Asian Development Bank reviews Pacific economies
Updated
The Vice President of the Asian Development Bank, Lawrence Greenwood, says Fiji is the economy in the Pacific the ADB spends most time worrying about. Mr Greenwood has been visiting Australia, and he was in Brisbane during the Pacific Islands Forum Trade Ministers Meeting.
He has also been involved in discussions following up an initiative announced by Australia's Prime Minister, Kevin Rudd, at this year's Pacific Islands Forum Leaders Meeting in Cairns.
Presenter: Sean Dorney, Australia Network's Pacific Correspondent
Speaker: Lawrence Greenwood, Vice President of the Asian Development Bank
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GREENWOOD: Oh, we're here to meet with Australia and other donors to work on implementation of the Cairns Compact. The Cairns Compact is this agreement amongst the Pacific Forum countries in Cairns led by Prime Minister Rudd, I guess a couple of months ago, to improve aid effectiveness and aid coordination in the Pacific.
DORNEY: How is that going? Do you think it's getting better, more coordinated?
GREENWOOD: Well, very well, I mean, in the sense that there's certainly the process of putting, of implementing the Cairns Compact has gotten off to, I think, a good start. And we have senior people here along with the head of AusAID to talk about how we're going to do that. I think there's a lot of coordination going on already in the Pacific and, of course, also working more closely with the Pacific Island countries themselves because aid coordination is all about fundamentally ownership. It's about having the Pacific countries in charge, you know, having it in their national development plans, having the development partners, the donors fit into those plans, provide financial and technical assistance to help these countries grow faster. Um, however, there are still problems that we face in getting the results that we want. We're not seeing the kind of results in terms of fulfilling the Millennium Development Goals - from income to health to education in the Pacific Island countries. Basically, we're stalled! And they're stalled! So we need, we need to find ways of working even more closely together to make better progress and to help countries to make better progress.
DORNEY: Well, especially with the current economic, financial crisis.
GREENWOOD: Exactly.
DORNEY: Which has hit pretty hard?
GREENWOOD: And that has resulted in a greater intensity in our relationship with the Pacific. We began, now, actually about a year ago with some very intensive economic analysis because we could see already at the point that the economic slowdown, although it hadn't fully hit the Pacific yet, was going to. And so we began working with the countries at that point. Now, since then, we've actually formed donor groups in a number of these countries along with Australia and New Zealand and other countries to talk about how to help countries that are particularly severely hit by the economic crisis, how to help them get through this very difficult period. Countries like the Solomons, Samoa, Tonga and the Cook Islands.
DORNEY: Quite of few of them have lost significant amounts of money from their trust funds, too, because of the share collapse. Has that been a blow?
GREENWOOD: Yeah, the major hit has been, though, in terms of the current impact this really has more to do with the loss of revenues from remittances and tourism and also for some countries like Papua New Guinea, commodities. For most of them it's those two - remittances and tourism - that have been hit the hardest because that affects their budgets today. The trust funds is more of a medium term issue. Their value has gone down but most of these countries have limits on what they can draw from the Trust Funds in any case and so they're continuing to draw that. There's enough liquidity. They can still draw those down. So that's more of a medium term concern about how they're going to be able to continue to sustain growth through the future particularly if they rely on - such as Tuvalu: they rely on fisheries revenues and things that are essentially decreasing over time. The Solomons and their timber is, of course, a good example as well. So it's, ah, the immediate issue is how to make up this budget gaps that have appeared now and also in some cases foreign exchange reserve gaps that have appeared because of the fall in revenues from tourism and remittances.
DORNEY: Are there any immediate answers to any of those problems?
GREENWOOD: Yes, the immediate answer is budget support. And this is what we're working on in terms of four or five Pacific Island countries - again in very close coordination with Australia and New Zealand and other donors. And it is these budget support programs that are built around reforms of their budget processes and other reforms such as state enterprise reform. So it's not just simply free money, a kind of, you know, 'Get out of jail free' card in Monopoly. These are together with important reforms. The countries also see them as very much needed and so that's what this is about. But it's very important to fill those budget gaps because otherwise they're going to reduce their spending on health, education, needed infrastructure. All these expenditures are very much important for their moving forward and reducing poverty in the region.
DORNEY: So in terms of reducing those budget gaps there are ways they can draw on money is there?
GREENWOOD: Yes, so the idea is that donors get together and will provide some additional financing to get them through this period. For example, we just approved a budget package for the Cook Islands to help them through this period. We're also working on similar budget support programs for Tonga, Samoa and Solomons.
DORNEY: Well, Samoa, at the moment, is in a particularly difficult position. You're involved there as well?
GREENWOOD: Yes we are, very much so together with the World Bank in this particular case and I should have said before that the World Bank is involved in all these other donor group efforts as well. We had been talking jointly with other donors about economic assistance to Samoa because of the economic crisis. Now, of course, it's become very much a reconstruction and rehabilitation discussion as well. We have people on the ground there who are working on a needs assessment. That's actually been completed very, very quickly. This is getting to be much more of an efficient process unfortunately, sadly because we have so many more of these disasters than we had in the past. So we now have a needs assessment. We are now having a discussion with the Government about how we're going to meet that. We've already provided one million dollars worth of emergency assistance to Samoa shortly after the tsunami hit. It's important to note the very close relationship that Australia and the Asian Development Bank have in the Pacific. We're the two largest donors and we cooperate actually very, very closely sometimes actually jointly in the same project. In Samoa, for example, we saw together that there was a problem in their power sector. Long term problems, structural problems. Together we worked with the Government to fix those problems and then engaged in a very innovative financing arrangement where we lent to the Samoan Government money and the Australian Government came in and said, 'If you do these things - reform steps - we will reimburse the loan and give you a grant instead. It's a very interesting way of putting together a financing package. We're doing this kind of innovative work all over the Pacific. And so we're very, very pleased with that relationship with the Australian Government.
DORNEY: I think I read somewhere that you've re-established a relationship with the Marshall Islands?
GREENWOOD: It's not so much re-established. They've been members. We've had a long and important and significant relationship with the Marshalls. Recently, they've had some issues about the difficulty of making payments on loans and so when you're in arrears to a bank you don't get new loans. So we haven't been able to do that. They're now out of that. They're no longer in arrears. They are current in their payments and they're also interested in a re-engagement in a number of areas. We are also very much interested in that. They're another country, by the way, Sean, that has been hit by the economic slowdown - remittances in particular are important for the Marshalls, remittances from the United States in particular. And so that's a place also where we're exploring the possibility of budget support.
DORNEY: I understand that there's a bit of an issue with Fiji in relation to their roads. Is there a problem there?
GREENWOOD: I'm not sure by 'problem'. We have an ongoing roads project there that's been in place for a while. We had a supplementary loan that recently went through the Board in order to continue or to finish that work up. We had some delays because of a problem with the contractor who happened to be a Chinese company and, um, eventually stopped work because of a dispute with the Government. That resulted in delays which then resulted in cost escalations. Unfortunately the delay came at a time of very high inflation if you recall two years ago - just last year, in fact, inflation in the world was quite high particularly in the Pacific. Actually inflation still remains a problem in the Pacific. And therefore the cost went up and that's the reason for the supplementary loan. It's a complicated problem where, I think, lots of people have blame to share but certainly the contractor was one of those who was part of the problem.
DORNEY: Overall, in the Pacific, who is, sort of, doing well?
GREENWOOD: Of course in the past five years the strong performers have been Samoa, Cook Islands and, ah, particularly those two have very good governance, strong, stable Governments, a strong ownership of the development agenda. Recently, of course, because of the high commodity prices we've seen faster growth in Papua New Guinea and until the economic slowdown came we were actually seeing, kind of, throughout the Pacific a rise - the overall growth rate for the entire region was at about five-point-seven percent I believe in 2008. Unfortunately we going to see that plunge to half of that this year. You know, until the coup, of course, Fiji was doing quite well. That's no longer the case, of course. They're now one of the most severely impacted of all the economies. It's the one that, frankly, we worry about the most in terms of the economy.
DORNEY: Mr Greenwood, thank you very much.
GREENWOOD: Thank you, Sean.
