Tuesday, March 07, 2006

Martin Robinson: Foreign aid curse of Pacific

The global aid industry is wrecking small South Pacific island nations, exacerbating dangerous economic and social divisions, feather-bedding aristocratic non-performing elites, and creating a situation of permanent aid dependency, endemic corruption and economic stagnation or decline.

Take Independent Samoa, supposedly a South Pacific success story.

Last year 42,000 of its 177,000 citizens applied to emigrate to New Zealand. This stampede is hardly surprising, considering that even with a pathetic minimum wage of 88 cents an hour, unemployment is probably over 30 per cent.

The tragedy is that Samoa hasn't always been an African-style economic basket case - policies pursued by island governments and international aid agencies over the past 40 years have made it that way.

At independence in 1962 it exported enough goods to New Zealand to cover 60 per cent of its imports from New Zealand. Last year the container boats arrived at Apia full but returned almost empty - less than 2 per cent of imports from New Zealand were covered by exports to New Zealand.

The decline in Samoa's real economy has been continuous since independence. Yet aid agencies refuse to admit that their policies have failed. For them, the way forward is more aid to improve health, education and living standards.

But South Pacific aid - not to mention remittances which exceed ST$200 million ($110 million) for Independent Samoa - already has lots of noughts.

The Cook Islands expects to receive US$16 million ($24 million) this year, although 90 per cent of the people have already left.

The 1600 folk left on the Tokelau Islands receive $10 million from New Zealand taxpayers.

American Samoa's population of 59,000 receives more than US$100 million ($150.3 million) in federal American grants, and yet always complains it needs more.

This year Australia is proudly donating A$1000 million ($1118 million) to South Pacific nations, while New Zealand is handing out $122 million.

But that's just the tip of the iceberg. Japan, China, Taiwan, the US, the EU, the Asia Development Bank, the IMF, the World Bank and UN agencies hand out equally large amounts.

In Independent Samoa this year, China built a ST$30 million ($16.5 million) swimming pool complex; Australia handed over A$20 million ($22.4 million), mainly to the police; New Zealand gave $8 million for schoolbooks and scholarships; Japan renovated polytechnic buildings and wharf facilities at a cost of US$11.6 million ($17.4 million); a Singapore charity donated a kidney dialysis machine worth ST$50 million ($27.5 million) plus staff; and the international rugby board gifted more than ST$7 million ($3.8 million).

It's no wonder the ruling party in Samoa is expected to continue its almost unbroken 30-year reign at next month's election, since it claims these aid projects as its own achievements.

Tiny Nauru (21 sq km, 12,000 population) has squandered the most spectacular amounts of money, but the story is the same across the Pacific. Governments routinely rack up multimillion dollar deficits and continue to operate loss-making, grossly inefficient public utilities.

Unfortunately, nearly all aid is on a Government-to-Government basis. This leads to bloated bureaucracies which behave like cuckoos that push weakling private sectors out of the nest.

Government regulations and restrictions are a way of life. Talented, skilled people have to work for the Government or go abroad.

Aid projects rarely if ever produce any long-term economic development. Agriculture production on the islands declines irrespective of how many millions of aid dollars are poured into agricultural projects. Aid projects are simply welfare payments.

Maori Party co-leader Pita Sharples recently put it like this in the context of Maoridom: "It's really about New Zealand finding a way to empower families and allow families to be strong in themselves, to look after their own and not have to rely on a whole stream of welfare-type hand-outs."

So what needs to be done? Island Governments need drastic downsizing to a level commensurate with their population and national resources.

Island Governments should become like modest local councils and shed their expensive and extravagant ministers, MPs, embassies, central banks, high courts, UN memberships and so on.

Guam (population 160,000) holds the over-governed world record with no fewer than 55 Government ministers and departments. What Guam needs is a mayor and 30 councillors.

Careful, planned privatisation would be a huge step forward. Independent Samoa has made a successful start to this process but there is still a long way to go.

Unnecessary economic regulations and restrictions should be shredded.

Foreign investment needs to be urgently sought. Yazaki in Apia employs 3000 workers but pays only just above the minimum wage. The country needs more Yazakis so that wage rates increase to a more reasonable level.

Communal land ownership must be adapted so that individuals have incentives to improve their land.

Land reform is urgent and essential - if New Zealand had retained communal land ownership it would probably be importing rather than exporting food and be an aid recipient rather than a donor.

Aid should not be a welfare payment without strings but tied to real economic targets, land reform and good governance. Aid agencies need to be tough - sadly, the more liberal the donor, the more corrupt the recipient becomes.

Birth rates need to be reduced. What is so great about ignoring this problem and then having families who cannot feed their children properly, let alone prepare them adequately for life in the modern world?

Many countries have succeeded in reducing birth rates, and there is no reason why the South Pacific cannot do the same.

All these changes - land reform, a drastic shifting of resources from the public to the private sector, reducing the birth rate - are usually put into the too-hard basket. But if giant China can do it, so can small Pacific islands. * Martin Robinson has travelled widely in the South Pacific and written about the area for publications such as Islands Business magazine.

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