The Australian acting high commissioner to Fiji was declared ‘person non grata’ and ordered to leave the country within 24 hours by the Fiji government on July 13.

This is the second Australian diplomat of a total of three that have been sent packing by the Bainimarama regime since taking office via a military coup in December 2006. Each expulsion by Fiji followed allegations of interference of the diplomats in the domestic political affairs of the nation. Australia retaliated last time in kind but has refrained this time. On Australia’s part, this is sensible. But if allegations are true that Australia was campaigning against Fiji holding the Melanesian Spearhead Group (MSG) meeting in Nadi this month where Prime Minister Bainimarama was to have taken chairmanship of a group comprising Fiji, Papua New Guinea, Solomon Islands, and Vanuatu, then this campaign defies common sense.

I am no diplomat. And diplomacy is not my strength. So let me be blunt here. Fiji holding the MSG and Prime Minister Bainimarama rising to chair this grouping of nations would have been good for Fiji and for the region. Bainimarama would have had the opportunity to learn international diplomacy and display his skills in regional politics. This would have enriched him as a leader. His counterparts – prime ministers Natapei, Somare and Sikua – would have had the time and the opportunity to talk to him as their representative. Together, they would have had the opportunity to get Fiji back into the Pacific Islands Forum. In addition, Australia and New Zealand would have had the opportunity to step back and let the other island leaders take up the responsibility of helping Fiji back into the Pacific Islands Forum.

The opportunity to engage with Bainimarama personally and Fiji more generally has not disappeared yet. Thanks to Bainimarama for pursuing his plans to hold a ‘Friends of Fiji’ meeting on July 22 and 23 with a view to ‘Reengaging Fiji,’ there remains hope. The prime ministers of PNG and the Solomon Islands have agreed to participate. New Zealand has declined the invitation, while other island leaders are yet to respond. If successful in reengaging Fiji, this could be the first step toward helping the Bainimarama regime to be rescued from becoming the pariah state of the Pacific. And the least Australia and New Zealand could do is to keep their hands off this process. New Zealand has signalled its wish not to interfere, while Australia remains quiet.

The 13 leaders of the Pacific Island states, together with their counterparts from Australia and New Zealand, are to meet in Port Vila early next month to hold the 41^st Pacific Islands Forum. While the Fijian leader will remain locked out of this get together, the leaders of PNG and Solomon Islands may have some clear messages from their Fijian counterpart to reengage Fiji. It would be wise for the leaders at the forum to listen to these thoughts.

Satish Chand is a professor in the School of Business, the University of New South Wales at the Australian Defence Force Academy, Canberra.

1. Fiji and The Forum
2. China’s involvement in Fiji and Australia and New Zealand’s position
3. Australia and the Pacific islands: a loss of focus or a loss of direction?

Commodore Frank Bainimarama, the head of the Republic of Fiji Military Forces, the appointed Prime Minister (PM), and the Minister for another half a dozen ministries in his government, presented his vision for Fiji in an address to the nation on July 1st.  The Commodore espouses to have Fiji realise her potential, and possibly by September 2014 when the nation is gifted democratic rule.  Achieving the vision is a tall order, believing that Fiji is on the path to the above taller still.

There are many positives in this address titled the ‘strategic framework for change’.  For a start, the Prime Minister has covered hitherto uncharted economic territory.  Issues ranging from the deteriorating conditions within the global economy to the floods of February that had a devastating impact on sugarcane crop were canvassed.  Mention was made of the improving monetary and credit conditions to an ‘open skies’ policy to increase tourism inflows.  The PM emphasised that the focus of his government for the following three years would be the economy.

Amongst the specific economic reforms proposed were: (i) fast tracking of divestment from state-owned enterprises (SOEs) including the closure of non-performing SOEs; (ii) the amalgamation of different government departments and entities; (iii) outsourcing of service provision to the private sector; and, (iv) rehabilitation and rejuvenation of the deteriorating road-infrastructure.  Pro-growth and pro-poor reforms also got a mention.  The prescriptions for the economy are consistent with that from the manual of any international financial institution.

The PM is learning economics fast.  The heat is on him given the rapidly deteriorating economic conditions and his role, amongst many others, as the Minister for Finance and National Planning.  Foreign reserves at FJD660 million as of June have recovered, by FJD132 million at current value of the FJD, since the devaluation of 20 percent last April.  This improvement, however, is due to a larger fall in imports compared to exports since the devaluation.  The former was expected, but the latter is a disappointment.

While the proposed reforms are praiseworthy, a lot more may have to be done if an economic crisis is to be averted.  Furthermore, considerable donor support would be required to bring any of the reforms to fruition.  Most important, a revival of the economy requires a return to the rule of law at a minimum and to democracy preferably.

The Commodore has called for the building of bridges, appealing to the international community to lend a hand in him realising his vision.  He has urged the private sector and the wider community to work together in exploiting the investment opportunities on offer.  Private investments remain lethargic.  It is here that the difficulties begin to emerge.

Many long standing reforms remain unattended.  Land reform heads this list.  Some 90 percent of Fiji’s land mass is under customary (group) title.  Much of this land is under-utilised.  Realising the potential of the nation means drawing this idle resource into production.  Given the political sensitivities of land reform, the PM has been cautious, announcing that the current system of land-ownership will be retained whilst tenure secured and provided long term to entice private enterprise.  This could be a hard high wire balancing act for the PM; get it wrong and the fall could be fatal.  Law and order remains a perennial challenge.

Other than reiterating his determination to rid the nation of ethnically polarised politics through the introduction of a ‘true democracy’ by September 2014, the address was light on exactly how this would be achieved.  All we know is that work on a new constitution will begin in 2012.  Why so late?

Pronouncements of future socio-economic bounties, and before transfer to democratic rule, are meaningless unless realised.  Bringing reforms to fruition requires widespread community engagement and support.

The difficulty for Commodore Bainimarama, as that for any dictator, is to prove his benevolence.  Absent that, his plans will not stick; not to the domestic constituency, and nor to the international community.

1. Fiji and The Forum
2. The politics of constitutionalism in Fiji
3. Preventing Fiji from becoming the pariah state of the Pacific

Fiji was suspended from the Pacific Islands Forum on Saturday, the 2nd of May 2009. This decision was anticipated given that the military regime in Fiji had made clear of its intention not to pay heed to the ultimatum given by the Leaders’ following their meeting in Port Moresby last January.

The decision by the Forum, while understandable, is unfortunate. Fiji was a founding member and the late Ratu Sir Kamisese Mara an instigator of South Pacific Bureau for Economic Cooperation, the predecessor to the Pacific Islands Forum. The Secretariat is located in Suva. Fiji’s suspension is evidence of the fact that the Forum family has fractured.

The political problems in Fiji are hurting. Hurting Fiji foremost, and her neighbours next. Fiji’s GDP contracted by 6.6 per cent in 2007, and was close to stagnant in 2008. Poverty in the two years since the December 2006 coup is likely to have risen by a minimum of 8 percentage points. As of 2002, some 33 per cent of the population were poor. The figures for 2009 would certainly be above 40 per cent.

Government revenues are falling. So is the stock of foreign exchange reserves. The Fiji dollar was devalued by 20 per cent on the 15th of March. This will help dampen import demand, but on its own is unlikely to revive exports. D-Day will be the 14th of September 2011 when the government will need to roll over foreign debt to the tune of US$150 million.

Fiji’s economic fortunes have a bearing on the island Pacific. The central location, superior infrastructure, and Suva being home to several regional organizations make Fiji’s problems those of the regional too. But there is still hope for Fiji.

Fiji politics is in a stalemate. The Bainimarama regime is holding on to power with the backing of the military forces. Their opponent, the Qarase regime that was ousted in the 2006 coup, claims the backing of the majority of voters. Neither will give in so long as their support bases remain intact.

This stalemate, however, will get resolved; and, by the fortunes of the economy. If the economic managers succeed in pulling the economy out of its current nosedive, then they would have saved the military government. Otherwise, an economic crash could precipitate a political crisis. Neither of the above would be a disaster for Fiji, however.

The Commodore has indeed promised to turn the economy around. His is a vision of Fiji as the ‘Singapore’ of the Pacific: a laudable ambition indeed. If he fails to realise this vision then the approaching D-Day (of September 2011) will force the two political combatants to a dialogue with a view to reviving the economy.

A return to the rule of law would be the minimum necessary for such a revival. The best compromise would one that establishes a true democracy in Fiji. And then the solution to Fiji’s political problems would have come from within the nation.

The international community can help with the transition. Further isolation of Fiji would be a mistake, as would be a premature foreign intervention. Open trade, migration, and communication channels are all likely to reduce the adverse effects of the political strife on the ordinary folk in Fiji.

1. Preventing Fiji from becoming the pariah state of the Pacific
2. Dilemmas facing Australia’s Fiji policy
3. The Fiji Water saga

Much has been said about the financial crisis and its potential impact on PNG. Both the Minister for Finance and Treasury and the head of one of the country’s major superannuation funds say that the economy will be relatively immune.

Yet, the Secretary of the Treasury and now the Bank of PNG have voiced concerns about the negative impact of falling GDP growth, reduced export and Government revenue, and a reduction in foreign investment. What should we make of the situation in PNG, and how is this crisis likely to affect the country over coming months and even years?

The good

Things are not all doom and gloom. Many domestic policy makers are even talking positively about the affects of the crisis.

The positive interpretation is partly justified by the huge volumes of foreign exchange reserves built up over the past 6 years meaning that the economy is unlikely to suffer a repeat of the foreign exchange shortages of the 1990s. It is also widely thought that a slowdown in the global economy may help to cool off Government revenue growth, which has been increasing at a dramatic rate since 2002. This would require the Government to consolidate on its recent revenue gains and also help to dampen inflation which has recently reached double digit levels. PNG is also much less dependent on both remittances and tourism revenue than other countries in the region. These two ‘advantages’ mean that it is unlikely to feel any significant pain from a drop in earnings from both activities.

In terms of the stock market, the initial phase of the crisis also left the POMEX relatively unaffected – despite some sensationalist headlines in local newspapers. The small decline which did occur during August and early October resulted mainly from those stocks which are double listed on both the POMEX and ASX markets, and the corresponding falls in their Australian listing.

A significant Kina appreciation against most of PNG’s major trading partners over the last two months will also help to curb rising domestic inflation a large portion of which has been from imported sources. The Kina has appreciated against the Australian Dollar by as much as 45 per cent since August this year. This change will also help lower the Governments foreign debt repayment obligations.

And the global drop in oil and gas prices will be warmly received by many in PNG who have been struggling with higher fuel and energy costs.

The bad

But the argument that PNG is immune from the current crisis overrates the resilience of the economy. The exchange rate appreciation has dramatically reduced the competitiveness of PNG exports; particularly exports of labour-intensive products from manufacturing and agriculture (coffee, copra and oil palm). Stagnation in these sectors will dampen the already minimal employment creation from the recent commodity boom.

If global oil and gas prices continue to remain low, or decline further, question marks may begin to emerge on the viability of the PNG gas pipeline project. The project entails over US$1 billion of investment by the Government, and a cancellation or delay in the project would be a disaster for current fiscal policy and future revenue growth.

Perhaps the most important impact of the crisis however relates to PNG’s ever fluctuating foreign exchange reserves. Concerns about falling foreign exchange earnings have been dismissed on the basis of current earning levels and the large stock of reserves which have been built up since 2002. This is certainly true. PNG currently has record levels of foreign exchange and any drop in earnings would have to be large and sustained for any negative side effects to emerge. But this underestimates how quickly circumstances can change in the land of the unexpected.

A large portion of PNG’s foreign exchange reserves are currently invested by a number of international investment firms. A portion of these asset values have declined substantially over the past months both from exchange rate revaluation and share price losses. Central Bank Governor, Wilson Kamit, has also highlighted the potential impact that the crisis may have on the earnings of PNG’s superannuation funds. Both Nambawan Super and Nasfund have approximately 20 per cent of their assets invested in off-shore equities. The affects of this on their balance sheets will also be combined with a loss in value of many of PNG’s dual listed companies, which have recently begun to fall prey to the crisis.

Potentially, the biggest risk to reserve levels will be if, over the longer term, PNG’s key export markets, Asia in particular, begin to implode. As the ADB recently announced in its latest Pacific studies series, ‘PNG’s commodity price boom is over’. Profits for a number of major mining companies are expected to decline substantially this financial year and this will have obvious consequences on both government revenue and export earnings. The true extent of these effects will be difficult to tell until the BPNG releases its Annual Monetary Policy Statement at the end of the year.

The ugly

Even more worryingly, despite its initial resilience, in the last week the PNG stock market has begun to feel the fallout from the global turmoil. In one week the share market dropped 13 per cent as Oil Search shares plummeted by K3.40 (34 per cent) amidst expectations of a slowing global economy. While share prices recovered in the following week, this volatility demonstrates that PNG is not immune from the crisis and almost certainly reflects the markets’ increased understanding of the consequences of a sustained downtown in the global economy.

Liquidity is not a major issue in the region at present, though the Bank South Pacific with a credit rating of B+ (S&P) could in future face a ‘run to quality’ given the AA (S&P) ratings of its major competitors, ANZ and Westpac. The recent deposit guarantee provided by the Australian PM to the latter two may exacerbate these pressures with a flow of funds out of the Pacific towards safer Australian shores.

Tighter global and regional credit markets will also increase the cost of obtaining international finance and are likely to reduce private investment flows to PNG. Higher borrowing costs in turn will limit potential funding for new projects. The fall in global commodity prices will make many commodity-based projects appear less profitable, further restricting growth across a number of sectors of the PNG economy.

Easily the biggest threat to PNG’s continued economic expansion, however, is that the regulatory and institutional environment raises costs prohibitively, in particular for small scale investments. PNG now ranks second last out of ten Pacific Island countries in the World Bank’s 2009 Cost of Doing Business index, sliding back from position 89 to 95 in the world over the last year. For the most part, medium to large scale investment activities have overcome the high costs of operating in PNG’s regulatory and institutional environment by obtaining tax concessions and operating subsidies from the Government. These options are generally not accessible to smaller scale entrepreneurs who face the full cost of the PNG business environment. This has dramatically limited the flow on or ‘trickle down’ effects of PNG’s post 2002 economic boom which has been driven by large scale enclave development in mining and resource extraction. Without broad based growth and a diversification of export and government revenue sources away from mining and resource extraction PNG will continue to remain highly vulnerable to external shocks to the global economy.

Conclusion

PNG has made significant gains in its macroeconomic and fiscal position over recent years, and the risks to macroeconomic stability in the short to medium term are in all likelihood not that large, provided Asia holds up. But a sustained slow down in the global economy is a large longer term risk for PNG and the brunt of the current crisis is likely to be felt most heavily by rural and agricultural workers who find that they are no longer competitive in international export markets.  The impact of a global slowdown will be on the poor.  Those at the margins risk falling into poverty.  The plight for the already poor will get a lot worse.

A reduction in commodity prices will significantly cut government revenues and Secretary Tosali’s concern about the potential impact of the crisis on PNG’s fiscal position is real. Fiscal belt tightening, and more importantly, prioritization of expenditures towards productivity enhancing sectors will be required to help lessen adverse impacts of the global slowdown.

Until the PNG Government addresses the structural constraints on growth by reducing the formidable costs of doing business in PNG the gains from episodic resource booms will continue to remain fragile.  This is one reason why the much talked about macroeconomic improvement has failed to translate into improvement in the wellbeing of the population at large.

1. Chinese Growth and the Financial Crisis
2. China not immune from the US financial crisis
3. India: Confronting the Global Financial Crisis

The third and final element of my proposal for assisting the Pacific achieve improved development outcomes involves underwriting law and order via the South Pacific Forum. Specifically, I am proposing a short-term, a long-term, and a bridging strategy to improve law and order within the island-pacific. The short-term strategy entails members of the Pacific Island Forum, as a collective entity, under-writing law and order in each of its member nations. This will require members first agreeing to a regional external intervention should laws of any state be usurped. This does not tread on their sovereignty since each individual state has the right to form its own laws; but then has to abide by these laws which have already been approved and legislated by its own legislature.

Credibility is critical for this strategy to deliver on intent. Multilateral commitment would be necessary for the above. The South Pacific Forum is the natural home for such an agreement.If credible, the Agreement could be cost effective in instilling law and order and insuring against coups in the region. Australia, as the largest and richest member of this Forum, would have a pivotal role in this initiative. A credible multilateral commitment to restoring law and order if and when it breaks down in any member state could be enough to deter civil disruptions in the first place. Australian backing to such a commitment and her willingness to lead a mission should the need arise, is critical for this strategy to deliver on its intent. The long-term strategy is that of creating the conditions for voluntary compliance with the laws of the state by the majority of her citizens. The incentives for such compliance has to be founded in the belief that the rewards of complying with the rules and regulations of society, even without the threat of punishments by outsiders, far outweigh the costs of doing anything less. This requires raising the prospects of development for the region such that the incentives are for value-adding effort rather than those for predation.

If economies grow sufficiently to absorb those requiring work and be in a position to provide opportunities for sustainable livelihoods for the majority, then prosperity would be the girder on which peace and stability could rest. Furthermore, a sufficiently large tax base would allow the nation state to control criminals with its own resources. While under-writing law and order in the individual states will lower the risk premiums for private investors, the increased investment will be realised only after investors are convinced that the commitment will withstand the test of time. Thus, the rise in growth of income and jobs from an assurance that law and order will prevail can only be a long-term strategy. Temporary access to jobs in Australia for those in need of the above together with improved access to training and healthcare at home (as argued in (i) & (ii) above) has the potential to ‘jump-start’ the process of job creation and growth of production.

1. Interventions to assist the Island Pacific
2. South China Sea developments at the ASEAN Regional Forum
3. Japan’s aid to the South Pacific and the China factor

The level of access to basic services such as primary education and basic healthcare varies considerably across the nations of the Southwest Pacific. PNG ranks low, if not the last, on this count. Its geography in the form of the rough terrain and archipelagic nature, history in terms of a highly fragmented and sometimes strongly divided society, and climatic conditions which makes malaria (and other vector-born diseases) endemic to the nation is major handicaps to universal and effective delivery of basic services. The recent arrival and galloping spread of HIV compounds the problems many fold.

Education is critical for development. The international community, via the 2nd Millennium Development Goal (MDG), committed itself to achieving universal access to primary education by 2015. This same MDG also targets the elimination of gender disparities in primary and secondary schooling. While this goal may be achieved at the global level, the same is unlikely to be true for the Pacific region. Australia, moreover, will carry some blame for this failure. Any progress on MDG#2 within the Pacific Islands requires significant improvements in enrolment rates and primary school completions in Papua New Guinea. This is so for three reasons: (i) PNG is the largest country within the island- Pacific, accounting for some 6 million of the 8 million inhabitants for the region as a whole; (ii) PNG lags the most in terms of school enrolments; and, (iii) gender disparities are the largest for PNG. Primary school enrolment statistics from the National Department of Education (NDOE) and population census from the National Statistics Office (NSO) show that only 53 percent of children in the 6-14 year age cohort are in primary school. This means that some 680,000 children of school age are not enrolled in school. Girls comprise 45 percent of children in elementary and primary school. But only 29 percent of girls who enter grade 1 complete primary schooling. And gender disparities widen as students move up the education ladder. Furthermore, the quality of education delivered is poor. A recent survey reported that some 37 percent of primary school graduates were unable to read or write. Australia shares some responsibility for the above.

PNG is the largest recipient of Australian aid. A significant proportion of this aid is channelled to the education and health sectors. PNG, as of 2006-07, accounted for approximately 30 percent of total Australian ODA. Education and Health sectors received some 10 and 11 percent, respectively, of the total. In terms of progress made on the second MDG, that of universal access to primary education, the most recent data – that of 2004 – reveals PNG ranking last within the Pacific Islands and only marginally above Nepal within the Asia-Pacific region. The reality could be worse since some recent updating of the data suggests that the initial estimates may have been optimistic. Australian aid is being scaled up. Some of this rise will flow on to PNG, and to the poorly performing island nations within Australia’s neighbourhood. We could, with these additional funds, do more of the same old programs and projects. This would be a risk-averse strategy. Much of the efforts to date have been targeted at funding teachers, school buildings, road, etc; the focus, in short, has been on increasing inputs with the assumption that bumping up inputs will lead to increased outputs and improved developmental outcomes. Hindsight suggests that the assumption of a tight relationship between inputs and outputs is flawed.

I propose that we can be more ambitious in getting better value from our aid. Specifically, aid funds can be used to directly purchase outputs from individual suppliers. The analogy of coffee shops takes us far on this proposal. Good coffee gets supplied wherever there is a market for the above. Could a similar model be used to improve access to quality primary education in PNG? Some experimentation and learning would be necessary to make this work with ODA. I propose a Progress Education Fund (PEF) that will ‘buy’ progress on primary school completions and in terms of the number of students passing the national exam in the graduation year.

This proposal has its genesis in the Cash-On- Delivery (COD) mechanism that has several advantages over the current system of input subsidisation. Five of these are enumerated below. (i) It uses existing machineries of the PNG Government, thus will strengthen existing delivery mechanisms. (ii) It takes resources to the frontline of service delivery, thus bypasses the centre. (iii) It is administratively low maintenance as the requisite data for PEF is already collected by the provincial authorities. (iv) The risks of gaming the system is contained by the fact that exams are set and administered nationally. (v) The proposed scheme is consistent with the 2005 Paris Declaration that seeks to increase local ownership of aid-funded programs, is focused on results (with flexibility on mix of inputs used for the deliverables), is aligned with Government priorities, and delivers funds on a predictable basis. The PEF pays for progress made in terms of throughput from primary schools and the quality of education delivered. The emphasis is on standards and outputs while structures to deliver the above are left to the discretion of local suppliers of the service.

1. Evidence-based policy for basic education in the Philippines
2. Interventions to assist the Island Pacific
3. Local versus central governance in China: Providing basic public services

A recent report by the CIS, describes the emergence of a dual or ‘bi-polar’ Pacific where two groups of islands have displayed markedly different demographic characteristics and different employment social and educational outcomes. The conflict in the Solomon Islands, Fijian coups, raskol gangs of Papua New Guinea, and stagnation of Vanuatu are contrasted with the relatively high growth success stories of Cook Islands, French Polynesia, Guam, New Caledonia and Samoa..

So what can be done to help the Pacific correct its ‘bi-polar’ tendencies?

In a recent Submission to the Australian Senate I proposed three specific interventions which would assist in this regard. The first is to encourage a freer trade in goods and factors of production including labour from the neighbourhood. The second is support for improved access to basic healthcare and universal access to primary education; and, the third is to under-write law and order within Pacific states by cooperating with the members of the South Pacific Forum.

I shall discuss the first of these in more detail now and leave the remaining two issues for future blogs.

There is considerable consensus within the economics profession that freer international trade improves economic prospects for the participating economies. Australia’s own lessons with a century long experimentation with trade protection and productivity growth is instructive in this regard. The Closer Economic Relations Agreement (CER) with New Zealand is a stark and recent reminder of the above. I submit that serious consideration should be given to extending the CER facility to PNG and the rest of the island nations in the Southwest pacific. This can happen progressively over time with continuous fine-tuning of policies.

The recent shift to allowing guest workers from the islands into Australia for fruit picking jobs under a pilot project, is a first step. The economic case demands a lot more. An open and deep market such as that founded on the CER arrangement will allow for two-way flows of goods, services, workers, investors, etc. I would like to see goods flow between the region as freely as workers, investors, retirees, and tourists (but bearing in mind security implications, such as terrorism, some regulation will be required). Australia can initiate this unilaterally, possibly on reciprocal basis, but doing so multilaterally – say on the Most Favoured Nation (MFN) principle – could be even better. I am arguing for progression, with Australian leadership, towards a single economic market for the Pacific; and, solely on its economic merits. The ensuing political and security gains would be a bonus to the above.

1. Interventions to assist the Island Pacific
2. Fairtrade and its (unexpected) consequences for the Pacific Island Countries
3. Glimmers of hope for the Pacific?

The recent Australian generosity to Nauru has the potential to reduce poverty and save the need for further transfers down the track. This would be the preferred outcome, but one likely to be achieved only if aid was effective in inducing development. There is no guarantee of that outcome. Worse still, large sums of unencumbered aid can undermine development by creating an expectation of ongoing support and the basis for a welfare state. As a taxpayer, I will be appalled by such an outcome.

What could be done to maximise the chances of aid being effective in inducing development? This is a question that has occupied the minds of many. Unfortunately there are no as yet known recipes for development. What we do know is that a few ingredients such as law and order, secure property rights, and widespread access to basic services such as primary education and basic healthcare are necessary for development. Targeting the above-mentioned could enhance the contribution of aid to development.

Over a series of posts in the next 2 weeks I will elaborate on arguments for three specific Australian interventions to enhance prospects for economic growth in PNG and the island Pacific.

First, freer and deepened trade modelled on the Closer Economic Relations Agreement within the region, including freer flow of workers and investors is likely to improve economic outcomes both in Australia and the region more generally. This argument for a single economic market for the Pacific rests on the basic economic premise of gains from free trade. It is good for Australia and for the region as a whole.

The second contribution that Australia can make, in PNG particularly, is to improvements in access to primary education and basic healthcare. Given the poor access to these services now and the critical contribution such services make to improvements in human welfare, such support is likely to yield large developmental benefits. Some experimentation on the best means of achieving the above may be necessary, however. I have suggested a ‘payment-for-progress’ on access to quality primary education in PNG to be funded with aid as a pilot to break new ground on this front.

Third, Australia, given its size and geographic location, must become more proactive in preventing conflicts that have retarded development. Most of the responses to date have been reactive; sending troops into troubled island nations being an example of the above. I have put forward a challenging and ambitious proposal to use the South Pacific Forum as a grouping, where each member agrees in advance to allow foreign intervention should power be usurped within their country. Australian leadership will be critical for such a commitment to be credible. But if such an arrangement were in place, it would seriously challenge the calculus of would-be usurpers. Thus, the commitment in itself may never need to be demonstrated, but still deliver on its intentions. Furthermore, the Biketawa Declaration provides the foundations on which the proposed agreement could be built on. Finally, security or the lack thereof is only a symptom of the underlying economic malaise. If the cause of conflict is not addressed, then there is little hope that enforcing security with external force will deliver long-term and sustained peace and long-term security.

1. Deepening regional trade links in the Island Pacific
2. Universal access to primary education and basic healthcare in the Pacific
3. Fairtrade and its (unexpected) consequences for the Pacific Island Countries