The Cook Islands features as a case study in an article recently published in Pacific Islands Brief about economic growth and development in the Pacific Islands.

Using Barbados and the Maldives as examples, the authors make the point that the Cook Islands, Fiji, Kiribati and Samoa have a good deal to learn.

Written by Ron Duncan, Hilarian Codippily, Emele Duituturaga and Raijieli Bulatale, the paper is entitled ‘Binding Constraints to Economic Growth in the Pacific Islands: Some Comparative Insights’.

The paper suggests that Barbados has done well economically because of its political and social stability, outward-looking strategy, reliance on markets and its ”judicious“ balance between government and the private sector.

”Barbados is well placed to participate effectively in the global economy of the 21st century by virtue of its strong and stable institutional framework, its highly educated labour force, dependable infrastructure, and investor-friendly business environment.“

Maldives, for its part, developed its tourism and fisheries industries to the extent that it jumped from its position as one of the world’s poorest countries to the country with the highest per capita income in South Asia.

”Today, Maldives enjoys a tourist arrival rate per head of population exceeding that of any other small island state. Its fishing industry, which was the lifeblood of the economy for a long period of time, has also made tremendous strides through mechanisation and modernisation.“

The paper concludes that both countries owe their development to four factors – that constraints to development were identified at independence, the specific formulation of plans, the presence of leaders who were strongly to committed to those plans and openness to private foreign investment.

”Foreign investment played a leading role in the development of tourism and the fishing industry, backed by strong enforcement of the rule of law. The long-term leasing of state land has been made possible for both domestic and overseas investors; such leases may be used as collateral for commercial loans.“

In the case of Maldives, policymakers ”saw that if the economy was to diversify and develop quickly, domestic skills should be supplemented by overseas labour. Therefore, government streamlined the application process for expatriate worker visas“.

By contrast, the paper says, reform programmes in the Pacific have been less successful.

”Overall, reform programs in the Pacific have given insufficient attention to identifying the most limiting constraints on economic growth. There has not been enough attention paid to the issues that should receive priority in the reform process. Most reform programs attempt to identify all possible factors holding back economic progress within countries and seek to overcome these constraints, without acknowledging the possibility that some other missing factor(s) could be preventing reform on all other fronts.“

The paper acknowledges the Cook Islands’ ”reasonably fast“ GDP growth, a spurt which followed a sustained period of ”poor growth“ from 2005 to 2008.

”The comparatively high rates of growth of per capita income in Cook Islands and Samoa were due in part to the low rates of growth of their population resulting from their substantial emigration and, in Samoa’s case, to the substantial remittances sent by its overseas workers.“

The article explains the background to what it deems the Cook Islands’ limited success in implementing a reform programme.

”Successful economic strategies in Barbados and the Maldives have been replicated in Cook Islands and Samoa with some success. They carried out extensive economic reform programs in the wake of financial crises in the mid-1990s, following which they experienced substantial periods of good economic growth. Both countries had in place strong political leadership committed to the reforms, political stability, and bureaucratic support. Both countries also used public consultation in the form of national retreats or summits to good effect to promote ‘public ownership’ of the reforms.

”However, the widespread interpretation of the success of these reforms in Cook Islands and Samoa does not tell the full story. The Cook Islands had experienced good economic growth at least as far back as 1982. Indeed, over the period 1982-2004 real GDP averaged 4.5 percent per annum, which includes the poor growth during the mid-1990s crisis. Hence, it is difficult to make an argument that significant binding constraints to economic growth were in place and rapidly removed by the mid-1990s reforms, allowing good growth to take place.

”It appears that policy misjudgments caused the financial crises and the resulting poor growth.“

It may be argued that the very high level of aid that Cook Islands has received over many years, especially from New Zealand, was responsible for the good economic growth dating back to at least 1982. But if so, this would be the first country to have recorded such significant benefits from aid. Cook Islands economic performance over the past five years is not impressive. This is due at least in part to the global economic crisis and its adverse impact on tourism. But there appear to be other problems retarding growth and which may be regarded as binding constraints. Government’s fiscal stringency to pay down public debt that contributed to the financial crisis in the 1990s has led to poor infrastructure maintenance and little new infrastructure to support tourism. This, in turn, appears to be inhibiting further private investment. Also, while some state-owned enterprises were privatized as part of the 1990s’ reform package (hotels, ports, and waste management), the high costs of the remaining government businesses (especially telecommunications, ports, power, and water) are a burden on both government and the private sector.

”To its credit, Cook Islands managed to undertake substantial economic reforms in the past and needs to do it again. However, the key question is whether its political economy is amenable to a repeat performance. With four coalition governments working under three prime ministers over the past five years, there must be some doubt as to whether the critical factors contributing to enlightened policy continuity are presently in place.“

The paper concludes that the identified Pacific nations are in need of ”transformative change“.

”The lessons from this study of successful reform suggest that transformative change needs strong political leadership to champion the reforms, a supportive bureaucracy, and a politically stable climate for policy continuity in which the leadership and bureaucracy have sufficient time to undertake needed changes. Widespread public consultation supported by analysis of the costs and benefits of the changes is also critical.“