The Lowy Institute is a member of the Pacific Research Program (PRP). The PRP, launched on 1 October 2017, is a consortium led by the ANU’s Department of Pacific Affairs (formerly SSGM) and including the ANU’s Development Policy Centre and the Lowy Institute. Co-funded by DFAT and the consortium partners’ parent bodies, the PRP is a four-year program designed to be a globally pre-eminent centre of excellence for research on the Pacific that:
1. Produces high-quality policy relevant research that is available, accessible and communicated to policy makers and program designers in Australia, the Pacific and from around the world;
2. Plays a central role in fostering and facilitating a strong and vibrant Pacific-Australia-New Zealand-wide network of research on the Pacific;
3. Is connected to Australia’s broader engagement with the Pacific and fosters a greater knowledge and understanding of the Pacific among the Australian community;
4. Demonstrates a high degree of effectiveness in contributing to evidence-based policy-making and program design primarily in Australia and also the Pacific and around the world.
The geographic scope of the PRP is the Pacific region as a whole, though Melanesia will be an area of particular interest in line with Australia’s geographic location and national interests. The sectoral focus of the PRP will be on the intersection of politics, economy and power in relation to the region’s most pressing development challenges.
The Institute will be contributing to the PRP across multiple areas, but will also focus on its strengths of production of policy-relevant research, communication of research to broader audiences, media engagement, and engagement with the broader Australian community on the Pacific.
As 30 years of peace agreements come to an end, stability in New Caledonia is now at risk
Last month, a year before the deadline for the referendum on independence from France, French Prime Minister Édouard Philippe visited the semi-autonomous territory of New Caledonia.
Philippe is anxious about potential unrest. In October, a special delegation of New Caledonians expressed their concerns to the UN decolonisation committee in New York. According to them, the Noumea Accord (the territory's roadmap leading to the 2018 referendum) is not being applied correctly.
How this situation unfolds will be of significant interest to the region.
New Calendonia has struggled with instability in the past, with the most notable example being the évènement, as the locals call it, in the 1980s. Despite decolonisation processes in territories around the globe, French governments succeeded in curtailing self-determination among the Kanak population for three decades until the territorial elections of 1984. That year, the influential indépendandtiste Jean-Marie Tjibaou proclaimed the creation of the sovereign state. The Kanak and Socialist National Liberation Front (FLNKS) rose up against loyalists of the territory, leading to conflict along a distinct ethnic divide. In 1988 violence reached its peak with the deaths of 21 people in a hostage crisis in Ouéva.
This violence pushed both sides to open dialogue, which led to the signing of the Matignon-Oudinot Accords that same year. These agreements offered institutional and economic guarantees to the Kanaks and planned a ten-year development program that led to the negotiation and ratification of the Noumea Accords on 5 May 1998. The Noumea Accords, in turn, prepared for the progressive transfer of certain powers of self-determination to the locally elected government of New Caledonia. France kept the five sovereign powers (defence, foreign affairs, currency, justice, and public order) until 2018, and the organisation of a referendum for independence. The goal of this referendum (the first of a possible three from 2018 to 2022) is to vote on three topics: the transfer of all sovereign powers to New Caledonia, the admittance of 'full responsibility' international status, and incorporating nationality into citizenship.
The potential for instability of a sovereign New Caledonia has three dimensions: social, political, and economic.
First, there is a social issue. At the time of the last census, New Caledonia had around 268,000 inhabitants. Kanaks made up 39%, while Europeans made up 27%. The others (populations feeling Caledonian and not affiliated with any other ethnic group proposed) represent 20% of the population, followed by smaller ethnic groupings. As a proportion of the population, the Kanaks represent the largest single ethnic group on the territory. However, when comparing the Kanaks' numbers against the total non-Kanaks, the native population is a minority. This dynamic can lead to tension.
Second, the political and legal situation of the territory is complex. The Noumea Accords generated a particular institutional landscape in New Caledonia. The French Constitution had to be modified to create the 'Transitional provisions relating to New Caledonia', resulting in the creation of a special and unique 'New Caledonian' citizenship.
This special status preserves voting rights in the referendum for long-term residents of New Caledonia. Only people with ten years' residency to 1998 and their descendants are able to participate in the referendum. This also creates a tension among the population living on the island, many of whom have arrived in the years since 1998 and expect to have a say on the territory's future sovereignty.
Finally, the fragile economy is an important source of instability in New Caledonia, a resource-rich territory with ample hydrocarbons, fish stocks and about a quarter of the world's nickel reserves. The nickel industry has always been important for the development of the territory's economy. Between 2004 and 2014, the metal's relatively high price accrued important economic benefits for New Caledonia; however, the past three years have seen prices collapse, and the industry has suffered as a consequence.
New Caledonia's economy is now in bad shape, making the territory's financial dependence on France more pronounced. The cost of public services in New Caledonia averages 350 billion CFP francs per year (AU$1.92 billion), half of which is paid for by the French central government. Various infrastructure projects have been financed by France and/or the EU to sustain New Caledonia's economy. Today, France's financial support makes up more than 15% of the territory's GDP. Without this support, it would be difficult for New Caledonia to finance its own public service and to sustain its economy. This, by itself, could contribute to anxiety on the island.
This instability is not only a worry for France, but also for the regional community.
For Australia and New Zealand, the French territory is of strategic importance. Over the past few years, China has been increasing its engagement with the region. As Australian former diplomat Denise Fisher wrote about New Caledonia, 'at a time when Chinese engagement … can potentially alter our seaways and immediate neighbourhood, a stable ally at the western end of the South Pacific is an asset'.
It is in the region's best interest to keep New Caledonia stable. But what can be done?
On a societal level, both Kanaks and non-Kanaks need to find common ground moving forward. Although the yes or no nature of the referendum does not leave much space for consensus, both camps need to form a shared vision of how the territory can unify post-referendum.
On the political front, the French Prime Minister mentioned this month that 'everything possible will be done to identify everyone who is not yet registered on the electoral lists but who is qualified to be'. Having a clear electoral roll would simplify the election process.
On the economy, few solutions have been offered over the past few years. Philippe Gomès, leader of the pro-France group, suggests the creation of a 'fund for the future generations' that would be fed by revenues from the nickel industry. This would allow the country to create sufficient savings for the generations to come, and is a model used in other Pacific island countries, such as Tuvalu and Timor-Leste. But this would not help immediately, and would be challenging because the nickel industry is suffering currently. The economy also needs to diversify, with the government investing more in other economic activity, such as tourism, agriculture and fisheries. It could also look to explore opportunities in its immediate waters, rich in cobalt, phosphate and other hydrocarbons.
At the moment, the situation in New Caledonia should be watched closely by its neighbours. According to a recent poll, New Caledonians are likely to vote to remain a part of France. However, there is still one year to go before the referendum. No doubt Canberra, Paris and the region in general will be paying close attention.
The Pacific region is making headlines across Australia after Pacific and International Development Minister Concetta Fierravanti-Wells harshly criticised Chinese aid in the region. 'Useless' is how Fierravanti-Wells has described Chinese aid projects, leading countries to take on debt they can't afford. While her concerns are legitimate, her blunt delivery hasn't been constructive and has led to some considerable political and diplomatic fallout.
So what's the real story? Is Chinese aid in the Pacific useless?
The answer is not so simple. China's aid program is so opaque it is very difficult to understand exactly what it is doing. China does not conform to the sophisticated reporting and accountability mechanisms that traditional Western donors have developed over decades of aid delivery. According to some estimates, China announced more than US$350 billion in aid between 2000 and 2014 under a shroud of secrecy, leading to considerable anxiety about where, why and how Chinese aid is given.
This anxiety extends to the Pacific, where since 2006 China has rapidly expanded both its commercial ties and aid program. The Lowy Institute has invested considerable time to better understand China's engagement. Our map of Chinese aid in the Pacific shows projects committed from 2006 to the middle of 2016. By scouring budget documents from countries across the Pacific, Chinese government websites, secondary sources such as conventional and social media, and conducting numerous interviews, we have compiled the most comprehensive picture of China's involvement in the region. It is not perfect, but it identifies and quantifies Chinese aid better than any other source.
Our research shows Chinese aid in the Pacific has grown substantially, with China committing more than US$1.7 billion in aid to eight Pacific Island countries (including Timor-Leste). To put this into context, total traditional aid to these countries over the same period was over US$9 billion, with aid from Australia making up almost two-thirds this amount.
An important distinction must be drawn between Chinese projects and traditional ones. China typically engages in large infrastructure projects by providing low interest, or 'concessional', loans that eventually have to be repaid. There is often scant information beyond an announcement, with no detail on the terms of these loans or repayment schedule. Australia and other traditional donors typically provide one-way grants that do not need to be paid back and engage in more complex (albeit far from perfect) forms of assistance across multiple sectors, from humanitarian assistance to governance support.
To illustrate this point, while we have identified 216 Chinese aid projects in the Pacific from 2006, there have been more than 5000 projects carried out by traditional donors since only 2011. While Chinese numbers may appear large, it involves a concentration into select large projects. Because of this distinction, comparing Chinese aid to Australia's is like comparing apples and oranges. China has emerged as a significant donor, yet is it clearly still not the biggest player in the Pacific.
Understanding the quantum of Chinese aid is only the starting point. The greater challenge is understanding quality, the point that has landed Fierravanti-Wells in strife. Such judgments are not black and white, and ultimately projects have to be assessed on a case-by-case basis. The best research on this, looking at the experience of four countries in the region, has found that effectiveness of China's aid to be mixed; projects in Samoa have largely led to positive outcomes, while the experience in Tonga and Vanuatu has been less positive.
Importantly, the authors find that the quality of Chinese aid projects are 'dependent in large part on the actions of Pacific Island governments'. This shouldn't come as a surprise. China is not forcing aid on these countries; the Pacific governments have to tell China what they want and manage the projects to a standard that ensures China delivers. With these findings in mind, a criticism of Chinese aid is also an implicit criticism of the governments in the region that agreed to the projects in the first place.
The point Fierravanti-Wells makes about debt distress is a fair one. The International Monetary Fund has noted that Tonga, Samoa and Vanuatu all face considerable debt repayment pressures, and all have significant debt to China. Xi Jinping has even acknowledged the debt burden in the past, promising forgiveness that has yet to eventuate. There are also cautionary tales elsewhere in the world of China taking advantage of debt-distressed nations. Considering the portfolio of loans in Pacific countries (think government buildings and conference facilities, rather than critical infrastructure projects such as deep-sea ports or airports), this seems less of a problem, though certainly worth keeping a close eye on. But again, much of this responsibility must rest with Pacific governments. Australia can't criticise China without criticising decision-makers in the Pacific as well.
Given this messy context, the statements by Fierravanti-Wells, while not without basis, have not been constructive. Attacking the new kid on the block is the easy way out, and Australia is a far from perfect player in the region. The government should instead be working harder to encourage the role of Chinese aid in the Pacific, acknowledging it as an important complement to Australia's aid. China's continuing attention on the region should also be a catalyst for Australians to take a hard look at themselves and ask how they can do more in the immediate region and work with all actors towards a more prosperous Pacific.
By Euan Moyle, an intern with the Lowy Institute's Pacific Islands Program.
By Euan Moyle, an intern with the Lowy Institute's Pacific Islands Program.
It is no secret that the Papua New Guinea economy is facing some very tough times. The collapse of global commodity prices, a severe drought, an ongoing foreign exchange crisis, and questionable government spending have all contributed to a dramatic reversal of fortunes for a country that just four years ago had the fastest rate of growth in the Asia Pacific.
The 2018 budget was handed down on Tuesday and is the first in this government's second term. It offered a chance for a course correction to address some of the underlying drivers of the country's economic malaise. Unfortunately, and unsurprisingly, the government has not seized this opportunity. Still, there are aspects of the budget that deserve praise.
One bright spot of the controversial 2017 elections was the emergence of Charles Abel as both Treasurer and Deputy Prime Minister. Abel, through an ambitious 25-point '100-Day Plan', has injected a sense of urgency into the portfolio. In his budget speech, Minister Abel provided a point-by-point update on the progress of the Plan, which expires 2 December, and it appears considerable progress has been made. Minister Abel seems to have a genuine desire to shake up the status quo and we should hope that the pace and intensity of this reform agenda can continue.
Abel's budget speech was also upfront about the weak state of the economy after it 'endured a series of economic shocks'. Emphasising fiscal discipline, Abel acknowledged that the government was facing a revenue crisis. Indeed, government revenue now only represents 13% of Gross Domestic Product, well below the long-term average of 32%. Abel argues that 'need to identify why our GDP growth is not being matched with a corresponding growth in revenue'.
We already know some of the answers as to why revenue has collapsed: declining capacity of revenue collection agencies, accelerated asset depreciation of new major resource projects, revenue streams being channelled off-books through state-owned enterprises and tax and compliance avoidance. All have contributed. Above all of these issues is the reality that PNG's non-resource economy is now in the throes of a recession, a point not picked up by the Treasurer.
Yet acknowledging the severity of the revenue problem is certainly a prerequisite to solving it, and Abel does put forward some reform proposals that are steps in the right direction.
Unfortunately, the language of the budget speech does not stack up with the numbers. Both revenue and expenditure are estimated to be two billion Kina, or roughly 17% and 15% respectively, above numbers found in the 2017 supplementary budget. This hardly seems credible.
With so many expenditure commitments considered key deliverables for this government (the decentralisation agenda, including fully funding the controversial constituent funds used to buy political stability; APEC 2018; free education, and so on), the Treasury is caught in a straightjacket of spending.
In an effort to make the deficit spending look somewhat achievable, the budget announced a number of one-off revenue collection efforts. These include yet another attempt at a sovereign bond, further squeezing of state owned enterprises, and budget support from the World Bank and Asian Development Bank.
If you have been watching the PNG budget over the last few years this is a very familiar story. We have seen similar promises in multiple previous budgets. Unfortunately, the government has consistently failed to deliver on these revenue generating efforts. This results in the need for a supplementary budget with much lower revenue projections and a deficit that the government simply cannot finance. In response, expenditure is slashed in a way that ultimately protects the government's priority areas of expenditure at the cost of recurrent expenditure in education and health.
While there is a new Treasurer in the chair, the administration and the government is ultimately the same. Their failure to deliver on one-off revenue injections in the past is a body blow to the credibility of the budget. I hope that I am wrong, but I worry that this time next year, just as the dust is settling on a successful APEC leaders' summit, we are going to see history repeat itself.
Richard Marles' address to the Lowy Institute this week was delivered with a rare eloquence. Marles is an impressive orator with genuine knowledge of the region gained over many years. As a colleague of mine commented quietly afterwards, if this is what Marles is like in opposition, imagine what he would be like in government. Indeed, Marles did more than ponder Australia's role in the Pacific; he also went a long way toward establishing his credentials as a future Foreign Minister. But his address ignored the elephant in the room when it comes to leading in the Pacific.
Part of the attraction of Marles' speech was its classical construction, reminiscent of a Greek tragedy of three parts. In the prologue, Marles painted a vivid picture of the very personal problems faced by Pacific Islanders. He transported the audience into the dense and basic living conditions endured by those who live in Betio on South Tarawa in Kiribati. That a person could live in such conditions 'deeply challenges your understanding of the ways life on this earth can be led', he said. 'I've seen refugee camps in Africa, slums in Bangladesh. But the worst human circumstances I've ever witnessed are here on the islet of Betio.' The scene was set.
Act Two was a comprehensive analysis of the complexities surrounding Australian involvement in the region. Marles convincingly argued that for too long Australia has focused on foreign policy priorities in Europe, the US, even the Middle East, while ignoring the countries on our doorstep. That is not to say Australia is not engaged in the region; the Pacific is the largest regional recipient of Australian development assistance, a sum that far surpasses other donor nations. Yet, Marles argued, the commitment of resources to Pacific Island nations in the absence of a vision or debate regarding Australia's role in the region has led to a 'holding pattern policy in the Pacific'.
The most striking aspect of Act Two was how Marles gave the most articulate and passionate description of the effect of climate change in the region I have heard from any politician of either major party. 'For countries that consist of thin strips of land only a few metres above sea level, climate change is an existential issue. It is happening now,' he said. 'When we don't uphold our responsibility to speak with a Pacific voice, as has been the case on climate change in recent years, our reputation suffers.' The political courage to acknowledge both the effects of climate change and Australia's past failings to show leadership in this area should not be underestimated. Marles deserves credit for highlighting this important point.
Act Two concluded with a call for Australia to show greater regional leadership to support neighbouring Pacific Island nations. The case had been made and the audience was enthralled. All that remained was for Marles to offer solid proposals for Australia to provide greater leadership in the region.
Act Three of the speech should have provided a conclusion that demonstrated Marles and the Opposition could indeed provide the visionary leadership for engagement in the Pacific that he claims Australia has failed to show over the last few decades. Instead, Marles proposed slightly broadening the scope of the Defence Cooperation Program, which Australia has with the three Pacific Island nations that have a defence force, and extending 'government actions to assist the functions of government in the Pacific'. As Australia does both of these things already, in essence the sum total of Marles' recommendations to address the issues he had so beautifully articulated was to do a little bit more of what we already do. After such a strong speech, it was sadly underwhelming.
The key omission from Marles' policy proposals was climate change. As I have written before, Australia's position as the world's largest coal exporter does not sit easy with many Pacific Islanders. Having identified the existential threat climate change poses to the very nations Marles wants to support, he made no mention of combating it. Indeed, when a questioner asked him about tuna fishing and climate change after his address, he chose to ignore the latter.
Marles is obviously a talented orator and a politician of conviction who cares about the Pacific region. He wants Australia to do more for our island neighbours and has been rightly applauded for this address. Yet passion alone will not be enough. We need our politicians to also articulate sound policy proposals that will comprise the very vision that Marles has called for.
My colleague Jonathon Pryke has outlined some very practical proposals, which I wholeheartedly support. But without leadership on climate change, which includes the re-examination of our coal policy, the region will not see Australia as a true leader that speaks with a Pacific voice.
By Euan Moyle, an intern with the Lowy Institute's Pacific Islands Program.
Prime Minister Rick Houenipwela was sworn in last week in Solomon Islands.
Hou (the surname by which he is more readily known) replaces Manasseh Sogavare, who was removed in a motion of no confidence on 6 November reportedly for failing to implement policies and for a lack of consultation with fellow members of parliament. Changes of leadership through motions of no confidence are frequent in Solomon Islands, with few leaders governing for a full term.
Hou is an exceptionally qualified member of parliament and his election to the top job has been well-received by the public. As Governor of the Central Bank during the country's ethnic troubles, he was one of the very few public servants to stand up publicly for good governance, resist overwhelming pressure from both militants and members of parliament and reject extortion attempts. He was a shining light in very dark times.
Hou worked for the World Bank in Washington for two years after leaving the Central Bank, before winning his seat of Small Malaita in the 2010 elections. He was Minister of Public Service and then Minister of Finance and Treasury between 2011 and 2014.
As Hou takes charge, Solomon Islands faces major economic challenges. The most recent IMF Article IV Mission reported that the 'deficit widened to 3.3% of GDP in 2016 when lower revenues and grants were not matched by expenditure restraint'. The cash balance had eroded 'from 3.6 months of recurrent spending at end-2015 to just 0.8 months projected for 2017.' Government payments have been delayed due to these fiscal strains, with vital rural health services adversely affected. The IMF warned the weakening fiscal position has increased the economy's vulnerability to shocks and advised that 'fiscal adjustment will be needed in 2018 - including revenue raising measures, expenditure control and a plan to eliminate arrears'. The IMF also urged the government to speed up financial sector reform and align spending in the 2018 budget more closely with the National Development Strategy.
In his first speech to the nation, Hou acknowledged the short time he has to achieve his goals before the next election is due by the end of 2018. He said his first priority was to stabilise the country's 'ailing fiscal situation, address the cash flow situation and ensure fiscal discipline', promising to formulate an affordable and credible 2018 budget.
Refreshingly, Hou said the government would concentrate on achievable infrastructure programs that benefited rural areas. Hou promised to reopen health clinics that had been forced to close under the Sogavare government and committed to delivering the controversial anti-corruption bill that Sogavare was unable to get through the parliament. Hou's tough stance on corruption resonates with a public tired of politicians more concerned with their own fortunes than the nation's.
Crucially for Australian interests, he reconfirmed new arrangements negotiated with Australia to construct the undersea cable to deliver badly needed high-speed internet. Prime Minister Sogavare had previously negotiated with Chinese company Huawei to construct the cable, but this deal was terminated after the Australian government stepped in over security concerns.
As Central Bank Governor and as Minister of Finance and Treasury, Hou had a positive relationship with the Australian government. Given Solomon Islands' dependence on Australia for aid, security and now telecommunications, this relationship is vital. In his speech, Hou promised to re-engage and 'take extra efforts' to work closely with Solomon Islands' development partners.
In a 2016 paper written for the ANU, Hou makes a strong argument that the constituency is the key vehicle for service delivery and development in Solomon Islands. He argues that constituency development funding (currently expensive, lacking in transparency and vulnerable to corruption) should be subject to stronger 'accountability rules and regulations'. If he is able to improve the accountability and transparency of constituency development funding (likely against the wishes of a majority of MPs), that alone would be a significant achievement. It would endear Hou even further to development partners.
He is also one of the few leaders in Solomon Islands in the last 20 years not associated with questionable acts during the troubles, with corruption (though he was charged with official misconduct for misuse of constituency funds in 2015), with opposition to RAMSI, or antagonism towards Australia. His appointment of Sogavare as Deputy Prime Minister and Minister of Finance and Treasury also promises an element of continuity and stability. Hou's Prime Ministership is an attractive proposition to Solomon Islanders who desire good governance and to international partners such as Australia, New Zealand and the international financial institutions. Expectations will be high.
If Hou's government is able to even partially deliver on his agenda over the next 12 months and resist the inevitable pressures associated with being Prime Minister, he stands a good chance of forming government again after the 2018 elections. Retaining the top job following elections is even rarer than serving a full term in Solomon Islands.
But for Hou's many admirers inside and outside Solomon Islands, it is worth remembering the obvious. As PM, Hou can set the agenda and make some big decisions but he can't personally implement every single policy and commitment. He will still be dependent on his cabinet ministers, who may not wholeheartedly share his reformist instincts, and he will have limited financial resources at his disposal. He will need all the support he can muster.