Friday, June 22, 2012

Fiji is Bound for Economic Scrapheap: An Investor Speaks Out.!

Posted on Fiji Today

 "The current rate of Fiji Bonds is 9% at least 2% above the level considered sustainable for a developed  country.  Fiji is far from a developed country."

You asked why we are reducing our tourism and associated investments  in Fiji.

We are in a dilemma in that we have no way of assessing the economic risk  of operating in Fiji. There are no Government accounts and we continually hearing of additional loans being taken out by the government without any public disclosure of the interest rates or terms.

These loans have to be paid out of the public accounts and will probably require additional taxes and revenue generation that will cause a deterioration in the investment environment.

We are concerned that the total debt is now beyond a sustainable limit.

We are concerned that the international financial debt markets deem the risk to be BB or junk bond status. The current rate of Fiji Bonds is 9% at least 2% above the level considered sustainable for a developed  country.  Fiji is far from a developed country.

The lack of a democratic government and the resulting transparency of an open Parliament is more than a minor risk as currently we get no warning about additional taxes that just turn up overnight without any chance of appeal.  An example is  the recent extension of the HTT to cover all our tourism related investments.

Any new investment in Fiji would require a risk premium of over 10%. This 10% would be on top of the normal return of at least 9% required on an investment in the Pacific. An 19% return is a dream.

Fiji is at high risk as its major revenue generators are now tourism and remittances and both of these are dependent on a vibrant global economy. Its total physical exports are only due to increase in the future with developments in the gold and mineral areas due to kick in after 2014.

Fiji is in the crapper and I believe when the true extent of the accumulated debt is known it will require a bailout from the IMF or ADB and the terms and conditions of these loans will mean a major restructure and contraction of the Fiji economy.

This will hurt our current investments and reduce the living standards of all Fijians and may result in Fiji becoming the basket case of the Pacific for at least one generation.

Name withheld by request.

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