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By Michael J. Field

AUCKLAND, New Zealand (August 4, 1998 - Agence France-Press)---Fiji’s economy has only been growing at around one percent a year since 1970 and with capital and skill flight, corruption, crime, and financial mismanagement its future is worrying, an economist warns.

Australian National University economist Dr. Satish Chand writes in the latest issue of the Pacific Economic Bulletin that "Fiji’s historical pattern of staggering along" is continuing.

"Uncertainties on the political front and with regards to property rights, land in particular, have kept investment low," Fijian born Chand says.

Official figures show six percent of all professionals and technical workers have been lost to emigration.

"Given that most who emigrated were those with experience and skills far above the average in their respective categories, the loss of human capital is much larger than is revealed by the simple counts.

The emigration has created its own momentum and is now difficult to halt. "Loss of financial capital is even more difficult to quantify given the paucity of data, but this would have been at least as large.

"A country that looses its human and financial capital at the rate that Fiji has over the last decade cannot be expected to do much better than what Fiji has achieved."

With the run down of capital stock and low investment and savings, there are worrying signs about prospects.

Per capita real income in 1996 was 40 percent above the level at independence in 1970, translating into an average annual growth rate of a little over one percent per annum. The social indicators of development had not changed.

Poor performance was the "result of policy action lagging too far behind rhetoric and depressing the confidence of investors."

Prior to the 1987 coup, Fiji had been held up as a harmonious multicultural society with a stable government and a convertible currency, a skilled and literate work force and good communications, and the judicial and legal system was identical to that of Australia and New Zealand.

"All the ingredients for growth except for an open trading regime were present; but growth had stalled after the small domestic market was saturated with heavily-protected production.

"The country has had strong labor unions, particularly in the public sector." As a result, wages have remained high relative to similar developing countries (like Mauritius) and unemployment has also been high as a consequence."

Chand pointed to the scandals of corruption in the state owned National Bank of Fiji (NBF) --which lost 320 million Fiji dollars (224 million U.S. dollars)-- and the Customs Department, and allegations of the same in several other departments have been a drain on the budget.

"When perpetrators get away with such criminal acts, there is an increasing rate of such activity. The most worrying aspect of this disturbing trend is the unknown; that is, how much corruption and mismanagement within the public sector is as yet to surface." The demand for money rises with an increase in corrupt practices; most of which takes place in cash.

"Fiji devalued its dollar 20 percent in January which Chand says was long overdue and was the result of financial mismanagement."

Policy makers in Fiji have displayed extreme disregard for discipline of capital markets, and the penalties for their actions are being borne by the nation at large," Chand says.

When nepotism and corruption came into the allocation of credit, which is alleged in the case of the state owned NBF, "there is a distinct possibility of a total collapse of the financial system."

"The January devaluation could lead to double digit inflation this year and with labor unions strong," Chand says, "prices were likely to rise sufficiently to leave the real exchange rate at its pre-devaluation level."

Figures showing the inter-bank lending rate exceeded the bill rate from mid 1995 indicated confidence in the domestic currency had been lost and the exchange rate had been unsustainable from then, well before the Asian crisis.

Commercial banks had, before the devaluation, moved into foreign currency denominated assets, suggesting they were "suspicious of an impending devaluation."

Chand questioned why the Reserve Bank did not act before January. He says its currency needed to be floated in order to get the economy onto a growth path.

"The main benefit arising out of a float will be that the value of the currency will provide a daily barometer on the soundness of macroeconomic management in the country. Such transparency means that policy makers have the incentive to manage the economy in the national interest."

The scandals suggest Fiji was "in desperate need of such a discipline."

Michael J Field Agence France-Presse Auckland, New Zealand TEL: (64 21) 688-438 FAX: (64 21) 694-035 E-Mail: WWW:

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