Reforms Are Key to South Pacific Response To Globalization

• Pages: 241-243

Page 241

The following article is drawn from a presentation by Thomas Rumbaugh of the IMF's Asia and Pacific Department to the South Pacific Forum Economic Ministers Meeting in Cairns, Australia, on July 10-11. The South Pacific Forum, established in 1971, includes Australia, Cook Islands, Fiji, Kiribati, the Marshall Islands, Micronesia, New Zealand, Nauru, Niue, Palau, Papua New Guinea, the Solomon Islands, Tonga, Tuvalu, Vanuatu, and Western Samoa.

The current global environment, which features widespread growth and continuing liberalization of trade and investment regimes, offers opportunities for economies well positioned to take advantage of them. Australia and New Zealand's comprehensive financial and structural reforms have helped improve the efficiency of these economies and have helped sustain growth prospects. Among the island economies of the South Pacific, however, the pursuit of reforms has been more mixed. While several countries have designed wide-ranging reform programs, implementation is only in the beginning stages and much more remains to be done.

Australia is now enjoying its sixth consecutive year of growth. The pace of growth moderated in 1996, as private consumption growth weakened. In the 12 months to March 1997, growth stood at 2 1/2 percent.

Further declines in underlying inflation-to 2 percent in 1996-have allowed the authorities to lower official interest rates and lay the foundation for continued economic growth through 1997. In New Zealand, economic growth slowed to 2!/2 percent in 1996, the lowest in four years, and inflation remained low (2 percent). With indications that accelerated economic activity may be further delayed, inflation should decline further and provide scope for an easier monetary stance. In line with a planned reduction in the overall fiscal surplus, growth is expected to pick up in 1998. Both countries have achieved, and are maintaining, greater transparency in budget operations and broad structural reforms. A principle priority for both countries is to ensure that their medium-term fiscal strategies are fully implemented.

Page 242

The experience of the Pacific island economies- notably IMF member countries Fiji, Kiribati, the Marshall Islands, Micronesia, Papua New Guinea, the Solomon Islands, Tonga, Vanuatu, and Western Samoa-has generally been characterized by low growth and stagnant per capita incomes. Many of these island economies have experienced financial...