Friday, December 07, 2007

Govt would have bankrupted Fiji: Academic

  • What a load of rubbish! To say the economy would have gone the way this academic is speculating is pure fantasy of the highest order. At least there were more options available then hence the political choice for "deficit funding" to fund economic growth as this academic terms it. The economy has basically contracted at a faster pace so that any recovery would be greatly lengthened and I bet, not in the timelime postulated here!!! This is in fact a political analytical piece and not an objective examination of Fiji's economy and its prospects.

06 DEC

An academic believes that the Fiji economy would have bankrupted in next three to five years if the Qarase government had continued in power.

Dr. Sukhdev Shah says that when ousted Prime Minister, Laisenia Qarase came into power, he tried to boost the economy artificially.

However, Qarase in his statement published in the dailies yesterday has stated that before the coup, Fiji had sound economic growth and had an average of 2.8 percent of Gross Domestic Product (GDP) from 2002 to 2006.

Shah disagrees with these statements and said that although the economy seems to have done well when Qarase was in power as compared to now but there was no turn around in the long term sustainable growth.

“Everybody wants growth but it has to be sustainable it cannot be artificial like in the time of the Qarase government,” he said.

Shah said that the economy was artificially boosted by government deficit, government was spending lots of money by borrowing it and that money created demand which created growth and the outcome was that most of government deficit went into imports that created huge trade deficits.

He said there was too much spending by the Government and that was not based on the strength of the economy so whatever was created artificially looked good on the economy but internally it weakened the economy.

“Growth was protected by the high deficit from 2001 to 2006, deficit helped keep the prosperity and the growth but then it was at the expense of exchange reserves and future stability of the government in terms of creation of high debts,” he highlighted.

Although Shah admits that the current state of economy is bad because the military government had to massively control the government deficit and private sector credit, which led to the loss to the economy, he is adamant that there was no other way of stabilising the economy and bringing it to low or to no deficit in the government budget.

Shah said that the current economy has created hardships for the people because of cut back in demand, bank credit and government demand that people have lost income and lost jobs but during Qarase’s time there would have been so high debt that the economy would have become bankrupt after 5 years.

“There was no choice but to restrain it by harsh measures or continue what Qarase did to get cheap growth and ultimately bankrupt the economy,” he stated.

After an year since the military takeover, Shah says that the coup also had a bearing on the economy because people and foreign investors got scared, because of uncertain future and tried not to spend, many people lost jobs and tourism declined.

Shah went on to say that the December takeover last year is not solely responsible for the poor state of the economy as the economy mostly had a downward trend from the first coup in 1987.

Qarase mentions in his statement that Fiji is at the bottom of the list of economic performers of the world as compared with countries like Zimbabwe and Somalia which will experience a contradiction in their economies this year.

However, Shah says that comparing Fiji to countries like Zimbabwe or Somalia is “too extreme” because Fiji’s situation is no where close to the situation in those countries.

According to Shah, if the government keeps a hold over the deficit then the economy is likely to improve.

“A 0 percent or a negative 1 percent growth for next year from the negative 4 per cent this year can be expected but if the military government continues to stabilise the deficit and an equal environment is established then after 2008, we can get back to 5 percent of sustainable growth.”

For the two major industries in Fiji, the sugar and tourism sectors, Shah explains that mainly these sectors suffer from a lack of incentives, wrong policies and a decline in fairness.

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