Washington, DC: International Monetary Fund, 2016. xix, 440 pp. (Illustrations.) US$35.00, paper. ISBN 978-1-51350-752-1.
This book discusses the low economic growth of Pacific Island member states of the International Monetary Fund (IMF) compared to other developing regions. The states are the Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, Vanuatu, as well as Timor-Leste (included due to its perceived similarities in prospects and challenges). Most of the eighteen chapters and four hundred graph-studded pages are based on papers presented at high-level IMF meetings held in the Pacific between 2012 and 2015.
In the ten years before the global financial crisis of 2008–2009 these countries averaged growth of only 2 percent per year, compared to significantly higher rates in the Caribbean and low-income countries in Asia, and with markedly lower growth in average real incomes per capita than the Caribbean countries and the “emerging” Asian nations. Why is this so? The contributors agree that Pacific Island states have common characteristics (small sizes, populations, and markets, geographic isolation, vulnerability to natural disasters and climate change, and unsustainable depletion of natural resources), which are all explanatory factors, but are insufficient to explain the weaknesses of their economic performances. Additional reasons for low growth can also be explained by weak macroeconomic frameworks, lack of capacity to implement reforms, and other factors such as “laws and customs that limit the flexibility of product and factor markets, particularly the real estate market” (x).
The book is organized into four thematic areas with chapters by different authors. The first section, “Setting the Stage: The Quest of Resilience and Growth in the Pacific Islands,” has five chapters. The second, “Managing External Spillovers, Shock and Vulnerabilities,” has four papers, the third, “Tailoring Macroeconomic Policies to the Small states of the Pacific,” has five chapters on aspects of fiscal and monetary policy, and the fourth and final section, “Removing Structural Impediments to Growth,” has four chapters addressing financial management reforms, global trade integration, and banking. The book has appendices briefly describing the economies of each of the countries under discussion, with financial data from the period 1991–2015.
The contributors proposing policy solutions acknowledge a “severe shortage of expertise and implementation capacity” (xii) in many of the countries and propose careful prioritization to address the most pressing constraints to growth, with measures for institution building, confidence-inspiring fiscal and monetary policies, debt sustainability, and openness to global opportunities. However, it seems to this reviewer that it is not just lack of competence that is the challenge, but the political realities arising from the varied historical circumstances of these countries. Among the key policy elements identified by Kronenberg and Khor (6, 18) is “the structural rigidities in land tenure systems” in reference to customary tenure as obstacle to the commercial commodification of land and use of land to secure bank loans, which forces up interest rates in response to risk. All is not doom and gloom, however. In an overview of bank profitability, Davies, Vaught, and Cabezon (331–356) note that overall bank income from interest is higher than most other emerging markets, and that profits from fees, charges, and foreign exchange activities are also higher. Another important issue identified in several of the chapters is the need for regional arrangements to improve trade and other beneficial connections. This has certainly been seen as a desirable goal by all the countries concerned for the past fifty years or more, but is challenged by their different colonial histories that shaped their existing connectivities.
Haque, Bontjer, Betley, and Hackett (275–288) propose that better practices in public financial management will be part of the solution to overcome poor economic performance. Good practice emphasizes political context, as well as resource allocation, government leadership, extensive consultation, a medium-term focus, and flexibility. Their proposed road map prioritizes reforms in the management of public finance. Prevailing weaknesses to be overcome are associated with budgets which do not reflect government priorities, leading to unsustainable deficits and inconsistent allocation, and thus undermining service delivery. Technical support for the road map that they advocate is offered by the Pacific Financial Technical Assistance Centre (PFTAC) established in 1993 to promote macro-financial stability in the Pacific Island countries, headquartered in Fiji and currently supported by the Asian Development Bank (ADB), Australia, the European Union (EU), Korea, and New Zealand.
The enquiring reader may wonder whether meaningful generalizations can be made about the economic situation and management of countries as different as Tuvalu, with 11,000 inhabitants on nine tiny coral atolls, and Papua New Guinea, with a population of over 7 million in a land rich with gold, copper, timber, and natural gas, along with eleven other very differently circumstanced countries. One may ask whether it is useful to offer detailed comparisons of the economic circumstances of Pacific Island countries, whose unique circumstances are reiterated in every chapter, with small states, large states, “other island” states, resource-rich and resource-poor states, and states in Asia, Africa, and the Caribbean. However, macroeconomists may find such comparisons useful and interesting.
Penelope Schoeffel
National University of Samoa, Apia, Samoa