafor development of niche markets. for qualifying for incentive packages shouldbe well
publicized so investors know what is available.3.33 Irveshrent Codes. The lack of clarity inand consistency between government investment- 3.34 Support Seies. In the past severalrelated policies, objectives, and actions has years, a profusion of instittions related to privatehampered investment in the PMCs. Governments sector development have emerged in the PMCs (seeof the PMCs need to develop policy statements for example Box 3.4). However, services offeredwhich clearly presen policies, services, regulations, are in many cases not publicized, not appropriate,and other factors which affect investment and or too dispersed, leading to duplication,
45 Volue 1: OvervIw
Box 3.4: PROJECr PREPARATION SERVICES
The need for project preparation services in the PMCs has been increasingly recognized. In1990, the internationa Finance Corporation of the World Bank Group, supported by four other donors(Japan, Australia, Canada and New Zealand), introduced the South Pacific Project Facility (SPPF) to helpthe private sector in the South Pacific island countries by providing project preparation services to smalland medium-sized enterprises. The Facility, based in Sydney Australia, does not provide projectfinancing; rather, it works with entrepreneurs to secure financing from existing sources of fmance,including commercial banks.
The SPPF identifies projects through regular country visits and works directly with the sponsorsin developing them into viable proposals. The SPPF then uses consrltants to prepare a bankabledocument, based on the project's feasibility, market and technical aspects. The SPPF has so far helpedraise financing from commercial sources for eight projects in the region and has established itself as auseful clearing house for project ideas and as a sounding board for the development banks.
The Centre for the Development of Industry, based in Brussels, also provides similar projectpreparation services for PMCs under its Pacific Region ACP Intervention Programme. Despite theactivities these and other agencies, there is a need for merchant banking services in the PMCs to providesuch facilities on a broader basis.
inefficiency, and inaccessibility. Many institutions support services are needed from the first step ofare unaware of services offered by the others, with product identification trough developing marketingno central core or information center to serve as a strategies and links with foreign and domesticreference point. Uncoordinated efforts by public purchasers. It would be useful for governments toand private sector bodies to offer support services consolidate their investment promotion serviceshave resulted in limited impact. under one central agency (a one-stop shop) with
well-trained staff. This agency should give a3.35 Surveys and interviews are useful in consistent message regarding government policiesidentifying the weaknesses of existing support affecting private sector development and providesystems such as poor market information; lack of comprehensive information on support services andcapital management skills; and inadequate incentive packages available. There is also a needinfrastructural, financial, and technical support. for regular dialogue between the government andDeficient support systems increase the costs of the private sector as a whole, represented by bodiesentry and operation and arise from imperfect or such as the Chambers of Commerce in the PMCs,nonexistent markets as well as from weak to discuss the impact of government legislation andinstitutional capacity. They hinder the development initiatives in promoting the growth andand growth of microenterprises, which lack the competitiveness of the private sector.resources to gather information and assistance withproduct appraisal, developmen, and marketing. 3.37 Niche Markets. The region's climate,While large firms may have the resources to trade agreements, tourism potentdal, and otherdevelop interal facilities to meet their needs, small various positive aspects indicate that the PMCs arebusinesses and microenterprises are generally most likely to succeed where the private sector canunable to overcome these weaknesses on their own. develop agricultural and other niche exportStrong support systems are thus essential in the products. Success stories in the region such asPMCs, where small business development is more Tonga's squash, Vanuatu's organically grown beefwidly spread. and coffee, Fiji's high-value garments, and Western
Samoa's cocomut cream are encouraging examples3.36 Governments should take a proactive role of such potential. Further niche export marketin strengthening institutional support systems to development would allow the countries to continuepromote smal business deelopment and thereby to shift away from dependence on primary productimprove competitiveness. Accessible and effective exports with internationally determned prices.
Veiwu 1: Ovevew 46
Niche markets are generally not obvious, and 3.41 Since agriculture is ciarly the domintgovernment should not atmpt to pick winMrs. sector in most of the PMCs, and since tadiondTwo broad pproaches dta governments could land rights and customs have resulted in a relativelysupport, however, are: (a) the use of "export equitable distribion of land, smallholder semi-catalysts"-i.e., experts in the identification and subsistence fannmers will play an important role indevelopment of products and (b) the use of agricultural niche market development.investment promotion tours in-couy and Governments must focus on ensuring improved andoverseas. effectve agricultural exesion services in order to
encourage the development of new commodities and3.38 The PMCs, where appropriate, could assist the transition to export-oriented agriculture.consider putting entrepreneurs into contact with Extension services should be clearly linked to"export catalysts".3 Assistance from such research appropriate to such market development.specialists could help identify and promote products To relieve budget constraints in improving servicesappropriate for export, and develop marketing links and to increase effectiveness, govemments can alsobetween local and foreign producers and strengthen extension services by ewourgingpurchasers. This type of assistance would be private provision by industty representatves. Forintended not to promote dependen on foreign example, Tonga's Friendly Islnder Maretngguidance, but to expose govenmments and Cooperative could develop extension services inereprenes in the PMCs to knowledge and addition to those already offered, which wouldexpertise to be gained and furher implemented by target the industies represented by membernationals. A matching-grant scheme from donors producers. Such cooperatives can also branch intofor privately provided technical assistance could steenng research for their industry, first fundedalso be incorporated into projects aiming to assist perhaps by a combination of government support,private sector development to enable exporters to grants, and member dues, but aiming for self-contract out for services such as design, production sufficiency. Governments can also provide qualityand marketing. This system could help expand trade control and some markeing assistance.promotion by the private sector rather thandepending wholly on public agency support. 3.42 Flexibility is important in the PMCs;
willingness to seek out and listen to potenial3.39 The second approach is the use of investors and to determine and accommodateinvestment promotion tours. This could be done in specific needs of niche markets within thetwo ways. First, foreign investors could be invited framework of national interest is cmcial. Activeto antend an investment promotion fair in a given and strategic involvement in trade fairs andPMC, which could display a range of products or missions, supported by trade- and investment-prototypes and use such opportuides to put local related promotional matrials, can help educatebusinessmen into contact with potential foreign potential investors and open new export markets.partners who may have access to niche markets.Second, groups of local businessmen, if necessary 3.43 Smal Industies Centers and Enterprisewith government assistance, could visit selected Support Orwanzadons. One way government canforeign conies and establish links with importers promote the development of a manufacturngwho may be aware of niche markets. The PMCs' industry is by establishing small industries centerscommissions located overseas could help in the (SICs) as both Tonga and more recenty Westernprocess (see Box 3.5). Samoa have done. Small industies centers are
attrative to both domestic and foreign investors in3.40 It should be noted, however, that niche- that they provide infratruct as well as access totype activities are known to shift frequently and to land in countries where traditonal land ownersipbe practically impossible to predict. In any event, and leasing conditions often prevent long-termthe success of such ventures will depend on global access. They also can provide referrals totrading arrangements such as GA1T-which, if appropriate support organizations, as well asconcluded, will have the effect of gradually coordinate with the various local and regionalreducing tariff and non-tariff barriers and thereby bodies involved in private sector development withgenerating more competition and a reduction in the small business to encourage indigenous participationvalue of preferential access. Technological changes in developing a private sector. Widely spread smallin production processes may also impact on the business development can effectively generateviabily of assembly-type industries. Thus, employment, growth, and a broader tax base.reliance on such industries as long-term sources ofemployment has to be approached with caution. 3.44 Governments and many other groups (e.g.
UNDP, UNIDO, FAO, Chambers of Commerce,
47 Vo.mm 1: Own*w
Box 3.5: CooK IsAN SOmz LEONS FOR OnER ISLAND ECONOMs
Cook blans-a group of ften islands in the Soutb Pacific Ocean wi a land area of 240 sq. km, spreadover 2 milion sq. km of ocean, and a population of some 18.300 in 1990-has experienced several years of highlysuccessful, private sector-led growth. In the 1980s, per capita real GDP grew very rapidly at nearly 5 percent annuallymainly as a result of expansion of private sector activities in reil and wholesale trades, fmancial services, and trade andcommunicaions. Growth sectors have included
* tourism, which has grown from vimually nothing in the early 1970s to become the maindriving force of the economy and the principal source of foreign exchange and employment;
* off-shore financial services, in the highly competitive market for high quality rather than highvolume service, enabled by legislation in the early 1980s after consultation with some of thelargest international Trusts; and
* niche export market for exotic fruits and vegetables.
The successf economic growth are attributable to the Govermment: (a) aggressively attepting to broadenand diversify marketing opporunities by recognizing the limitations of traditional export patterns; (b) giving thedevelopment of physical infrastructure high priority by regarding it not only as a precondition for economic growth andsocial development but also as an important means for overcoming problems of remoteness and insularity; (c) makingmajor efforts in the past decade to increase revenues from tax and non-tax sources, to maintain a balanced budget, andto reduce the iniportance of New Zealand budget support; and, (d) maintaining a cautious policy with respect to foreignborrowing for development financing.
The experience of the Cook Islands highlights the importance of maintaining competitive facilities for thepromotion of orivate sector development and economic growth. For example, by 1987 clothing and footwear wereproduced by three factories for the New Zealand market, and the export proceeds accounted for 70 percent (US$8.2m)of all exports. But as a consequence of the largest producer transferring its entire operations to an export promotion zonein Fiji in 1988, the sectoral share in total exports fell to 44 percent (US$2.9m).
Sources: Socio-&onomlc Developmwnt Strategies and External Assistance Priortes, Vol. I (May 1990),Government of Cook islands; and Cooklslands: NadionalAccowus, 1982-1990 (December 1991), SatisticsOffice, Cook Islands.
IternationalLabor Organization, churches, NGOs, concepts and training by including appropriatebiateral and multilateral aid agencies, universities, training in school as well as ensuring accessibleand development finance institutions) have all training and services to those living in remote areasparticipated in creating entrprise support without access to city-located services, and mayorganizations (ESOs) to help the development of wish to involve NMOs further in providing suchsmall businesses.4 However, many offer specific services. Support services must take into accountor short-term assistance rather than a the needs of potential entrepreneurs, who may becomprehensive support package (which includes constrained by having to take time to travel a longfollow-through after the funding of the business to distance to the location of ESOs during workingensure the enterprise does not fall apart due to hours in order to learn more about services offeredsimple problems). The various ESOs are often not and discuss project ideas.aware of the duplication of services they offer andthe possible confusion of potential investors. Also, 3.45 Trade and Investment Boards. Whilethe ESOs are frequently staffed not by appropriate assistance in trade and investment promotion issmall business advisors but by bankers or public offered by several regional and iternationalsector employees without private sector agencies, the dispersed services and inadequatebackgrounds, or by forign consultants who are follow-up and dissemination of information aboutunfamiliar with the culture, language, opporunities, services available can hinder their effectiveness.or constraints of the area. Governments can help Fiji has utilized available services more than theby increasing domestic exposure to business other PMCs, tapping into aid funds to help support
V o1mm. 1: OwverpLw 48
the activities of the Fiji Trade and Investment is systematically designed for, and integrted with,Boad (FHB). Tne FTIB has been a powerful the necessary managerial and professional sklls.vehicle in genating Ieest in foreigp investors by Each government's management role should focuspublicizing the county's investment incentive on the following tasks:packlages and positive attributes, as well as openingovereas marketing channls to local producers. * establishment of a sectoral frmework andGovemments of the other PMCs could model trade intersectoral coordination based on thepromotion activities on the FTIB, in a manner that role of infrastructure in supporting thethe promotion agency serves not as a constraint but countty's strategy for private sector-ledas a facilitator by being effective, non-bureaucratic, economic growth;and timely. Delays and ineffectiveness can increaseinvestor unertainty and costs. * identification of priorities for maitning
and rehabilitating existing facilitestogether with a program of financing that
D. INFRAsTRuCTVRE SUPPORT includes both cost recovery and externalassistance;
3.46 To promote private sector-led sustainableeconomic growth, it is important to ensure efficient * adoption of explicit guidelines for theand competitive transport, energy, and preparation, evaluation, implemenaion,telecommunicadon facilities. For the PMCs, the and future maintenance of projects,combination of low traffic volumes and lumpiness together with indicators of theirof some infrastrucure, principally in marine consistency with the sectoral framework;transport and aviation, implies that utilization ofinfrastructure will be low and unit fixed costs will * safety regulation and enforcement;be high. Nevertheless, provision of adequateinfrasrucue is needed as it affects the viability of resource planning for the sector,many enterprses and the pace of economic growth. including manpower needs and training;To date, PMC governm have not givensufficient attention to strategic planning of their * monitoring sector performance; andinfrastructure sectors. Project proposals anddevelopment programs are often shaped more by * formulaton of guidelines for therecipient desires and extemal financing possibilities protection of environmental quality, andhan by priority needs. PMC governments have development and exercise of localtended to be reactive to proposals, rather than capability to assess and address theproactive. To ensure a supportive infrastrcture for environmental impact of projects.private sector activities, the PMC governmentsshould set priorities and a strategic agenda for the Transport Sectorinfrastructure sector, as well as assess reallocationof aid to productive sectors. A prioritization of 3.48 Transport development should facilitateinfi=ructure needs will help donors to charnel the development of key growth sectors in the PMCsresources more meaningfully. Where it is feasible such as tourism, smallholder agriculturalfor the private sector to develop the infrastructure, enterprises, and prudent harvesting of fish andthis should be facilitated with appropriate ecor ,omic timber resources. The remote and dispersedincentives and legislated regulation. But, where the locations of the islands, combined with the smallinitial expense is large and there is potential of size of their populations and small scale of theirwide use, it would be necessary for the economic activities, imply that transport servicesgovernments to ensure the provision of appropriate involve low volumes of traffic over relatively longinfrastructure. distances, for both domestic and international
transport. For Fiji, the broader economic base3.47 To address effectively the key issues in requires more comprehensive planning of transporttheir infrastructure sectors and promote private development.sector development, PMC governments need to takeaction on two broad fronts. First, each PMC 3.49 With financing from bilateral donorgovernment should concentrate its scarce countries, all PMC governments have mademanagerial and professional resources on overall substantial investments in infrastructure in themanagement of the sector. Second, each PMC 1980s, and, overall, the transport facilities andgovernment should establish a program of networks are now well-established. The majority ofinstitutional strengthening and staff training which the transport infrastructure-roads, wharfs and
49 Volume 1: Overview
jeties, airports and airfields, and associated im pefonce of domestic transpotfacilites such as terminas and storage sheds-is service operatins are reory reform (e yprovided by goveents (see Table 3.3). In all U tomesic inter-island shipping): efficientPMCs, funding and execution of mantane of provision of non-commercial tansport services toinfrastructure fals well short of what would be remote communities; increasig commercialrequied to keep the existg valuable assets in good autonomy of govemment-owned operators incondition. The efficient level of maintenance airlines, ports, and shipping business; andshoud be established based upon prioritization of expanding opportunities for private sectorassets. In all PMCs, development of the ransport involvement, especially in domestic shipping.sector has taken place in a somewbat ad hoc Pdmary attendon should be given to removingmanner, and so attention should be given to legislative barriers to entry. Existing entry controlsassessing nsectoral balance. It is important now by licensing of domestic/interisand shippingto gauge the marginal productivity of addidonal operators serve no efficient economic purpose;expenditre in tansport inft cu relative to ratber they assist collusion, weaken priceother sectors. Excessive allocation of resources to competition, and blunt service delivery. Suchthe transport sector also distorts intersectoral controls should be discontinued. Restrictnglinkages. commercial services to remote communities by
cross-subsidization is inefficient and distortive.3.50 For transport service operations, Such services should be treated as a part of angovernments should concentrat on fostering an explicit package of policy measures designed toenabling envroment, with incentives and market provide acceptable levels of socia services forconditions which promote efficiency dtrough enty, small/remote communities.exit, and prcing and service freedoms for pnvateopears or autonomous government-owned 3.52 lprovIng Effciency of Regionld
tepses. For transport infast e, PMC TInspt Semces. Intnational transport costsgoverments should move to corporatize revenue- for the PMCs are higher than for some otherearning agencies and introduce clear commercial regions, but not excessive. The higher level ofdirectives coupled with explicit accountability. international transport costs experienced by theIndeed, there is a growiAng attraction to the PMCs stems primarily from exogenouscorporatzation or privatizadon of tnsport cirmstan that affect tansport cost structues,functions in the public sector. The Governments of including market size, distnce, traffic density,Fiji, Kiribati, and the Solomon Islands have transbipment requirements, and variations ininstituted specific commercialization orprivatization demand by direction and over time. nlernationalpolicies. Other countries are considering the transport markets for the PMCs are small, thin,formation of stautry authorities, principally in the and, for freight movements, imbalanced by type,aviation and marine subsectors, to operate facilities direction, and time. Against these adverse coston a commeial basis. circumstances, inunational shipping services are
subject to competition (particularly from non-3.51 Improvng EffBicency of Domesti conference "tramp" opeators), and national airlinesTransporf eves. The main issues involved in have developed creative use of cooperative
Table 3.3: PAcwrc M1MBER COuNTR: GENERAL INSrTUoNAL ARRANGEMES
Land Land Marine Marine Aviation AviationW}fnsrncre Service Inraucure ServFices Infratuctre Services
FIji PS( P SA P +PSO SA GC + P
Kiribati PSO P W GC + P PSO aC
Solomonlslands PSO P SA P + PSO PSO GC + P
Tonga PSO P PSO GC + P PSO GC
Vanuatu PSO p PSO p PSO GC
Westem Samoa PSO P PSO GC SA GC
oC: Govemment Company (wholly or substanly government-owned), Govement CorpoationP: Private Enterprise; PSO: Public Service Organization (Mistry. Department); and SA: Statutory Auhiority or Corpoation.
arrangements to, counter their lack of individual 3.55 Given the small size of the private sectorscale economies. in most PMCs, it would be desirable for
goverments to monitor service conditions and to3.53 A competitive international ranWort is provide mechanisms for the registration of useressenal to ense extemal competitivenss of PMC concerns. The small domestic markets in theexportables. Given the location of the PMCs, their PMCs typically will support only few operatorsrange of export and import source markes, and the and, because of island remoteness, natural barrierslow volumes of traffic that are likely to prevail, to entry exit to some degree. Therefore, it wouldinternational transport costs can be expected to be prudent for the governments to establish a meansremain relatively high. There is some prospect that for the registration of user concerns with aair fares on some routes may have potential for Transport Ombudsman Office. Such an officereduction, if substantial expansion in tourism can be should develop independent capability and authorityachieved or more charters are used. Consideration to monitor and assess charges and serviceshould also be given to opening landing rights to standards, and report directly to the Government atforeign airlines that could bring in more tourists. Ministerial level.However, in general, the delivered cost of importsand the f.o.b. price received for exports will reflect Ener8Ytransport costs that are high relative to othercounties, including those countries with which the 3.56 Notwithstanding large investments in thePMCs compete for exports on international power sector, most PMCs suffer from unreliablemarkets. The higher international transport costs power supplies, with frequent voltage fluctuationsincrease production costs, reduce receipts, and and outages. The improvement of power sectorsqueeze margins. Thus, if PMC exports are to performance and efficiency deserves the highestremain comptive, their production costs must be priority. This should be done by stnthning andsufficiently lower for essentially homogenous transforming the existing power supply agenciescommodities ta those of competitors with better into financialy and managrially autonomousmarket access. Therefore, emphasis should be corporations. To underpin this transformation,given to fostering low-cost local production and governments should treat the utility as a business,efficient internal and international transport. To with appropriate incentives for financialthis end, national airlines, which serve almost performance and technical efficiency. In mostexclusively international routes, should be given PMCs, the govenmment's management of the energyfinancial autonomy and directed to operate as sector has been weak and ineffective. Directefficient commercial enterprises. government involvement in the operation of
facilites and consumer subsidies have wasted3.54 Scope for Privae Sector Involvment in scarce financial and managerial resources. Energythe Opeato of Thrnpoo Services. All PMC offices, which are supposed to formulate policiesgovernments own and operate transport and screen projects, are unable to do so becausenfrastructure of roads, airports, and ports, and they tend to be iadequately staffed and have little
public agencies remain involved to some degree in influence.the operation of transport services-especially asship operators and air carriers. PMC governments 3.57 For the national utilities, the main issuesshould shift such service operations outside direct are weak management, poor maintenance andgovernment economic control through operation, high costs and inadequate cost recoverycorporadzation, subject to commercial directives set through tariffs, and excessive reliance onby governments, or transfer them to private government funding. For rural electrification,ownership. Although the markets for transport which has barely started, the same issues appear inservice operations in the PMCs are small, sunk more severe form. Governments should movecosts ad entry/exit risks are limited, as vessels and away from the management and operation of theaircraft can be shifted readily among routes or sold. sector. Instead, they should focus their scarceThus, while the withdrawal of government resources on:operators may result in few operators in markets atany one time, the threat of easy entry can be * the formulation of policies to provide theexpected to exert discipline on the prices charged, appropriate incentives for both private andand service quality offered, by incumbents. This state-owned enterprises;reinforces the need to remove subsidies andlegislated barriers to entry or exit. * development of indigenous energy resources
based on commercialy oroven technologies;such technologies include development of large
51 Vo :me 1: OveFekw
solar PV-based utilities for some remote areas with small populations. However, the bene-islands and mini-hydro power plants where fits can be best realized in a competitive environ-adequate sites and institutional support are ment, as these technologies would require com-available, and the promotion of biomass use by panies to be more flexible and would provide feweragroindustries; economies of scale in size than would ground cable-
based technologies. At present, the state-owned* manpower training and planning to meet telecommunication corporations or government
sectoral technical skldl requirements; departments are the primary suppliers of telecom-munication services among PMCs. These public
* formulation and enforcement of policies for the entities are in general inefficient and unable tomanagement of the enviromnental impacts of adapt the newer flexible technologies to PMCs'energy production, transport, and use; enviromnent, while precluding competition and
private participation through legislation.* management and coordination of donor
resources; and 3.60 Without significant participation by theprivate sector, especially by efficient foreign
* improved negotiation and management of telecommunication operators, and without thepetroleum fuel supply contracts. introduction of competidon, it will be very difficult
for PMCs to utilize modern technologies,Teleommuicadons significantly improve efficiencies, or reduce the
very high tariffs. Therefore, when formulating3.58 The geographical dispersion within telecommunication strategies, the PMCs shouldPMCs, the high proportion of the population in accord full or partial privatization ofnural areas, and the desire to promote tourism and telecommunication entities the highest priority.non-traditional export-based industries make the However, such an approach also needs a regatoryavailability of efficient telecommunication services framework which would ensure a quality of servicea high priority. When formulating a national at reasonable rates. Commercialization ortelecommunication development program, each corporatization of existing state-ownedcountry should first define the type of telecommunication entities is justified only if nocommunication access envisaged for its population private buyers would be interested in these entitiesin the long term. At this point in time, without significant restructuring, but privatizationcommunication will determine access, social should be carried out as soon as possible. If jointchange, and markets for even the remotest area. venture with a foreign telecommunication operatorOnly in a second phase should technical is considered the best option in a PMC, itsalternatives-including cellular, multi-access radio, govermnent must review it to ensure that the termssubscriber carrier, and satellite options, in addition and conditions of the joint venture are reasonableto the more traditional approach of laying cable-be from the standpoint of national interest.reviewed to determine the least cost solution. It isnot necessary to own satellites in order to benefit 3.61 Private ownership of teleconmunicationfrom satellite-based telecommunications. PMCs' companies brings up the possibility of regionalneeds are small, and financial, technical, and suppliers which can better exploit economies ofmanagerial capabilities are severely limited; if a scale throughout the region than can the existingPMC determines a satellite-based technology is the national carriers in supplying to small and dispersedleast-ost solution to a communication problem, it populations. Where the private sector becomes thecould lease the necessary satellite capacity for its leader of the telecommunication sectoruse. All options should take into account the development, governments must establishexisting telecommunication and radio networks, as appropriate rules and regulatory bodies to governwell as their future development. Any future this sector on tariffs, frequency allocation, qualityrequirement for information transmission, such as of service, and-more important-formulatingtelevision distribution, should also be considered as competition policy. This presents another challengepart of a larger information and communication to PMCs, as these countries lack institutionaldevelopment stratgy for social development and capabilites to support such a body and implementnational building. established rules. Perhaps a regional
telecommunication regulatory body would be the3.59 The newer technologies, such as wireless best way to maximize the use of qualified personneland satellite-based telecommunications, have in the region.provided new possibilities to overcome the difficul-ties in developing telecommunications t dispersed
Voalume : Overn*w 52
3.62 The environmental aspecs that affet should be taken into account. PMCs shoud alsotelecommunication throughout PMCs also need to conte to enrure that ?4equate computer systemsbe considered-from huricane damage to the 'ire installed to support teleaommuation servicesgenerally salt-laden atmosphere. Future nework with timely and adequate billing, satisfactorydevelopment should be based on digital technology, accouning information, improved order processingas it provides improved quality and, in the longer and management of repairs, and accuateterm, lower costs. However, the issue of higher management information. At the same dme, thegrade technological support for such equipment, computer system could reduce the need for mamalgiven the lack of qualified indigenous techmicians, processing with its inherent inaccuracies.
ENDNOTES
See Ward, R.G. (1985) 'Land, Land use and Land Availability', in Brookfield, Ellis, and Ward, eds. Land,Cane and Coconuts: Papen on the Rural Economy of Fe/i, Australia National University.
2 oe IMF, Economic Development In Seven Pacific Island Counries, Browne et al., 1989.
' See The World Bank, Developing the Pfivate Sector: 7he Word Bank's Experience and Approach, Sept. 1991.
4 See East-West Center, op. cit.
53 Voel 1: Owrveew
4: Human Resource Development
A. HUMAN RESOURCE DEVELOPMENT FOR sustainable economic growth. In the ural areas ofGROWTH AD WELFARE the micro-states and the Melanesian countnes,
infant mortality rates and prevalence levels of4.1 Since independence, the PMC states have infectious disease remain stubbornly high, cripplingregistered steady improvement in living standards. work performance, fueling high fertility rates, andPractically all children now have access to prmary contributing to a widening gulf between livingschools; infant mortaity rates have fallen; life conditions of the urban elite and the greater bulk ofexpectancy has increased; and the share of the the population. For the lower income groups,population with advanced training, skldls, and continued improvement in hmnnan resourcee.xperience in the wider world commuity has development is the key to unlocking the potentalsteadily improved. The improvement in social for higher incomes and broader participation in theindicators, accomplished in a very short period of growth process.time, is a testament to the foresight andcommitment of PMC leadership. That such 4.4 Another constraint facing the PMCs is theprogress continued to occur during a decade in shortage of professional, technical, and managerialwhich economic growth barely managed to keep manpower side-by-side with a relatively largepace with the advance of population bears witneb, number of "vorkers with low-quality generalto the fundamental role of social service provision education. rhe shortage of specialized skillsas an effective instrument for raising living impedes the operational as well as the dehelopmentstandards. activities of the public and private sectors. In the
modern sector, sustinable growth will crucially4.2 The total population of the PMCs is depend upon developing a "critical mass' of higherroughly 1.6 million, gorwing at an average rate of level manpower. This is complicated, however, in2.1 percent per annum for the group. Growth rates some countries by the widespread emigration ofare particularly high in the two Melanesian skiUed Pacific Islanders to the more affluentcountries, Vanuatu and the Solomon Islands, and in economies of the Pacific rim, and in others by thethe Marshall Islands-reflective declining mortality lack of trainable candidates. Creative solutions-rates and extremely high ferlity rates. In the other involving a judicious mix of training, laborPMCs, fertility rates are lower, but are still high by imports, technical assistance, and appropriatelyinternational stards. geared pay policies-are needed to overcome the
shortage of skilled workers.4.3 Notwithstanding the progress made inhuman resource development, the challenges are 4.5 In addition to shortages of skilled labor,formidable. While the great mass of the population the South Pacific economies are characterized by ahas been provided with rudimentary literacy skills relatively high reserve price of unskilled labor.and some access to rudimentary healthcare, neither The wage of an unskilled laborer in the Southhealth nor education conditions can be considered Pacific ranges from 3-7 times that paid to aadequate to meet development challenges. Few comparable worker in Southeast Asia. High wagescountries, for example, have been able to provide are a reflection of the genLerally comfortable livingthe training in agriculture and industrial skills conditions offered by semi-subsistence agrculture,voce-)ns necessary to raise productivity and rather than tightness in formal labor markets.generate the the human capital base needed for Raising the general level of productivity of the
work force-and hence improving value for
55 Volme 1: Overviw
money-is the only way that the Pacific Island coms of services will rise as well. Many elementsstates can compete in the global market place. of the exting high cost approaches to educadun
coverage, such as boarding schools and overseas4.6 The very pattn of possible growth tertaty training, will need to be reviewed ifoptons suggests at prm y shld be accorded to services are to be made avaiable to the inceasinghlman rsource development efforts. The PMCs population. In an era of scarcity, careflare too small and remote to support broad-based management of HRD services-services crucial todevelopment; are unikely to have a deep industrial unlokig long-term growth potential-arc a keybase; have thin domestic economies with limited challenge for the decade to come.opportnies for efficie-I import substition; andhave limited growth potental in subsistenceagriculture or cash-crop exports. A part of the B. LA4OR MARKET DEVELOPMENT IN THEsolution to long-run economic growth is an SOUTH PACIFICeconomy geared around effcient provision ofservices-for which the key factor of producdon is The Demographic Settinga healthy, well-rained labor force. This implies aneed to give the PMC labor force potntal skldls to 4.10 Demographic conditions and likelydiversify and stngthen the economic base. developments will fuel a rapid increase in social
service demand. Al of the PMCs shaie certain4.7 Aid has become increasingly directed demographic attributes: young populations andtowards the provision of human resource services in high-ferility rates. In FSM, Marshall Islands,the South Pacific. Veiy lttle social sector Solomon Islands, and Vanuatu, more than 40assistance is subjected to rigid economic scrutiny, percent of the population is under 15 years of age.however, and a growing body of experience In the other PMCs, more than a third of thesuggests that aid udlization in the social sectors popuWlation is under 15 years of age (see Table 4.1).could be vastly improved. Donor agencies and The large number of young people relative to thePMC governments could begin this process by size of the total population generates a tremendousidenfying cost-effective and coherent stegies for demand for primary healthcare and schooling.social service development.
4.11 Most of the PMCs are high-fertility4.8 With limited tax bases and a small countries, with current total fertity rates clustringnumber of trained individuals to begin with, the in the range of 4-5.5 births per woman. Only infinancial sustainabiliy of social services is a major Fiji does the fertilit rate begin to approach theconcern. Unlike other forms of investment, the lower level of comparable low-middle incomeratio of recurrent to capita costs in social services nations. A combination of high fertiity rates andis very high. Careful attention is needed to ensure falling mortality levels characterizes the early stagesthat promising investments in human resource of the demographic transition in which the PMCsdevelopment (HRD) services do not exceed the now fid themselves. Demand for health care,caying capacity of the budget and that cost education, and other social services rises rapidlyrecovery measures, which are generally very low, during the early stages of the transition due to theare increased-keeping in mind equity matters. large number of births, the greater number of
elderly, and the burgeoning population at the lower4.9 Human resource development is also age distibutic as.important from the standpoint of improving thequality of life so that the population can realize its End adonfull social, cultural, environmental, and economicpotential. Improvement in individual choice and 4.12 Emigration has traditionaly been anwell-being is an important development objective in important demographic safety-valve for smaUits own right. The experience of the 1980s and nations, and the South Pacific is no exceptionearly 1990s suggests that, even in a difficult growth (Table 4.2). No other region in the world has suchenvironment, there is stiU scope for improving relatively unf,ttered access to the labor markets ofsocial welfare. Still, a desire to improve living three of the world's most advanced economies-thestandards must be tempered with fiscal and United States, Australia and New Zealand. Thoseinstitutional realism. As government budget countries that have most actively exportedconstraints tighten, education and health services manpower-Tonga, Western Samoa, Fiji, andwiUl need to be delivered in an ever more efficient Marshall Islands-have both the lowest rates ofmanner to an increasingly larger population. As absolute population growth and the highest socialskill requirements rise, the quality and hence the indicators in the region. In Tonga and Western
Volume 1: Overview 56
Table 4.1: CoMmRaTIvE DEMOGRA C INDIcAToRs, 1990 a
TotalWorking-age Pert
Population Population Populadon Population Populadon Rate LifeSize under 15 Density Growth (15.64) (births per Expectncy
(thousands) (% of total) (per sq kn) (%) (% of total) woman) (eas)
Source: World Bank Social icators of Development, 1991-92, and mission estmates.
/a Or most recent estimate./b Not including Yap State.
Samoa, remittances from overseas migrants finance levels at a high level while temporary arrange-practicaly as much consumption as does ments-such as employing expatriates-are made toagriculture, the largest productive sector. Although fill skil gaps, but in many instances such solutionsa wide range of individuals do migrate from the only fuel further emigration (see para 4.40).Pacific, those most likely to leave have secondaryor post-secondary education and tend to come from Table 4.2: ESTIMAED NETthe upper-income, urban population. INTERNATIONAL OuT-MIGRATION RATES
4.13 The nature of small economies is such (per 1,000 population), 1980199that economic demand for highly specializedservices is very small indeed. This, together with Fiji 5.2easy access to the labor markets of Pacific riln FT 18.8economies, is the main reason why skilled Tonga 25.7individuals tend to leave the PMCs. In some cases,skill shortages result from the outflow of trained Solomon Islands a/ 0.1individuals. Kiribati At 4.3
Vanuatu l 2.54.14 Social services are affected by theemigration of skilled manpower in two ways.First, the capacity to provide services is diminished Note that these nations have a very small share ofdue to short~,es of doctors, nurses, tecnicians, the population with post-secondary education.and qualified teachers. Second, the very process of Source: World Bank, Pacific Regional Post-Secondaryproviding post-secondary training takes on the Education Study, 1992.characteristics of a never-ending treadmill. Skillshortages inspire PMC govermnents to send many 4.15 Although immigration regulations haveindivtiuals for overseas training, at very high cost, been tightened in North America -nd the Westernonly to lose many of these same individuals to the Pacific, Pacific Islanders should cc -hinue to be ablelabor market of the Pacific rim economies. In the to migrate to these nations with relative ease. Asinterim, private remittances sustain consumption overseas populations of Pacific Islanders build up,
57 Vo.we 1: Overiew
Table 4.3: WORRB INDtCATO, 1986
Economically Share of Share of Share of Share of Labor ForceActive Labor Labor Force Labor Force Women in Labor Foce it Growth Rate
Force in total in public Labor Force Agriculture (1976486)(thousands) Pop. (%) sector (%) (%) (%) (% p.a.)
Source: Pacific Regional Post-Secondary Education Study, World Bank (June 1992), and mission estimates.
te use of family reunification provisions as a These projections are subject to a consideablemeans to facilite emigration will become margin of errao but generally suggest that einreasingly important. The Fiji, Tonga, and capacity to generate employment will be closelyWestern Samoa expeience suggests that those with linked to the level of private investmn anda modicum of skldls will experience very little growth-two key indicators of the level of socialdifficiuty in emigraing to the more affluent services required.economies. Even economies less affected bymigration have lost skldled personnel to other 4.18 In the past, skill gaps in the publicnations. In Vamnatu and Solomon Islands, for sector-of which there are many-have been usedexample, locally trained doctors have left to work as an indicator of the demand for specializedin Papua New Guinea; others have simply not training. Forecastng demand for skldls based onretured home after overseas traiing. For social public sector reqemen is no longer appriate,service planners, the prospect of continued since fiscal constraints will limit growth in publicemigration outflows implies that social sector sector employment. Education planners will needinterventions must be managed and operated by a to pay more careful heed to the needs of the privatesmall number of skilled professionis. sector m seg curricula and providing specialized
trning.Labor Force I)evelopmeut
4.19 As the private sector becomes more4.16 Job creation in the PMCs has been slow important in the growth process, manpower demandand disappointing, characrized by a heavy may well exhibit initial signs of sluggishness. Thisreliance on public sector employment, with a low is due to the small size of the private sector in mostrate of female labor participation and a heavy PMCs and the need to adjust from a public-sectorreliance on agrulture to generate jobs (Table 4.3). dominated labor market to one in which prvateDuring the decade ending in 1986, labor force sector skils and orientation are required. Asgrowth was insufficient to keep pace with the private sector activity increases, manpower demandgrowing population of graduates and school leavers. wiUl recover as well. Even if private sector demandWhat growth did take place was, by and large, for labor becomes sluggish in the transition phasedominated by an expansion of the public sector. As to higher growth, development of human capitalgrowth in the public sector slows, a key challenge should continue.will be to increase the relevance of social servicesto facilitate employment creation in the private Welfare Sssector. 4.20 Social indicators in the South Pacific vary
considerably (Table 4.4). In the Polynesian4.17 Manpowerdemadprojectionshavebeen economies, such indicators are closer to those ofmade for a nmnber of South Pacific economies. developed western counties. In the Melanesian
Volume : Oveniew 58
Table 4.4: KEY SOCIAL INDICATORS, 1990 a'I~ ~~~~~~~~~~~~~~~~~ .
Primar S-Infat Access to llfe School School
Mortality Rate Safe Water Expectancy Enrollment Enrollment(per thou.) (% of pop.) (yeas) (%) (%)
La Or most rect estimate.Source: World Bank Social Indcators of Dewlopment, 1991-92; Mission esimates: and
World Bank:l Paafic Regional Post-Secondary EduAton StudY (1993).
states, health and educaion indicators are similar to support. In providing ERI) services, hard choicesthose in the poorest of devel0ping nations. Human have to be made.resource development investment requirmaent willdiffer depending on the stage of development of thedelivery systems. In those nations where such C. PRftoRnS RV THE PROVISION OF
stems ae relatively advanced, the main focus will EDUCATION SERViCESbe on efficient operation and maintena ofexisting assets; for those systems in an earlier stage Ovewof development, the challenge will be to effect asustainable improvement in coverage and 4.23 A competitive, export-orientedeffectiveness of interventions. environment demands that workers be able to
perform new and multiple skills. These, in turn,4.21 Ceqng Intrst. In all counies, a invoke a requriement ta futre workers need to bebalance needs to be struck in the provision of health taught basic skills in reading, writng, andand education services between highly 3pecialized anithmetic necessary to learn specific skills. Inand costly programs and meeting the basic needs of economies experiencing dramatic changes,the mass of the population. The former embody including unanticipated shifts in markets, climate,few of the attributes associated with public goods. and technology, a broad base of general skdllsThe fact is that few of the specialized facilities- through basic education is more critical for successsuch as full service hospitals and higher education than is specialized education. General education isfacilites-can be sustinably provided in very small likely to pay for itself in the long run, enhancessocieties. Such societies have neither the man- receptivity to knowledge and new techniques, andpower to staff such institutions nor the service improves the cost effectiveness of later training.demand (and purchasing power) necessary to fi- This does not imply that post-secondary educationnance the range of high cost interventions required. can be ignored; but that improvements in post-
secondwy education need to be based on a sound4.22 It is the needs of the general population, primary and secondary education, while educationhowever, for basic schooling, primary health care of an elite group without mass education is unlikelyand preventive medical services-all actes in to engender sustained economic growth.which government intervenion produces wide-pead, positive public spinoffs-that should be
acoded a high priority for government and donor
59 Vkowe 1: Ovriew
Table 4.5: EDUCATiON SECroR INDICAToRS
Education Pimary Secondary PMst-SecondaryExpenditumes School School School(% of Govt. Enrollment Bnrolpment Enrollmentexpenditure) (total) (%) (% female) (total) (%) (% female) (total) (% female)
Souce: Pacific Regional Post-Secondary Education Study, World Bnk (Iune 1992), and mission estimates.
Li Rcurrentexpendi only. id 1988 and 1989.lb 1991. Ie Full time equivalnt, 1992.tc 1989.
4.24 In all PMCs except for Vanuatu,' there 4.26 With the exception of FSM, where onlyis virtually universal enrollment at the beginn of 17 percent of the secondary places are provided byPfimary education (Table 4.5). Enrollment is private schools, private secondary schools are ausualy not compulsory in most counties, however, domint part of the education system. Privateeither because there is no policy or because it is not schools, which are generally run by churhes orenforced, and up to 15 percent of the children drop other religious organizations, provide 78 percent ofout before the end of primary school. In areas with the secondary places in Tonga, 70 percent inrapidly growing populations (e.g. Majuro in the Kiribati, 68 percent in Solomon Islands, 60 percentMashall Islands), children have had to be turned in Marshall Islands, and 64 percent in Westnaway from primary school because of insufficient Samoa. Although limited public subsidies arenumbers of teachers and schools. Only in Fiji and provided to private secondary schools, they areTonga is compulsory primary education effectively largely self-financed-by tuition and communityenforced. donations.
4.25 Entry to public secondary schools is 4.27 Gender. In all PMCs, the percentages oftypically rationed by an exam at the end of primary girls in total enrollment in primary schools isschool; only Tonga and Fiji have policies to reflective of the sex ratios in the age group. Thisprovide universal secondary education, and only largely holds up through secondary education in theTonga comes close to doing so. Fnrollment ratios Polynesian countries and the Marsball Islands andvary widely among the PMCs. Tonga, wih half FSM, although toward the end of secondary schoolthe population of the Solomon Islands, has six times there is a decline which presages lower femalethe number of secondary students and enrolls enrollments in higher education in most countries.virtually 100 percent of the age group through age In the Melanesion countries and Fiji, the decline in15. In the middle range are Fiji, FSM, the female enrollment starts in secondary school (downMarsball Ilands, and Western Samoa, with about to 44 percent in Fiji, 36 percent in Solomonhalf of the age group enrolled. The Solomon Islands, and 43 percent in Vanuatu).Islans, Vanuatu, and Kiribati have much lowersecondary enrolments-Il , 17, and 7 percent Education Qwalty and Rd-vancerespectively. In the case of the Melanesiancounies, the lower secondary enollment reflects 4.28 The quality of educational services in thethe pattern of less developed, rral economies. In PMCs is seriously deficient, meaured in terms ofKinbati, secondary places have been limited by literacy levels and secondary school achievementpolicy, reportedly because of concerns about indicators. Low quality education contributes toeducated unemployment. high drop-out rates and raises the unit costs of
Vome 1: 0. ew 60
providing a given amount of training. 4.33 Post-Seconday Education. There are 35insttutions, most establihed during the 1960s and
4.29 Quality problems start at the prmary 1970s and expanded during the 1980s, offeringschool level. A UNESCO survey of basic written instuction at senior secondary, post secondary, andliteracy and simple arithmetic demonstates this. university level. lie largest is the regionallyWestern Samoan, Marshallese, and Tongan studes governed University of the South Pacific (USP).fared particulaly poorly in the UNESCO English There are five degree-awarding institutions: theltacy test, with 3245 percent of their students USP, National University of Westem Samoa, Fijistil illiterate in English in Grade 6. IronicaBy, School of Medicine, the Sia'atontai Theologicalthose countries with less extensive seconday school College, and the private Atenisi University insystems (Solomon Islands, Vanuatu, and Kiribati) Tonga. Total enrollment in these institutions ishad a smaller percentage of English language about 7,000, more than half of which is in USP.illiterates among school attendees. There are, in addition, more than 20 other post-
secondary institutions, having a total enrollment of4.30 By the time students graduate from about 3,500, with specialized programs inprimary school, many are several years behind agriculture, marine studies, technical, nursing, andsame-age students in industrial counties. This business specialties. In addition to those studyingshortfall is not made up in secondary schools, and at PMC institutions, it is estimated that anotherat completion of secondary school many of the 3,000 students receive post-secondary trining instude are swveral years bebind in basic skills. Australia, New Zealand, the United States, Guam,The qualit problem appears to be a result of or Papua New Guinea.several factors, the most important of which are thelarge number of under-qualified teachers, 4.34 In 1991 US$73 million was expended oniaequa curriculum, and a shortage of teaching post-secondary education opportnities for aboutmaterials. 11,000 equivalent full-time students (EFTS), 2,600
post-secondary, and 550 secondary students in the4.31 Vocatonal Thrning. The curricula of Pacific rim countries. Of the US$23.0 millionprimary and secondary education are not spent in PMCs, just under a fifth of the resources
sfficiendy related to the social and economic were used for financing students at USP (with aboutactivities in which most of the students will 30 percent of the EFrS), respectively.eventually find employment. Consequently, thevocational flavor of primary and secondary 4.35 A substntial amount of funding for post-education is very weak in most PMCs, despite the secondary education is provided by donors in thefact that most school leavers do return to village form of scholarships and technical assistance.life and small-scale agriculture. Few schools Although donors support programs at national andprovide any useful inucion in the scientific regional institutions, a significant proportion ofunderpinnings of agriculture or its business aspects, their funding (similarly for some governments) isbeyond the typical school garden. allocated to training in Pacific rim country
institutions and for technical assistance. Very little4.32 Vocational education has not been is spent supporting national institutions, some ofemphasized by most governments in the past, and which are seriously under-financed. Substantialstrategies adopted for skills training have had a gains can be made if PMCs and donors provide amixed record. Goverments have tried to integrate grear share of their post-secondary educationvocational training into regular secondary systems. support to PMC training institutions.Fiji, for example, has 25 multicraft centers with anenrollment of about 700. Kiribati has a specialized Pdoroioes for Acionvocational school. Specialized agricultural andmarine schools at the secondary level exist in a 4.36 Budgetary Allocaton. Educationnumber of PMCs. Most teacher and nurse training expenditures in the South Pacific are very large,institutions take stdens after Form 5 or later, but accountng for more than a quarter of publicthere are three such institutions (in Tonga, expenditures when government, donor, and privateVanuatu, and Kiribati) which take students after financing of education are all taken into account.Forms 3 and 4. While the supply of vocational In 1990 Fiji devoted 15 percent, Kiribati 18tWainig oppounities is not negligible, it lags well percent, Solomon Islands 17 percent, Tonga 14behind demand and is poorly integrated into private percent, Vanuatu 25 percent, and Western Samoasector training programs. 13 percent of recurrent expendiures to education.
Government allocations to the education sector havedeclined in real terms in the last few years due to
61 Volme 1: Oerpew
fiscal constain, resulting in a fail in the quality of early training in local languagGs), and improvedservices provided. The fall has been sharpest in provision of core-subject education materials andprmary education, where donor agencies play a supplies. With what is being spent on education invery minor role. This is aggravated by inefficient the PMCs already, there is no reason for theuse of resources, especially in the fnancing of periodic shortages of books, chalk, blackboards,higher education by governments and donors. chairs, and desks in many primary schools.
Correcting these deficiencies is a top priority. Pre-4.37 Given the fiscal constraints faced by the service primary teacher training and in-servicePMCs, the challenge then is not necessarily to trairnig of primary, secondary, and post-secondaryincreasc public spending-which in some instances teachers should be considered the primary task ofcould easily crowd out education outlays by church national post-secondary training efforts. Improvedand commwuty groups-but to make more efficient teacher supervision will also be needed to reduceuse of resources by increasing efficiency of public the number of unqualified or under-qualifiedprograms and expanding cost recovery where teachers, combined with efforts to reduce bothappropriate, teacher and student absenteeism.
4.38 In the past, the focus of much govermment 4.41 A greater emphasis on vocational trainingintervention, and donor support, has been weighted wiU be required to improve the relevance of PMCtowards terdary training-much of which was training and to better equip a larger number ofdesigned to serve the needs of the public service or students with work skldls likely to be in demand inresulted in emigration. In some PMCs, more than the private sectors. Within the general primary and60 percent of educadon expenditures are on post- secondary school systems, aUl students should besecondary training. As very little terdary training provided with basic, practcal vocational, oris of a pure public goods nature (most of the gain lifestyle-related skils. Programs should involve theis individually appropriated), the emphasis in public private sector to ensure suitability of the content.sector spending (govemment and its donors) should This is already the case in many PMCs, in whichbe on support for primary, secondary, and private groups partly finance vocational taiing.vocational traiing. This would require a major The private sector can also be encouraged torefocusing of public expenditures, aid allocations, undertake apprentice schemes or to operate publiclyand development of cost-recovery mechanisms for financed training institutes and courses.tertary training.
Retaining Skidted Manpower4.39 The University of the South Pacific is amajor regional resource owned by the PMCs. 4.42 The loss of skills, throughout the SoutiWestern Samoa, FSM, and the Marshall Islands Pacific, is a problem and hampers initiatives inalready have associate degree-grandng national praccally all fields of public and pnvate endeavor.erdary training insttutions. FiJi, Solomon Islands, Bonding of scholarship holders and other such
Vanuatu, and ITonga have expressed the desire to mechanisms will, if enforced, reduce mobility, butestablish their own universities. Tertary taining they should not be confused with the fundamentalinstitutions are notoriously expensive, and funds inducement of monetary and non-monetary jobthat would have gone to primary and secondary attactiveness. Tracer studies show that individualseducation will likely be reallocated to national provided overseas training in the US, Australia, oruniversities. This is precisely the wrong direcion New 7Zaland are far more likely to emigrate thanfor the reallocation of public spending in the face of are those trained in the South Pacific. One way ofpoor quality and inadequate access in the lower reducing the overseas-familiarity factor tolevels of education. Individually, the PMCs are too emigration would be to consider overseas trainingsmall to gain scale economies in many programs in other Pacific rim countries such as Singapore andaside from teache training, nurse training, and Malaysia, whose restrictive immigration policiessome basic vocational programs. More PMC would almost certainly preclude emigration to thesecooperative programs needed for the running of nations.2 Another way is to increase use of USP.cost effective and efficient training programs should In certain instances, employment of developingbe organized if existing and future skill shortages country expatriate specialists or volunteers mayare to be reduced. well be the best solution to skill shortages.
4.40 QaIity Upgradng. Quality improvement Ynuning Educaton Developmentin primary and secondary schooling is neededthroughout the Pacific. This will involve teacher 4.43 Upgrading primary and secondary schooltraining, better curriculum adaptation (including quality, improving vcational training access, and
Veobun 1: Oer*ew 62
meeting the growing demograpbic demand for more revolution in saellite communicatiom to providetrahiningplaces will be cosdy udrtkngs. As local access to global television seices.noted above, such challenges can be met witnX the Knowledge and awareness of global conditions andexistng envelope of public education spendig if opportunites has become, in many parts of thefar less emphasis is provided to post-secodary developing world, absolutely essential to thetraining abroad by the public sector (and donors). development of a compedtive labor force. In mostIn addition, major gains can also be made by PMCs, television services are non-existent; satellitegreater effciency in the alocation of resources links are highly restricted; and, if anything, only aalready made to the sector. Initatives that would range of somewhat dated video cassettes arecontribute to greater cost-savings include careful available on local markets. Brnging global satellitescreening of donr projects so as to eliminate or links to within the grasp of the Pacific Islands willredesign those projects that cannot be financially undoubtedly have some social repercussions. But ifsustained.3 Reducing teacher/pupil ratios, greater experience in other developing counties is anyuse of multi-grade teaching, consolidating small guide, the positive benefits associated withprimary and secondary schools in areas increased awareness and understanding will farexperiencing population growth, increasing PMC outweigh possible (often exaggerated) adversecooperative programs, and having bilateral donors effects. Donors should be willing to assist PMCsincrease their share of long-tenm financing in with this effort.regional instuions, all deserve anenion.
4.44 NGO PWca;ion. Local participation D. PRIORnT JI V MTE PROVISION OFin the provision of prmary, secondary, and HEA4LTH CARE SERVICESvocational schooling-by communities, churchgroups, or other NGOs-is very important and Oveieshould continue to be acourapd. This helps toensure both the relevance and sustainability of 4.47 Health care indicators have beeneducation investment. Government should be very improving across the South Pacific. While mfantcarful not to duplicate education services financed mortality rates and life expecancy vary throughoutby chrch or other community groups. Given the the countries, they have been improving over thewide role played by community groups, churches, last two decades. In Fiji and Tonga, infantand non-government organizations in providing mortality rates and life expectancy compareeducation services, a strategy for securing their favorably to those in the more affluent Caribbeancooperation wil be essential for expanding and nations. However, infant mortality rates inimproving education. Additional tesources may be Vamua, Kirbati, and the Solomon Islands areneeded for the Melanesian counties which still more on par with those of sub-Saharan Africanneed to expand their systems. countries. In all PMCs, however, health status
improvements have slowed in recent years, and the4.45 Cost recovery for post-secondary training progress made during the 1980s could be reversedin the South Pacific is practically non-existent. without renewed attention to preventive healthThis does not have to be the case. In a range of programs. In addition, fertility remains high inAsian nations, many of which are much poorer than most countries, despite family planning programsthe PMCs, the public sector recovers a far higher being initiated by some countries during the 1960sshare of higher education costs. Cost-recovery and 1970s. The health problems of high fertilityratios for tertiary training are much higher in Asia are primarily related to higher rates of disease(late 1980s), at 46 percent for Korea, 19 percent transmission in households of increased size (TBfor Indonesia, 30 percent for Thailand, and 40 and skin-diseases), its adverse conseunc forpercent for Vietnam. Higher rates of post- improved economic welfare of adult women, andsecondary education cost recovery are possible in the adverse impact of higher population growth onthe South Pacific. A start in this direction could be fragile water and sanitation facilities, especiallymade by shifting provision of higher education prevalent in atoll-dominated countries.from what is now largely a scholarship-basedsystem to a system that relies more heavily on 4.48 While health status improvements havestudent loans. occurred in the region, the major health problems
confroning PMCs vary. In Fiji, Marshall Islands,4.46 Improve Global Link. Education Western Samoa, and Tonga, the most importantpossibilites stretch far beyond the physical frontiers public health concems are respiratory diseases,of the PMCs. During the l9I.0s, many developing heart disease, high blood pressure, obesity,nations took advantage of the technological diabetes, and other lifestyle related diseases. Over-
63 Veimw 1: Ovenvw
ean and lack of adequat exe'cise are cited as the health system has 95 nursing saions, 53 heathtwo leading causes of the high prevaence rates of stions, 16 subdivisional hospitals, and 3diabetes in the Polynesian nadons. In Westem specialized hospitals. In 1992, the Fijian MinistrySamoa, for example, it is estimated that 15 percent of Healhi had 2,731 established staff includingof the population suffer from the disea&e. In about 300 doctors; there also are private physiciansSolomon Islands and Vanuatu, health care problems and pharmacists and more than 1,000 communystem lagely from a high prevalence of tropical health workers and birth atedants.diseases, of which malaria ranks at the top of thelist, and from a wide range of gastrointesinal 4.52 Dlivey Cons"t_. Health servicedisorders associated with deficiencies in sanitation. delivery in the PMCs is constrained by a number ofIn the Marshall Islands, undernutrition and factors. The first is geography. In many counries,malnutrition among children has reached alarming the population is scanered among sparselyproportions. An estimated 65 percent of all populated villages that are difficult to reach duringchildren under the age of five suffer from under- the rainy season. Second, there is an acutenutrition. shortage of indgenous doctors and trained nurses in
all of the PMCs except Fiji. Third, the availability4.49 Access to sanitary conditions differs of and access to needed drugs is diffiult,widely among the different PMCs. In Fiji, Tonga, particularly for the PMCs with irregular air accessand Western Samoa, more than 70 percent of the connections. And fourth, knowledge required topopulation has access to safe water. In the other promote healthy lifestyles is low, even in thosenations, between 50-60 percent of the population countries with beter educational achievementhas access to potable water supplies. levels.
4.50 Healt Sector Services. The health care 4.53 Health Sedor Spending. Health sectorsystems of the PMCs are dominated by public spending in the South Pacific suffers from twosector providers organized typically around a front- imbalances. The first is the high proportion of totalline network of clinics or dispensaries that feed outlays provided to curative, hospital-based carepatens into district and/or referral hospitals. In compared to primary and preventive care (see TableFiji, the number of private health care providers 4.6). The second imbalance is the disprportionate(doctors and midwives) has been expanding. share of total spending for urban-based servicesHowever, in the other PMCs there are either a very compared to front-line, rural-based outlays. Forsmal number of private physicians and a somewhat example, in the Solomon Islands, the centallarger number of traditional healers or no formal hospital receives 30 percent of total health outlays,pnrivate practice of medicine (e.g. in the Marshall and health expenditures in Honiara are four timesIslands and Kiribati). By and large, the physical greater, in per capita terms, than in the other partsinfrstrcture for deliverng primary and preventve of the country. In Kiribati and Vanuatu, abouthealth care services (health centers, dispensary half of total health sector spending is allocated forpoints, and clinics) is in place, although many hospitals, while in Fiji, fully 70 percent of thefacilities ore poorly maintained and inadequately health budget is allocated to hospital care. Thestaffed, and some have experienced medicine and 'capture factor' of hospital care appears to increaseother supply shortages. in the countries with better health indicators. In
Tonga, for example, the Sixth Plan foreshadows an4.51 There is, however, considerable variation allocation of 95 percent of health sector publicin the range and depth of health infrast ucture in investment to hospital infrastructure. These publicthe PMCs. The Solomon Islands has a 40-bed spending imbalances contnbute to a situation incentral hospital and 144 provincial clinics under the which rural clinics are under-staffed and suffersupervision of 25 doctors, 14 of whom are from periodic shortages of medicines and medicalexpatriates. The public health system in Kiribati is supplies, while costly investments are underway tobased on a network of 24 health centers under the expand or upgrade urban-based hospitals insupervision of the 100-bed hospital in South practically all PMC capitals.Tarawa. Vanuatu has a network of nurses andnurse practitioners working at 64 dispensaries and 4.54 Priorty Seting. Government and donor19 health centers; there are also three district priorities have been biased towards provision ofhospitals, and a tertiary level hospital in each urban urban-based hospitals and medical staff. In manycenter. Tonga's public health care system is cases, small stats simply cannot afford the carryingcomprised of the Vaiola hospital in Nuku'alofa, 3 costs of hospital infrastructure and the staff anddistrict hospitals, 14 health centers, and 33 equipment that such facilities contain. Other, morematernal and child care clinics. In Fiji, the public practical, solutions to curative health care problems
Voeime 1: Overview 64
Table 4.6: HEALMH SECTOR INDICATORS, 1990
Recurre Hedth Caue Curative Hedth Poplation (in persons)Expenditures Care Expenditures /2 per per
Source: Country reports, World Bank staff estimates.
Ll Share of Rurrent and Capital Exp.a Excludes direct Public Health Expenses, along with Administrative, Research and Personnel Education.
need to be identified. These would include: (i) as obesity) while buttressing gains registered inmandator screenig of patients by front-line clinics mother-and-child care programs, immunization, andand regional health centers before referral to contagious disease control programs.specialists; (ii) overseas atment in emergencies;(iii) use of visitng doctors (travelling hospitals) for 4.56 Potable Water. Throughout the Pacific,routine curative services; and (iv) augmentation of access to potable water is emerging as anclinic and health care facilities to allow for a wider important, and expensive, public health concern.range of curative care services. The focus of Intemational experience has shown that access topublic expenditures and donor support needs to be clean water is a major determina of theshifted to preventive and primary health care effectiveness of health sector interventions. Newmeasures. technologies, including slow sand filtration
processes and small diameter wells, have resulted4.55 In the Solomon Islands, Kiribati, Vanuatu, in a sharp reduction in the costs of potable waterand the Marsball Islands, the focus of preventive supplies. Several new kinds of water pumps haveand primary care should be aimed at eradicating become available, including those that allowand treating infectious dseases, expanding mother communites to maintain and manage the systemsand child care services, providing public health themselves. Improving access to clean drinkingeducation, and establishing rudimentary family water supplies would be a key area for futureplanning programs. A reduction in the prevalence coordinated donor support.of contagious tropical diseases in the Melanesianstates wil have important positive effects on labor 4.57 Managing Curaive Care. In Fiji,productivity and the effectiveness of elucation Western Samoa, Tonga and, to a lesser extent,interventions. Until malaria is brouSht under FSM and the Marshall Islands, the demand forcontrol, development options in the Solomon high-cost curatve health care services is risingIslands will remain narrow. In the other PMCs rapidly as the morbidity profile shifts more towards(including the Marshall Islands), the focus of lifestyle-related diseases and as life expectancypreventative and primary health care programs increases. The level of cost recovery for curativeneeds to be broadened to encompass lifestyle- care is low; access is rationed not so much byrelated diseases (AIDS and such dietary problems turning away patients but by allowing the quahity of
65 Vo.1me 1: Ovenvw
care to deteriorate to such a degree that individuals away from the existig concenttion of heatcaopt out of treatent. This is clearly unsatisfactoty, personnel in hospitals and other terdary carefor in the process, cunaive services that have facilities.widespread public benefits (e.g. treatm ofcoagious diseases) are sacrificed in favor of those 4.60 Fnang Bealth Cam The healthservices that benefit only a veiy narrow client sector offers numerous opportunties for savings.group (e.g. operatng theaters). While the public Considerable savings can be obtained bysector has an inportant role to play in curative rationalizing the procurement and use of drugs andhea care services,4 it does not necessarily follow medicine supplies. Relying on low-cost treamentthat the public sector is the appropriate body to regimes (i.e. orl rehydration therapy instead ofmanage provision of curative care facilities. In intravenous rehydration) and rationalizing themany countries, health administrators and private buying pracdtes for drugs can also lead tophysicians nanage curative care service facilities significant cost savings. Although most PMCsquite effectively and efficiendy. Communty centralize drug procurement, greaer use of gencgroups could also be called upon to vperate and drugs, together with improved storage andmanage curative care facilites, particularly in those distribution procedures, could lead to substantiaPMCs in which the church plays an active role in savints of as much as 30 percent of the drug bill insocial affairs. There may well be more some PMCs.widespread acceptance of realistic fee schedules forcurative healith care services from privately 4.61 Avoiding over-investment in high-costmanaged institutions than from publicly managed curative care facilides is anotier strategy forones, just as is the case for privately managed reducing health care costs. The recurrent costs ofsecondary and vocadonal schools. operating full-service hospitals at a reasonable
standard of efficiency are quite high. Careful4.58 Government can play an important role in project screening is required, even for donor graut-the establishment and regulation of self-sustaining financed underkings, to eliinate or down-sizefinancing mechanisms for curative health care. those iniatives that simply cannot be sustained atMedical insurance systems can be appropriate a reasonable level of financial effort.means of spreading the costs of curative health careacross wider population groups. Use of such 4.62 Ls th two percen of total health careschemes are in their infancy in the PMCs; broader costs are recovered, on average, from the healthparticipation, on a limited risk basis, will be needed systems of the PMCs. By developing countyto lower costs and provide adequate resources to standards, this is very low. Low-income nationsfmance an appropriate level of services. such as Ghana, Ethiopia, and Mozambique wereGovernment can assist this process by developing able, in the mid-1980s, to recover between 10-15an adequate regulatory framework and oversight percent of total health care expenditures from userstaff capacity for insurance providers and by charges. A greater degree of cost recovery isdeveloping insurance options for both civil service warrauted, both for the provision of drugs and forworkers and other employed groups. curative care services, as was generally the case in
most countries in the region 10-20 years ago. User4.59 Staing Health Sstems. Health charges should be set so as to encourage patients tomanpower is deficient in many nations, both go first to their front-line local clinics or healthbecause of training bottlenecks and because of non- posts who could then, if necessary, refer them tocompetitive remuneration structures. As in other curative care facilities. Special provisions shorld,activities, employing personnel with less formal however, be made to exempt low incomequalifications could also offer considerable savings households and children under five from healthwithout jeopardizing standards. Health care sector charges.workers and traditional birth attendants can beprovided in-servce training to perform a great Family Pknning Servicesvariety of front-line health sector tasks. Para-medical personnel, with most of the credentals of 4.63 Despite small populations, birth rates area full physician, could increasingly be relied upon high and access to family planning services is lowto undertake more of the curative care burden. In in practically all of the PMCs. Birth rates rangecertain areas, such as nursing, training from a low of 25 per thousand persons in Fiji to aopportunities will need to be increased. An high of 40 per thousand in the Solomon Islands,expansion in nursing training should only be with the other PMCs concentrated in the 30-35 perconsidered as part of an overall shift in heath care thousand persons range. In East Asia, the crudeemphasis towards more front-line treatment and birth rate has already fallen to 23 per thousand
Volame 1: OverIew 66
persons, while in most middle income countries, Bank cross-country studies show close linksthe birth rate i in the range of 10-15 per4housand between women's cdueation and econoiucpersons. development.5 Nations that have invested heavily
in female education benefit through higher4.64 The high birth rates are a reflection of a economic productivity, lower infant and materallack of access to family planning servces and ai mortality, longer-life expectancy for both men andlack of awaress on the part of the population as women, and lower ferility rates than in countiesto the role of family planning in improving the that have not achieved as high education levels forhealth and prosperity of the household. women. Female education contributes toContraceptive prevalence rates are extremely low in development through its positive effect op familythe PMCs, ranging from 3-4 percent of the target income. Furthermore, better educated mot '.,rs areadult population in Vamnatu and Solomon Islands to more likely to appreciate the importance of prenatal15-20 per of the target population in Fiji, and neonatal care and to be better informed aboutTonga and Western Samoa. By comparison, good nutritional practices; their children, in turn,contraceptive rates in East Asia already exceed 50 are likely to be healthier, to stay in school longer,percent of the target population. and to be quicker to learn.
4.65 As a result of high birth rates, the PMCs 4.68 Focusng Poly Making Cpblites.populatons are skewed toward the very young, Throughout the PMCs, planning and policy makingimplying a high dependency burden both for capabilities need to be enhanced so as to ensure thatfamilies and for society as a whole. Within the the focus of publicly provided services ishousehold, women's health is put into jeopardy as appropriate, that the recurret costs can bea result of the short time-intervals between births susained, and that future needs are anticipatedand the need to enge in economic activities while early on. Service demand forecasts should be madeteding for small children. In Kinbati, for on a regular basis and fed back into capitalexample, rapid populaion growth has overwhelmed investment forecasts. Ongoing expenditures shouldthe carrying capacity of a fragile resource base. In be carefully scrutinized to identify opportunities forthe Solomon Islands, rapid population growth, cost-saving and, more imporn, to identify thoseestimated at nearly 4 percent per annum, makes it very high-cost acivities which may not necessarilynearly impssible to raise living standards as the be worth supporting. Greater nsparency in theeconomy expands. costing of education and health oudays will provide
policy makers with a more rational basis on which4.66 The policy framework for family planning to base spending decisions.services is geneally satisfactory in most of thePMCs. What remains to be done, however, is to 4.69 Better utilization of donor resources isprovide substance to publi policy by implementng essential. The great number of small donorfamily planning progams, particularly in rural projects in the HRD area taxes limitedareas, and by incoporating family planning in to adminisadve capabilities. The lack of adequatethe health outeach system and into the process of donor coordination leads to costly duplication ofgeneral education. In some PMCs, access to services and difficulties in integrating education andcontraceptive materials is highly resicted, costly healthcare systems. An extreme example is theand only sporadically available. Experience health sector in Kiribati, where ten different donorelsewhere suggest,s however, that at the initial agencies contributed to 45 different health carestages of encouraging the use of family planning projects in 1992. This is equivalent to more thanservices, the ready availability of contraceptive 3 projects per practicing physician in the country.materials, at a low or negligible cost, is a key Overseas traiDning programs appear, in general, toingredient of success. Improving access, awareness be supply driven, duplicate lower cost programsand financial support for family plnning initiatives offered within the region, and have become highlyis worthy of both county and donor support. politicized. Support for curative health care
services, an important donor initiative, has saddledmany PMCs with health delivery systems that
E. POLWCY fAKWNG AAD PLANNING FOR cannot be staffed, operated, or maintained at aHUMAN RESOURCE DEVEOPMENT satisfactory level. More generally, the recwrrent
costs of donor support in the human resources area4.67 Imprving Women's Pardcp n. has tended to be far more than what was originalyHuman resource investments are most effective if anticipated-with precious little donor finaningaccompanied by efforts to ensure that every group made available for ongoing, routine requirements.realizes its ful economic potential. Recent World
67 Volwe 1: Ovenekw
4.70 Recret COW. At all dmes, careful provided highly cost-effective education and healthattention must be given to the recurrent costs of services. Competitionbetween Governmentandtheinvestment in HRD services. Fiscal limits to church results in costly duplication of services and,recurrent outlays may well constrain choice and in some cases, bidding wars for the atnion oflevel of investment in this area. Presuming a particular client groups. The curent fiscal outlookshortage of recurrent financing is more approp late is such that under no cirmstanc can the publicthan presuming the opposite. Careful scweening of sector afford to crowd-out private providers ofthe recurrent cost implications of all future social services. To the conary, forging closerinvesmet projects, with up-ftont emphasis on cost linkages and developing effective partnerships inrecovery of outlays for services that are not clearly the provision and management of social services ispublic goods, is of vital importance to the a key challenge for the l990s. In many nations,sustainability of delivery systems as a whole. church and community groups manage hospitals and
colleges. There is littde reason why these high-cost4.71 Impwve Cooperaen In many PMCs, services, which strain limited public sector budgets,public and private providers of social services view could not be similarly eperated and managed bythemselves as competitors in a narrow arena of private groups in the PMCs. Donor agenciessocial service delivery. In fact, in many PMCs, should also be able to chai.l support through cost-private church groups have for many years effective private/NGO providers of social services.
ENDNOTES
In Vanuatu, only about 72 percent of 6-9 year olds are enrolled.
2 New pam-dctor programs being offered at the Fiji Medical School are one way of providing a trained laborforce (in healthcare) without providing the necesary credentials for intemational mobilty.
3 Aitemavely, to encourage low-recurrent cost solutions to skdli problems. The PMCs are replete with high-cost, donor financed training facilities, many of which cannot be operated or maintained at a sfactory level.
4 Treatment of contagious diseases, for example, falls clearly within the realm of public goods provision.
5 King, Elizabeth and M. Hill, 1991. Women's E&wdaon in Dewvloping Countries: Baniers, Beefits andPolicy, PHREE Background Paper Series, World Bank, Washington DC.
Volume 1: OvervIew 68
5: Economic Growth and the Environment
A. INODUCTION a ie;. sible regional convention to control hazardouswavets, which was welcomed; (h) the need for more
5.1 For some time, most Pacific Island widespread environmental education; (i) thenational development plans have referred to the desirability of indefinite suspension of nuclearneed for envionmentaly sustainable growth-often testing within the region and further monitoring ofthrough statemens of inent-without specific the effects of past tests; and (j) the necessity forpolicies, objectives, priorities, budget allocadons, more effective coastal zone protection. Theor linkages among the programs of various extensive UNCED preparations and theministries. During the past several years, with endorsement of a wide range of eironmentalbroad support from SPREP and donors, all PMCs recommendations by the Forum are indicative ofhave begun developing national envromnental the growing awareness of the impornce ofmanagement strategies, or NEMS,' and many are environmental issues within the Pacific Islands.considering funding specific activities consistentwith a transition toward sustainable development as 5.3 Despite the Forum's endorsement ofrecommended by their NEMS working groups.2 sustainable development, there is still a tendencySustainable growth will require greater attention to among many island decision makas to consider thatresource management and better knowledge of the addressing environment concerns is a luxuysusinable rates of exploitation of the region's land incompatible with growth and development. Inand marine products. This is pardicularly true for fact, better environmental management is notarculture and tourism, which are the mainstays of merely compatible with economic growth, it ismany Pacific economies and will remain important required for improved health standards, morefor growth in the 1990s. Throughout the region, equitable development, and often povertyimplementation of reasonable enviromnent alleviation. Failure to address environmentalpolicies has generally been slow, and specific degradation will lead to a less pleasant physicalactions on environmental issues remain environment, poorer nealth standards, eventuallyuncoordinaed. decreasing agricultural and forest yields, and
worsening seafood quality and yields. The region's5.2 More than one hundred Pacific island pristine environment is in considerable danger.delegates, including nine heads of govermment, Although pollution and environmental degradationattended UNCED, the June 1992 Earth Summit are generally worsening, they are reversible ifConcerns raised at UNCED and subsequently policies are improved and implemented and morediscussed by the region's Prime Ministers at the appropriate mechanisms (regulations, incentives,1992 Forum3 included: (a) climate change and sea and price signals) are introduced.level rise, which were reaffumed by the leaders asthe most serious envionmental threats to theregion; (b) the lack of UNCED attention to B. ENVIRONMENTAL ISSUESpopulation growth, which was felt to impose asignificant strami on resources within the Pacific; 5.4 Inbodutfon. The Pacific Islands have a(c) the threat to fresh water resources, especially wide range of landforms, resource endowments,coasta ancd atoll aquifers; (d) the impotance of land areas, populations, and population densities.preserving the region's biological diversity; (e) the Yet many environmental issues are common acrossdesire to end high seas driftnet fishing; (f) the need the region as they are throughout the developingto prow the oceans from land-based pollution; (g) world: water quality. sanitation, pollution of land
69 Volaw I: Owew
and water, deforesion, land degradation, solid frequent damage to fragile economies. However,waste collection and disposal, environment-related the World Meteorological Organiztion's Tropicalhealth problems, and loss of biological diversity. Meteorology Research Program concluded in 1991No nvironmn issues are unique to the PMCs, that "there presendy is little or no scientific basisbut many-some of which were discussed at the for stateMen that, should global warming occur,1992 Forum-are exabated by small, low land tropical cyclones wil increase in frequency and/ormasses dispersed over part of the world's largest intensity." The WMO Tropical Cyclone Committeeocean: vulnerability to sea level rise, a high degree for the South Pacific and Indian Oceans has noof economic and cultual dependence on the natural evidence that cyclones have recently increasedenvironmen, a high degree of ecosystem and witin the region.species diversity, vulnerability to natural disasters,and fraility of freshwater lenses on atoDs. 5.7 Water and Sewerage. Throughout the
region, much of the urban water supply is unsafe or5.5 Clate Change and Sea Levd Rse. at high risk of becoming unsafe, and both urbanThe 1992 Porum asserted that global warming and and rural water supply systems are poorlysea level rise are serious treats to the very survival maintained and managed. Often water entering anof some island states, a view widely held within the urban distribution system is of reasonable quality,region. It is now generally agreed that the buildup but fluctuating water pressure (due to poorlyof carbon dioxide and other greenhouse gases will maintained pumps and innt power) andincrease average temp res on the planet. The leaky pipes result in contamination of drinklngsize of the effect is unclear, but the best current water from fecal-polluted groundwater. Only aestimate of the Intrational Panel on Climate mmority of Pacific Islanders have access toCange a(IPCC) is that average world tmpes consistendy safe water and adequate sanitation. Inmay rise by 3 degrees Celsius by the end of the some places water quality (Tarawa) and/or thenext century under their "business as usual" available quantity per household (Pohnpei, Majuro)scenario. There is greater uncerinty about are decreasing. Although only about a quarter ofconsequences-which will depend on many islanders are urban, urban water and sanitationunknown climate reactions and on the likely ability problems are significant party because the highOf Pacific economies to adapt. But there is little population densities increase the dtreat of water-the PMCs can do to affect the rate of warming; that related disease. In all eight countries surveyed (Fijiwil depend on the adoption outside the region of less than the others) water quality in urban-andpolicies to reduce emissions. Clearly, low-lying often in rural-communities is inadeq 'ate at best,naons are especially at risk. The IPCC predic.s a potentially dangerous in several cases, andmean sea level rise of 3-10 cm per decade with a dangerous in others.most iely value of 6 cm. On this basis, the sealevel would rise by nearly 20 cm by 2020 and 5.8 Urban residential consumption isbetween 40 - 110 cm by the end of the next generally not accurately known but ranges fromcenal"y. This could have profound impacts in about 80-180 liters/capita/day (I/c/d) for atollsKiribau and the Mashall Islands, where maximum (Ebeye 80, Majuro 180, Tarawa 180) and 500 -elevation rarely exceeds five meters, and severe 1400 I/ctd for larger high islands (Pohnpei 500,impacts on much of the FSM, Tonga, and several Apia 700, Yap and Kosrac 1400). Urbanother countries. Although these impacts may be household Pacific Island water use is highdecades away and recent studies (see Box 5.1) compared to odter regions: Nairobi 90indicate that there is some resilience within atolls, liters/capita/day, Dar es Salaam 81, Istanbul 105,they should not be disregarded. Uganda 202, and Lusaka 15-50. There are high
losses (Pohnpei 21 percent of production in 19915.6 Coral reefs play a role in m ntaig and more now, Tarawa 50 nercent) throughmarine biological diversity comparable to that of leakage, unread or faulty meters, illegalrainforests on land. The widespread increase in connections, etc. Revenues seldom cover full costscoral bleaching (the loss of endosymbiotic algae) and are often less than operating costs (FSM underobserved in the regione in the past decade, often a 10 percent, Majuro 45 percent, Tarawa underIrecursor to reef system death, may be largely due 100 percent). A minority of urban Pacific Islandersto increased surface water mpera . Increased are connected to sewerage systems (Fiji 50 percent,global warming is expected to increase coral FSM under 50 percent, Majuro 40 percent, Apiamortality and extend coastl erosion. Global none, and Nuku'alofa none) and many dozens ofwarming is also being blamed for perceived raw sewage outfalls feed direcdy into coastal urbanincreases in the frequency and intensity of tropical waters. In general, better management and higherstorms, thus exacerbatng the likelihood of furither tariffs would improve water quality and reliability
Voew 1: 0"e*w 70
Box 5.1: GLoBAL WARMNG: THE MOST Sb ous LONGS-TRM THRAT To THEPACIFIC ISLANDS?
The uncertainty of the probability, extent, and timing of mean sea level (MSL) rise aids to theconcerns of Pacific Islanders about the long term suival of their countries. There have been preliminaty studieson the effects of rising MSL in Kiribati, the Marsall Islands, and Tonga, a;; of which have used as far aspossible a common methodology developed in 1991 by the Intergovermeta Panel on Climate Change.
In Tonga, a one-meter rise in MSL would inundate 7.2 km:2 of the main island of Tongatapu,, only3 percent of the island's land area, but where 10 percent of its populaion live-serious but not devastating.However, a one-meter rise coupled with a storm of the strength of 1982's Cyclone Isaa would flood 45 percentof the population. In Kiribati, there are already pronounced seaonal and interanual variations in sea-levelsuggesting that the islands have a certain reslience to changes in water level. The shorelines undergo complexpatterns of erosion and accretion, making the detemination of net change difficult. The response of the freshwater lens could range from diminution and eventual demise to, surpringy, an enlagement if a largr volumeof freish water could be stored in the less permeable upper aquifer. The study concludes that the problem of sea-level rise is not so immediate as to require precipitous action. For Majuro, the most populated atoll of theMarshall Islands, the impact of a one-meter rise appears to be the most severe. It could reduce the dry land areaby 28 percent, decrase the volume of the most important groundwater lens by about half, and increase theseverity and frqency of flooding critically. Protection thrugh berms, revetments, bulkheads, and mbble slopeswould be prohibitively expensive, perhaps US$16 million or more per kilometer.
Even if the effects of a known increase in MSL were accurately known, there is a paucity of dataon the curent MSL. AIDAB, over a five-i-ar period, is providing A$4 million to study climate change in theregion and A$5 million to gather baseline data on the MSL and to monitor changes. There are a number ofactions needed to improve the resilience of the coawlal zones, whether or not there is a precipitous increase inMSL and an increased frequency of tropical cyclones. Mhese include protecting existing coastal mangrove forests,replanting indigenousulti-use plant species, reclamation, and coastal reinforcement. Most of these also provideadditional food and traditional products.
Sources: IPCC, 1992. Global aimate Change and the Rising Chalenge ofthe Sea (Coastal Zone ManagementSubgroup, Intergovermental Panel on Climate Change, May 1992)
SPREP, 1992. Environment and Development: A Pacific Penrpective, (ADB/SPREP, UNCEDBackground Report, 1992)
SPREP, 1992. Vulnerability Assessment To Accelerated Sea Level Rise: Case Study of Majuro AtoU(SPREP, USDC, and USNOAA, June 1992)
Woodroffe, C. D. & McLean, R. F., 1992. Kiribati Vulnerabilty to Accelerated Sea-level Rise: APreliminary Study (IPCC, February 1992)
and sanitadon services. Water and sewerage capital dumping, land clearing, and deforestation. Becauseinvestments of $25 million or more are required in tropical waters are normally much lower thanseveral countries (FSM, Marshalls, Vanuatu) during temperate waters in nutnent levels, the addition ofthe next few years, a high per capita cost (about relatively small amounts of phosphates, nitrates,$200-$600) but necessary for protecting health and and other nutrients can damage coral reefs, causeas a basis for growth. Fiji may require over $40 algal blooms, decrease fish yields, result in odors,million for adequate sewerage for greater Suva and reduce suitability for recreation. Althoughalone, and Tarawa water and sewerage capital there is no regular marine monitoring anywhere,investment needs may exceed $8 million. the University of the South Pacific studied five
sites5 in 1987 and 1988. At four, the major5.9 Marine Pollution. Nutrient pollutinn problems were associated with humancontamination is the most deleterious marine sewage disposal. Fecal coliform le.els in bothpoilu in the region, largely through sewage water and shellfish were high in Suva, Port Vila,
71 Volume : Overkw
Table 5.1: MARN POLLUrToN IN PAcc MlAND ARDORS AND LAGOONS
Lcation Fecal Nutien concenuason Tle metals: Shefish Oil slick Pesticides:colfonm (1.0 is probably oi) poentl danger? edible? sighings potn
NO3 P04 dwieAve sh f HiRb
FijF., luala Bay widespread 5 114 5 114 Yes uso common yes
Vanuatu, Port Vila wdespra 9 77 1 4 Ys, somewhat possibly notseen no
Kibat, Tamwa vory serous 5 97 < 1 2 Not yet unsafe n.d. no
Source: S. Naidu, et. al., Water Quaty Studie on Seected Sout Pacific Lagoo (UNEP/SPREP, 1991) and ode soes.
Notes: n.d. means not determined; main tra;v etas fiund were copper, cadmium ad leadFor nitte and phosphafe concentrmations, 50 uglliter = 1.0; High - highest rending; Ave - average eadi.
and Tongatapu and should be of concem to health 5.10 We Managmesnt Solid wasteofficials. Results indiate the potentid for major collecon and management are poor in all Pacificdisease outbreaks additonal to recring diarrhoea, Island coutie. No country has an inventory ofdysentey, and hepatits. Public health problems wastes produced. Compared to Asia, theassociad wih sewage discharge include cholera magnitude of waste generaftd per capita is(Chuuk in FSM, Tarawa in Kiribati) and viral relatively low6, but collection is irregular andhepatitis (Fiji). In the Suva area, fecal colifonn in probably under 50 percent of production; the95 percent of mangrove oysters (often eaten raw) remainder is buried, burned, or scattered. Disposaltested in 1988 at eight sites exceeded WHO safe at dumpsites is uniformly poor, often in mangrovelimits for human consumption. As shown in Table forests or on river bans, resulting in leaching of5.1, concentrations of nitrates (NO3) and phosphates metals and toxic wastes into pars of the marne(P04 ) exceed those likely to cause coral reef growth environment. Recycling is rare except forproblem'i for Suva, Port Vila, Tarawa, and Tonga. collection of bottles and the occasional collection ofFor Tarawa, where both subsistence diets and aluminum cans for shipping overseas.'baitfish for conmnercial fishing relj on a productivereef system, this is of immediate concem. As 5.11 According to estimates by SPREP,Table 5.1 indicates, there are also potential 70 percent of PMC waste by volume is residentialproblems associated with trace meals from and 30 percent industrial or commercial. Noindustrial development in Suva, Port Vila, and country in the region has seriouslv attempted toTongatapu and from pesticide runoff in Fiji and control industrial waste or polluion in existingTonga. Industrial pollution is essentially industries or for new industries. Fines are trivialuncontrolled throughout the region; in nine cases and usualy unenforced. The industrial sector iswhere effluent from factories into Suva's coastal small, but the lack of appropriate legislation, thewaters was analyzed in 1991, all exceeded the Ports lack of enforcement, and scarcity of monitoringAuthority's regulations for discharge; the levels of exacerae the problems. Proposals to importa range of dangerous and illegal pollutants and hazardous waste were common in the mid-to-lateheavy metal concenrations were much higher than 1980s but none (except possibly that governingexpected for the city's size and degree of contaminated soil for causeway construction in theindustrialization. Toxins and heavy metals found M al islands) is known to be active.downstream of sawmills in the region often Nonetheless, a regional convention to ban suchcontaminate fish and shellfish. Where there are imports is under consideration by SPREP. In peri-fines for pollution they are typically unenforced and urban areas, air pollution8 is largely due to woodsmall ($15-1,300 in Fiji and $150 in Tonga) cooking; about 75 percent of all meals in the regionalthough Tonga in late 1992 introduced a 3 month are cooked with wood-generaly on open firesjail term for serious pollution. resulting in high levels of smoke inhalation and
health threats to women and children. In urban
VoIme 1: Overvew 72
ceners, exau gases often reach high levels from 5 14 Isses common in PMCs include: (a) invehicles which tend to be poorly mned. pcice a lack of effective land use policies and
mechanisms to prevent the abuse of land; (b) short-5.12 Radkiaon. The 1992 Forum supported sighted agricultural extension policies whichcontinued monitoring near the sites of past nuclear emphasize clearing and production while ignoringtests to assess nuclear c ontamination of the marine long-term productivity; (c) expansion ofenvirmnment. Radiation may be an issue in Kiribati uncontrolled herbicide use in newly-cleared steep(where there were 25 atmosphenc nuclear tests over areas; and (d) lack of effective land managementKiritimatisland in 1962 alone) and the Marshall legislation. Land tenure systems are often blamedIslands (where there were 66 atmospheric tests on for exacerbating land degradation; in WesternBikini and Enewetok atolls between 1946 and Samoa, for example, clearing to establish title to1948). There has been considerable study of the land is said to be quite aggressive. Most land ineffects of the Marshalls tests; in Kiribati there are the Pacific Islands (except in Tonga) is communallylingering concerns that residual radiaton may pose owned with lmited rights of control anda long-term health hazard. exploitation often extending to the reef;
communally owned land is 80 percent or more of5.13 nappropiuae Land Use. Land degrada- the total land in Fiji, Vanuatu, Solomon Islands,tion is a key long-term problem throughout the Western Samoa, and Marshall Islands. In the past,region, where deforestation, soil erosion, soil indigenous systems of collective land tenure werecompaction, decreasing groundwater quality, reef often effective in maintaining a fair allocation anddegradaion, and the decline of coastal fisheries can relatively wise management of scarce land and seabe traced to inappropriate watershed, agricultural, resouvces (although there are some indications ofand coastl land use. In Western Samoa, there is pre-European abuse). However, traditionalno effective management of any of the five main mechanisms for resource management are beingwatersheds, resulting in indiscriminate land clearing undemined by the modern legal system and are infor agricuture and serious soil erosion. In the decline. Many goverment officials and investorsFSM, where taditional owners are trying to tend to see land tenure as an obstacle toestablish a watershed management zone covering a development and to more rational, sustainable landthird of the main island of Pohnpei, there is use. However, land tenure issues are often used asconstant encroachment by homesteaders who clear an excuse for government inaction. Box 5.2land for fuelwood and crops. Erosion is becoming describes efforts by landowners in the Solomonseious in logged pars of Vanuat where the typical Islands to combine development av conservationfallow period is believed to have dropped from 10- through traditional mechanisms.15 years to three. Erosion is also believed to becritical in Majuro. In Fiji, annual soil losses have 5.15 Mixed cropping has proved to be abeen measured at an unsustainable rate of 22-80 robust, sustainable, and productive approach totonnes per hectare (trha) on some steep (5-29° agriculture (Tongatapu and Yap, FSM). There hasslope) sugarcane land and 12-2,300 t/ha in similarly been extensive research at USP's Alafua campussteep wet zone root crop growing areas. The and by many others on intensive and sustainable usesediment load in Fiji's Waimanu river indicates an of existing cultivated land in Pacific atolls andaverage loss of 53 t/ha/year, which is extremely highlands to minimize encroachment on marginalhigh for a heavily-forested catchment area and costs land. More dissemination would be warranted. AsUS$2-3 million per year for dredging. A recent populations grow, the agricultural sectors will beassessment of ginger growing in the area indicates under greater pressure to increase output andthat farmers would be better off financially if absorb labor on a slowly growing and ever more"conservation" farming were practied and that marginal land base, which will be even more pronenational benefits would far outweigh the added to erosion and ove.use of chemicals.costs. Over a ten year period, using longer fallowperiods, contour planting, grass strips, crop 5.16 Deforestation. During the 1980s, globalrotation, and selective agroforestry, farmers could tropical deforestation has been estimated asexpect higher net earnings than from the current 0.9 percent of forest area per year. The extent andexploitative techniques. There would be additional rate of deforestation in the Pacific Islands is notsavings external to the farms through lower known, in part because accurate lorest resourcesedimentation (therefore less dredging), lower risks surveys have only recently been undertaken. Forestof flooding and damages to bridges, and less resource inventories have been undertaken-or willdamage to coral reefs and fisheries. be complete by 1993-in Fiji, the Solomon Islands,
Vanuatu, and Western Samoa. SPREP, UNEP, theUS Forest Service, and the UNDP/FAO South
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Box 5.2. TAPNG TRADToNAL LAND TEN SysMS WXSUSTINADALE DEVEMENT: MAROVO LAGOON, SOLOMON ISLANDS
The Pacific is nfe with examples of clashes between traditional methods of resource allocationand moderm legalistic wes approaches. There is a close inde among Pacific andrs, theirdescent groups, and the land with which the group is traditionally asscated. Traditional rights generally extendbeyond dry land to land covered by water-often to the outer reef edge. There is a widespread view, not justamong foreigners. that customary land tenure is a major impediment to development, and complex traditionallinks are often disregarded through ignorance or exploited by proponents of change.
During the 1970s and early 1980s, the village communities of Marovo Lagoon in the WesternSolomon Islands were inundated with proposals for development involving agriculture, fishing, mineralsprspecting, logging, and tourism. Most never eventuated but rhey led to considerable social tension, a localgovernment cownil decision to develop a more systematic approach to development, and the establishment in1985 of the Marovo Lagoon Resource Managemet Project. The project, locally rn with support from theWorld Wildlife Fund, focuses on developing local community involvement in assessing, monitoring, andtastainably using local resources through discussions, continuing education, support for women's groups,management plans based on traditional arrangements, documenting unwritten rles for land use, quick feedbackto the communities of results of studies undertaken by visiting investigators, etc.
The arrangements ar proving to be adaptable: Marovo people are now actively involved innegotating the rules governing their own resource extraction, and they have influenced and restricted resourceexploitation by outsiders. Results have been both immensely rewarding and extremely frstrating, but it appearsthat community management based on customary land tenure has been the most effecive option for managementof land and lagoon resources. It has since spread to other parts of the Salomon Islands.
In late 1992, WWF and UNDP began discussing a possible joint program based on the Solomonsexperience to encourage similar approaches and exchanges among local communities elsewhere in the region.This cooperation among landowners, local government, and NGOs may be a valuable model for the Pacific.
Sources: Baines, G B K, "Asserting Traditional Rights: Community Conservation in the Solomon Islands'(Culal Surwval Qaterly 15(2), 1991).
Hviding, E. and Baines, G.B.K., FIsheries Management in the Paific: Iditdon and the Chalengesof Dewlopment in Marovo, Solomon Islnds (UNRISD Discussion Paper 32, Geneva, March 1992).
Pacific Forestry Development Program (SPFDP) 40 percent of remairing merchantable indigenousplan a cooperative limited assessment of forest. There is no rehabilitation of logged forests,deforestation and land degradation in a number of which have long b,an regarded as a hindrance toPICs during 1993. SPREP is expected to agricultur production. The forested area ofconcentrate on community-level case studies, while ?ohnpei, the largest island in FSM, has declined bySPFDP and others will emphasize the macro-level. an estimated 37 perent with a net annual
deforestation rate of nearly 3.7 percent since 1975,5.17 Despite the incomplete data, there are despite severe restrictions on commercial logging.indications of serious deforestation in many rTe Solomon Islands is 88 percent forested withlocations. Between 1977 and 1991, for example, about 0.5 percent of current forest area being33 percent of total forest on Savai'i-the island with logged annually. However, commerciallymost of Western Samoa's remaining indigenous exploitable forest is being logged at a rate offorest-was cleared, one-third of the total through 4 percent per year with enormous increaseslogging and two-thirds for agriculture and other planned; expected 1994 exports are four times thedevelopments. From 1986-1991 Western Samoa's estimated sustainable yield. This does not includedeforestation rate was 3.5 percent annually overall the conversion of forest to non-forest land by meansand well over 6 percent for merchantable forest. other than logging which exceed the impact ofSince then, Cyclone Val seriously damaged over direct logging.
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5.18 Fiji is 49 percent forested withan anmal (dry weight) per year of coral sand have beennominal deforestation mte of 0.5-0.8 percent. Net mined from seven locations near Suva, producingdeforestion is lower; although 90,000 - 140,000 essentially a biological desert. Poorly designedhecres have been converted to non-forest use causeways have caused mangrove forest depletion,since 1967, nealy 90,000 ha have been afforested reduced lagoon flushing (and therefore increasedor reforested as hard and softwood plantaions. pollution, crab, fnfish, and shellfish die-offs).These plantations have had on balance vety positive They have also changed patterns of erosion andemvironmental impacts. They are, however, sedimentation, declining oxygen levels to the pointresulting in the conversion of richly diverse forests of eutrophication, coastline erosion, andinto exotic monocultures with insufficient attention disappearance of entire islets (Kiribati, Marshallto the role of natual forest covcr in the protection Isleads). Mangroves are important nurseries forof watersheds, streams, and soil resources. marine life (required during the life-cycle of 60 -Plantations requite extensive ongoing management 80 percent of commonly eaten reef fish). Theyand are also susceptible to natural disaster. Untl protect lagoons, sea-grass beds and coral reefs fromrecendy, forest management in the Pacific Islands runoff sediment and pollutants; act as stormhad been synonymous with plantation forestry. The barriers to reduce shoreline erosion and protectdevastation of Samoa's plantations by two cyclones coastl structures; and provide various medicinalin two years has led to a new national forestry plants, habitat for wildlife, and numerousdevelopment strategy, limiting large-scale traditional products. MVtangrove forests have beenplantations while expanding extension operations, depleted in both area and quality in most Pacificcommunity-based woodlots, warshed protection, Island countries and are increasingly attractive toindigenous forest management, and improved foreign companies eager to exploit them as timber.regeneration of native forests. Within the region, There has been extensive removal in the atollthere is now more awareness of the vulnerability of countries of mangroves and food-producing treeplantation forestry and more consideration of crops to extend land for housing and gardens, butcoining intensive plantation management to the practice has probably decreased rather thanproductive and protected sites. added to net land area. A 1990 analysis of nearly
600 hectares of mangroves converted to agricultural5.19 Logging does not necessarily permanently and aquacultural use in Fiji indicated net losses ofreduce forest cover. However, poor logging US$3.5 million due to the loss of fish, fuelwood,practices, which are predominant throughout the and other benefits.region, do affect the capacity of the forests toregenerate naturly. Commercial over-exploitation 5.21 Biological Diversi and Speciesof the forest resource is mainly an issue for Protedeon.9 The Pacific Ocean encompasses one-Melanesia (Fiji, Vanuat, Solomon Islands) -nd third of the globe-as much as the Indian, Atlantic,Samoa. How-ver, there has been extensive and Arctic Oceans combined-and is the planet's"agrodeforestation" in general. There is limited largest single geographical feture. The tropicalunderstanding within the region of the extent to insular South Pacific region is notable for its highwhich the forests provide a considerable part of levels of species diversity and endemism. Therural non-cash income. The consequen forest Pacific islands are thought to contain the world'sdepletion is never replaced by reforestation highest proportion of endemic species per unit ofprojects. Lack of forest policy per se is not land area or human inhabitant Species diversity isgenerally the problem; most PMCs have reasonable highest on the larger continental high islands of thepolicies. Poor planning and poor Omplementation of Western Pacific, but high levels of endemism occurpolicies are the problem. throughout the region due to the isolated evolution
of island species. The region is also home to the5.20 The Coasl Zone. The area between most extensive reef systems in the world and toland and sea, including shallow coastal waters vast and complex marine ecosystems. Fiji, theunder strong human influence, is ',ne of the most Solomon Islands, Vanuatu, and Western Samoa areenvironmentally sensitive and is subject to particularly important for their wealth ofsignificant conflicts in land use. Coral death is biodiversity. The biological diversity of PMCs iswidespread along coasdines due to eutrophication of among the most criticaly threatened in the world.lagoon walers from untreated sewage. Careless Isolated and endemic species can be, and are being,sand mming can destroy seagrass and in turn reduce lost through the desucion of habitat or throughfish abundance and species diversity. In Tonga, the introduction of predators and competing aliensome beaches in all major island groups have been species. It is esdmated that about 75 percent ofstripped of sand for construction, sometimes to the mammal and bird species which have becomerock sbstrate. Since 1960, about 6 million tonnes extinct in recent histry were island-dweling
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species. Worldwide, the largest number of and poor capacity to negotiate fishing agreementsdocumented bird extinctions (28 between 1600 - for the benefit of the countries or to monitor them.1899 and 23 this century) has occurred within the The determination of sustainable yields and thePacific Islands, which now have more threatened management (physical and financial) of the regionalspecies (110) than any other region. Other island fisheries resource has been a growing issue and oneanimal and plant taxa also tend to be far more dividing countries, which differ on the appropriateendangered than those which are continental. sharing of the funds from a regional tuna fishing
agreement with the US. The PMCs need to5.22 These considerations argue for a high improve their surveillance capability.priority for biodiversity conservation in the SouthPacific, preferably through habitat protection. 5.25 Driftnet fishing (essentially gilneting onProtected areas have increased globally from a large scale) by Asian fleets is widely perceived to1.6 percent to 4.9 per-cent of total land area be a serious environmental issue by people in thebetween 1972 and 1990 and from 0.4 percent to Pacific. The 1992 Forum reaffirmed its3.9 percent for East Asia and the Pacific. In the commitment to the cessation of driftnet fishing andPacific Islands, only 0.15 percent of land has been supported UN General Assembly Resolution 46/125declared as reserves, practically unchanged from a to end drftnet fishing globally by 31 October 1992.decade ago. Furthermore, effective protection of Continued surveillance is required to ensure that theactual reserves is nearly nonexistent and there are ban on driftnet fishing is enforced.few protected marine areas. Box 5.3 describes aninnovative regional approach to species protection. 5.26 ToursmL Ecotourism (see Box 5.4), a
fasit-growing segment of the tourism industry5.23 Over Harvesting of Marine Resourms. worldwide which could also grow rapidly in thePacific Island coastal fisheries are generally healthy region, capitalizes on remoteness and environmentaland catches sustainable in rural areas. Fin and features that may themselves quickly decline asshellfish provide a high percentage of islanders' tourism grows. Environmental preservation isprotein with per capita annual consumption ranging crucial to long-term maintenance and developmentfrom about 35 kg (Solomons) to 206 kg (rural of a Pacific Island tourism industry. Already,Kiribati). Declines in catches are widely reported problems of urban sewage disposal, coastlnear urban centers (Port Vila, Santo, Honiara, pollution, beach sand mining, and unauthorizedApia) although only Upolu, Westem Samoa, has coral mining reduce the attractiveness of touristbeen comprehensively surveyed; the Samoan sites in several Pacific Island nations. Halting theGovernment reports that the Upolu in-shore fishery degradation of coastal and water resources shouldis thought to be in an advanced state of ecological be a hipv' priority for future tourism development.collapse due to the combination of over-fishing, For tht . lls, water availability is very limited andloss of mangroves, chemical runoff, siltation from is a serious constraint on the numbers of tourists.soil erosion, sewage, hutrients, coral mining, andfishing with dynamite and poison. Some marine 5.27 Energy Use. 10 No Pacific Islandspecies in the region suffer from widespread government directly subsidizes the consumption ofexcessive harvesting-particularly green snails, petroleum fuels (which leads to waste andtrochus, giant clams, beche-de-mer, turtles, emissions) but about half do subsidize electricitydugongs, and crocodiles. Information available on consumption. Several (particularly FSM and thefish stocks, catches, or population dynamics is Marshall Islands) have very high rates of householdinsufficient to quaify the ertent of over- electricity consumption, and significantharvesting. However, the Forum Fisheries Agency opportunities exist for conservation. Petroleumhas consolidated a great deal of information which storage and distribution standards are oftenis about to be published. inadequatc, resulting in both pollution and safety
risks. About half of all commercial energy use in5.24 The Pacific offshore skipjack tuna the Pacific Islands is petroleum fuel used forresource is extensive, fast growing, short-lived, and transport, causing the bulk of the region's lead andresilient. In general, recorded annual catches at carbon monoxide emissions. Lead may be less ofleast double current recorded levels can be an issue in the Pacific, where breezes tend tosustained. For a number of the island countries disperse emissions away from land, but limited(especialy Kiribati, the Marshall Islands, and the measurements in Suva have indicated leadFederated States of Micronesia), fisheries and concenrations above WHO recommendations. Thetourism offer the best hope of substantial and Forum Secretariat has recommended that thesustainable income from local resources. There is standard Pacific grade of gasoline (97 Researchlimited knowledge of the pelagic fisheries resource Octane Number with 0.84 gm/liter of lead) be
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Box 5.3. Mm GEFISPREP SOv PACIC BIODIVERSITY CONSERVATIONPROGRAM: A REGIONAL AppROACH TO PRESERVING BIOLOGICAL DIVEfSTy
Protecton of species-whether flora or fauna-is best done through protection of their habitat.Despite government proclamations which have created numerous parks, reseves, and other protected areas, thereis no effective protection of globally, regionally, or locally important terrestrial or marine ecosystems in theBank member countries of the Pacific Islands.
Within the region, the bulk of land is communally owned, land rights are fiercely guarded, andnational government attempts to declare areas as protected tend to be inadequate, ignored, and/or misunderstood.The US$10 million five-year South Pacific Biodiversity Conservation Program (SPBCP), financed through theWorld Bank/UNDP/UNEP Global Enviroment Facility (GEF), will facilitate the establishment of a number of"Conservation Areas" (CAs) in fourten Pacific Island countries. Most CAs will be large, diverse regions whichconain temr and/or marine features important for the conseion of the biological diversity of the regionor county and in which there are agreed criteria for development based on long-term ecological sustainability.A key distinction between a CA and a traditional national park or reserve is the understanding that communitiescan coninue to use their natural environment for their subsistence and economic well-being.
Landowner and NGO participation is being built in from the beginning to identify sites, developmanagement concepts, introduce sustainable economic activities, and manage the areas. The project is meant toprovide a catalyst for economic activities in buffer zones surrounding core CAs, and the intimate involvementof local land and resource owning groups is considered fundamental to long-term success. SPREP, which ismanaging the project on behalf of UNDP, plans an extensive program of workshops, local training activities,information exchanges, and assesments from 1993 onwards to learn from the experiences and disseminateresults throughout the region.
Source: Backgwund papers (1992) of the South Pacific Biodiversity Conservation Program.
changed from January 1994 to 9? RON low lead national environmental management strategies'2
(0.15 - 0.4 gm/liter depending upon availability (see Box 5.5) in five Pacific Bank memberfrom Singapore and Australia). Estimated CIF countries plus FSM, and is helping to strengthensavings are 2.0 to 2.7 US cents per liter, or $2.5 to national environme;:tal capacities in all eight PMCs,3.3 million per year for the eight countries. through studies and training workshops. Within the
eight countries, three NEMS reports are beingprepared under the ADB-funded Regional
C. RSPONSES TO ENVIRONMENTAL ISSUES Environmental Technical Assistance (RETA)program (FSM, Marshall Islands, Solomon Islands)
5.28 Many of the national and regional and two through UNDP (Kiribati and Westernenvionmental initiatives in the region have come Samoa). Fiji's "National Environment Strategy" isthrough the South Pacific Regional Environment a separate ADB technical assistance program,Programme (SPREP), a unique and invaluable Tonga's "National Environmental Managementorganiztion which has dominated Pacific Island Plan" .as prepared by ESCAP, and Vanuatu'sperceptions of environmental issues for the past intended report is AIDAB-supported throughdecade. It is atting considerable support from SPREP but separate from the RETAtNEMSdonors," often represents the region globally, and programs. There is also funding from IUCN andhas been formally designad by the Formm as the ADB for reviews of envirmental law, which haveregional focal point for environmenl matters. been completed in all countries, and NEMS-relatedSince 1990, SPRE? has increased its professional support from the East-West Center and others.staffing level from several to thirteen or so tomanage its growing esposbilities. 5.30 NEMS results are uneven but reasonable
given the restraints of time, available regional5.29 NUaond Envienul Management experise, the complexity of the issues. andSltegies (AE'S). SPREP coordintatd the funding. All countries have established smallreonal prearadons for UNCED, is completing envhmenal offices, senior officials and Ministers
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Box 5.4 CoNSERvATION AND EcYTOURISM: LESSONS FOR TnE PACiFC
There are high expectations from 'ecotourism' in the region, but also some possiblemisconceptions regarding the concept, opportunities, and constaints. Some governments, tourism offices, localcommunities, and consultnts seem to expect ecotourism to provide substantial revenue to landowners with littleplanning, no restrictions on visitor numbers, only minor investments, and no damage to the site visited. TheWorld Wildlife Fund defnes ecotourism as "nature travel that advances conservation and sugainabledevelopment effrAts,' usudly with parks or reserves as the primary attraction. Studies in Latin America and theCaribbean show that the expected benefits are yet to be re'ized, in part because of insufficient planning, poorsupport structures, and little thought regarding the needs of local populations. None of the sites in five countriesstudied generated sufficient revenues to be self-sustaining, personnel and management were usually poor, andsite degradation (litter, removal of plants, polluted water, trail erosion, minor vandalism) was beginning to bea problem as the flow of visitors increased. Most tour and transport operators benefitted without contnbutingto costs. The WWF studies indicate that plans and resources for protection must be in place before introducingtourism, or poorly planned visitor arrangements can damage sites, not protect them.
Fiji and Western Samoa are among the Pacific Island countries exploring ecotourism. Bouma inFiji is a communally-owned forest park on Taveuni Island with nature trails and facilities, developed mainlythrough New Zealand aid primarily to earn revenue for the community while protecting and enhancing awaterfail and swimng area long popular with local visitors. Revenues appear to be insufficient to justify theexpenditure at the remote site on strictly commercial criteria but it may be too early to judge. Tafua andFaleolupo in Savai'i, Western Samoa, have been protected through 50-year private leases betweef internationalNGOs and landowner to preserve 20,000 hectares of coastal forests-habitats for two rare species of flyingfox-from imminent commercal logging while allowing traditional uses of the forests. Visitors are encouragedon a small scale, but the direct economic benefit has been finance for schools and other public works throughthe lease agreements.
In both countries, extemal sources provided a considerable level of funding and advice, cashexpectations may have been above realistic short-term prospects, cash accruing to local communities may havegone mainly to a few individuals, and agreements are open to misinterpretaion. So far visitor levels have beenlow and have not had disturbing ecologica impacts. The Pacific sites have been protected but, as elsewhere,better planning and clear goals are needed if ecotourism is to provide the expected long-term benefits.
Sources: Regional Economic Report investigations, Ecotounism: Ihe Potentais and Pitfalls (WWF, 1990)and The Ecotourism Boom: Plaanrng for Management and Development (WWF, 1992).
have been regularly exposed to environmental required and what activites should be high priority.issues, UNCED reports were endorsed by Numerous NGOs are active witmin the region, bothrespective Cabmets, and action plans are being intational (World Wildlife Fund, the Naurefinalized under the overal guidance of high-level Conservancy, IUCN, Greenpeace, and others) andnational task forces. NEMS reports include regional or local (Foundation for the Peoples of therecommended policy changes and prioritized South Pacific, Spachee, Siosiomaga, etc.). NGOsprograms with budget quirments, but there is are increasingly active in enviromental matters andusually no formal mechanism to incporate them effective within local communities, but governmentsinto the planning or budget processes and little remain ambivalent about working closely withauthorization of expenditure. them, parficularly the local organizations.
Noneiheless, NGOs (particularly women's groups)5.31 Nadona Insiauon. There were almost have participated to a considerable degree in theno national environment offices in Pacific Island NEMS process in most counties.countries ten years ago; all have them now, butthey tend to be weak and are poorly linked to 5.32 Legisaon and Regulain. Althoughdecision making. The post-UNCED roles of none of the Pacific Islands has comprehenshieenviromental task forces are unclear. In general, environmental legislation, there have been recentgovernnts recognize the need for environmental assessments of ervironmental legislation and othermanagement skills but are not sure what skills are legislation with strong environmental components in
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biodiversity through the establishment andmanagement of nadoal and regional systems of
Box S.S. NEMS: preced areas, but it has no provision forA PAcinc REGIONAL APWRoAC H enforcement, mae plan prepaation, or
EN ONEANTLAcLoNPLN S cmmy consutation in the establshment ormanagement of protected areas. The SPREP
ADB, UNDP, AIDAB, IUCN, and Convendon adress the prevention, reduction,others bave coopaated in coordinating doœor and control of pollution primarily in the marineassistance through SPREP to help Pacific Island envioDe. Table 5.2 indicates coes whchcounties to prepare their UNCED submissions and have signed these and more recent intemaionalnatonal environmeal management plans. lhe conventions.region-wide approach has reduced costsconsiderably, produced a wealth of information, 5.35 EnvirnmentalEZtEnSenandEducation.allowed the countries to compar issues and Most PMCs have some environmental materialssolutions, and begun a process whereby the Pafc incorporated into their school curricula. There is aIslands are developig and tapping expertise within wide range of recent technical publicatons ftomthe region rather than relying exclusively on SPREP and others, environeal articles (Samoa)outside expert, including on environmental law. and columns (Fiji) have become a regular feature inMost countries have established high-level the region's newspapers, SPREP has expandedenvironmental task forces, members of which have distribution of its newsletter, and many currentexchanged views with their counterparts from other regional activities of UNDP, the Forum Secretariat,counties, and there is an extensive regional SPC, NGOs, etc. have information compotsprogram of training. SPREP staff feel that the with environmental elements. There is a wealth ofevolving process is even more important than the information available within national agricturalp-s. extension units, and a network (SCAINIP, the
I__ __ Standing Committee on Agriculturl InformationNetworking in the Pacific) was receny establishedto cooperate inl disseminating information. UNDP
each county. There is, however, poor and WWF are encouragig commuity-level actionenforcement of that which does exist. The lack of through support to a Sustinable Developmentspecific enironmental legislation is frequentty, but Network involving a wide range of regionalunconvincingly, an excuse for inaction. In most organizations, educational bodies, and NGOs.PMCs, community or traditional sanctions are aspowerful as legislation when properly used.Specfically, the customary land tenure system, D. ISSUES, INVERVENTIONS, ANDwhich provides user rights extending from the land RECOMM ATIONS FOR THE 19NSto the coastal area, could be used to ensure nararesource management 5.36 Much of the natral environment of5.33 EnvironmenW impact assessments (MM) PMCs remains relatively unconin, and most
5.3Environmental Impact assessments (EIAs) of the environmentl deterioration discussed in thisare being used as a tool to estabhsh conditions for the envbenarretedoand reversed. thisdevelopment projects, especially in FSM and the chapter can be arrpsted and reversed. The majorMarshall Islands (where US EPA regultons are challenges are the creation of effective intumentsoften required), but increasingly in other PMCs a to better integrate environmental with economicwell. SPREP is carying out an ambitious senes of policy and the implementation of mechavnims to
EIA wrbhosinall countries and plnst address the existing problems and prevent futurEIA workshops in advisory apans to ones. In general, land use, water, sanitation, wasteimnprove itS own E31A advisory capacity. The dispoat,andpollution control need to beaddressedconditions under which ElAs are asked for are * addiscretionary and often arbiary. There is seldom as priorities.any follow-up to see if conditions have been met 537 *gmdajig Envrnwenta and Economiduring and after invesunents. Polcy. The most effecive measures to incorporate
5.34 Environmentl Convengions. A number environmental management into economic policyof Pacific Island countries have signed agreements will be those which bufld upon existing ltns andwhich oblige them to institute environmental atak critical points of intervention. Links betweenmeich oblige include to inte Apvia andSPReP environment authorities and the planning mini3triesmeasures. These include the Apia and SPREP and treasury departments are currently weak in allconventions each of which entered into force in PMCs. Environmental concerns are seldom1990. The former focuses on the protection of addressed within crucial committees which approve
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Table 5.2: PAcUic ISLANP SIGNAToRwIS TO ENVIRONM AL CONVENTIONS
Notes: Apia = Convention on Conservation of Nature in the South Pacific (1986).Biodiversity = Convention on Biological Diversity (1992).Climate = Framework Convention on Climate Change (UNFCCC, 1992).SPREP = Convention for the Protection of the Natural Resources and Environment in the South
Pacific Region (1986) and its protocols.
La Signed but not ratified.
investments, authorize capital projects, prioritize internatonal assistance in implementing NEMS andaid requests, or determine budget allocations. It is other environmental management activities.suggested that mechanisms be establihed to Countries will require further donor assistance toinstitutonalize such inputs,13 that environment implement their NEMS. The most effective way tounits be involved in government discussions obtain such assistance is for each PMC to presentregarding major new private and public projects its own programs to donors for evaluation andearly in the planning phase, and that planning funding. Resources are likely to be available.agencies and environment units be expected tomaintain regular dialoguel4 on medium-to-long 5.40 Envlronmnenid Impact Assessments.term development planning issues. ElAs are often stll viewed within the region as
impediments to development, but they can be5.38 Although it is difficult to build up the in- powerful tools to assist both the authorities andcountry capacity for environmental policy and investors in reducing costs and improving themanagement, there are often existing programs sustainability of investments. It is recommendedmanaged by local and regional NGOs. that national agencies be given the powver to requireGovernments ace encouraged to strenAhen their EIAs (or, where aropriate, environmentlinks with the NGOs and women's groups, both of management plans) for any investment projectwhich tend to be especially effective at the (government or private) that may becommunity level. environmentally sensitive. ELAs and management
plans should be financed by the developer and5.39 mplementing Enironm;entkl Acton reviewed independendy prior to final approval withPlans. PMC governments lack effective institutions the emphasis on improving, not stopping, projects.for environmental management and implementation Donors should seriously consider proposals toof key recommendations of their NEMS, which are improve the capacity to carry out and review EIAseffectively national environmental action plans. It within SPREP, USP, and SOPAC.is recommended that budgetary support becommensurate with new responsibilities and that 5.41 Environmental Law. Reviews throughoutapproved environmental positions within the public the region have indicated that environmentalservice be flled. The momentum established legislation is out of date and often unenforceable,during the UNCED ani NEMS processes, which with both the public and private sector finding itremains substantial, shoildd be used by donors to easier and cheaper to ignore regulations rather thanencourage practical steps to improve environmental invest in environmental protection. Govermentsmanagement and planning. Within PMCs, there should update and consolidate environmental law inare still high levels of expectation for post-UNCED general and introduce in particular improved
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groundwater legisoation, waste and contminant and pit ltines. In atols, there should be moreproviso, arrangements for protected areas, and rigorous prevention at water lens contaminaton,poweV to itate legal action and aue control of extadon so coIInspon levels do notcompliance. deplete the lenses, and more investment in roof
catement systems. Govrnents Vsil generally5.42 Regiond Cooperadon. SPREP will need aistanc in assessing needs and technicalremain the key regional imstiatuo for regional pdons and developing suitable institutions andcooperation in environmental mattrs. Issues for policies.the 1990s include: (a) the need for assredlong-term funding including sufficient income from 5.45 LandandForestMaagement. Activitiesmembers to ensure that it does not become donor- in water catclments, forested lands, agriculturaldriven, (b) a decision on whether SPREP's primary areas, and coastlins are too often carried out onrole will be that of a coordinator and facilitator or the basis of benefits which, even in the short term,an organization which carries out activities itself are overstated or on cxtemal cost which are notusing extensive in-house experdse; (c) the need for bom by the developer or resource owner. Litleclear organiztional priorities and a satisfactory improvement is likely unless there is clear high-copoa plan; (d) the low ability of PMC level insisece that land use decisions are to begovenme to absorb and act on SPREP advice based on considerations of long term susainability,effectively; and (e) more effective cooperation with explicit penalties introduced for not doing so, andother regional and interaional orgamizations. resource owners involved in protection. National
versus local or provincial powers and5.43 Sea Levd Rse. There are a number of responsibilities are often unclear and need to bemeasures which governments should consider to clarified. Examples of specific recommendations toimprove the resffiience of the foreshore, whedher or improve land use include providing incentives fovnot the threat of rising sea levels is real. These farmers to better protect soils from erosion andinclude prohibitng the destuction of live coral and mtient depletion (intercropping, contour plantng,mangroves which stabilize the reefs and coastal improved fertlizer use), requiring 1ll causeways tozones respectively, regulating beach sand removal, be of open designs which do not unduly restictand prohibiting the collection of reef rock, stones, current flows, taking advantage of the South Pacificand sand from areas of flat reef near settled areas. Biodiversity Conservation Program, and developingMajor new developments should be set back from watershed cat-'hment plans.the high water mark. A long-term program ofprotctg exising coasa mangrove forests, 5.46 Although logging direcdy accounts forrplanting of indigenous multi-use species, under half of regional deforestation, the impact isreclamation, and coastal re-enforcement is wider because it establishes access encouragingsuggested to protect the coasts and to provide furtherclearance for agriculure. Priority should beresources for food and traditional products. It is given to preservation of intact tropical forests, aalso recommended that donor assistance be sought firm requirement for reforestation and subsequentto establish baseline sea-level data and to determine maintnance of logged and degraded areas,the vulnerability of the shorelines to increased stumpage fees which reflect the costs of cutting,storm action and sea-level rise in those counties bans on logging in specified watershed areas,likely to be most seriously affected. adoption of enforceable logging codes, and strict
limitation of commercial logging to areas in which5.44 War and Sewenzge. Studies worldwide good management is demonstred. Countriesindicate that institutional failure is the most shoeld emphasize natunal regeneration of nativepersistent and frequent cause of poor performance forests. UNDP's South Pacific Forestryin deliverng adequate clean water and sanitation, Development Program (SPPtP) has rcommendedand that urban dwellers-even in low-income a million dollar regional program (FSM, Palau,counties can afford in-house water supplies and are Solomon Islands, Tonga, Vanuatu, and Westernwilling to pay the full cost. PMCs should upgrade Samoa) to develop national forestry action plans fortheir water and sewerage systems and better the use and sustainable management of forests andmaintain them. The udlities should be made more forest resources. Building on information beingautonomous and accountable for performance. developed in Fiji, PNG, the Solomon Islands, andGovernments should assure that all urban Vamuatu, the SPFDP has also proposed a AU millionconsumers are metered and billed, plan for fiincial three-year program to regenerate natural forests.self-suficiy within a set tdme frame, and These types of approaches should be supportedestablish tariffs which meet full costs. In ruralareas, there should be clear and enforced 5.47 Marine Resorea. Governments shouldrequirements for adequawe distances between wells reatrict gleaning and fishing in mudflats and inshore
81 Vobwnel: Ovenkwe
areas where there Is clearly over exploitaton (most Secrriat recommendaton for standardizing onurba centers) or polludon (near ra sewage low-lead gasoline. There are stil reladivel) fewoutfalls). Exisdng bans (on eatching undersized industries in each country, Sources of pOllution arefim- and shellfish and dangered marine species) often reasombly well known, although theshould be enforced including those on their sale in magnitude and composidon of effluent may not be.markets and restaurants. Generally, the harvest off Governments should consider a moitoing programthe outer reef is well below sustamable rates of for industries with kmown or suspected heavyexploitatir-. Govermnents should therefore discharges (paint factories, breweries, cementconsider promoting offshore fishing through easing producers, food processors, sawmills, furniturefinance for motorized boats and fish aggregation factories, sugar mills, fish processors, etc.), withdevices. Such efforts may relieve pressure on near- the industry paying the cost of monitoring. Costsshore resources and help them to recover, could be reimbursed by the government if emissionsSustainable rates of marne resource exploitation are within allowable limits but penalties strictlyare poorly understood and should be better studied. imposed if not. A deposit refund system, which
encourages self-compliance, could be tried for used5.48 Waste Mawgement Experience in many batteries, bottles, and even car hulks. Experienceless-developed countries indicates that the cosis of in Majuro indicates that recycling car be self-effective waste collection (often rrivatized) and financing with a little organization-eve -motedisposal of wastes can be low. It is recommendea atolls; governments are encouraged to investigatethat govermments determire the magnitude and possibilities. The 1992 Forum expressed concerncomposition of residential waste through simple about land based marine pollution and felt that amonitotiag over a few weeks and establish a goal merhanistr to reduce it should receive high priorityof regular, reliable collecdon of at least 80 percent from donors.of the waste generated. Municipal authoritiesshould have the authority to set (and retain) charges 5.50 A Greener Fugtre. Although beset bysufficient to cover the cost of both collection and numerous resource-related problems, and sorelysantiary landfill maintenance and fines for littering lacking in institutional and financial capacity toand illegal dumping. At the national level, address many resource management issues, thelegislation may be needed to require compliance PMCs should be heartened to note that thewith WHO guidelines for sanitary landfills. environmental situation in the South Pacific is far
superior to that of most developing and, for that5.49 Poludion. Monitoring of polution can be matter, developed nations. It is precisely this thatcosdy, and enforcement of existing laws has been provides the PMCs with the opporunity to take anineffective throughout the region. It is aggressive stance towards promoting sustainablerecommended that governments: (a) more development before environmental misuse becomesrigorously enforce existing pollution laws, a constraint on economic growth and development.beginning with government-owned or -supported In fact, the high degree of overlap betweenindustries, udlities, and institutions; (b) impose strategies to promote growth and strategies tosignifican-ly higher fines for industrial pollution sustain environmental quality implies a convenientinto the land, sea, and air; (c) introduce licensing convergence of ierests and interventions infor pesticides and agro-chemicals with bans on economic developments, both today and in thespecific poisons; and (d) endorse the Forum decades to come.
ENDNOTES
1 SPREP (the South Pacific Regional Environment Program) uses NEMS as a generic term for all of the ADB-supported national environment strategies in which it is involved, although each country has its own local termfor both the process and the resulting reports. NEMS is also part of a UNDP-funded program to support someof the work.
2 This report adopts the WDR92 (World Development Report, Oxford University Press for the World Bank,1992) definition of sustainable development as popularized by the 1987 Brndtland Commission: 'meetingthe needs of the present generation without compromising the needs of future ger1iations.' The 1992 Forumendorsed the "concept of sustainable development in which envionental protecton constitutes an integralpart of the development proces."
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3 These are documented in the Communique of the Twenty-Third South Pacific Forum (Honiara, SolomonIslands, 8-9 July 1992).
4 Coral Bleaching: Global Waming? (Greenpeace Inenational, January 1992).
These were Suva Harbor/Laucala Bay, Port Vila, Tarawa, Marovo Bay in the Solomons, and Fanga'uta Baynear Nuku'alofa. It is likely that Apia Harbor conditions are similar to those of Port Vila and Tonga, whileTarwa is representative of other highly populated atolls.
6 WHO (Regional Workshop on Solid Waste Management in the Pacific Countries, Suva, May 1992) hasestimated the generation of solid wastes for several countries (Marshall Islands, FSM, Solomon Islands) asunder 0.4 kg/capima/day with bulk densities ranaing from 0.1 - 0.3 tonnes per cubic meter. Waste productionis comparable to Malaysian villages (0.45 kg), . bit less than that of Manila (0.5), and substantially less thanmost Asian urban areas: China (0.7-1.6), Malaysia (0.7-1.2), Thailand (1-1.5), Sri Lanka and Indonesia(0.75). However, in urban Asia a 70-90 percent collection rate is typical, whereas estimated PIC rates areMajuro 40 percent, Tarawa 20 percent, and Pohnpei none (but 20 percent of households use the dump site).
In Majuro, where children collect cans and a crusher was donated, each container load repoWtedly eamsUS$5,000 for a local school after subtracting costs of shipping to California.
C O2 emissions from uidustry are estimated at 0.9 tonnes/capita/yeat (tic/y) in Fiji and 0.5 tIcly in theSolomon Islands-compared to Barbados 3.8, Belize 1.0, the Dominican Republic 1.0, Haiti 0. 1, and Trinidad& Tobago 15.0 according to World Resources 1992-1993 (World Resources Institute, UNEP and UNDP,1992). WRI estimates overall greenhouse gas emissions in Fiji and PNG as 1.3 and 2.3 tlc/y respectivelycompared to Haiti (0.3), Jamaica (2.4), and Trinidad & Tobago (17.2).
9 This section draws from 1992 backgound papers of SPREP's GEF-funded South Pacific BiodiversityConservatiols Program and 'Oceania's Most Pressing Environmental Concerns by Arthur Dahl (Ambio,Special Issue on the South Pacific, 1984).
10 The national reports and regional overview of the Pacifc Regional Energy Assessment (Pacific Island SeriesNo. 1, World Bank with PEDP, ADB & Forum Secretariat, August 1992) discusses energy sector issues indetail. The Pacific experience with renewable energy has been poor with the arguable exception ofphotovoltaics for production of small amounts of electricity from the sun. There is limited potential forrenewable energy for power production (hydro, solar, biomass) and no viable short term options for transport.
Direct support to SPREP is estimated as US$5.3 million between 1989 and 1992, with a total likely to exceedUS$19 million between 1993 and 1996 according to the Project Document of the GEF/SPREP South PacificBiodiversity Conservation Program-itself accounting for half of the 1993-96 total.
Through RETA, NEMS reports are nearly complete for the Federated States of Micronesia, the MarshallIslands, and the Solomon Islands. In Tonga, RETA is helping to update and implement the 1990 ESCAP-fmded naional environment strategy.
13 Progress toward integration of environmental and economic planning with links to the budget allocationprocess will be required for all new IBRD and IDA loans from June 1993.
14 Pacific Island officials (Fiji, Sanmoa) have expressed interest in methods of amending national accounts toincorporate environmental assets and their changes as a policy tool. Staff of the UN Statistics Office and theWorld Bank have carried out a prelimnary informal case study (Integrated Environmental and EconomicAccontng, World Bank Environment Working Paper No. 54, July 1992) for Papua New Guinea to see ifsuch an approach could be relevant in a small country with significant extractive industries and limited data.Although the study indicated a lower NDP and GDP than those calculated using conventional techniques, akey conclusion is that PNG, which has more detailed economic data than other PICs, needs considerably betterdata for results sufficiently accurate to be used to influence policy.
