ADB making difference in Pacific

By Basudev Dahal
Director of Pacific operations of the Asian Development Bank

Older Hawaiians who remember their economy 50 years ago have a good idea of the state of many Pacific island economies today. Pacific economies suffer from being isolated, small and vulnerable to natural disasters and changes in global market conditions.

Poverty is a growing problem in the Pacific due to two decades of weak economic performance, rapid population growth and urban drift, and growing social inequalities. Following independence, many Pacific governments over-spent and expanded their public sectors. By the early 1990s, these economies were heavily in debt.

Realizing this situation was untenable, many governments, helped in great measure by the Asian Development Bank (ADB), began macroeconomic reforms to restore fiscal discipline, strengthen revenue collection, promote exports and encourage entrepreneurial activity. These measures have started to put some economies back on track, but much remains to be done to attract private investment to create jobs, lift incomes and improve the quality of life.

The virtuous circle of economic growth, private savings and private investment has yet to happen in the Pacific. Most investment has been in the public sector. Large parts of the population are outside the monetized economy. Few projects are profitable. Commercial banks finance only low-risk projects, local development finance institutions are ineffective, and microfinance institutions have yet to mature.

Apart from being remote and vulnerable, the Pacific economies face many other serious problems:

• Political instability and poor governance deter investors. Some Pacific experiences suggest governments need to be more responsive to growing inequities and to ensure that reform initiatives are more inclusive.

• Communal land ownership impedes business. It prevents land from being used as collateral for credit. There is not enough land for subsistence farming and more land needs to be brought into a cash economy.

• Education does not reach most people, especially women, outside the main cities.

• Inadequate physical, technological and financial sector infrastructure is a major impediment to sustainable economic growth.

To meet these challenges, ADB recently launched a four-pronged strategy for the Pacific to:

• Support economic, governance and public sector reform.

• Promote private sector development.

• Encourage a more active role for women in social, economic and political spheres.

• Support environmental management.

ADB notes hopeful trends in many of these areas. In the area of good governance, Papua New Guinea provides a promising example of a turnaround. Since the new government adopted a strong reform agenda in late 1999, supported by multilateral and bilateral development institutions, Papua New Guinea has quickly managed to reverse its economic performance and improve its access to international finance.

Women throughout the Pacific are slowly acquiring more economic responsibility with advances in formal education, employment and the monetary economy. Although male dominance is still entrenched, there is increasing awareness that educating women leads to multiple benefits. Educated women have smaller families with better health care and they take a more active role in the economy.

Environmentally, there is greater awareness of the need to conserve natural resources — upon which key income-earners such as tourism, fishing and logging depend.

Pacific nations are at different levels of development and the ADB is tailoring its strategy to meet their needs. One group ö Papua New Guinea, Solomon Islands and Vanuatu ö is resource-rich but experiences poor economic performance and high population growth. Assistance for these countries will focus on governance, public sector reform and poverty reduction.

Another group ö the Federated States of Micronesia, Cook Islands, Fiji, Samoa and Tonga ö is more economically advanced with a higher skill base, moderate resource potential and relatively low poverty. The aim in these countries is to promote private sector growth and to strengthen the physical and financial sectors.

A third group consists of Kiribati, Marshall Islands, Nauru and Tuvalu, atolls which are severely disadvantaged by their smallness, isolation and weak resource base. The need in this group is to establish and expand trust funds to finance basic services on a sustainable basis, support niche markets for tourism and develop sustainable uses for marine resources.

Cooperation is essential among governments, international agencies, civil society and the private sector to reconcile their different agendas and achieve their common vision of eradicating poverty.