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AUCKLAND, New Zealand (July 30, 2000 – Cook Islands Star)---Revelations that the "Hilton" hotel investors on Rarotonga were in reality Ladbrokes Casinos, along with one recent high profile receivership on Rarotonga, has resulted in calls going out to the Development Investment Board (DIB) to not only check out potential investors more carefully, but to require the payment of bonds before permits are issued.

The local media back home (Daily newspaper, TV, National Radio) perhaps need to explain how they played a part in the Cook Islanders believing that the 'big boys' that hit the beach with their entourage and attorneys in tow were from the "Real" Hilton, meaning Hilton Hotels Corporation of America.

It took Cook Islands Star, 1,500 kilometers (900 miles) from the action, to report in our last issue that the rich boys were not from Hilton USA but from the "Hilton Group," and that means Ladbrokes Casinos. Ladbrokes, as we reported, bills itself as the second largest casino operators in the United Kingdom, with casinos worldwide. CIStar does not know if DIB knew the true identity of these investors when it signed them up for approvals. DIB rarely answers our questions, and DIB's Minister, Dr. Robert Woonton, has only answered our questions on one occasion in past. DIB had previously approved the Castle Group's bid for the white elephant hotel, that bid backed by the Japanese investor now in jail.

DIB insists that it goes to great lengths to qualify investors before it issues rights to invest, but the evidence in many cases indicates otherwise. When backed into a corner, as DIB has found itself over the now infamous "Beansprout Venture," chief executive Rohan Ellis suggests he can show proof that the papaa's are indeed acceptable.


But that 'proof,' whether it looks legitimate, accurate and complete or not, is little comfort to the small local businesses that end up with nothing or may be just a few cents on the dollar when a foreign funded project goes belly up. The financial collapse of the Crown Beach Resort in Arorangi being the most recent case in point, though there are plenty others in the not so distant past.

Crown Beach left Telecom Cook Islands sitting on a reported $25,000 loss, perhaps the biggest of the unsecured creditors who are out at least $200,000 say those in the know, while some put the figures at closer to half a million dollars. And while Telecom is the government owned monopoly that everyone loves to hate, the fact is that each Cook Islander will pay off that bad debt every time they make a call, for losses are ultimately paid for by a company's customers. And what about all the smaller, locally owned companies? A thousand dollar loss to a little company can easily be the equivalent of a $100,000 loss to someone like Telecom. It hurts, plain and simple.

Another recent business failure was the Tiki Lounge on Rarotonga, a joint venture between an American and Frenchman that left many small businesses seriously out of pocket.

But why must it be so, some Cook Islanders are now asking. One young businesswoman, who has taken over an ailing local company and turned it into a profit spinner says, "Who is in charge of these people coming here? Don't they have to put up some kind of deposit or bond to protect local business? I lost thousands on the Crown Beach." This young woman, like most Cook Islanders, believes the controls on incoming investors in the Cook Islands is mirrored on the types of controls on investors into countries such as Australia or New Zealand. Well readers, it just ain't so.


Are you from Asia or North America? Got a half million dollars, you might get in the door in New Zealand. Got a million? Maybe Australia will talk about residence and work permits. Got a few thousand limit on your Visa Card? Well, let's talk says DIB of the Cook Islands, or so it seems. In fact, while legislation in New Zealand and Australia sets forth minimum amounts of money for hopeful immigrants to invest in those countries, Cook Islands legislation sets no minimum whatsoever. And so, in the case of the Beansprout Venture, CIStar has reported that four Americans have been allowed residence and work permits on an apparent $800 investment. Three times CIStar has reported that figure and neither DIB nor the sprouters have offered any alternative figures. They have spent plenty fixing up a house with a spectacular view overlooking Muri Lagoon on Rarotonga, but just $800 on the timber boxes in which they sprout seeds. That's $200 per investor. If New Zealand used the same standard, every $500,000 invested would allow in not one investor, but 2500 investors!


And while it may be naive for our local people to think foreign investors are required to make big investments or put up some kind of security, some say, "Why not?" Just ask Telecom to give you a business phone without putting up a bond and they'll laugh you out the door. So why, ask some locals who have been stung by foreign businesses going broke, would our country allow outsiders to come and do business without some protection for the little people who will lose if anything goes wrong.

CIStar put that argument to one businessperson who replied, "That's the old socialism. It's not government's job to protect citizens. Let each business make good decisions as to who they extend credit to." CIStar in turn put that comment back to some local small business operators and one replied, "Easy to say but hard to do. If the little local businesses refuse to give credit to foreign businesses, the foreigners just go to the big local companies for credit. The businessperson you quote is wrong.

Government should be looking out for the little operators. If a foreign investor is legitimate, why would he fear a bond? He only loses his bond if he ends up a failure." And indeed, legislation in other countries, directly or indirectly, protects ordinary citizens for example in the handling of trust moneys.

DIB, according to it's own literature, sets an arbitrary goal of attracting a set number of foreign investors to start a business each year. At the same time DIB says it is not operating an open door policy. We asked DIB, with their "partially open door policy," just how many applications for foreign businesses they have rejected in the three years they have been guarding that door. We got a vague answer, but the number of rejections is somewhere between the numbers one and two. Most Cook Islanders would call that a pretty wide open door indeed.


Island Hotels Limited. Who are they and why are they so often in the news back home?

If it's not their sewerage system annoying guests in the cheap rooms out the back, then it's the not so envious track record in terms of employee relations, or it's the never ending turnover of general managers, papaa's every one. Now, the latest scandal to rock the Australian owned company is a big land battle with a prominent land owning family on Rarotonga.

Island Hotels was originally the child of a couple of elderly Australian men, well to do by all accounts and the Edgewater Resort rumored to be not much more than a tropical plaything and tax write-off for the gentlemen. Not too long ago one partner passed away. It is generally believed that some if not all of the Edgewater was built without building permits. Most people talk about the Aussies having friends in high places, and contend the buildings are placed well into prohibited building zones. The sewerage system was built for many fewer units than are now in place and it shows, or rather it smells. About half the hotel's guests park right alongside the gurgling, belching sewage plant. Those guests relegated to the threadbare units out back are almost always greeted on arrival by smells not normally associated with paradise. If the gods are smiling, their rooms offer refuge. If the gods and the winds are contrary, well, it is not pleasant.


If ever Cook Islanders needed to be reminded of the rough and tumble, chainsaw image that Aussie's have, Island Hotels are just the gentlemen to keep us up to date. Besides the alleged cowboy approach to building the Edgewater, the owners about a decade ago decided to "clear" their section almost adjacent to the Edgewater. On this site was a beautiful antique timber colonial house set in the middle of gardens that had been planted and cared for over generations. Surrounding the house were mature flame trees. That was one day.

The next day, except for a couple of the flame trees, it all fell to the bulldozers. And there it sat for years, a sad and naked section. Then about six years ago the Aussie owners dug up a bunch of coconut trees from yet another Island Hotels piece of beachfront property, this one in Muri. And they moved those trees to the denuded section by the Edgewater. Most died and were left standing, only adding to the forlorn look.


The Muri land has quite a history in local folklore. It is said to house the ghost of a young girl who died on the motu just offshore. For years no one would build on the land in that whole area.

The curve in the main road there was the scene of frequent automobile accidents, prompting Public Works to plan some bulldozing to straighten things up. But none of the local boys would touch the job, so the head of Public Works was forced to climb up and run the bulldozer himself. A week later his face contorted and would not come back into place. He was told by the village elders to go and apologies to Pa Ariki but reportedly refused to do so. He eventually went to New Zealand for treatment where doctors told him there was nothing physical causing the distortion of his face. It is said he never returned to Rarotonga. Some years ago the land was used in a movie set, then a local evangelist used the movie set huts for a while. The land was purchased by Island Hotels in the 70's, in a lease that stated the use was to be residential. A couple of old, unoccupied houses have only recently been dismantled.


And then just a few weeks ago Island Hotels began digging up the land, installing utilities to 7 or 8 lots they intended to subdivide and sell off as house sites. That action caused the landowners to put up fences on the land and tell Island Hotels that such a use was commercial, not residential. But the High Court thought otherwise and told Island Hotels to go ahead with its plans.

Land deals gone sour and involving papaa's are nothing new in the Cook Islands. Polynesian views of land as something passed from one generation to the next in a family setting are at odds of European views of land as a commodity to be bought, sold and profited from. Or, in the case at hand, speculated on.

One argument that would-be-developers make to local landowners is that the investment of money by the papaa will generate income on the land. Then, so the sales job goes, the papaa will share that income with the landowners. So the landowners get an up front chunk of money and then a small percentage of the turnover the motel, hotel, or other business generates on the land.

And a small percentage of a lot of money can indeed enrich the landowners. But what if the papaa developers never get around to building that business on the land? What if it just sits there paying a couple of hundred dollars a year in rent to the landowners?


That is just what was happening to the Island Hotel's section in Muri, and just what was happening on the big section next to Edgewater. No income for Island Hotels, and no real income for the landowners. Perhaps the death of his partner told the surviving older man that the plans for building were just never going to happen. And perhaps someone suggested that the land was worth a lot more chopped up than in big blocks. And so both sections now seem destined to be chopped up and sold for prices that could well mean one lot will be sold for the amount the papaa's paid for the entire block. CIStar believes that asking prices of up to $120,000 are in line for the best sites at Muri, and rumor has it that some are pre-sold.


But, say local landowners, leases given in the past were never intended to contain the right to just out and out speculate with family land. While there have been more than a few disputes over the definition of residential or commercial as it applies in leases, there has certainly never been a lease approved by the Court that included the word 'speculation' as an allowable use of family land.

One middle aged local, from a family with heaps of land, told CIStar, "If one of our family members took a big piece of land for any purpose, even to build a motel, and turned around and chopped it up into lots to sell to the highest bidder, we would spend any amount of money necessary on legal fees to take that land back. The fact that a papaa is doing the same thing is unthinkable. Government must step in."

And CIStar is aware of some serious talk going on among traditional leaders and politicians on that very subject. The more aggressive are suggesting that a retroactive bill needs to be tabled the day Parliament next opens to stop Island Hotels and anyone else from subdividing land into lots for speculative re-sale.

Proponents of "land-rights" will argue that the landowners always have "right of first refusal," meaning they can match the offer any outsider makes on the lots to be sold. "Right," says one local, "a family member can pony up $120,000 for a quarter acre he already owns but which is temporarily in the hands of a speculator. Doesn't matter who buys it, the papaa walks away with the dough."

For additional reports from the Cook Islands Star, go to PACIFIC ISLANDS REPORT News/Information Links: Newspapers/Cook Islands Star.

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