Asian Development Bank

News Release

Manila, Phillippines

Asian Development Bank Preparing New Pacific Strategy

SUVA, Fiji (Sept. 24): ADB is preparing a new Pacific strategy to respond to the region’s disappointing growth as well as rising poverty, particularly in Papua New Guinea, Solomon Islands, and Vanuatu.

The eight million people who inhabit islands scattered over an area larger than Asia have distinctive economic challenges that include a limited resource base, small markets, and high costs of trading over great distances.

As a result of external shocks as well as internal mismanagement and corruption,

Pacific countries, once regarded as tropical paradises with balmy climes, ample food, and rich timber, mineral and marine resources, have seen a steady erosion in the quality of life.

"The crux of the problem is that the regional population has expanded at 3% annually for three decades while per capita income has grown at less than 1% a year – this means living standards have declined for all except the urban elite," says Jeremy Hovland, Director General of ADB’s Pacific Department.

ADB’s new strategy will address this decline as well as promote the private sector in reducing a heavy reliance on government, reverse the alarming rise in environmental degradation, and strengthen the role of women politically, economically and socially.

Due to be approved early next year, the strategy will be reinforced by the opening of ADB's new Pacific Subregional Office in Suva, Fiji Islands.

The office, scheduled to open in February 2004, will improve ADB’s service delivery for its 13 Pacific developing country members.

ADB’s overarching goal of poverty reduction is focused in the Pacific on attacking "the poverty of opportunity," says Mr. Hovland. "Because of the small economies of scale,

people lack access to adequate education and health facilities and other opportunities to improve their lives."

A major thrust of the new strategy is to encourage governments to gradually turn over many of its responsibilities to the private sector.

"We are moving away from the ‘nanny government’ that provides everything and

governments are accepting the role of encouraging the private sector to play a bigger role in economic growth," says Peter King, ADB’s Director (Area B) Pacific Operations.

The plan is both to help governments get out of loss making businesses as well as to provide incentives and remove red tape for entrepreneurs replacing them. This includes privatizing or corporatizing state-owned enterprises and promoting competition, while ensuring that governments have appropriate regulations in place. For example, ADB is helping Fiji move towards an independent water authority that will adopt corporate practices, including cost recovery measures.

However, Mr. King is quick to point out that there will be safeguards for the public interest. The authority’s performance will be measured against benchmarks and "the threat of being replaced by a competitor should help keep it honest," says Mr. King.

An example of innovative incentives for entrepreneurs being considered by ADB is "subsidy bidding" which means that, for a socially desirable but commercially doubtful venture such as a shipping service for a thinly-populated island, businessmen will bid for the least amount of subsidy needed to provide the service.

ADB will also help to address the critical issue of customary land. Tribes or customary owners communally own the great majority of land in the Pacific, which means that land cannot be used effectively as collateral. "This is a major constraint to private sector development as well as to foreign investment," notes Mr. King.

Without ownership transfer, land can be leased for entrepreneurial purposes and ADB will help improve the current land leasing system. It will assist in registering land and defining boundaries; registering leases against the land to avoid multiple leases on the same acreage; and enhance the system of land valuation to provide landlords with incentives to develop land and provide tenants with more security.

In addition, ADB is helping to develop ways for people to use crops or moveable assets (such as vehicles and household appliances) as collateral. This involves creating a register of assets as well as establishing a credit reference bureau which banks and other lending institutions can use when assessing loan applications.

Most importantly, ADB will be further supporting regional cooperation in a number of sectors.

"Lacking significant internal markets and with minuscule intra-regional trade (since they produce similar products), Pacific countries need to set up a regional quasi-trading bloc to reap the benefits of economies of scale," says Mr. King.

"It’s a question of ‘divided we fall, united we stand. It’s like a man standing astride a picket fence with one foot steeped in tradition and the other in the global economy. He will be hurt whichever step he takes, but we’re trying to make it as least painful as possible."

ADB already supports regional cooperation in fisheries; air transport; financial sector restructuring, including addressing money laundering; public sector management; and governance.

The new strategy will seek to extend such connectivity, to bring the islands closer together. In aviation, for example, ADB is preparing its first regional loan of up to US$3 million to establish a Pacific aviation safety office in Vanuatu to provide safety and security checks for all aspects of airline operations, including passenger and freight services and catering.

"Instead of each country doing this and shouldering high costs, there will be a regional body to do this on a fee-for-service basis," says Mr. King. "It may not be earth-shattering, but getting countries to work together will make them realize the benefits of cooperation in the aviation industry and they could then apply the same approach to areas such as air space management, which is highly fragmented."

Similarly, ADB is trying to boost regional shipping by modernizing ports to boost efficiency and cut turn-around times for vessels, including those of the Forum line, owned by Pacific countries.

In fisheries, Japan, Korea, People’s Republic of China and the United States have bilateral agreements to fish in Pacific nations’ exclusive economic zones, "but the Pacific would benefit from a regional agreement so one country cannot be played off against another," notes Mr. King.

Regional trade also provides scope for further rationalization, says Mr. King, in fields ranging from seabed mining to coconuts. He cites as an example the establishment of a coconut oil processing facility that receives raw materials from several countries. Another example would be the upgrading of an existing abattoir in Vanuatu to provide a regional service – to which countries would send live animals -- rather than setting up a sub-optimal abattoir elsewhere.

Despite limited and expensive Internet access, the most exciting potential for connectivity lies in information communication technology, including electronic government, says Mr. King.

"Tourists on the outer islands in Fiji, for instance, who want to extend visas have to fly to an immigration office in Suva. Under e-government, they could get the visa online, saving time and costs." The same could apply to renewing licenses or paying taxes.

"Pacific countries have to make excruciating decisions, but they have little choice," says Mr. King. "They can move towards greater connectivity, or there is the possibility that they could revert to tribal rivalries which we have seen in parts of Papua New Guinea and Solomon Islands. When people start fighting, people lose confidence, foreign investors flee, and there are huge economic consequences. Such conflicts are the result of discontent and it is these underlying causes of discontent – difficulty or unequal access to opportunities – that we are trying to address."

September 25, 2003

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