Friday, August 13, 2010

As Economy Falters, Fiji Becomes a Volatile Paradise .

AUGUST 13, 2010


The outlook for Fiji, one of the world's most famous tourist destinations, appears increasingly grim as the international community bickers with its military leader and its economy falters under heavy government debt.

The South Pacific island nation has lurched from crisis to crisis under military ruler Dictator Voreqe Bainimarama, who seized power in a 2006 coup. The U.S., Europe and Australia have condemned his government and called for national elections, but Mr. Bainimarama has resisted, saying the earliest he will return Fiji to a popular vote is 2014.

Aurora Photos
Fiji residents untwist a fishing net in Tobou, Fiji.

Despite the island nation's resources, some 40% of its residents live below the poverty line. The government didn't respond to requests for comment.

Fiji's fate matters to its neighbors in Asia and the South Pacific, a region of a dozen countries that has relied heavily on tourism in recent years as other mainstay industries such as agriculture and minerals have remained flat. Fiji's economy is larger than those of many of its island neighbors combined, and it is a primary educational center for the region with the largest university.

Australian officials have expressed concern that Fiji's influence could trigger a "coup culture" in other South Pacific nations. Many of the island nations face serious economic challenges; if their troubles worsen, it could trigger flows of immigrants into Australia.

More-optimistic analysts have said Fiji could become a driver of growth in the Pacific if it gets back on track. But in the meantime, some predict another year of negative growth, after Fiji's economy contracted 2.2% in 2009. Government officials have approached the International Monetary Fund about a bailout of between $400 million and $500 million to cover $150 million in debt repayments that mature next year. The IMF has signaled that any such bailout will require austerity measures such as slashing the civil-service budget, tightening monetary policy and imposing more fiscal discipline on state-owned enterprises, which could add to Fiji's short-term economic pain..

Fiji remains a tourist draw, attracting nearly 550,000 visitors a year. Tourist numbers have largely bounced back after the 2006 coup, though the ADB says this has been achieved through aggressive price discounting.

Although Fiji's government predicts 1.8% growth this year, Keith Leonard, a Fiji-based South Pacific regional director for the Asian Development Bank, says a 0.5% contraction is more likely.

The dictator, Voreqe Bainimarama, speaks at a U.N. summit in Rome.

The ADB and World Bank cite Mr. Bainimarama's regime as a factor in Fiji's sluggish economic performance. The IMF forecasts foreign direct investment this year will be $264 million, down 36% compared with 2006.

"Given Fiji's endowments and its role in the region, I'm not saying it should be an Asian tiger, but it should be the Pacific equivalent" with annual growth of 4% to 5%, said Mr. Leonard. He cited the country's tourist attractions, agricultural land and fisheries, and its work force, which is well-educated compared to that of most Pacific island nations.

Some 40% of Fiji's population of 850,000 lives below the poverty line, the ADB says. Export earnings from two of Fiji's main industries have collapsed, with the once-thriving sugar sector hamstrung by poor management and garment manufacturers unable to compete with global players, analysts say. Government debt has ballooned to 70% of gross domestic product, well above the ADB's 40% target for developing countries.

Human-rights group Amnesty International says foreign investors have been deterred by reports of abuses and alleged efforts by the government to undermine judicial independence and muzzle the media.

When the government abrogated the constitution in 2009 it dismissed all judges and replaced them with hand-picked officials.

A government decree in late June mandated that all Fiji's media must be 90% locally owned within three months. The decree threatens the viability of News Ltd.'s wholly owned subsidiary The Fiji Times, the country's largest-circulation newspaper. News Ltd. is an Australia-based unit of News Corp., owner of Dow Jones & Co., which publishes The Wall Street Journal. News Corp. has said it would be forced to dispose of its Fijian newspaper as the military regime continues a crackdown on the media. A News Ltd. spokesman said the unit was "in the process of actively considering our options at the moment."

The government has denied any human-rights abuses. Mr. Bainimarama, an indigenous Fijian, has said that hard-line military rule is the only way to implement measures needed to eradicate institutional racism and corruption endemic in the country before he took power, and to prepare Fiji for democracy.

"This is not an ordinary government, we're trying to bring about reforms and changes, and for that [it is] understood that at some stage we'll need to shut some people up, and stop this from bringing about instability," he said in an interview this month on Australian television. Important changes "will never happen if we open everything out to every Tom, Dick and Harry to have their say."

Revenues in the sector declined about 12% last year from 2008.The roots of Fiji's political problems lie in its history as an outpost of the British empire. The British brought Indian laborers to work in sugar plantations, leading to racial divisions with the native Melanesian population after Fiji became independent in 1970.

Ethnic Indians, who form about 40% of the population, have traditionally dominated the economy, with indigenous Fijians gravitating toward government and the military. Tensions flared when Indians gained political ascendancy in 1987 elections, sparking a series of military coups aimed at reasserting ethnic Fijians' control.

When Mr. Bainimarama, an indigenous Fijian, seized power, he said his aim was to prevent ethnic Fijians from imposing policies that discriminated against Indians and to end the country's political turmoil.

Australia and New Zealand have led efforts to isolate Fiji internationally to pressure the government to restore democracy. Canberra and Wellington have imposed "smart sanctions" such as travel bans on the regime's top civil servants, while maintaining aid programs.

Mr. Bainimarama has responded by expelling Australian and New Zealand diplomats, including Australia's Acting High Commissioner Sarah Roberts, who was deported in July after being accused of "conducting unfriendly acts" that undermined Fiji's sovereignty. He has also sought increased aid and investment from China in order to minimize the impact of the rift with Fiji's former allies.

Last year, Mr. Bainimarama scrapped a pledge to hold elections by 2009 and suspended the constitution, invoking emergency powers that allow him to rule by decree until 2014. His actions broke an agreement with the European Union and cost Fiji more than €60 million in EU aid.

With talks on an IMF-led bailout set to resume in September, the ABD says a major economic overhaul is needed, warning that some painful reforms are necessary to spark long-term growth.

—Patrick Barta contributed to this article.
Write to Neil Sands at

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