A wake-up call for others

Satish Chand
Litokwa Tomeing, the President of The Republic of Marshall Islands (RMI), faced with an emerging fiscal crisis, declared a State of Economic Emergency as of  July 3, 2008.

Jack Ading, the Minister of Finance, noted a day later that: “the adverse effect of this global fuel crisis, its intensity and severity” were “acute and destabilising” with RMI having little capacity to deflect and/or cushion the consequences. 

Sounds familiar? Similar sentiments have been expressed by small islands states regarding the risks from climate change.

This time round however, the tsunami of rising commodity prices is likely to be more immediate and possibly far more devastating for far flung and food/(fossil) fuel-import dependent islands communities of the Pacific. 

The risks from rising price of fuel, food and finance

If little atoll states were worried about being drowned from rising sea levels, then they have an even more immediate challenge at hand. 

They have to address the risks from rising commodity prices. The slowing global economy may help subdue some of these pressures but it will also take some wind out of the sails of their major donors such as the US. 

Rising fuel and food prices are already washing away the bulk of the foreign reserves, leaving islands economies’ national budgets in tatters. 

Ongoing jitters in the global capital market means that these deficits will be harder to finance. Marshall Islands is not alone in this sad predicament. 

The economic crisis in RMI is a timely warning to its neighbours that time for reforms is quickly running out. Several islands economies are experiencing rising current account deficits, surge in domestic inflation, and creeping levels of poverty. 

Ongoing political ructions in Fiji and Tonga make matters worse for them.

Islands economies, barring Papua New Guinea, are heavily dependent on energy imports. Gone are the days when fuel, often used for lighting and in emergencies, was used sparingly by the majority of islands communities.

Inter-island transportation, for example, was powered by men (with their oars) and wind while wood comprised the major cooking-fuel.

Times have changed. Consequently, the current fuel crisis will hurt; and, hurt a lot more than it did during the last crisis of the mid-70s. 

The urban poor will feel the brunt of the impact of the surge in commodity prices. Most of them no longer have the luxury of going back to subsistence living.

Many have no land or village to return to. Subsistence in Majuro, Ebeye, Tarawa, etc, is simply not possible.

Energy shortage for many of these residents equates to shortages of the very basics of life including drinking water, food and sanitation services.

Minister Ading observes that loss of electrical power in RMI will mean “a national disaster of unimaginable proportions”.

The many lost opportunities for reform

Minister Ading, in his address, lamented that the crisis could have been avoided had earlier advice been followed.

“Our country would have been able to insulate itself against this energy shock but because of our lack of action over the years, although we have been informed many times in the past by ADB, International Monetary Fund (IMF), General Accounting Office (GAO) and others that we need to implement structural reforms and cut our government expenditures to maintain a sustainable fiscal situation, we did not take those recommendations or advices seriously, thus resulting in the situation that is facing us now”. 

He asserted that “if we had taken those advices seriously two to four years ago and followed them by implementing the necessary reforms, by now RMI would have been able to withstand these external shocks that are coming from the ongoing global fuel and food crisis.” 

The Tomeing administration has been in office only six months.

They have inherited many of their fiscal problems from their predecessors. I can confirm that much of the advice from Juumemmej (meaning ‘stand awake’ in Marshallese), an ADB-sponsored report that I co-authored with colleagues from RMI in 2005 was ignored.

“We had then stated that the status quo is not sustainable and conditions are worsening; a change in tack is urgently needed.

“We highlighted the deteriorating fiscal and economic conditions then and urged leaders to take immediate remedial action to avoid a looming crisis.

“The recommendations were rebuffed and the authors rebuked for these and many other suggestions. We are devastated, not by the rebuff or the rebuke, but by this crisis itself.”

Live within our means

Pacific communities have to learn to live within their means. RMI, even with the strong backing of a rich donor such as the US, could not defy this simple reality of life. 

Conveying this message to our leaders has been difficult, however. The crisis in RMI is a timely warning to other Pacific communities of the consequences of poor economic management. 

Will RMI need a regional assistance mission of the nature that is ongoing in Nauru? I believe not, and for two reasons: (i) it is acting ahead of a crisis materialising; and, (ii) RMI, via its Compact of Free Association, will continue to enjoy the backing of the US government in its economic revival. Economic revival, with the assistance of donors such as the US, thus, has a real chance of success here.

Other nations around the neighbourhood are not as privileged and thus should take heed from the current plight of the RMI.

Juumemmej, that is, ‘stand awake’, is a timely reminder to our leaders as we head into the choppy waters of global commerce. We rely on these helmsmen to navigate our economies to a prosperous and secure future.
Raise means to live better

A danger with the current hype of self-sufficiency echoing from the region is that of protection. Small islands economies are least equipped to be able to provide for all of their needs.

The global economy offers us unparalleled opportunities for the betterment of our own wellbeing. While the rising food and fuel prices remind us of the importance of ‘living within our means’, they also raise the challenge of improving our means so as to be able to live better and withstand such shocks.

This fundamentally is the challenge of raising economic growth. Reforms targeted at raising economic efficiency and productivity is at the heart of this challenge. Productivity rather than protection is the answer to the current economic woes.

Juumemmej is a message that must be gonged hard into our leaders at their forthcoming forum in Niue. It may awake a few who could be asleep at the wheel.