Editor,

Mr Peter Goldstern's interpretation (The NZ Aid . . . 12 July, 2009) of New Zealand's $18-million foreign aid to Tonga, is pure conjecture.

His statistical calculations may be correct, but his conclusive arguments in applying them to an economist's model is unreliable, and a flawed use of logic. Taxes on NZ producers who exported goods to Tonga, he wrote: "The NZ Government is actually giving back the money that the Tongan people sent . . . in the first place."

Unfortunately, the economist interpretation Mr Goldstern asked for would disagree. It can be best explained in the benefits of trades between the two countries. His flawed premise suggested that trade is a one-way street. NZ was not the only beneficiary in the trade, and his argument must be rejected.

Rather, taxes were created by the benefits of trade on both sides. New Zealand producers added wealth to their economy by exporting goods to Tonga. Tongan producers duplicated the same in their economy by consuming the goods, and traded back products that New Zealand producers could not produce at affordable costs.

Benefits of Trade

The Golden Goose here is "trade," which is a good thing for both countries. According to the economist: They both benefited from building economic wealth from "better allocation" of their products; producers benefited from law of "comparative advantage" (trade local cheap goods for cheap imports); and the voluntary exchange benefited producers from the law of "economies of scale" (lower per-unit costs in mass production).

Therefore, it was gracious of the New Zealand people to gift $18 million dollars to Tonga on top of the economics benefits Tonga has already drawn from the trade. Moreover, the New Zealand Government wants to be a responsible Big Brother, and a good neighbor.

Although smaller Pacific Island nations like Tonga are a pain in the "you-know-what?" New Zealand feels an obligation to encourage economic growth and trade in the region, which is good business for everyone.

The lesson for the Tongan Government and her people here is to increase trade with New Zealand, and all trading partners. Trade is one of the healthiest incentives to economic growth. Even a negative trade balance has advantages. $18 million in foreign aid is one of them.

Sione A. Mokofisi

samokofisi [at] hotmail [dot] com