Pacific island nations : how viable are their economies?

Abstract

In an earlier issue of Pacific Islands Policy, Francis X. Hezel, SJ, examined the economic performance of the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands before and after independence. Despite abundant start-up funds from the United States and advice from consultants on how to create future prosperity, self-sustainability for these island nations remains as elusive as ever. This report is an attempt to answer the question: Are FSM and the Marshall Islands unusual in this respect or are all small Pacific Island nations waging a losing battle in their attempts to create more self-supporting economies?

Development economists frequently argue that with the right policies in place and necessary reforms implemented, any nation, whatever its limitations, can develop a successful economy. In this report, Hezel looks at the record to find out how the Pacific Island nations have fared in this respect since independence. Having abundant exports doesn't always translate into a strong economy, he finds, since the two most richly endowed countries in the region are among the poorest in quantified per capita income. Most of the nations in the region, though, are resource-poor and so have had to turn to other strategies for economic development.

The pathways to economic development for a small island nation, especially one that is remote and enjoys limited resources, are few and steep. Only one of the Pacific Island nations is close to full economic self-reliance at present, while one or two others may be within striking distance. The rest—and they are the majority—seem to have no real prospects for full self-reliance. Hezel asks what this somber but realistic view of the limits of economic growth in the Pacific might mean for larger nations with a stake in the Pacific, such as Australia, Japan, the United States, and China. Foreign aid, he suggests, may not be just a stopgap to achieve economic self-sufficiency, but a permanent requirement for nations that will always come up short of this goal.