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By Robert Keith-Reid

SUVA, Fiji Islands (May 15, 2000 - Islands Business/PINA Nius Online)---There's often not much that is positive about Pacific Islands country growth rates. As often as not rates posted by some of the region's countries are negative.

Many can fairly attribute their difficulties to isolation, natural resource limitations and the impact of vagaries such as climatic attacks like hurricanes or commodity price crashes. But how much of a country's poor performance is attributable to corruption?

This is something that financial agencies like the World Bank didn't want to discuss. The lesson now at last being admitted, according to Savenaca Siwatibau, one of Oceania's best-known financial figures, is that the more corrupt a country is, the lower its Gross Domestic product (GDP) growth rate. That doesn't mean that a country with a low or no rate is absolutely rotten, but it may be an indicator.

Clean government is now the issue at the heart of efforts being made to improve standards of living in the Pacific Islands, he says. But "there is increasing realization that whatever we do, our leaders are seen to be sabotaging it. So we have a very difficult job."

Stay Clean

Siwatibau predicts that having had the need to clean up their act, impressed on them by donors they court for aid, many less than transparent Pacific Islands leaders will forget that they are expected to stay clean.

Siwatibau has been head of the Port Vila-located Pacific office of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), and is a former Fiji secretary for finance and Reserve Bank governor.

He was lead speaker at a conference organized by the Transparency International branches of New Zealand and Fiji at which financiers and Pacific Islands journalists pondered on the theme of "Cultivating Financial Transparency in the Pacific."

There was an inverse relationship between corruption and GDP growth rate and investment, he said. After winning power, crooked politicians discovered that there was much scope for accumulating illicit wealth.

Hyper-inflation of the economy caused by their mismanagement of it was one. Then there was money to be made from power to control tariffs, award business licenses, concessions and tax concessions, impose price controls, fix foreign exchange rates, grant government subsidies, tax and customs concessions; issue government guarantees; sell government property, including shares; from the procurement of government stores; from privatization with sales made to a favored few without proper procedures; from giving access to government services; access to natural resources like forest concessions and minerals; and by working international financial scams such as letters of guarantee for cheap loans with upfront fees for middlemen.

At the end of a line of corruption it was always the taxpayers and poorest who paid. Corruption as a cycle directly bit into a government's operating budget; it destabilized government; it discouraged investment in the public and private sector and ultimately stunted economic growth.

An investor arrived, paid a bribe, so reducing expected return on his capital. He raised prices to get the return wanted. That produced inflation; so the economy weakened to further discourage investment. The government borrowed to meet debt and later increased taxation to pay debt. That was another discouragement for investors. Overall productivity declined and growth fell.

The balance of payments was adversely affected, foreign reserves evaporated; the private sector was crowded out and might have to be sacrificed in the process. Then came devaluation; capital fled; investment declined, unemployment increased and social difficulties and unrest fomented.

Siwatibau recalled that in his early days with the Fiji Government, after independence arrived in 1970, the country was "quite clean" but later standards of honesty faded. In earlier times chiefs were genuinely accountable to their people, with elders questioning and admonishing them at meetings. Today the trend was for custom to be bent to suit someone's purpose. The story now was that it wasn't customary for chiefs to be challenged.

Siwatibau said that he did not think the process of improving governance in the Pacific Islands would stick. Although there was a hunger for good government, he said, "I don't think this will work."

Governments would make a show of conforming but then "they will forget about it. I don't see that process happening in the region and it is hard to see how they can be changed."


Classed as taboo, corruption wasn't mentioned in World Bank circles until the arrival five years ago of its current president, Jim Wolfensohn, an Australian turned United States citizen, who declared that "corruption in all its forms is a crippling tax on the poor."

Graeme Rothwell, regional manager of the Sydney headquartered South Pacific Project Facility, a World Bank agency, said the bank's stance now was to treat governance as a major issue in all its dealings. "We have withdrawn from the Pacific Islands for governance issue reasons, but re-engaged in the last 12 months."

Australian banking consultant Jim Huey, a former chief manager in the Pacific Islands for Westpac Banking Corporation, said that in retrospect Pacific Island offshore banks should not have been allowed to open. "In some countries with offshore bank systems I am of the view that they are not adequately supervised. This breeds a climate of abuse and corruption. "You can drive a truck through trust regulations in some countries."

Huey said questions to be asked of Pacific Islands countries were: Was the judicial system efficient and quick? Were prosecutors as smart as defense lawyers or would overseas lawyers walk over local lawyers? Did the local media work as whistle blowers?

Foreign commercial trading banks were not blameless in their attitude to business by their regional branches. "I have seen examples of bank managers who have been far too focused on their own future and their own bank's performance and they have been a little bit harsh on needs and aspirations of the community in which they operate, and that is a sad indictment."

Pyramid Cowboys

However, commercial banks and the diplomatic community could be very helpful in the warning of "pyramid cowboys" and in discovering if people were of substance.

Mike Reynolds, who worked in the Cook Islands for five years and is now chief executive of Anchor Trustees Ltd, of New Zealand, said the Organization for Economic Cooperation and Development (OECD, a group of 29 developed countries) was warning all offshore jurisdiction that if they didn't conform with OECD regulatory requirements they would be blacklisted.

"The rumor is that there are some fairly significant places that are not going to make the grade. I know that there are a number of trustees companies operating in the South Pacific who don't give a jot; as long as they get paid they will do anything."

Graeme Rothwell announced that the office through which the World Bank dealt with its 10 Pacific Islands members and now East Timor would be moved from Washington, D.C. to Sydney from the middle of this year. Rothwell said the bank gives much more technical assistance and less direct finance assistance. "The attitude now is that governance must be part and parcel of aid."

The bank was changing its approach by working with Pacific Islands countries on the sort of programs they wanted. A strategy for the Pacific had been written and was being circulated to island governments for their response.

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