Editor,

I am not sure how many economists with a knowledge of Tonga'’s economy can share your views in your Editorial Comments on 14 Sep 2006, of the above title Tupou IV led Tonga toward a modern economy [2]. I certainly do not, but I realise you were operating from a different set of assumptions, so I will not be making extensive comments on your Editorial. Rather, I will outline briefly why I do not share your views, and then try and suggest ways in which the Tongan economy can move forward.

No one has actually defined what a modern economy is. It is tricky, and almost foolhardy to do so. But if we consider the majority of economies around the world that have been accepted as modern economies, then, on average, we should expect a modern economy to have the following characteristics: market forces rather than government regulations dominate the economy, relatively lower border protections, a much higher private sector relative to the public sector, a large formal (money economy) sector relative to the informal sector, a small (less than 5%) contribution from agriculture to national incomes and employment, and strong financial and other supporting services, and all of them underpinned by a strong liberal democratic political system and a robust legal framework.

Apart from a reasonable education system (literacy of 99%), Tonga's economy is no where close to the above, and there is no sign it is heading that way, despite almost 40 years that the late Tupou IV had to modernize Tonga's economy. As it is, Tonga'’s economy is similar to other Pacific economies: high dependence on foreign aid and private remittances. But Tonga's economy appears to be the least ready for modernization, because it is still stuck in the medieval feudal system, with the royal family and the ‘nobles’ controlling much of Tonga'’s productive resources and economic activities, not to mention political power. Without reforms in these areas, I cannot see Tonga's economy making much progress towards a modern economy.

The political system in Tonga is not necessarily the problem. Indeed, an autocratic system, as Singapore has demonstrated, can be a blessing, because it can greatly reduce the bureaucratic costs and red tape and, therefore, improve efficiency. The Singapore system is not a good one for Tonga, because it is socially and politically repressive. But the absolute power of the king can be put into good use for Tonga'’s economy if he surrounds himself with experts that are trustworthy and consults widely. It appears the problem with the late king is that he tried to do things by himself, and some of the projects and ideas he had appear to have been ill conceived. The new king now has the opportunity to do what his father did not, and that is to establish a sound foundation for economic development. Education is moving well, but Tonga has to reform the feudal system that is locking up productive resources and social and political capitals.

Now, the type of economy that will be successful in the future, in fact right now, is a knowledge-based economy. Geography and the opportunities being opened up by information and communication technologies (ITC) suggest Tonga and the Pacific have to move that way. So services that can be delivered through ITC are things that Tonga might want to tap into. I know Europe, north America, Australia and NZ have expressed concerns about money laundering, but financial services is just one example of services that Tonga can provide through ITC. These countries are not actually worried about money laundering per se. They are more worried about losing that sector because they have high taxes. There are many other services that are now provided through ITC to clients all over the world.

Like other Pacific countries, tourism holds great potential for Tonga. With the tense situation in other parts of the world, this is the time for Tonga and the Pacific to tap into the tourist market. I have noted the figures are still very low. Tonga may have to work with other countries to attract tourists to the Pacific, emphasising the peace and unspoiled environments, as well as friendly people. The forces that are impeding tourism development are infrastructure and highly regulated aviation, which leads to high travel costs.

Another area with potential is fishing. This, from what I can gather, has not been developed. One only has to look at Tonga's sea area compared to its land area to see the paradox of Tonga's economy: surrounded by vast oceans, but much of its investment is in the small land area.

Private remittance will remain a significant source of income. However, much of this depends on permanent migration. I have been trying to convince my friends in Australia...’s Immigration Department to consider non-permanent migration to meet Australia's skill shortage. They are still thinking about it, but it is something that Tonga and other Pacific countries have to consider. They need to pressure NZ and Australia to use Pacific workers to meet seasonal labour demand. There are complex issues here, but until the parties sit down to discuss them, this opportunity will continue to close to Tonga and the Pacific. It is currently being met by bag packers from Europe and other rich countries, so one can see where the fear of Australia and NZ is about using Pacific guest workers.

Now, you might wonder why I have not mentioned agriculture. One word: hopeless. There are so many constraints that make it difficult to depend on agriculture, as Tonga has been for the past 40 years, or so. It is even more difficult now: access is costly and difficult, the value is generally low, the market is narrow, land tenure system makes it difficult to develop efficient agriculture, and the products tend to be perishable. It is interesting to note that whenever foreigners talk about natural resources in the Pacific, they always mention land. They rarely mention the marine resources. Well guess who is reaping all the benefits of the Pacific ocean? Tonga can still use agriculture as one of its bases at the moment, but it should develop its tourism to support agriculture because access to the markets of rich countries at the moment is very difficult.

Finally, Tonga has to work with other countries in the region, and the world, because it has a very small market. It, therefore, needs to adopt a measured liberalisation of its economy. Perhaps, freer trade with other countries in the region, Australia and NZ, perhaps a freer movement of workers. It also needs creative and innovative thinkers to think up new ideas that can be developed into new economic goods and services.

Apelu Tielu