AUSTRALIA MUST ACT NOW TO CONTAIN FIJI ECONOMIC CRISIS

Commentary

Jenny Hayward-Jones

HONIARA, Solomon Islands (Solomon Star, April 21, 2009) – The alarming events in Fiji over the last week, a country best known to many Australians as a friendly tropical holiday destination, have destroyed hopes of a return to democracy and effectively abolished the rule of law in Fiji.

The abrogation of the constitution, dismissal of the judiciary and Commodore Bainimarama's moves to censor the media, establish emergency rule, and sack the governor of the Reserve Bank of Fiji have now triggered a full-blown economic crisis. The country was already suffering from the effects of the global financial crisis, a decline in business confidence following the December 2006 coup and the devastating flash flooding in January.

The Reserve Bank of Fiji warned of an impending liquidity crisis in mid-February. The bank has now enforced strict exchange controls and announced a 20 per cent devaluation of the Fiji dollar. Ratings agency Standard & Poor's has downgraded Fiji's credit rating, again, in the light of the political events of the last week.

Fijians face unprecedented hardship as jobs are lost, incomes slashed and the cost of living rises.

The collapse of its economy not only hurts Fiji but also poses a very serious threat to the whole Pacific Islands region, dependent on Fiji as a hub for vital trade, transport, trade and education services, and to Australia's interests there. Australia is the largest investor in Fiji, so its commercial interests are also at stake.

The crisis poses the most significant foreign policy challenge the Rudd Government has faced in the region, in the same year that Australia will host the Pacific Islands Forum Leaders' Summit and needs to demonstrate effective and inclusive leadership.

The Pacific Islands and the international community look to Australia to exploit its deep and broad-ranging connections with Fiji and exert influence for change. A failure to act now will not only damage Australia's reputation but increases the probability that much more substantial action to assist Fiji and the region will be necessary later. Previous delays from Canberra in addressing incipient crises in the region have come at a significant cost.

Australia could have intervened in Solomon Islands to help police control ethnic conflict and isolated law and order problems in 1999. But the delay in developing an appropriate response, while the situation deteriorated and law and order broke down completely, necessitated a much more complex and expensive response which was eventually implemented in 2003 and cost taxpayers over $1 billion in the form of the Regional Assistance Mission to Solomon Islands.

The global financial crisis has created a new imperative for regional and global economic co-operation. Australia needs to differentiate between a political response to the Fiji situation - a strong and unambiguous condemnation of Bainimarama's actions - and an economic response which takes into account the impact of the twin economic crises on the whole region.

Australia needs to move quickly to assist countries in the region but also to stabilise Fiji's economy, to help the innocent population and safeguard Australia's economic interests in Fiji and the neighbourhood.

Australia should encourage and fund the international financial institutions - the International Monetary Fund, World Bank and Asian Development Bank - to assist countries suffering from the fallout from the crisis.

A co-ordinated assistance package should also be offered to an increasingly desperate Fiji. A package with the right conditions, and offered at the right time, will pressure the interim government to introduce reforms. Bainimarama's propensity to renege on promises, however, poses a real threat to the ultimate success of any financial assistance. The international financial institutions could mitigate this risk by first preparing the most appropriate package with influential private sector and civil society representatives in Fiji, and then using their leverage to persuade the interim government of the importance of accepting the conditions.

Fiji's military government will turn to China rather than Australia for help to respond to the economic crisis, continuing its "look north" policy. As Chinese assistance would undermine international condemnation of Bainimarama's actions, Australia should seek to persuade China to direct any further financial assistance through the international financial institutions.

This would be consistent with the commitments made at the recent G20 meeting in London on delivering resources to developing countries through the IMF and multilateral development banks. Importantly, it would send a strong signal to Bainimarama that his only option was to deal with the international financial institutions and adopt the disciplines they recommend.

Fijians will remember how Australia reacts to their country's economic crisis, and it will watched by both the region and the international community. If Australia stands aside, no matter how rightly principled its political approach to illegal developments in Fiji, it will be sending an important and enduring signal about the limits of Australia's interests in its neighbourhood. Much now rests on the strength, creativity and wisdom of Canberra's response.

* Jenny Hayward-Jones is the program director of Myer Foundation Melanesia Program at the Lowy Institute for International Policy.

Solomon Star: http://www.solomonstarnews.com/

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