"The Fiji Devaluation"

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COMMENTARY

By Dr. Sanjay Ramesh

February 12, 1998

The Government of Fiji has devalued the Fijian currency by some 20 percent.

Initially, the move was a response to the Asian economic crisis that has seen tourist numbers from South Korea and Japan dwindle since December 1997. For the policy masters in the Ministry of Finance, the devaluation will boost tourism and exports, but this was by far a miscalculation on the part of the planners, since following the devaluation, there has been a massive cry from importers, consumers and opposition parties for some form of relief. In defending the devaluation, Prime Minister Sitiveni Rabuka announced that it "had to happen," even though he conceded that this action may be political suicide. According to the Prime Minister, the change in currency rate was necessary to protect the jobs of thousands of people in the tourism, mining and garment industry. In fact, the devaluation is having an opposite effect. Garment exporters predict massive job losses as the Minister for Finance and his Foreign Affairs colleague use diplomatic channels to plead with Australia to reduce the local contents requirement under SPARTECA (South Pacific Regional Trade and Economic Cooperation Agreement) signed in Tarawa in 1981.

The first business to close its doors was Solanki Garments, but there is a general downturn in business in Fiji. Immediately afterwards, the opposition parties went on the offensive with the National Federation Party advocating a five-point plan that would see among other things the elimination of the Value Added Tax, reduction in bus fares, lower import tariffs, increases to the poverty alleviation fund and provisions for education allowances. But the National Federation Party plan has come under fire from the Fiji Labour Party that wants an immediate re-valuation of the Fiji dollar. The devaluation, in fact, is expected to improve Fiji’s export competitiveness, improve investment and make locally produced goods cheaper. The consumer price watchdog in Fiji, the Prices and Incomes Board (PIB), warned traders not to increase prices, but the buck will be eventually passed on to the consumer, who will suffer due to a rise in basic consumer goods. It is anticipated that food like bread and tea will also be affected. Also affected are household items, transport, education and health.

Politically, the devaluation will cost the ruling Soqosoqo ni Vakevukewa ni Taukei Party, as price increases start to bite the rural community. In what can be termed as political damage control, the Minister for Finance on 10 February, 1998 announced a reduction of an average 5% in duties across the board. In a special shock survey, it was revealed that the impact of the devaluation is around 45-55%. Distributors explained that the strength of the US dollar after devaluation has increased by around 18%. The tariffs in the budget went up by an average of another 15% and the devaluation of 20% has made a net effect on newly imported stock of 45-55%. Basic consumer items such as potatoes have gone up from around $7.00 a bag to $13.00. By 17th of February sharps and flour are going up by as much as 45%.

Adding to the problem is the apparent lack of support from regional trading partners. Clothing manufacturers in New Zealand are mounting a campaign to stop Fiji from winning further tariff concessions. In Fiji, the Textile, Clothing and Footwear (TCF) industry has in total some 15,000 workers or 14% of total formal employment (The Fiji Times, January 31, 1998, page 3). Of this number, about 9,000 jobs are dedicated to producing exports for Australia and New Zealand. The Fijian Association Party Parliamentarian Viliame Saulekaleka criticized the government for creating undue hardship for the people of Fiji. The opposition, generally, are united in their view that some form of concession ought to be implemented immediately to cushion the negative domestic impact of the devaluation.

The National Federation Party has come up with a five point plan, but this is not being taken seriously. The NFP in fact is trying as far as possible not to severely criticize the government, because of the fledgling relationship between the two. The Electoral Commission is busy drawing up the new electoral boundaries, consistent with the Constitution Amendment Act of 1997 and in all likelihood the Soqosoqo ni Vakevulewa ni Taukei (SVT) and the National Federation Party will join hands. Already the National Federation Party has made presentations to the General Voters Party. Incidentally, the Fiji Labour Party is doing its own homework and a coalition with the Fijian Association Party seems imminent. Apart from these inter-party political maneuvers, the ALTA land issue is going to be addressed head-on by the Great Council of Chiefs (GCC) during its meeting starting on 11 February, 1998. The National federation Party is banking on its friendship with the SVT for an amicable settlement to the agricultural land lease issue.

The devaluation issue in Fiji is being played up like a grand soap opera with political parties taking full advantage of the situation and in doing so positioning itself for the general election.

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