Opinion & Commentary
Vanutatu’s failures propped up again
Vanuatu is no stranger to aid. Since independence in 1980 the Pacific island country has received more than $2 billion in assistance. Indeed, when it comes to finding appropriate aid programs, few appropriate better than Vanuatu.
Earlier this month, Vanuatu secured a five year, $89 million dollar Compact with the US Millennium Challenge Corporation.
The Millennium Challenge Corporation was created to change bad old ways of giving aid, with a mandate to strictly monitor and carefully select developing countries that ‘rule justly, invest in people, and promote economic freedom’ for its largesse. Vanuatu is the winner of its arduous search for candidates.
It sounds idyllic. An island paradise with low unemployment, sound governance and an economy that is raising the living standards of 200,000 citizens. Who could be more deserving?
But the Vanuatu presented in the Millennium Challenge Corporation Compact bears little resemblance to the real Vanuatu. Rather than being a beacon of good governance and economic reform in the region, Vanuatu has a record of political instability and economic stagnation. The population has grown more rapidly than the economy so that the majority of people are no better off than at independence.
A $27 million Asian Development Bank loan was supported by AusAID for a Comprehensive Reform Program in the late 1990s in an effort to make the Vanuatu government more efficient. Nearly a decade on, only improved macroeconomic stability is evident and the anticipated ‘growth dividend’ is yet to be seen.
The Millennium Challenge Corporation, under pressure to deliver funds to developing countries or face large budget cuts, accepted the case that Vanuatu is the most deserving of aid based on 16 selection criteria, half of which are based on questionable qualitative surveys such as corruption and economic freedom indexes. Quantitative criteria are used, but they are misleading. Government expenditures on health and education as a percentage of GDP, for example, look healthy by regional standards, but on a per capita basis, a more meaningful measure, they are among the lowest in the region.
Vanuatu has rich agricultural and forest land, marine resources and beautiful tourist locations. There is no reason that it should be doomed to poor growth and low standards of living.
The economic policies that Vanuatu’s governments have pursued are the principal obstacle to economic growth.
The fiscal base is limited to a partial value added tax and import taxes. There are no income or corporate taxes.
Public service wages and salaries take up more than half the budget revenues, and have been growing while expenditures have been falling, so that once materials are paid for, there is no funding for infrastructure maintenance, let alone development.
No country in history has ever become rich without private property rights, yet communal land tenure has been enshrined in the Constitution. Limited urban land and some rural estates are privately or government owned, but otherwise, land is not titled or registered and cannot be used for economic development. This confines more than 80% of the population to a subsistence existence, with little hope of anything better.
Women’s work in the gardens feeds the population but agricultural exports come from a few long established estates. There is little smallholder cash income.
A shortage of skilled workers in the cities means that Port Vila is filled with expatriates while the majority in the countryside are underemployed and underskilled. The consequences are particularly dire for young men who inevitably drift to urban fringes where there is no unskilled work. Social instability and crime are increasingly evident in Port Vila, with the situation likely to deteriorate further unless more jobs are urgently created.
Protected monopolies that limit power, water, sanitation and communications to urban areas create high costs for business. Only a tenth of the population is formally employed.
A joint Electoral Commission and Transparency International report published in 2002 found that Vanuatu had an electoral roll that is 20% larger than the eligible population. Despite being a country with a population the size of Wollongong, Vanuatu is happy to be a full member of the United Nations and 31 other international organizations, but is yet to sign key UN anti corruption treaties.
This is the real Vanuatu that the Millennium Challenge Corporation is rewarding so generously. And while the elites congratulate themselves at international junkets, it is the rural poor that pay the price.
Gaurav Sodhi is a researcher at the Centre of Independent Studies. H. Hughes and G.Sodhi, ‘Annals of Aid: Vanuatu and the United States Millennium Challenge Corporation’ is now available at www.cis.org.au
