3-5 July, 2006
Honiara, Solomon Islands

FORUM ECONOMIC ACTION PLAN 2006

The tenth meeting of the Forum Economic Ministers was held in Honiara,Solomon Islands on 3-5 July 2006 

The following countries were represented: Australia, the Cook Islands,Federated States of Micronesia, Fiji, Kiribati, Nauru, New Zealand, Niue, Palau,Papua New Guinea, Republic of the Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu. Observers comprised representatives from the Asian Development Bank (ADB), Foreign Investment Advisory Service (FIAS), Forum Fisheries Agency (FFA), International Monetary Fund (IMF), Pacific Financial and Technical Advisory Center (PFTAC), Pacific Islands Private Sector Organisation (PIPSO), Secretariat of the Pacific Community (SPC), South Pacific Applied Geoscience Commission (SOPAC), United Nations Development Programme (UNDP), United Nations Fund for Women (UNIFEM), University of the South Pacific (USP), and the World Bank. 

Ministers recalled the vision of the Forum Leaders that economic growth is the basis for higher sustainable living standards for all the peoples of the Pacific. Forum Island Countries (FICs) face numerous constraints to growth and are at different stages of development, requiring both appropriate regulatory frameworks and active economic development strategies. 

Economic Ministers reaffirmed their responsibility to provide leadership on regional economic integration and agreed that FEMM must facilitate the implementation of the Pacific Plan, particularly in areas pertaining to economic growth and good governance. This was seen as crucial in supporting the Leaders’ Vision of
“a region of peace, harmony, security, and economic prosperity, so that all its people can lead free and worthwhile lives”. 

We ask Leaders to note the outcomes of our deliberations as set out below. Economic Growth: Lessons from the Last Ten Years, and Challenges and Opportunities Ahead 

Ministers noted the economic growth performance of the FICs over the last ten years, the lessons learnt from this experience, some of the important challenges that the region will have to face, as well as the opportunities it can take advantage of, in order to propel growth over the medium term. 

Ministers also welcomed the presentations by their colleagues from the Cook Islands, Kiribati, Papua New Guinea and the Solomon Islands on their experiences, and their efforts to improve economic growth. In doing so, the Ministers: 2 (a) reaffirmed the FEMM 2005 mandate to maintain a standing agenda item on regional economic integration to explore and advance the opportunities presented by regionalism; and (b) agreed that implementation of the Pacific Plan, which has already been agreed to by Leaders, should be a key tool used in prioritising regional actions to address the challenges and opportunities that lie ahead for economic growth in the region. (c) noted that climate change was seen as a threat to economic prosperity and directed the Forum Secretariat to report to FEMM next year on this. 2006 Biennial FEMM Stocktake 

 Ministers noted the 2006 Biennial FEMM Stocktake which highlighted the status of the implementation of FEMM decisions in FICs, particularly over the past two years, in the areas of good governance, economic reform, financial reform and public enterprises. 

Ministers welcomed the efforts of all fourteen FICs in responding to the stocktake survey. This response formed a very strong basis of a review of implementation of FEMM decisions in the key reform areas. 

Ministers noted that FICs have progressed the furthest in the implementation of the Forum Eight Principles of Accountability, with significant movement over the last two years. The implementation of the FEMM principles relating to financial and economic reforms appear to be progressing well, although Ministers noted that the least implementation has occurred in the progress towards best practice principles for public enterprises.

Ministers noted that member countries consistently highlighted the shortage of technical skills as the most common constraint to the implementation of FEMM commitments in every area under review. The Small Island States (SIS) emphasised insufficient levels of human resources as a consistent critical barrier to implementation. 

In noting the overall progress on the principles, Ministers: 

Good Governance

(a) renewed their commitment for the implementation of an effective accounting system, in cognisance of capacity constraints, which is capable of providing relevant and accurate information for decision makers throughout the multi-year budget process in a timely fashion;

(b) recognised the vital role Public Accounts/Expenditure Committees play in sound financial management and urge efforts to raise their effectiveness; and

(c) recognised the need for improved mechanisms for systematic audit follow-up and the increased timeliness of audit reports. 3 

(d) recognised the need to promote access to official information for strengthening transparency and accountability.

Economic Reform

(e) prioritised as a matter of urgency the upgrading of their statistical offices and agreed that options for greater regional assistance with statistical functions; and

(f) agreed that economic reforms be approached in a pragmatic manner, cognisant of domestic capacities, ensuring that stakeholder consultation mechanisms are operational, and formulating a roadmap for implementing the reforms.

Financial Sector Reform

(g) recognised that prudential regulation and supervision of the financial sector, in its broadest sense, remains problematic in SIS members; and 

(h) reaffirmed the commitment to implement financial sector reforms and requested the relevant regional organisations and development partners for continued support through the provision of financial and technical assistance needs.

Public Enterprises Reform

(i) recognised the need to develop a coherent and holistic policy towards public enterprises which should touch upon objectives in ownership and management, community service obligations, regulation, performance monitoring, and impact assessment of reforms, amongst others;

(j) acknowledged the primary role of government in the public enterprises sector as the establishment and administration of appropriate regulatory systems and agreed to explore options for better management of limited skilled human resources including centralised national and regional mechanisms; 

(k) reaffirmed the commitment to adopt a standard approach to community service obligations (CSOs) demanded of public enterprises, with the assistance of donor partners, and drawing on the experiences of other FICs in the management of CSOs; and 

(l) recognised that monitoring of both financial performance and service quality of public enterprises against appropriate national and international benchmarks needs to be strengthened.

13. Ministers placed continued emphasis on capacity building — both in terms of transferable technical skills and management processes — to support the implementation of reform endeavours as endorsed by FEMM. Ministers also 4 promoted wider consultation in policy matters, and encouraged the timely production of economic and social statistics to support better outcomes.

14. Ministers encouraged members to use their stocktake responses as a basis to approach development partners for technical and financial assistance with implementation, and directed the Secretariat to assist with this process.

15. Ministers:

(a)

(b)

(c)

databases.

(d)

(e)

(f)

(g)
agreed to consider the development of regional support to audit services to improve integrity and financial scrutiny.agreed to undertake a pre-feasibility study for a regional customs service for reporting back to FEMM in 2007.agreed to carry out a study, as soon as possible, to progress the upgrading of country and regional statistical information services systems andagreed to a scoping study, as soon as possible, for the development and adoption of best practice models on financial regulation.agreed for the conduct of a scoping study to consider the establishment of an accountable and independent macro-economic and microeconomic technical assistance mechanism.endorsed FEMM’s ongoing monitoring of performance in implementation of its decisions through a repetition of the biennial stocktake in 2008; anddirected the Secretariat to review the current stocktake questionnaire in order to include monitoring the effectiveness of the principles endorsed by past FEMMs.

Pacific 2020

16. Ministers noted the key proposals offered in the
Pacific 2020 report aimed to accelerate economic growth in Pacific island countries including the four key themes relating to the need for good governance, strengthening infrastructure, further developing economic integration and regional cooperation and strengthening the focus on implementation. The report provides practical options for consideration by Pacific policy makers to support national and regional planning, consistent with the objectives of the Pacific Plan. The meeting noted the offer by Australia to provide further information on Pacific 2020, to further the dialogue on key issues highlighted by the report, including through in-country presentations.

Labour Markets, Economic Development and Regional Economic Integration

17. Ministers noted the importance of well-functioning labour markets to support economic growth, and the need to balance the goals of labour policy – static efficiency, dynamic efficiency and social justice.

18. Ministers recognised that labour markets could perform better in matching worker skills to jobs, and in utilising labour to its maximum potential in propelling economic development. Labour market policies and legislation appears to play a significant role in generating these inefficiencies.

19. Ministers recognised that there are also a number of other key factors contributing to the labour market outcomes in the region that are unrelated to labour market policies or legislation. These include population dynamics such as birth, death and migration rates; education policies; the domestic investment climate; the impact of globalisation; and attitudes towards gender roles, to name a few.

20. Ministers identified actions at both the national and regional levels to promote better functioning of the FICs labour markets. At the national level, a number of policy guidelines were noted that could improve the contribution of labour to economic development. This is in recognition that Pacific’s human resources are perhaps the most important asset of the region and could be better utilised. These guidelines include:

(i) Stakeholders, including employers and unions should be consulted in the formulation of labour market policy;

(ii) Gender equality should be implemented in employment law and practice;

(iii) Labour market policies should be an integrated part of overall national development strategies and economic reform efforts;

(iv) The availability of labour market information is fundamental to making informed choices and appropriate policies; and

(v) National labour policies should reflect the important role played by both the informal and formal sectors.

21. At the regional level Ministers reiterated the potential benefits of labour mobility between Forum members, whilst recognising the importance of domestic policies in promoting sustainable growth. The Ministers requested further examination of the costs and benefits of the temporary movement of labour under PICTA, MSG, and EPA, and to have this issue considered under the PACER impact study as well. The Ministers
directed the Secretariat to provide an update by FEMM 2007.

Regulation and Regional Economic Integration

22. Ministers noted that the Secretariat has begun work on scoping out the Regional Regulatory Blueprint. This has included a stocktake of economic regulation that currently exists in the region in the areas of Foreign Investment, Competition, Access and Price Regulation, and Consumer Protection and Fair Trading.

23. Ministers noted the broad rationale for the introduction of economic regulation which is to correct market failures so that optimal efficiency in production, pricing and economic welfare is achieved.

24. Ministers considered the broad range of factors that inhibit the effectiveness of economic regulation in the region. The most important are:

(i)

(ii)

community;

(iii)

(iv)

25. In recognition of these regulatory impediments, Ministers identified policy guidelines for economic regulation which could help FICs make economic regulation

more effective at the national level. These include:

(i) The objective of the regulation should fit within the FICs overall economic development strategy;

(ii) Where appropriate the regulator should be independent of government;

(iii) An appropriate policy and legislative review process should be undertaken periodically; and

(iv) In line with earlier FEMM decisions, greater efforts need to be made to undertake consultations with relevant stakeholders, including the private

sector, on economic regulation issues.

26. Ministers noted that work undertaken by the Secretariat so far has indicated a wide range of areas where there may be potential for regional co-operation and regional provision of services. As such Ministers

27. Ministers also
Technical capacity and institutions, which includes lack of analytical and technical skills and expertise at both policy and delivery phases;Governance, which includes lack of adequate consultation with stakeholders and inadequate attention to the needs of all sectors, particularly the broaderLack of financial resources for policy makers, legal draftspersons and regulators; andLegal environment, which includes inappropriate legislation, and the absence of alternative dispute resolution processes.directed the Secretariat, in coordination with development partners, to undertake further research and consultation with FICs. This work should scope the type of support that could be provided at the regional level, in order to complement existing national priorities and policies. It would include a closer examination of the option of an integrated regional advisory service to provide regulatory support in areas of Foreign Investment, Competition, Access and Price Regulation, and Consumer Protection and Fair Trading. Ministers directed the Secretariat to report back to FEMM 2007 with concrete options for progress.agreed, in principle, that member countries share information, and where appropriate provide technical assistance to assist each other to improve regulatory policy outcomes, and direct the Forum Secretariat, in co-ordination with development partners, to facilitate this process.

Eastern Caribbean Telecommunications Authority – A Regional Approach to Regulation of the Telecommunications Sector

28. Ministers welcomed the presentation on the lessons and success factors of the Eastern Caribbean Telecommunications Authority (ECTEL), which highlighted the regional approach taken to liberalise and regulate the telecommunications sector in five countries in the Eastern Caribbean region. Ministers noted the positive outcomes of the telecommunication sector reforms in the Eastern Caribbean region, in terms of lower prices and improved quality of services.

29. Ministers expressed their strong support for examining in greater detail the applicability of the ECTEL model to the FIC region. They
referred the ECTEL case study to the Forum Information, Communication and Technology (ICT) Ministers, through the Task Force on Regional Approaches to ICTs in the Pacific, for further examination and requested a report back to FEMM in 2007. Ministers noted the offer of technical expertise made by Australia.

Costs of Doing Business in the Pacific

30. Ministers, in noting the crucial role of the private sector for creating growth and jobs, and whilst recognising that comprehensive economic strategies are the business of each member country, agreed that they have an individual and collective responsibility to ensure that a business friendly regulatory environment is given priority.

31. Ministers welcomed the progress made by member countries as suggested by the 2006 Doing Business report and the preliminary data for the 2007 report. Ministers were also apprised, through country case presentations, of the positive developments in Fiji, Federated States of Micronesia, New Zealand and Vanuatu. Ministers also noted the contribution by the Pacific Islands Private Sector Organisation (PIPSO) and welcomed its offer to work in partnership with national Governments in progressing reform efforts.

32. Ministers
agreed to share country experiences with reforms of business regulation and where applicable provide technical assistance based on successful implementation experiences. Ministers renewed commitments to take steps at the national level and with the support of the Secretariat and development partners, identify, simplify and overcome regulatory bottlenecks in order to improve progress towards halving regional indicators by 2007. Ministers reiterated the need for technical assistance to assist with more rapid progress towards these targets.