Address by SG Tuiloma Neroni Slade at Lowy Institute Conference
The Pacific Islands and the World: The Global Economic Crisis
Organised by the Lowy Institute for International Policy

Monday, 3 August 2009, Brisbane

Session III: The Role of Government and Regional Institutions in Tackling the Economic Crisis

Keynote Address by
Tuiloma Neroni Slade
Secretary General, Pacific Islands Forum Secretariat

Honourable Heads of Government
Distinguished speakers and participants

I commence with words of appreciation to the Lowy Institute for International Policy for staging this important event which draws attention to the situation of the Pacific Islands and the implications of the global economic crisis for their communities.

Much has been said of the crisis, here and elsewhere. Weighty fingers continue to be pointed and masterful theories abound as to its causes and the potential solutions. Whatever the true verdict of history, what stands out clearly are the frightening similarities to the Great Depression, and also the serious systemic failures across the board. What is also clear is the need for international responsibility and determination to prevent such global devastation so easily occurring again.

In these remarks I will offer reflections on the respective responsibilities for Governments and for regional institutions. My purpose would be to urge that it be our joint responsibility to rise above the rhetoric of viewpoints and to fix on feasible responses, Pacific-tailored responses, which must acknowledge in clear terms the challenges the region faces.

For the Pacific island countries, the global economic crisis challenges the very ideals that we have aspired to through Pacific Island Forum processes and frameworks, such as the Pacific Plan and its vision for regional prosperity and growth. Through the Pacific Plan the region has established avenues for dialogue to consider regional responses and, more importantly, for coordinated collective action. It is important that national Governments, regional organisations and development partners work collaboratively, together and now, to implement tailored responses in a manner that ensures sustainability.

The Pacific context
It is not uncommon to hear the Pacific described as unique. The observation bears a particular resonance in setting the Pacific context, for an understanding of the regional characteristics will provide an informed and workable framework for the consideration and design of response measures.

We cannot entirely forget the historical narratives and the fact that the Pacific was possibly the world’s last region to come into contact with modernity. That moment of transition, still continuing, has pulled the Pacific into a broader global context creating levels of exposure and vulnerability to external forces that are rarely matched anywhere else in the world today.

The experience with modernity has not been entirely comfortable. Certainly, there are the considerable advancements and improvements in human happiness. But it would be naïve to suggest that all is being shared evenly among Pacific island peoples.

Economic growth
Historically, economic growth in Forum Island Countries has been below expectations with growth rates averaging 2 to 3 percent over the last decade. This has been even weaker on a per capita basis with a number of economies contracting. We all know that Pacific island economies are heavily dependant on imports. Where export orientated industry has developed, it has done so around a narrow base almost exclusively driven by dependence on natural resources, and with little value adding to primary goods prior to their export internationally. Efforts to offset this by improving market access for exports continue. However, the benefits of bringing commercial relationships into line with World Trade Organisation rules, negotiating an Economic Partnership Agreement with the European Union and discussions with Australia and New Zealand on ways to improve access will take time and offer only part of the solution.

Government expenditure remains a significant portion of GDP. In Kiribati, the Republic of the Marshall Islands, the Federated States of Micronesia and Tuvalu, this has reached on average 70% pr annum. In part, Government spending reflects the lack of private sector activity. Often coveted as a driver for economic growth, the private sector is typically small in the region. Facing considerable regulatory obstacles and high transaction costs, a large proportion of potentially profitable sectors are effectively monopolised by state owned enterprises leaving the private sector often confined to the informal economy.

Generally speaking, the fiscal balances of central Governments have been on average negative and exposed to severe fluctuations. While comparatively small by international standards, public debt levels have reached a significant percentage of GDP in a number of Pacific Island Countries.

While some debate exists over the actual rates of inflation, general consensus suggests that it remains significant and will do so well into the medium-term future. The sharp price rises in key commodities such as petroleum, on which the Pacific is particularly dependent, will impact on all parts of the supply chain continuing to drive up the price of food staples, basic commodities and a number of key services such as transport. Offsetting these effects with domestic import substitution, within current constraints, is almost impossible with even the region’s large countries finding this difficult.

While dependable data is difficult to come by, current estimates suggest, on average, countries in the region are experiencing well over 10% uemployment. This estimate does however vary significantly by age demographic and gender. Levels of unemployment, under-employment and lack of access to opportunity offered in the formal economy are much higher among the region’s youth, women and those with disabilities. We all know that the weakest among us, and the least able to cope, are the first and most severely to be affected, as already they have been affected by the global economic crisis. The continued unequal distribution of wealth and more seriously the unequal access to opportunity is likely to persist, exacerbated by high population growth in a number of Pacific Island Countries and weak broad-based economic growth in many more.
This is the reality of the Pacific islands today and, as I say, the context within which to appreciate the global economic crisis.

Climate change
There will be significant deterioration as the impacts of climate change grow and are manifested. The global science is now unambiguous; the effects of climate change will be widespread, serious and destructive. The extreme exposure of Pacific Island Countries to the dangers of climate change is extensively documented in the work of the Intergovernmental Panel on Climate Change, and the vulnerability of their communities is widely acknowledged.

The most serious and lasting effects are likely to be on the natural systems, like the forcing influence of the El Niño weather cycles for example, and the shift of rainfall patterns now causing prolonged droughts in many parts of the Pacific, and with the implications for water and other life-support systems.

These are the factors which explain the successful initiative of the Pacific Missions in New York in moving the United Nations General Assembly in June to pass the first ever United Nations resolutions to look at the security implications of global climate change.

I need to say that the fact of the global economic crisis cannot divert Pacific Island Countries from the absolute priority of responding to global climate change, and for the international community to assist with their efforts to do so.

Likely impacts of the Global Economic Crisis on the Pacific
While work continues on assessing the impacts of the current global economic crisis, a range of stresses are already being felt. Some estimates suggest that overall growth in the region is predicted to drop from 5.1% i 2008 to 3% i 2009. Economic growth in Papua New Guinea, the region’s largest country, is forecast to remain at a moderate level with most countries in the region predicted to experience falls in growth levels and at least five countries Fiji, FSM, Samoa, Tonga and Palau, are expected to experience negative growth. The fall is largely due to projected declines in remittances and tourism receipts for a number of countries.

If we were to speculate on continuing points of pressure, based on the evidence we have to date, we could rightly assume that the region will continue to witness an increase in the severity and range of pressures on national coffers, the balance of payments and access to goods and services and their subsequent delivery. More problematically, we can expect that any recovery will be protracted and require significant external assistance. Of greatest concern are food and energy security, both of which remain tenuous.
The level of anxiety can only increase when these projections are viewed against existing vulnerabilities and the limitations of human and financial capacity, and susceptibility to natural disasters and now, of course, the compounding challenge of the H1N1 global pandemic.

A bleak scenario perhaps, but certainly not one we can afford to ignore.

Here again I would need to say that the fact of the global economic crisis cannot divert us from meeting the Pacific Plan priorities, which also serve to help the region achieve the objectives of the Millennium Development Goals.

Responses Over the Short, Medium and Long Terms
The Pacific response to the global economic crisis will not be met through one action by one stakeholder. I would stress that the Pacific response must be collective and embody a combination of actions, policies and initiatives that involve national Governments, regional organisations and development partners.

In the short-term, I believe that we must be especially mindful of the general social well-being, accentuated political pressures and the importance of partnerships and reform.

Social well-being
The well-being of communities, and the weakest among them, is a concern for every Government. We need to ensure there is full commitment to greater social protections and improved basic service delivery in key areas such as education and health care. To do less would be a serious compromise, for without an educated and healthy population there cannot be real possibility for sustainability in development.

I think there is need to come to terms with the condition of poverty in the region. The latest research suggests that as many as one in three people in the Pacific are living below national poverty lines. While there are traditional structures of kinship to afford protection, times are fast changing. Well organised social safety-nets normally available in traditional Pacific societies are no longer there, or no longer assured, as population growth explodes and rural dwellers drift to urban and peri-urban settings in search of opportunity.

Partnerships and opportunities
We cannot neglect the opportunities afforded through partnerships, especially where it permits for the better management and exploitation of ‘comparative’ strengths. Nor can we ignore the opportunity for reform to enhance the management and accountability of financial and economic systems and other improvement prospects that may be presented through the current crisis, including ways of better enabling the growth of the private sector.
Over the medium-term, I believe that we must focus on ensuring better food and energy security, which in many respects, are the two areas hardest hit by the crisis in the Pacific region.

Food security
Food security in the Pacific is facing new challenges as global markets experience dramatic increases in food prices. The FAO index of food prices rose by 9% i 2006, by 24% i 2007 and by 51% i the first months of 2008 alone. As predominantly net-importers of food staples, Pacific Island Countries remain particularly vulnerable. Indigenous options to enhance food security through increased agricultural output and harvesting of marine resources is threatened by climate change and over-exploitation. Food security has been addressed this year by Ministerial meetings on Agriculture, Trade and Health. All have endorsed the holding of a regional food summit to take place in 2010 to consider long-term strategic directions for Pacific communities. The success of any outcome will, however, require ongoing resource commitment and policy focus.

Energy security
The Pacific remains a region heavily dependent on fossil fuels and more specifically petroleum products. The geographic size of the region is strikingly disproportionate to the volume it consumes. This is compounded by the ‘spread’ of consumption, consumers of energy more often than not being located in small pockets separated by large distances, and in turn placing high premium on the cost of transportation.

Nationally, Governments remain key procurers of petroleum products. Reasons for this are varied, some historical, some driven by interest, some driven by necessity. This has not been helped by the rapid divestment of oil majors from the region over the last five years further reducing competition among suppliers and placing pressure on national coffers. The Pacific response to this has begun with the launch of the region’s Bulk Procurement of Petroleum Initiative. I expect that the task of better securing energy supply for the region will remain an enormous challenge.

For the longer-term, I believe that the regional strategy must focus on building resilience through strengthened capacity, better coordination of action, economic integration and improving standards of governance and leadership.

Governments across the region continue to suffer from a lack of capacity in many essential areas. It is a mantra that carries particular significance in a region where there is a preponderance of small States. This is an area where both development partners and more specifically regional organisations, must continue to work with national Governments offering an extension of national capacities and access to regional facilities and services. This is perhaps where regionalism displays its greatest importance and potential, through the pooling of resources to allow for collective responses. More specifically, I would contend that the time has come to look at new ways of doing business, of delivering services, of moving from the replication of a solution concurrently in a number of countries to developing one solution for a number of countries, where these countries share a common challenge. That, I believe, is the very essence of regionalism.

The encompassing nature of the crisis puts focus on the need for improved and more effective coordination of national, regional and international resources to achieve more qualitative solutions, which are fit-for-purpose and within sustainable resource envelopes. This is an objective that is neither new nor sought by the Pacific alone. But it is one we have addressed specifically in the Pacific Aid Effectiveness Principles, derived from the Paris Declaration, and which were adopted in Palau in 2007.

Regional trade and integration
With respect to regional trade arrangements, let me say that Pacific administrations have long recognised the importance of deepening regional trade and economic integration towards supporting the growth and ultimately improvement of livelihoods in the Pacific. The continued implementation of regional trade agreements and the next phase of PACER-Plus recently agreed to by Forum Trade Ministers and which awaits the decision of Forum Leaders, supported with ongoing efforts to facilitate trade in services components, is crucial in a region where export bases are narrow and domestic levels of unemployment and underemployment are high.

As I close, let me say that the ultimate responsibility is upon Governments. The global economic crisis is not simply an economic phenomenon that can be addressed in vacuo, for the right to development and the expectations of communities are one and the same thing. There is a critical link between democracy and development, and Governments must provide the way and space for all citizens to lead worthwhile lives in freedom and security.

And peculiarly for the Pacific region, there is a measure of special responsibility on regional organisations – in particular in their response and quality of delivery of service, and ensuring effective integration and coordination.

With these words I thank you for your attention.