Elected government needs strong public service first, says Tonga's Finance Minister [1]
Tuesday, November 11, 2008 - 17:08. Updated on Wednesday, July 29, 2015 - 15:54.
By Pesi Fonua
Tonga's Minister of Finance, Hon. Afu'alo Matoto believes that elected Cabinet Ministers could abuse their authority if there is no strong Public Service in place to check and advise them during Tonga's political reform.
"My concern is that we are not [moving] quickly enough to reform the Public Service and we will not have a strong Public Service to check and advise the Ministers," he said.
Afu'alo was commenting on Tonga's movement for political reform, during an interview with Matangi Tonga Online on October 28 in which he discussed the progress of the recent Economic and Public Sector Reform and also the likely impact on Tonga of the global financial crisis.
Public Sector Reform
Afu'alo said that when the Economic and Public Sector Reform Program was launched in 2002 the focus was on the Public Sector Reform Program.
"We started with the Public Sector Reform Program but it has not been working out as we wanted it to be and it concerns me very much to [try and] put an elected government and elected ministers in place while the Public Sector Reform Program has not been fully implemented.
"You know people who come into power often find it very difficult to stay within the boundary of their power, they normally exceed their power, and that is when we need a strong public service, for senior staff to advise the Ministers," he said.
Private Sector development
The 2002 Economic and Public Sector Reform program was launched with an emphasis to develop the Private Sector to be an engine to drive the economic reform.
Now, even though world trends appear to be favouring government bailouts for failing private enterprises, Tonga is pressing ahead with the program.
"There is no way we can change direction. We have come this far and we just have to keep improving what we are doing. If you want to go back, there will be more problems," said Afu'alo.
Unemployment
The most visible problem for Tonga is a lack of industries to provide employment opportunities.
Afu'alo said it is still possible to find the ideal industry for Tonga, similar to the Copra Industry, when any one at any time could go out and make copra and sell it and get money in their hand.
"For example, if government will establish a marketing enterprise, and its sole business is to buy products and produce made by the people. Government then will be responsible for marketing those products, while the producers, private companies and individuals will just concentrate on producing their handicrafts, root crops, fish products, whatever. They will be paid on the spot when they deliver their goods. In that way industries will be thriving and people who are employed will have money. This is just my personal view."
Afu'alo said that the Economic and the Public Sector Reform Program in 2002 was intended at improving the way of doing business by the Private Sector and to restructure the Civil Service.
"With regards to the Economic Reform our main concern has been with the reforming of the Financial Sector, a Financial Reform of the banking system, and a new Income Tax System, Tariff and Duties, and we are nearly through with that, excepting for refinement in a few areas."
The Minister of Finance stressed that the economic reform, was primarily looking at ways to improve the way of doing businesses by the private sector, "we are still working on it, and we still have a long way to go, and there is no end to that."
Global financial crisis
Tonga's relative isolation should allow us ample time to prepare for the impact of the global financial crisis, Afu'alo said and he firmly believes that that Tonga's safety shield against this crisis is "careful management".
"It applies to both the government ministries and the private sector. The annual budget allocation remains the same and the challenge is to achieve what is required."
Amidst the global concerns over the financial crisis, and talk of financial bailouts, recession and starvation, Afu'alo pointed out that Tonga can get by if we "dig deep".
"With regards to food security, we can grow and produce most of our basic needs."
But he said that the price of imported goods, particularly fuel, remains to be a major concern, because it means that Tonga's electricity price will remain high and is already, according to ADB, the highest in the region.
There is a concern for Tonga that the global financial crisis may negatively impact the flow of remittances and reduce income from tourism, but Afu'alo thinks that "skilful and careful management will enable us to weather the crisis."
Afu'alo refuses to accept that Tonga is in a recession. "I would not say we are in a recession, the price of oil and some goods have come down. We can't escape it because we are part of the global economy, but recession is a matter of a degree of impact."
Overseas loans
The one area that Afu is very concerned about is Tonga's exposure in overseas loans and particularly the $120 million pa'anga loan from China for the reconstruction of Nuku'alofa. He said that because the Chinese currency is getting stronger by the day against the pa'anga, in 20 years time it is likely that the pa'anga amount that Tonga has to repay could have increased by 20% and it will take many more pa'anga to pay back because of the different exchange rate.
"It was a matter that was raised with government while the loan was negotiated and we could hedge against it, but you can never tell. It is an issue that we have to deal with whenever we borrow from overseas."
Banks bail out
He pointed out that capital funding was not a problem because millions of pa'anga had been injected into Tongan's financial institutions during the past months, and Tongan banks currently did not have any liquidity problem.
Afu'alo said that Tongan banks have had liquidity problems and the reason for that was "basically, because banks exceeded the guideline given to them by the National Reserve Bank. But the current management are well aware of what caused the liquidity problem, and are committed to make sure it would not happen again."
Afu'alo said that twice already this year government had to help out Westpac Bank with its liquidity problem. He said that the first time it happened he was away from the country but the bank contacted the Prime Minister. "He called me and we communicate via e-mail, and later we transferred some money to Westpac."
The Minister said that again in August they transferred $15 million from the National Reserve Bank and deposited $9 million with Westpac and $6 million with the ANZ, "just to shore up their liquidity. Westpac was under capitalised and it was below the liquidity level.
"The Westpac parent company in Australia has transferred over $20 million to recapitalise the Westpac Bank of Tonga to meet their liquidity needs. Now the banks are OK."
Afu'alo said that when a bank is in trouble and government pulls out its money and deposits it in the bank, "basically that is a bail out."
Banks in trouble
Afu'alo said there were a number of ways of how to bail out financial institution that got into trouble.
In the USA government went in and bought out the debts, "whereas in the UK and in European countries, their approach was to buy shares in the banks.
"What we did, was taking out our money from the Reserve Bank and depositing it in the banks, then we can take out the funds whenever we need." Afu'alo said that to deposit such an amount in the banks did not need any parliamentary approval.
"You can equate a bail out to when a bank says it is in trouble and government pulls out its money and puts it in that bank; that is a bail out."
Afu'alo pointed out that government was always willing to assist enterprises that offer essential services to the public, "but those businesses must have the capacity to utilise properly that assistance. There is no point in giving financial assistance if the management is incapable of making a profit. The same goes with the bank, they can't keep lending if the business can't make any profit."
Financial assistance was extended to businesses that were affected by the events of 16/11. "There were Small business Grants, and also loan interest subsidies, and now the banks' liquidity level is good, banks would be most willing to lend to profitable business ventures," Afu'alo said.