From Matangi Tonga Magazine, Vol. 16, no. 1, June 2001.

By Pesi Fonua.

A review of the Tongan economy by scholars and economic thinkers at the University of the South Pacific, Tonga campus, on May 29 was a bit like a group of growers assessing the possible yield that they could expect to get from what they perceived to be a well-cultivated plantation.

However, their findings also revealed a mixed bag of economic abnormalities.

The one day seminar was chaired by Tonga’s former Deputy Prime Minister, Dr Langi Kavaliku, and participants included two former Ministers of Finance, Mahe ‘Uli’uli Tupouniua, and Dr Tutoatasi Fakafanua, the Secretary for Finance ‘Aisake Eke, and Afu‘alo Matoto, a former Secretary for Finance, who is now the General Manager for the Tonga Development Bank.

Leigh Harkness, an economist with the Tonga Ministry of Finance during the early 1990s, in a paper titled ‘Recent Economic Development in the Kingdom of Tonga’, had a number of surprises. He stated that since the Tongan government embarked on a privatisation program in the early 1990s, the latest statistics showed that government administration and community services were still the biggest contributor to the Gross Domestic Product.

Public resentment

Leigh also pointed out that there were still some irregularities in the government’s collection of Custom Duties. He said that despite an increase in duty of cigarettes to over 300 percent, the revenue from cigarettes accounted for only 10 percent of the total amount of cigarettes that came into the country. Avoidance of customs duty meant that about 90 per cent of cigarettes imported into Tonga had entered duty free.

With regards to government enterprises and the question on what government appointees were doing on the boards of these entities, Leigh commented on widespread public resentment over the extent of the remuneration of board members. He gave as an example of a confidential board paper of the Royal Tongan Airlines entitled “Retirement Award RTA—Board of Directors” that had been leaked by a prominent politician. He said that the paper, “presents a board that is self-indulgent, seeking to pay itself substantial fees, retirement awards and travel benefits. These benefits were large enough to require a special provision in the budget…” He said that among the reasons given to justify the payments were that the airline was standing to make an estimated profit of $1 million; and that directors and board members of other statutory commercial entities received similar levels of remuneration.

“The fact that the paper was ‘leaked’ reveals that the distribution of income, particularly to those associated with government enterprises is clearly a major issue with the public in the kingdom,” Leigh stated.

Restricting bank loans

With regards to Tonga’s unstable Foreign Reserve Leigh suggested going back to the approach of stabilising the Reserve by restricting bank loans, a suggestion that brought a reaction from the participants.

Christine ‘Uta‘atu, the president of the Tonga Chamber of Commerce disagreed with Leigh, and pointed out that such a policy harmed the Private Sector, and economic growth.

But Leigh said that increasing interest on bank loans remained the most effective tool to restrict loans.

Afu‘alo Matoto, said that the increase in bank interest was not intended to restrict loans but was an effort by the banks to recover their losses from an increase in the Statutory Deposit that had been demanded by the Reserve Bank.

The Secretary for Finance, ‘Aisake Eke, said that the Foreign Reserve issue was a national issue. “It is a partnership concern for both the private sector and government.” He said that government knew that the Private Sector deposited some of their foreign earnings overseas, which was detrimental to the state of Tonga’s Foreign Reserve, so it was a decision on what the country should spend its foreign reserve on.

Sione Tupouniua, a local businessman expressed a sense of frustration with the seminar, which he said presented a number of facts about the state of the Tongan economy, “but what is needed right now is a direction for future economic growth.”

Dr Kavaliku said that with economic development what was most important was an enrichment to the life of the individual, and not just to change the life of the individual.

On the issue of offshore banking and financial institutions, and how Tonga and a number of other Pacific island countries had been black-listed by OECD countries because of their ‘harmful tax competition’, to developed countries, Terry Dwyer from the Australian National University said that OECD countries were bullying these small Pacific island states. “On one hand they are talking about a global economy and free trade but when small countries are successful in attracting capital to be deposited in their financial centres they cry that it is harmful tax practices”. Terry believed that there should be a concerted effort to change the attitude of these OECD countries and to allow small island states to establish financial institutions and offshore banking.