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Tourism, export industries expected to be hit

SUVA, Fiji (Fijilive, Oct. 14, 2008) – The financial crisis in the U.S. market will hit Fiji hard with serious ramifications for the country, says Australia-based economist Professor Paresh Narayan.

This he said, would include the weakening of the Fiji dollar, demand for exports and even a reduced in-flow of tourists from major tourism destinations.

Narayan told Fijilive exchange rates would be impacted first because "it’s the prices that will be affected since price information flow the fastest".

He said the Australian dollar had depreciated substantially in the last couple of months, which would eventually trickle-down to Fiji since the Fiji dollar was pegged to a basket of currencies, which included Australia.

He added the demand for the country’s exports would remain weak given the global slowdown in economic activity.

"For our service sector, mainly tourism, this is not good news," Narayan said. "Australia is Fiji’s main tourist source market. With the weakening of the Australian dollar and of course depending on how much the Fiji dollar weakens, Australians will find holiday in Fiji expensive," he said.

He added the same was true for Fiji’s second most important tourist market: New Zealand.

Narayan said the US would have a much bigger impact on Fiji for two reasons.

"First, Fiji is a net importer of goods, and second, Fiji’s economy is already in a bad shape; its macro-economy has been unstable for the last 5-8 years and with negative economic growth rates, Fiji finds itself in a weak foundation. The crisis will hit Fiji hard and will have serious ramifications for the economy," he said.

Asked on how the business community could prepare for the trickle-down effect, Narayan said it depended on how much excess capacity they had.

He said there was a need for the private-sector and the Government to devise a strategy to counter the repercussions of this crisis.

"They should prepare themselves beforehand. Often the case is one where action starts when the crisis has already hit and made matters worse."

"I see lack of vision on the part of policy makers to devise appropriate economic policies. An institution such as the central bank of a country is charged to conduct research with the aim of drawing out policies and strategies.

"Unfortunately, the RBF (Reserve Bank of Fiji) is a lost institution. I do not see the type of research needed coming out of the RBF. The RBF's research department is on a holiday and this has made the work of the government that much more difficult, I am afraid," Narayan said.

RBF governor Savenaca Narube is expected to respond this week.

Deputy governor Sada Reddy could not be reached for a comment as he is in the US for the International Monetary Fund (IMF) meeting.

But in statement earlier in the week, Reddy said it was difficult to forecast the exact impact of the US financial crisis as it was still unfolding.

However, he said there would be some impact, to some extent, on the demand for Fiji exports and services.

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