Back Matter

Author(s):
Douglas Scott, and Christopher Browne
Published Date:
June 1989
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    Annex: Multilateral and Bilateral Economic Assistance Programs in the Pacific Region

    Regional Bodies

    The South Pacific Bureau for Economic Cooperation was established in 1973 by the members of the South Pacific Forum, which comprises the leaders of the Governments of Australia, New Zealand, and 13 self-governing or independent island countries in the region, including the 7 Fund members. The Bureau, with headquarters in Fiji, promotes regional cooperation in the formulation of economic policies and in relations with industrial countries. Its work program is grouped around trade and industry; shipping, civil aviation, and communications; economic research and planning; and energy matters. The Bureau was active in the establishment of the Pacific Forum Line to operate regional shipping services; the Forum Fisheries Agency to enhance regional cooperation in fisheries and maximize benefits for member countries from the exploitation of the 200-mile exclusive economic zones; and the negotiation of the South Pacific Regional Trade and Economic Cooperation Agreement to provide preferential access for island exports to Australia and New Zealand.

    The South Pacific Commission was established in 1947 by Australia, France, the Netherlands, New Zealand, the United Kingdom, and the United States, with membership extended to 22 territories in the region as they became independent or self-governing, including the seven Fund members. The Commission, with headquarters in New Caledonia, provides advice and training principally in the fields of food and marine resources, rural management and technology, education and community services, and environmental protection. It is the executive arm of the South Pacific Conference, which meets annually at the ministerial level and adopts the work program and budget for the coming year.

    Multilateral Organizations

    The Economic and Social Commission for Asia and the Pacific is the umbrella organization for UN agency activities in the region. Fiji, Papua New Guinea, Solomon Islands, Tonga, Vanuatu, and Western Samoa are full members. Kiribati, which has not joined the United Nations, is an associate member. Its work program includes economic planning; research and statistics, including national accounts; transport and communications; development of natural resources, trade and industry; and human environment. A regional operations center is based in Vanuatu. The United Nations Development Programme, with headquarters in New York, has multiyear programs for each of the seven Fund member countries in the region, under which grant assistance is provided for development projects. It also plays a leadership role in aid coordination activities. Resident representative offices are based in Fiji, Papua New Guinea, and Western Samoa.

    The World Bank membership includes the seven island countries that are members of the Fund. The Bank provides financial assistance to these countries primarily by cofinancing loans with the Asian Development Bank. Fiji and Papua New Guinea are assisted exclusively by World Bank loans, while the other five countries are eligible for concessional credits from the International Development Association. Financing is provided for development finance, agriculture, and a wide range of infrastructure, with emphasis on increasing the productivity of exports and diversifying agriculture. Reflecting the special measures needed to assist these economies, the World Bank also provides multi-project loans. These loans are extended to individual countries to cover a number of projects that are viable but too small in scale to merit independent consideration. Lending operations are complemented by economic and sector work and technical assistance to improve absorptive capacity.

    The Asian Development Bank, with headquarters in Manila, aims principally to promote investment of public and private capital in the Pacific region for development; to finance especially those projects that are not adequately financed through existing sources; and to act as a focal point and stimulus for regional economic cooperation. All of the regional Fund members, except Fiji, are eligible to receive concessional loans from the Asian Development Fund. In earlier years, loans generally supported the development of infrastructure, but direct assistance has increasingly been provided for productive activities, the energy sector, and development finance institutions. Policies and practices are applied flexibly in recognition of the limited administrative capacity of the countries and include simplified loan documentation and implementation procedures, high local cost recovery, modified procurement tendering, and special training facilities. A regional office is based in Vanuatu.

    The European Community conducts trade and promotes economic cooperation with the seven Fund members of the Pacific region in the context of the Lomé Convention, which covers relations with African, Caribbean, and Pacific states. Its financial assistance is provided in the context of medium-term country programs, primarily for infrastructural projects including roads, airstrips, jetties, and harbors, and rural development and emergency relief. Another major source of assistance is the STABEX facility, which provides grants as compensation for declines in the export prices of primary commodities, including copra, coffee, and cocoa. Delegations are based in Fiji and Papua New Guinea and representative offices are maintained in Solomon Islands, Vanuatu, and Western Samoa.

    Bilateral Donors

    Australia devotes about three fourths of its total bilateral economic assistance program to the seven Fund member countries in the region. While Papua New Guinea receives a high proportion of the total, Australia is also the largest bilateral donor in several of the other islands. Virtually all assistance is provided in grant form, with projects concentrated in agricultural and livestock development, coconut processing facilities, water and sewerage supply, port development, telecommunications, and education.

    Japan’s involvement in the Pacific, which was relatively limited until the early 1960s, has grown considerably in the past few years as a result of the rapid growth in its aid budget. In promoting economic development, it focuses on areas that have potential for foreign private investment. Bilateral programs are in effect with the seven Fund member countries, and in most cases Japan is the second or third largest source of assistance. Grants and technical cooperation in fisheries, agriculture, transportation, and education account for the majority of aid.

    New Zealand’s economic assistance program is heavily concentrated in the Pacific region, including its special responsibilities for the Cook Islands, Niue, and other dependencies. Among the seven Fund member countries, it has especially close links with Tonga and Western Samoa, for historical reasons and because of the large-scale emigration from these countries to New Zealand. It directs economic assistance toward the development of agriculture, livestock, and forestry resources and the provision of health facilities; substantial contributions are also furnished for the regional shipping services.

    France primarily aids Vanuatu among the seven Fund member countries, in addition to its support for French Polynesia, New Caledonia, and other dependent territories. While British aid for the region has declined since the expiration of the financial agreements negotiated at independence with several countries, bilateral programs exist with most of the Fund member countries and a development team is located in Fiji to assist with their implementation. U.S. aid in the region was traditionally directed toward American Samoa and the former UN Trust Territories of the Pacific Islands in Micronesia, but the United States is now expanding its economic assistance program to other countries in the region. Other donors in the region include Canada, China, the Federal Republic of Germany, and numerous nongovernmental organizations.

    Fund Relations with the Pacific Island Countries

    Fund relations with the countries reviewed in this study date from the early 1970s. Fiji was the first of the island countries to become a member, joining in 1971 shortly after attaining independence. Western Samoa, which had been independent for almost a decade, joined the same year. During 1975–81, Papua New Guinea, Solomon Islands, and Vanuatu joined shortly after attaining their independence. During 1985–86 Tonga and Kiribati joined, after reflecting on the obligations and benefits of membership for some years. The combined quotas of the seven countries are equivalent to 0.14 percent of Fund quotas, with Fiji and Papua New Guinea representing four fifths of the group total.

    The Fund generally holds annual consultations with each of the Pacific member countries. Discussions between a staff team and officials of the ministry of finance, other departments, the central bank, financial institutions, and public enterprises are normally held in the country concerned over a two-week period. A staff report that reviews recent economic developments, analyzes current policy issues, and assesses short-term and medium-term prospects is prepared for discussion by the Fund’s Executive Board. To ensure regular contact without absorbing excessive resources, the Fund and country officials recently decided to conduct full consultations every two years with these members, with interim discussions and less comprehensive reports in alternate years.

    With the exception of Western Samoa, which had six stand-by arrangements during 1975–84, and Solomon Islands, which had two stand-by arrangements during 1981–83, the regional members have not borrowed from the Fund to support adjustment programs. However, regular use has been made of the compensatory financing facility to cover temporary export shortfalls. Fiji, Papua New Guinea, Solomon Islands, and Western Samoa made a total of 14 purchases under this facility during 1976–83. Solomon Islands obtained emergency assistance after the cyclone in 1986. Kiribati, Tonga, and Vanuatu have not made use of Fund credit. The lack of extensive use of Fund resources reflects, in some cases, the smallness of the members’ quotas in relation to their financing needs and, in most cases, their ample access to alternative sources of finance on concessional terms. All the island members, except Fiji and Papua New Guinea, are on the list of those countries eligible to use the structural adjustment facilities, which are designed to provide balance of payments assistance—in conjunction with the World Bank and other lenders—to lower-income members facing protracted balance of payments problems. Fiji, Papua New Guinea, Solomon Islands, and Western Samoa have received SDR allocations.

    The Pacific island members have made extensive use of technical assistance from the Fund in the central banking, fiscal, legal, and statistical fields. During 1980–87, long-term assignments of experts provided by the Fund totaled 95 man-years, and were chiefly concentrated in the area of central banking. Fund staff and consultants made 74 short-term visits ranging in length from a few days to six months. Central banking assistance has been geared mainly to the establishment and operation of central monetary institutions, including the development of appropriate instruments of monetary policy, management of foreign exchange reserves, supervision of commercial banks and nonbank financial institutions, and research and statistical activities. Most experts have been engaged for periods of about two years to act as policy advisors within the monetary authority although, in some instances, they have occupied executive positions as chief and deputy chief executive officers and department heads.

    Fiscal assistance has been designed mainly to strengthen public sector financial and economic management capability. With respect to budgetary procedures, assignments have been directed to the requirements for project analysis and evaluation, the criteria for including spending proposals in the budget, the classification of expenditure items, the basis for revenue and expenditure projections, and the integration of macroeconomic analysis and policy advice into the budget process. On the revenue side, the assignments have included advice on widening the tax base, strengthening the customs and excise administration, and computerizing income tax administration. On the machinery of expenditure control, weaknesses in monitoring and reporting have been identified and changes in accounting practices have been suggested. For the public enterprises, a policy framework to govern their operations has been proposed in several cases, including the generation of financial information for their own use and for the government, and the establishment of a unit within the ministry of finance to monitor their activities and advise on policy.

    The Fund has provided legal assistance to several countries, primarily for the drafting of legislation in connection with the establishment of a central monetary institution, the supervision of other financial institutions, and the revision of customs tariffs and the income tax system. It has provided statistical assistance to all seven Pacific island member countries, in such areas as output and prices, money and banking, government finance, and the balance of payments.

    For long-term technical assistance assignments, counterparts are normally identified; they are expected to subsequently assume the expert’s responsibility. Most countries have made satisfactory progress toward localization. Officials of all seven Pacific island member countries have participated in the courses of the IMF Institute in Washington, D.C.; the Fund has also organized seminars on economic and financial management in the region. A Fund resident representative has been stationed in one island country for a number of years.

    Table 1.Pacific Island Countries: Relations with the Fund
    Year of independenceYear of membershipQuota in millions of SDRs at end-1987Consultation cycle1Number of utilized stand-by arrangementsNumber of purchases under the compensatory financing facilityEligibility for structural adjustment facilitiesShort-term technical assistance visits 1980–87Long-term technical assistance in man-years 1980–87
    Fiji1970197136.5Bicyclic3No2515
    Kiribati197919862.5BicyclicYes3
    Papua New Guinea1975197565.9Bicyclic2No721
    Solomon Islands197319785.0Bicyclic22Yes1524
    Tonga197019853.3BicyclicYes41
    Vanuatu198019819.0BicyclicYes424
    Western Samoa196219716.0Bicyclic46Yes1510
    Source: International Monetary Fund.

    Under the bicyclic procedure, full consultations are held every two years, with interim discussions and less comprehensive reports in alternate years.

    Table 2.Pacific Island Countries: Use of Fund Credit
    Country1Type of creditDate of arrangementAmount (in millions of SDRs)Percent of quota
    FijiOil facilitySept. 19740.343
    Compensatory financingJuly 19776.5050
    Compensatory financingFeb. 198213.5050
    Compensatory financingJan. 19854.7513
    Papua New GuineaOil facilityMar. 197614.8074
    Compensatory financingJune 197610.0050
    Compensatory financingNov. 198145.00100
    Solomon IslandsCompensatory financingApr. 19791.0550
    Stand-by arrangementMay 19810.8025
    Compensatory financingOct. 19821.6050
    Stand-by arrangementJune 19830.9630
    Emergency assistanceSept. 19861.2525
    Western SamoaStand-by arrangementNov. 19750.5025
    Compensatory financingNov. 19750.5025
    Oil facilityNov. 19750.2613
    Oil facilityMar. 19760.168
    Compensatory financingNov. 19760.5025
    Compensatory financingFeb. 19770.5025
    Stand-by arrangementFeb. 19780.7336
    Compensatory financingNov. 19781.2542
    First credit trancheApr. 19810.7517
    Compensatory financingApr. 19812.0044
    Stand-by arrangementJune 19833.3875
    Compensatory financingJune 19831.1525
    Stand-by arrangementJuly 19843.3856
    Source: International Monetary Fund.

    No use of Fund credit has been made by Kiribati, Tonga, and Vanuatu. Trust Fund loans were made during 1977–81 to Papua New Guinea (SDR 19.55 million) and Western Samoa (SDR 1.95 million). Drawings were not made under stand-by arrangements approved with Fiji in November 1974 (SDR 3.25 million), and with Western Samoa in January 1977 (SDR 0.59 million) and in August 1979 (SDR 0.75 million). Partial drawings were made under stand-by arrangements that were approved with Solomon Islands in May 1981 (SDR 0.80 million was drawn out of SDR 1.60 million) and in June 1983 (SDR 0.96 million was drawn out of SDR 2.40 million).

    Table 3.SDR Rates Against the U.S. Dollar, 1975–87
    YearPeriod AverageEnd of Period
    19751.211.17
    19761.151.16
    19771.171.21
    19781.251.30
    19791.291.32
    19801.301.28
    19811.181.16
    19821.101.10
    19831.071.05
    19841.030.98
    19851.021.10
    19861.171.22
    19871.291.42
    Source: International Monetary Fund.

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