Tupouto'a suggests that Tonga could "dollarise" its currency [1]
Sunday, March 30, 2003 - 10:12. Updated on Friday, February 19, 2016 - 15:42.
From Matangi Tonga Magazine Vol. 18, no. 1, March 2003. © Pesi Fonua
Interview by Pesi Fonua.
Tonga’s Crown Prince Tupouto‘a offers a radical solution to Tonga’s inflation crisis: he says the low Pa‘anga is retarding the economy, and suggests that Tonga could dollarise its economy, to allow the US Dollar to become legal tender here.
Tupouto‘a is the chairman of the Shoreline Group, a private company and one of the biggest private investors in Tonga at the moment.
Shoreline engages in power generation, telecommunications and property development. It is the sole supplier of electricity for the whole of Tonga, excepting for a few isolated islands in Vava‘u and Ha‘apai, and as a big importer of diesel to run its generators is one of the companies that has been forced to increase its prices to meet its overseas debts.
Shoreline has also invested heavily on the formation of Tonga’s second telecommunications provider, Tonfön, providing a wireless telephone service in competition with the state-owned Tonga Communications Corporation.
In January this year, the Crown Prince became the Prince Regent, while his father, King Taufa‘ahau Tupou IV was overseas. The following are excerpts from an interview with the Prince Regent who discussed a number of topics from the declining value of the Tongan pa‘anga to the threat of war and a rise in the price of oil, to privatisation, and the controversial issue of the royal family in business
The Pa‘anga
Pesi Fonua - The Tongan Pa‘anga is losing its value against the New Zealand dollar, the American dollar and other currencies. Do you think there is a need to fix the value of the pa‘anga against one currency instead of floating it?
HRH Crown Prince Tupouto‘a - The trouble is that by fixing it, there is a fear that you will deplete your reserves in double quick time. I am not an economist, I’m just a business guy, but certainly I think the lower level of the pa‘anga has probably had the greatest multiplier effect retarding the economy.
Personally, I think we actually have an import-driven economy. Even our exports are import-driven. If you buy equipment and fertilizer, or even planting material for squash and your currency goes down, then to pay for your exports your imports are getting more and more expensive, while your receipts remain the same. Our economy is very much tied to imports, but there are so few import substitution industries.
Do you think a time will come when small Pacific Island countries should have only one currency?
No, absolutely unworkable. They have got no wealth for exports.
You know, we could dollarise the economy. You could declare the US dollar to be legal tender in Tonga, as well as the pa‘anga, and trade in US dollars.
So then the pa‘anga will become the same value as the US dollar?
No, but you don’t worry about the pa‘anga any more, because you can deal in US dollars, if you like. So when you pay off your debts you try and pay it off in Tongan, but when you are making charges you charge in US.
The main reason you worry about a lower pa‘anga is when you have to convert. What about a situation when you didn’t have to convert? A little too radical, I think for Josh [the Minister of Finance], but I’ve seen it done, in Israel.
So there are still a few things that can be done?
Oh yes, but you know it’s just that if you have to do things quickly it’s radical. If you devalue the traditional way, it’s going to take some time.
So are we going to do away with the Tongan Pa‘anga?
You can have two currencies. We can have both, but, of course, I think more people will be dealing in US dollars. Our exporters will be paid in US dollars.
Can it be a temporary thing?
Like a temporary building, it will be probably be very permanent, nothing is more permanent than a temporary building.
War and oil prices
What do you think will happen to Tonga during this period of uncertainty over the price of fuel and the possibility of a war with Iraq?
It is difficult. I don’t even know if there is going to be a sharp rise in the price of oil. The price rise now I think is the result of speculation, and if they replace Saddam Hussein, it is quite possible that he will be replaced by someone more meaningful to Western interests, the interests of the United States and the rest of the globe, which means that they will probably lift all sanctions, oil sanctions. Iraq is debt-ridden but she will begin to overproduce like mad to pay off her debts, and that increase in production may well affect the price of oil.
So there is going to be a sharp rise and then a drop?
But it is deceiving, because it is all based on speculation. I think once the war starts the price of oil will stabilise one way or the other, so when the war is over there is going to be another question of how much oil Iraq will be permitted to export.
Government has been talking about a bulk oil storage, and with Shoreline being the biggest consumer of oil, what do you think is the possibility for Tonga to have a tank farm?
Storage business cannot be done independently, you have to do it with the agreement of the oil company. Our concern stems specifically from political consideration, because of the instability in Fiji. It is still a concern.
Do you think oil will remain to be our main source of energy?
My company’s strategy is researching every possible avenue of alternative energy. There are a few very good technologies on the horizon, hydrogen fuel cells is one, but I imagine the first beneficiary from this will be the small scattered islands of Tonga.…They have no power there at the moment, and geographically they are small enough to wire the entire island up on DC instead of AC. There has been a tremendous development in the battery technology, and they are able to store a lot more power, and, of course, using solar energy to recharge the central battery.
The price of electricity at the moment is 34 seniti [per unit]…in the USA it is 34 US cents, so it is more expensive than here. We haven’t increased our charges for 18 months.
Inevitably, the price has to go up, because while the price of fuel goes up the value of the pa‘anga goes down and we are sandwiched. If the pa‘anga had remained at the same level we would not have needed an increase.
Oil exploration in Tonga is a topic that we keep coming back to whenever there is a threat of an oil price rise. Do you think there is oil to be found between Tongatapu and ‘Eua?
Even from the original scientific survey we always knew there was an anomaly between here and ‘Eua. The government has two or three proposals that it is negotiating with different companies, American, Australian and British. The trouble is it is a high-risk investment. The only way to find out if there is oil down there is to drill. It would give us an idea of the rest of the geological structure, and in the event that they do strike oil it would give a far better idea of what to negotiate for the other anomalies throughout the Kingdom, because there are quite a few. What makes our oil very interesting are the seepages because there must be something down there, but we will never know until we drill. With all the technologies available no one can say for sure. The only way is to drill. Maybe we should give more concessions away than we would have liked to, but I think it is well worth it to have one well, then we can negotiate for the rest. We are not the same geologically as the rest of the Pacific Islands, we are part of the Australian continental shelf, which means we are as old as the oil fields in South Australia. It would certainly solve a lot of our problems.
Globalisation and the Private Sector
There is a conviction that Globalisation will put us in a situation where we will have very little control over our economy.
To a certain extent, any country in the world is subject to the rest of the world. Even the American economy has become so internationalised because of the enormous investment that has been made there by the French, the Germans, the Japanese, and the British Banks, that the value of the US dollar no longer reflects American economic performance, because any time it makes any movement to devalue, all the foreign banks step in and buy up dollars to keep the value high. So welcome to the modern world! Nobody controls their own economy any more, with a possible exception of North Korea. You can’t cut yourself off from the rest of the world any more.
The privatising of government enterprises was hailed as the ideal process to prepare ourselves to be part of the Global Economy. How far do you think we can go with privatisation, looking at education, health and the prisons?
In the case of the hospital, we can have both. Have a public hospital where the treatment is free, and a private hospital for specialisation, for paying patients. Then such hospitals can complement each other, especially in so far as diagnostic services where a private hospital could do a lot of referral work from public hospitals. We need something like that, where we have a customer base that is willing to pay the price for a first class health treatment, as opposed to making everybody pay.
What will be the political implication of such a situation when government offers a second grade service, and the private sector is offering a better service, bearing in mind that privatisation is bundled together with a global democratisation program?
A democratisation program in Tonga is forging ahead economically, and I think that will drive economic prosperity, which in turn will drive political reform. Because, the government, unfortunately, is strapped by a totally unnecessary large civil service, so it can no longer fund infrastructural improvements, and development from its own revenue, so that’s why it has to go out and get foreign loans. Parliament engages itself in what it sees as the most important question facing the globe, which has very little to do with the economy. So by default then, the power to develop the economy has fallen onto the lap of the private enterprise.
The private sector, an interesting situation?
Well, privatisation solely means, that the government has a lot of boards to look after different activities, so I think what the Minister of Finance wants to do is to push all the civil servants and ministers out of the boards, and staff them with good, competent, reliable people from the private sector.
So, it means that they will start employing professional people as opposed to civil servants, who might actually be doing more good at their desks.
Following the dismantling of the Commodities Board, private enterprises were expected to take over the export of Tongan agricultural produce. They are doing that now, but some growers are saying that they felt more secure with the former Commodities Board.
The squash business started off as a private initiative by my cousin, Prince Mailefihi, who on his own, made the first squash export to Japan, then cheap competitors lobbied for the government to take over all the marketing of squash, which they did. The moment that happened, the squash exporters then decided that they wanted to do it on their own and to privatise, then government said thank you very much. So really, it is their own choice, they wanted to deregulate the Commodities Board, when it was doing such a good job. But our unscrupulous politicians made very good capital out of it, so now what are they waiting for?
The taking over by Shoreline of the generation and the distribution of electricity in Tongatapu, ‘Eua, Ha‘apai and Vava‘u from the Tonga Electric Power Board remains a controversial issue. What would have happened if Shoreline did not take over the TEPB?
They would slowly find out that they were bankrupt. Certainly, we would have been worse off if we did not take over. The old Power Board employed a Board of Directors, it was a grave drain and they ceased to care about customers.
The Power Board was effectively very inefficient, and I made a proposal and it was accepted, that is business. There have been an awful lot of ex-employees of the Power Board who have lost their jobs but, unfortunately, they should not have been recruited in the first place. I started employing a lot of former employees, but last year I had to fire them, their work ethic was unbelievably bad, lazy and inefficient, with no attention to details, the last thing on their mind was to provide any sort of service to the public. The equipment had not been maintained for many years and so I had to dismiss them all. We recruited totally new employees for Shoreline Distribution and there is a substantial up-grading of the lines. I think it has been proven to be the best thing to do because of the substantial increase in power consumption during the last three months.
How are you dealing with the problem of Tongatapu consumers having to subsidise the power supply for the smaller communities of Ha‘apai and ‘Eua?
Yes, we are actually just about to make some major investment in ‘Eua and Ha‘apai to modernise their generation plants, and also up-grade the wires. We have contracted a New Zealand company, first to carry out a study on the distribution system, after that we will go ahead and make the investment.
The cheap telephone rate that we have now is attributed to Tonfön’s entry into the market but as the competition is heating up how low can the price go?
I think that was part of the government strategy, I mean two companies so the competition will drive the battery to arrive at the most affordable price, for the customers and the companies.
But how low can we go with the rate?
Well, I have no problem with that. I think I can manage to develop the company, repay the financing, and of course I have got only 30 employees, and I don’t get a salary. That is another thing.
With regards to e-commerce do you think we can capitalise on the new service that is offered by Tonfön?
Yes, but it all depends on the individual, on how good you are. There are certain businesses, hotels, resorts in Ha‘apai and Vava‘u, they will find it a lot easier with e-mail for bookings and authorise credit cards.
On our trip to Vava‘u and Ha‘apai you were looking at the Tonfön operation. Are there any new ventures or extension there?
We are planning to develop the islands further over the next three years. We are actually doing now, what we had planned to do in three years’ time.
Royal family in business
You know the issue of members of the Royal Family getting involved in business is a controversial one in Tonga and [for other royals] world–wide. What made you decide to get involved in business?
Again, I don’t think it was a conscious decision. It was just a surprising one for the Tongan people because they’ve thought of the aristocracy as people who farm, so had I gone and farmed they would have had no interest in it.
But, unfortunately, in this life you have to pursue what you are best at, and I am a rotten farmer. I mean, I can’t grow anything. The evidence, you know I planted 120 trees on my drive, all of which died, then I tried to plant 50 olive trees on the embankment, they not only died, but they all died on the same day. So I am incapable of touching a plant—they almost immediately wither and die, so what else is there for me to do but to venture into business? I have a little idea of how to do things, so it is best pursuing what you are best at. If I were a lot better pianist than I am now, who knows, I may have been giving concerts in Vienna. I think it is a good idea that everyone should be encouraged to do what they are best at, regardless, and not view any profession as being lower than the other.
But what you do in farming, you plant, harvest, and sell it and pocket the money, and pay off your creditors, it is the same thing, really. I think for a lot of people, they don’t want to see aristocrats getting too wealthy. People get upset because not only were the aristocrats born privileged, but now they get all this money as well. But I don’t really see business that way, of course, money is important, but you know we have plenty of successful people, successful doctors, musicians, successful school teachers, successful farmers, even successful journalists, and if you are successful at these professions you are not necessarily wealthy. But if you are successful in business, you really can’t help but attract wealth, so it puts an extra responsibility on you to make sure that you use this wealth wisely. In my case because in business I have got 50 people who are directly dependent upon my success or failure for their salaries and wages, so if I go down I take 50 families out with me, immediately.
A world view is that Royalty should never get into business, but at the same time expected to live like royalty.
Take the British aristocracy, because they have a lot of impoverished ones, as well as a lot of wealthy ones with large land holdings and farms. Whereas in Holland, for example, the Royal Family are actually shareholders in many big enterprises, Royal Dutch Shell, KLM, Phillips.
I don’t really see anything wrong with it. It’s a question of locality.
Some people think it is wrong for you to get involved in business because of who you are, the Crown Prince of Tonga.
Well, in our family we were always brought up by our parents to make our own way, and not to sit around and depend on the government. When I was a boy my father bought a tractor and he had a big peanut farm near the airport, and that peanut farm educated his children, except me, bought the vehicles and cars. So that was alright, but I am sure if he had gone into business, to telephone and electrical businesses, he would have been criticised and people would have though that it was something inappropriate.
But on the other hand, I have had plenty of people, come and congratulate me. They like the idea that I am not dependent on government.
I think many Tongans are getting into business, and they should, because we do not have enough land. I am amazed every time I drive passed the waterfront and see the number of new fishing boats. Tongans here, and Tongans from overseas buy a fishing boat and go out and fish. The only big resource that we have, except sky and sand, is the sea. Fish is becoming a very significant export now.
There is a Tongan business community also that has a bad reputation with integrity, with overseas suppliers as well as banks. And I think that our Chinese community for its relatively small size, have made a tremendous contribution to the economy.
They seem to be more focused.
I know it is not good to make generalisations, but I remember in Sea Star, there were certain activities that the Tongans were better at in general and certain activities that the Koreans were better. Staying out at sea and being disciplined enough to fish every day, the Koreans are much better. The Tongan boys will come ashore, get all their bonuses and disappear for two weeks and get drunk until they have no more money, then they decide to turn up for work—that sort of thing. That is a no no for a fishing company. Whereas the Tongans who are working in the processing plant I can’t fault.
But having said that I can’t make any generalisations in my company now, because in both the generation plant and distribution, we have a whole mix of nationalities.
It is probably the way to go?
I think it would be for businesses in Tonga. I could never have done this by employing only Tongans, I don’t think it will be possible to do so because our talent pool in the country is limited, especially in the technical side, we have to take a mix of nationalities.
Are we going to get into to research. Are we in any position to do that?
Economic need will demand that, and will produce people to do research. In the food technology area, for preserving talo, bananas, processing coconut. Coconut and watermelon are probably the worse in the world to try and pack and bottle, they vary in their sugar content from day to day and they cannot be stabilised without adding sugar. Pacific Islanders and Tongans do not preserve food, they always eat fresh vegetables. On the other hand the difference in prices, say a basket of yam in the market during high season is about $200, then when it is scarce it goes up to $600. So someone may think about making the perfect process of, adding water to packaged yam powder to make mashed yam. That may be possible technologically, but for the people to eat yam powder is something else. That is something for Tongan companies to do because there is no one else in the field.Kava?
The processor gave it a bad name, because it was concentrated kava, and it has been blamed for kidney failure, but it doesn’t need to be concentrated.
In the hills of South America in Colombia, the Indian hill tribes, when they are labouring out in the field will take a leaf of coca plant and chew it to sustain them in a hard day’s work. But then it was mixed with petroleum and concentrated into white powder and made into narcotics, and now they are trying to destroy the coco plants, but nobody looks at what is happening with your insatiable appetite of the Americans for drugs, so it is better to punish all the drug producers, nobody ever said ‘what about stopping the addicts?’ because they are the ones capitalising this business.
The same may happen to the Kava?
It may come to it, it will destroy our kava plants because it is causing kidney failure.
Democracy
Recently, while you were away overseas you met the Secretary General of the Commonwealth Secretariat to discuss democratisation in Tonga. What was the outcome of that meeting?
Everyone has his own idea of how democracy works, like Fiji which has a racially based one, and I don’t think we really want that. American and, Japanese democracies and to a great extent the European party system, are systems whereby the great industries, the most profitable companies in the country actually pay for both sides, so that while the public is called upon to exercise their democratic right, for one day every five years, you can be sure that whichever side becomes the government they will continue to promote and defend the country’s essential interests…despite the fact that each elected government spends the first year trying to dismantle all the work that has been done by the previous government, it is a shame.
I think we should have a good parliament and not the school boy democracy that has been preached by people who are in parliament.
In future the big companies may become more involved in the politics of the country?
Well, in as much as a candidate for a public office needs the co-operation of media companies, public relations companies, television, some transport companies, in order to get his message across to the public. He needs a policy research staff, who will get him the facts and figures, write his speeches, so that unlike ? he’s not spouting garbage and actually makes speeches that make economical or political or strategic sense. Then he must have the air-time to put his message across. So I can’t see how can he can avoid it, when he gets elected on the understanding that he will defend the interests of those companies, which funded him to get there, because next time he could be out, next time there is no sponsorship.
So, is Tongan politics developing in that direction?
When you speak of democracy, this is how it works, these are the nuts and bolts, if you don’t do that then you will polarise the economic community then they divide themselves between this party and the other, hence you get Fiji, where a powerful commercial interest who missed out on lucrative contracts and braced itself to kidnap the government. It also happens a lot in Africa. We don’t want that, we want a responsible system of commercial sponsorship. We have the infrastructure of a Monarchy, an infrastructure is already in place.
Companies don’t take political sides but fund candidates equally.
The developing world has its own interpretation of Democracy?
Democracy is like coffee in every country, according to its character, you have to add a little milk and sugar to make it palatable.
We have a culture which distrusts people in commerce. I think it is inspired by the brand of low church Protestant Christianity in which we were brought up, and somehow if so and so is making something I must be losing something. Well, that is the short way to poverty, I am afraid.
We are not moving away from that sort of attitude?
You are never ceased to be surprised by how deeply people are affected by their early Protestant upbringing. It will be heightened by economic and political instability, and in future people will turn to what they are familiar with, and they are less willing to experiment. The Great Depression ushered in Nazi Germany, fascist Italy and Japanese militarism, so Lenin’s theory was wrong, he thought that economic instability would drive people toward socialism. It didn’t, it made them more conservative, it turned them to the right not the left.