South Paciflc Study Vo1 21,No l,2000

The Economy,National Budget and Developlllent in Fiii:
A Case of Keynesian Econonlics,Neo‐liberalism
and Econonlic Gradualism

NIlahendra REDDYl)

Abstract

Thc Fli econOmy undenvent a maJor change in its economic Policy approach in early 1980s The move wasaway ioni thc traditional Keyncsian econonlics to onc of a market―
approach,based on the Nco―based grouth and development

This nc、v

classical idcology,is broadly known as Neo‑llberalism Howcvcr,ovcr a dccadc ofopcn cconomic pOlicies,economic and social indlcators reveal a worsening social scenano in Fti Povel,leVel
has increased to 33%,about 20%ofthc children are malnounshcd,income inequality is incrcasing cvcry ycar andcHmc rate is atits highcst cvcr With a ncw labor govenlmcnt clcctcd in 1999,the 2000 budgct dcl市

crcd promised

thatthc government would makc a cOnccrtcd move to refocus attcntion on the real needs ofthc pcople This paper
cxamincs thc budget to ans、ver questions such as docs thc budget represcnt a nc、
v modcl of development?Has thc
thco「y failed?Thesc arc somc of thc qucstions that the author cxamincs in this papcr

Introduction
Ovcr the last twenty ycars,the economic policies of a large number of collntries in thc
world have been dr市en by the Neoc̈lassical ideology(also knOw as Neo―liberalism).ThiS
is a mttOr change from Keynesian approach,which nearly evcry Westem collntry f01low
sincc early 1940s. The Keyncsian approach was strongly supported by the lntemational
M o n e t a r y F u n d ( I M F ) a n d W O r l d B a n k , w h i c h w e r e e s t a b l i s h c d i n 1 9 4 4 a t oBnr eW■
oods
to help prevcnt hturc conflicts by lending for recOnstruction and development and bysmoothing Out balance ofpayments problem. The IMF and World Bank,then,did not haveany control over individual goverlmentt econonlic decision. However,over tiine,IMF andVVorld Bank has changed their ideology and have asserted their position on borrowers
through their own lending activities.
Sincc lnid 1980も,a numbcr of Paciflc lsland countries have adopted the neo―liberal
ideology and have pursued an export led gronth strategy to development. The policies,
broadly known as thc Structural Attustment Policies(SAPs)inClude,in particular,deregu―
lation of the product and factor markets, deregulation of the flnancial market andliberalisation of trade. These policies are put in place to promote the central doctrine of the
neo‑liberal ideology,that is the notion of compctition, Competition at an levels:individual,
flrlns,regions,and beh″een nations. Another central doctrinc ofthe nco―l ibcral idcology is1)Centre fOr Dcvclopmcnt Studics,School of Social and Economic Dcvclopment,Un市
ersity of the South Paciflc
This papcr was completed while on an attachlncnt at Kagoshima University,Research Ccntrc for the Pacinclslands,Lgoshima,Japan Thc inding for this attachment was pro宙dcd by Tokyo Foundation,Tokyo,Japan

South Paciflc Study Vo1 21, No l, 2000

that of smaller and less govemmcnt inteⅣention in the market. In effect,what this implies
is the privatisation of public enterprises. State intervention in thc process of the rnarket,as
per the neo―classical theory,、
vill result in inefflcient resource allocation and thus retard
cconornic growth.
Howcvcr,、 vithin the neo̲libcrals,there are two schools ofthought. One school relieson thc silnplifled textbook modcls to argue for rapid transition,with focus being on fast
privatisation,liberalisation and macroeconomic stability. The other school believes in the、videly knO、vn approach of ecOnOnlic gradualisnl, which elmphasiscs on building an
institutional infrastructure:laws to cnforce contracts and to ensure competition and effective
corporate govemance,and regulations to rein in natural inonopolies and keep the flnancial
system sound ln Ftti,thC rapid reforlncrs had their way.
Over a decade of SAP experiencc in FJi,key CCOnomic and social indicators revealthat economic growth has generally bccn sluggish and social problems has increased. Thc

Prime Ministcr,in his budget addrcss delivered in the parliamentof F」
i,rcVCalcd
thefollowing social indicators,which describc the developmcnt status of Ftti:
・Onc third of our peoplc arc living in poverty, many unable to cat cvcn one
decent meal a day;・Our children are seriously lnalnourishcd―statistics show onc child in every flve
does not get decent food

how can they when all they get is tea and hard―biscuits in the moming before going to school;・Thousands of workers and rural dwellers eam less than S50 a wcck―

how canany person let alone family bc cxpected to live with dignity with such a paltrysum?
・Our rural areas are dcpressed and neglected―

without clcan, piped water,

clectricity,tclephones,tclcvision and Other amenities those of us who live intowns and cities take for granted;and・Vヽre do not nccd statistics tO shO、 v us thc great inequities in our socicties
bccause the visible diffcrcnces of wcalth distribution are so glaring、
vhen morethan 70%ofthc countwt wealth is conccntrated in the hands ofjust 10 pcr
of the population(CHAUDHRY,1999).
He noted that the above outlincd social problems have developed as a result of theprevious govemmcnts'developmcnt priorities bcing out of touch with thc rcal needs of thepeoplc. As such his govemments 2000 budget rnakes a concerted move to refocus attention
on the real nccds of our people. That is the 2000 budget is morc pcoplc―

focused while

mapping out development strategies(CHAUDHRY,1999).
While there was an ovenvhelming support ofthe budget from public in gcncral,there

wcrc claims from the opposition parties that the budgct was just a continuation
previous govemments' ccononlic policies. Thcrcfore,the question that ariscs is has thegovemmcnt rcally changed its dcvclopment strategy to promotc growth and developmcnt in
the country? Is this an altemative to the neo̲classical model of developmcnt? Has thetheOry ttliled? This paper exalnines the abovc questions by analysing the 2000 budget. Thc
past budgets,since 1991,are also exalnined.

REDD■The Economy,Nallond Budgct and Dcvdopment ln FJL A Casc of Kcyncdan Economts,Nco Hberahsm and Economic Gra

The following section of the papcr providcs an ovcrview of the econOmy since 1985
foHowed by an analysis of 2000 and previous budgets The last section of the paper
provides sulnmary and conclusion.

The Fiii Economy 1985…

1998

Thc F」 i econOmy,in the c010nial days,was used for monOpoly proit crcation,
repatriation to the metropolies, and reinvestment with a view to increase niture proflt
rcpatriation(KNAPMAN,1987).Land was plenti負l while capital and labOur was in short

supply The Colonial Sugar Reflning Company(CSR)supplied capital to develop thc sugar
industry and lndian indentllred labour was brought in to flH in for labour shortagc. The
sugar industry dcvcloped to being the top mOst industry in the country over the years. Goldnlining was also established during the colonial period. Following indepcndence in 1970,
the gOvemmcnt got behind thc wheels Of devc10pment.

With a heavy involvcment ofgovemmcntin the development process,govemment expenditure cOntinued tO increase To
flnance goverllinents' budget,cxtensive borrOwing was lnade which led to a lnassive build
up of govcmment debt(Table l and Appendix l).COrruption and bad govemance atvarious levels was alsO a serious problem

All thcsc issues led to a strOng pressure fromlntcmational MOnetary Fund(IMF)and WOrld Bank tO change the economic policy
framewOrk ofthe country,towards a open cconomy,cxport lcd gronth.In mid 1980t,Ftti
started to open up and dcregulate its economy to anow the market to play a grcater role.
However, the economy continued to lag behind in achieving the desircd groM/th level
Some of the key econonlic indicators of the ailing economy are discussed belo、v.
GDP grθ ″″Appro対mately 14 ycars of opcn ccOnomic policies,the economy has nOt made a mtto
leap fonvard.In fact,the economy of Fji plungcd into a recession in 1998(TablC l an
Appendix l).BOth 1997 and 1998 saw a negat市

e growth in real GDP by 1 7%and l.3%

respectively.

I′ッιst θ″′
Thc stagnant private sector investinent has been a cause of concern for policy makers.
As a ratio of CIDP,pHvate sector investment has declined since 1985.

To make up forthe

short fall,gOvemment has been playing a mttor rOle in leading investmcnt in the
Currently,apprOxllnately 66%of the total investmcnt are made by the public sector

Thefall in P1/GDP ratio is a serious issue and needs further in̲depth analysis to suggest strong
policy measuresrrade bα′ακθθThe trade balance continues to、 vorsen following the b″ o lnilitary coups in 1987. To
promote exports and discourage capital outnight, the cllrrcncy was devalued by 330/。

inSouth Paciic Study Vo1 21,No l,2000

Table l. Selected Econonlic lndicators of Fli Economy, 1985‑1998
Ycar

Rcal
P1/GDP Tra(お
GDP
ratio
ancc
gro、
就h
(%)
(FSm)
(%)

bal―

FR
CA
positionbalance/(equ市.tO GDP
months of (%)
importGovt.
Dcbt
lnflation
dcbυGDP chargcs/ ratc(%)
ratio
GDP
(%) ratiO(%)

covcr)

5.5

4.4

35

―‑09

5.6

1.8

4.8

‑‑0.6

6.8

57

4.9

‑‑0.9

11.2

H9

59

‑‑53

82

61

44

‑‑4.6

7.1

8.1

41

‑‑3.3

NA

76

6.5

50

‑‑0.5

42.5

61

4.9

6.2

42.5

7.0

5.2

43

‑4.6

‑‑3267

42.8

6.3

0.8

38

‑‑3.5

4.1

‑3300

41.7

71

2.2

4.8

‑09

32

4.2

‑2674

44.3

59

2.4

5.1

‑29

1997

‑17

40

‑421.4

52.2

69

2.9

4.8

‑0.3

1998

‑13

3.7

NA

13.6

81

NA

NA

1985

‑‑51

122

1986

8.1

9.9

1987

‑6.4

9.9

‑58.5

NA

1988

21

68

‑120.l

NA

1989

129

6.2

1990

3.5

55

‑331.9

1991

‑2.7

54

‑269 8

1992

6.1

36

‑276.1

1993

2.6

4.7

‑‑4255

1994

5.1

4.1

1995

2.5

1996

‑236 5NA‑‑181 lNA

‑165.9

NA
NA

48.2

‑1.1

Datc source:Reserve Bank QutttCrly,Rcscrvc Bank of Fli,1980‐
98
Notc:PI=PHvatc sector invesuncnt,FR=Forcign reserves,NA=Data not available,
and CA=Current account.

1987.Due to inelastic demand for export goods from FJi in the shOrt run,immediate
posit市e effects from devaluation werc not e宙dent(uDDY,1997).HoweVer,the effectwas visible in the longer run,aJ Curve" effect,but the currcncy was dcvalued again in1998 following the Asian crisis. Failure oftrade balance to improvc has implications on the
CuFent aCcount balance. Thc curcnt account balance as O/Oof GDP was5.3%in 1988. The
low level of CA/GDP ratio experienced now should be maintained or else a worsening CAbalance would cxert downward pressure on the donar.
″″θ″′deわ′Gοッι′
Another issuc of concern is the lnounting govcrninent dcbt,which currently stands at
40‑48%of GDP.This consumes a massive amount of governtrnent budgetary expenditurefor dcbt scⅣ icing.In 1998,the debt charges,as%of GDP was 13.6%・

Apart fromconsunling a large chunk of cllFCnt pedods budgetary expenditllre,the mounting debt levelalso has intcrgcnerational concerns. If the accumulated debt has been incurred to flnancc
consumption expenditure of the current generation,then it is the current gcneration who
should pay off thc dcbt. However,this does not secms to be the case.
Iり α′
ノ
ο″″ た
Innation control is a mttor isSuc fOr policy makers.In 1998,innation was arolnd
8.1%.The high rate of iniation is attributed to the devaluation of the Fli dollar in early
January. It is expected that inflation will be much lower in 1999 given the reduction inm and Economic
GraduaLsm 23
REDIl■The Economy,Natlond Budget and Dcvdopmcnt h Flll:A Case of KeyteSan
Economts,Neolberalヽimport duty.

乃 ″妙熔 θ″ ι

Thc foreign reserve ofthc govemment is also not in a extremely safe position. A safe
position would be reseⅣes equivalent to 7 months of imports. Data in table l shows thatsible and in宙
reservcs in FJi has been around 5 months generally.Therefore,both visible
cxport should incrcase to improve thc forcign rcscrve position.

Fli Governments Year 2000 National Budget
The national budget,through its expenditure,deterlnines the wellbeing of any individ―
ual, family, flm or business. The budget reveals, in detail, an the expenditurc that thegovemment intends to incur duHng the following year. In doing so,it shows the inagnitudc
of expenditure that the goverlment intends to make and into which activities. Both themagnitudc and the naturc of the expenditure also deterlnine the overan govemment policy

dil℃
ction. This,in itselt makes the budget a very llnportant docllment. As outlined
carlier section,Fjit economy has a number of prOblems.Escalating govemmen
widening trade deflcit, relatively high in■ ation, large budget deflcit and high levels of
unemployment and poverけ.TherefOre,thc following analysis of the budget will take into

account how govemment intcnds to address these social and economic problcms of thc
country.

The analysis is divided into ●″o sections. Section l exanlines the budgetaryo examines the speciflc policy measurcs
allocations and its implications while section h″advanced with the budget but not capmed by the anocations.

Budgetary A1locations
C οッθ″

θ″′R ινθ″夕の 2 ヮ θ′″″κ α″グB 夕を ′D グ ε″

One of the important elements of cconomic restructunng is smaller govcrlment.
Through smaller govemment,operating expenditure can be reduced and thus its implication
on national debt. Furtherlnore,less governmcnt intcrvention in the market is expccted. The
size of goverlment,mcasured in terlns of its expenditure,has increased by 2.10/O over lastyear and by 81%since 1991(Table 2).HoweVer,the goverlment expcnditure to GDP ratioshows a declining trcnd.In 1991,thc ratio was 33.5%.The 2000 budget shows cxpenditurc
to GDP ratio of 29.6%。

1西Lat it ineans is that less and less GDP goes through the public

sector. This size of govemment secms quite rcasonable when compared to some of thc
other developed countries where markct plays a much greater role.

For Australia andCanada, government cxpenditure to GDP ratio was 34%and 430/O respectively in 1991.
However control over expenditure is important,as it will blow out the budget dcflcit. The
net deflcit/GI)P ratio has bccn dcclining since 1991 while the gross deflcit7/GI)P ratio
peaked h 1996(6.1%)and Started to decline again.It is estimatcd that in 2000,thc grossdeflcit/GI)P ratio will be 5.2%. Thc high deflcit levels has implications on govenllnent debt
which in turn has intergenerational implications.

South Paciflc Stlldy Vo1 21,No l,2000

ν″ И″οεα′ブ
θ″ C"ブ ″′パ の θ″ ′ブ′gEttθ″″′
Any long―tcm solution to problcms of unemployment,poverけ

and incrcasing private

sector invcstment and thus job creation should include more capital expenditure relat市 e toopcrating expenditurc.Thc naturc of cxpcnditurc is vcry ilnportant,as it、 vill dctcrlninc the
ratc of econonlic groM/th in the country in the longer run. The budgetary allocation for
capital expenditllre remains at 1 8.50/0. This is in fact a reduction of over
10/。1999 and O.40/0
ovcr 1991. This is ccrtainly not、vhat is to be expected if thc budget is to display indicatorsof long run sustainable development otteCt市

es.

θИノ
あθ
α
′
ブ
ο
′ク
θ
′
ゴ
ο
″
α′Cα″gο
″
Zω
E導,θ
″
励″′
ノF夕″
The budgct has threc mttOr hnctional catcgorics.These are social,economic andiniasmcture. The econonlic and infrastructure sector is important from long terln sustain―
able development point of vicw

Thcrcforc onc would cxpect that these sectors would

rcccivc inore budgetary allocation. The analysis in table 2 rcvcals that relative to 1991,anthese sectors have received increased budgetary anocation. However, relative to 1999,

therc is no mttor change in allocation to the economic sector.As expectcd
en thestate ofpove町
has rece市
ed a maOr boostin its allocation,an incrcase
by 2.2%.G市,
llnemployment and lack of social security for a large number
ed. can be jin this country,the case for much higher allocation for social services
tcrln solution only. It will only lcad to the telmporary aneviation
However,this is a short―ofthc symptoms of underdevelopment(KORTEN,1987).One must rcalisc that cconomic
scrvices and infrastructure development plays a direct rOle in creating employment,raisingincomc, lowering c五 ine and other social ills, which in fact is a long― tenn solution.
Thcrcfore,a much balanced approach to budgetary allocation to these sectors would becna much better way ahead. The aHocation to economic and infrastructure could have still
increascd without disturbing the social serviccs if thc operating expenditure for generaladlninistration was rcduced.At the moment,general expenditllrc budgct takcs a mttOr
chunk of total cxpcnditure(20.16%)Thc al10Cation to cach of the three categories can also
bc analysed in terlns of operating and capital expenditure. In 1999,capital expenditure inthc econonlic,infrastructure and social seⅣ
i ces were 39.90/0,48.80/O and 5.50/O rcspcctivcly(Tttle 2).In the 2000 budget,we sec an increased allocation to capital expcnditurc for all
the thrcc,44.7%,50.10/O and 9.70/O for economic,infrastmcture and social seⅣices respec―tively. Thc trcnd is similar whcn onc cxamincs the flgures for 1991.
′
ο″ゎ κリ ノEフ β″励′ッ″ И′
わ ′И ″お″ブὼαHcalth, Education and Agriculture are scen as the three crucial sectors for any
developing country. Thc allocation to an these sectors has been incrcasing Ovcr thc last
decade. Agriculture sector received a reduced anocation in 1996. While the overall trend
shows an incrcasing allocation to all thrcc scctOrS,thc 2000 budgct sho、vs notable increase
to an these three sectors. The increases are more visible when one exanlines the per capital
expenditurc analysis to an thcse threc scctors. Among other activitics,thc education budget
also shows an allocation of FSlnl for interest free loans to tertiary school childrcn. This

Hbcrdism and Economt Graduausm 25
REDDr The Economy,Na1lonal Buttet and Dcvelopmcnt h Flll A Casc of Kcync'an Economics,Nco‐will play a mttor r01e in human capital development in the country.It will also dampen
somc of thc social problems via rcducing the number of drop out duc to lack of flnancial
re sector recogniscs the role of agriculture insupport. The increased allocation to agriculω
the development ofthe country.The allocation win reach the population mass that is in therural areas and thus increasc their livelihood. It will also retain a signiflcant portion of thc
population in the rtlral arcas,who othenvise may immigrate to the urban areas and causc anumber of social and envirOnmcntal problcms. As the Minister outlined, a hcalthy andterln growth. The boost in Health budget by
educated society is key to sustained long―
FS15m reveals thc govemments'commitment to crcatc a hcalthy and product市

c popula―tion ln the longer run,it will certainly lead to a mOre productivc labour force. It is yet tobc sccn hov7 much of this allocation is for priinary health care as a large proportion of the
population is found in thc rural areas.

θ
綱″ι
″r Dθ
b′
Dグ ε
ブ
′几″
α
″
ι
ブ
″
グGοッ
昭α
An interesting feature of FJib budget has been the inancing of the deicit.Almost
80‑90%ofthe deicit is inanced by domestic sourccs(TablC 2).An increasing amount ofborrowing from the domestic private sector rnay crowd out private scctor investment. Thereis only a limited pool of resources that is available for thc privatc sector to play with andthus govemment proposal to borrow extensively froln it rnay not bc good in the longcr run.
JAYARAMAN(1998)showS that at a low signiicance level,govemment investment has a

crowding out cffect. Howcvcr,he suggests that no robust inference can bc drawn with such
low signiflcance level. Since increasing deflcit levels add up to govemment debt govem―
mcnt nccds to re‑look at ways in which it could incrcasc its opcrating revenuc and reduce
its operating expenditure thereby reducing the overall deflcit and thus govemment debt.
Govemment nceds to also examine ways of recouping lost revenuc from direct and indirecte side).ThiS when combined
taxes which may stand around FS200m(on the conservat市
with thc revenue foregone from concessions,around S50m,amounts to a meagre FS250m
per year.
Jθκ′α″グE″ρ′Eχpθ′沈′ν′でα〃οεα′,ο琴 ιη′Crθα′Appro対 mately ll,000 students drOp out ofthe school system every year.If approp五―

ate jobs are not available,and the family does not have a strong inancial suppo
thcn a signiflcant portion of these tccnagc kids resort to crilne as a mcans of eaming aleaving. A number measures adopted by the govemment can lead to the reduction ofunemployment. These include the following:
・Provision of FS15m to promote agricultural diversiflcation and marketing;・Provision of FSlm to establish a loans scheme for students ente五ng tcrtiaryout rates;
education. This will reduce school drOp―
・To extend fcc―■ec education to forlns 5 for rtlral secondary schools and those fromout rates;
underp五vileged farnilies. This will reduce school drop―

・Provision of FS2nl to launch the integrated human resollrcc development program
which is cxpected to crcttc 9000 jobs over a three year pcHod;

26

sOuth Paciflc Study Vo1 21, No l, 2000

。PЮ宙sion of FSl.3m fOr micro―
flnance program;。Provision of FSl.5m for poveゥ
alleviation proJccts;。Provision Of FS81.5m for infrast■
lcture development.This cOuld boost up othereconomic activity and investmcnt leading to ncw jObtt and・Promotc the establishent of tounsm/hotel industry pr●

cctS tOtaning around

FS350m.
ヽ■ile thcsc al10cations win gcnerate thc pr●e cted number jobs or not is a questionthat cannot be answered now, the anocations itself shOws the win Of the govcrIInent totackle a serious problem in the cOuntry.
Table 2.Budgct Analysis,1991‑2000.
Itcm

1994

1991

1996

1999

2000

997,2985

1,027,9112

893,8244

1,074,9904

1,097,959.8

92,240.8

77,691.9

70,048.6

15.4

19.5

18.5

10.3

Total Rcvcnuc(S,000)

535,689.2 694,851.8 737,2733

Total Exp.($,000)

605,415.0 832,1003

Budget Dcflcit(S,000)

69,7258

68,882.5

18.9

13.5

Capital ExP/To●l Exp(%)

E x P t tα% グ ル″′B ″C―
を r ″ 乃″″ο″α′Caregο′′
ιS

78

7.5

107

12.2

134

13.0

11.4

135

Social(%)

26.1

26.0

27.0

28.7

30.9

265

39.9

44.7

45.9

48.8

50.1

6.0

5.5

9.7

112,996.2 141,059.6 154,2834

189,0207

217,050.8

C″ ′″′E フ ω % グ ル ″′助 . レ ιαοみF″″ ο″α′Cαノ
cgοッ̀″Econonllc

Total amount(F$,000)
Per capita amOunt(F$)

Agricultllre:Total amount(FS,000)
Pcr capita amount(F$)

３

Per capita amount(F$)

４

7.3

０

Social６
４389

Eフ .И′′ο ′ブ
ο″ゎ たり MEお ″たs̀αEducation: Total amount(FS,000)
Health:43.2

lnfrastnlcture２

9.9

Infrastructure(%)

０
３

Economic(%)

1523

185.9

199.1

240.0

2756

40,117.4

60,324.4

72,029.2

79,927.1

94,8847

54.1

79.5

92.9

101.5

120.5

39,737.5 25,897.3

23,271.7

40,308.9

63,835.9

53.6

34.1

30.0

51.2

81.1

Domestic Loans

741

97.4

812

891

89.0

Ovcrseas Loans

25.9

26

188

109

11.0

39

3.0

3.6

2.6

1.9

5.9

6.1

5.6

52

Dφ ε
ブ
′乃″ ι
レg

Nct Derlcit as a%of GDP
Gross Deflcit as a%of GDP2)1999 and 2000 population ittres arc not available Thcrefore,1998 estimate are used
Data source:F‖i Govemmcnt National Budget(1991‐2000),Ministw Of Fli,Govcmment of Fili,1999.

Specirlc Policy lssues in 2000 Budget
Prブッα′おα″ο′The budget addrcss also rcvealed Govemmentt intention to ron back p五vatisation Of

‖h FlL A C、
c of Kcynedan Economおs,Neo‐
beralism and Economt Crradualism 27
REDⅣ:The Ecmmy,Nttiond Budgel and Devdopmc■

strategic public entcrprises(CHAUDHRY,1999). PriVatisation of public sector enterp五
can take several forlns or complctc p五vatisation could follow a se五

ses

cs of stcps. Figurc lprovides these steps which may not necessarily be followed in sequence. Contracting out
ses,which was solcly owned by govem―
work was incrcascd while m可 o五ty of the enterp五
ment,was coporatized.
Govcrlment Owned

じContracting out Work to P五vate Sector

U
Coporatized(Sale Of Sharc:M■ Onty Sharc Owned by Goverlmcnt)

U
Salc of Share:Partially Owned by Govcrlment

U
Pr市試ized(TOtal Sale to P五vate Scctoo
Fig. 1.Public enterpHse reforlln steps.

Generally,all public cnterprises are natural rnonopolies and a natural inonopoly exists
when the trninimum size to guarantee maximum econonlic cfflciency is equal to the actual
ses in FJi as
size of the market.And this has been the casc of most of the public cnterp五
the domcstic market is quite small. Furthcrlnorc,the state run natural inonopolies have also
been established because they require very large investment outlays which is quite difflcult
for an individual in the pHvate sector to flnancc. Now a number ofissucs arise when thesepublic enterprises are sold to capitalists in thc private sector. One,thc capital owncrs will
charge monopoly prices thus dep五ving a large proportion of the conlmunity from having

access to it. Second,p五 vatisation can also lead to merger of big cnterpnses and thus loss
ofjobs.Thirdly,pdvatisation will lcad to the transfer of decades of work ofthe tax paycrs
into thc hands of few large capitalists. In fact if one notes thc rctums from these entcr¨
p五ses,it is low,but not negative(Table 2).HoweVer,one must note that govemments
motive is not to make proflt but to providc scrvice to those who othettise may not havc
access to thesc facilities.

South Paciflc Stlldy Vo1 21, No l, 2000

Tablc 3 Rctum on Asscts(%)frOm Public Enterprisc,1992‑98
Year

Entcrprisc type
Goverlmcnt

Total

Statutory
authoritics

commcrcial
companlcs

1992

44

17

26

1993

52

16

27

1994

46

07

19

1995

75

11

31

1996

67

15

31

1997

65

21

36

1998

5.5

27

37

Data sourcc:FJi Govemmcnt 2000 Budgct Supplcmcnt,Ministry of Financcfηッθs̀ θ′′
The previous govemment established an invcstinent inccntive package to attract
privatc scctor investll■
ent in the country.

This packagc included bOth tax and non―tax

incentives. Among the tax incentivc included Tax Frce Factory(TFF)and TaX Free Zone
(TFZ). Non tax inccntives included depreciation anowances;hotcl investment incentivcs
and loss carry fo3vard. While the prcvious govemment had plans to abolish thcse incentivc
schemes,the current govemment has not inade its intentions clcar. What this lnay imply isthat,thc govemmcntrnay bc adOpting a wait―

and―see attitude before a flnal decision is IInadeon it. Thc govemmcnt cannot make any mOvc、vhich will affect econonlic growth nega―tively.

Unless thc economy grows, its expenditurc policies will be difflcult to mcet.

Howcvcr,、vhat needs tO bc dOne is a through revicw Of how far has thesc incentivcs

attractcd investlment in the cOuntry.Data from FJi shOWS that privat
a pcrcent of GDP has been falling since 1972(Fig 2).Govemments own report(Ministryof Financc, 1998)suggeStS that concessions havc been unable to attract additional privatc
invcstinent.
８ ６ ４ ２ ０ ８ ６ ４ ２ ０︵
ｏ ｔ ①２ ①α
Ｓ ︶住００ ﹂ぎぎぎぎぎごござござごござござYearFig 2 Privatc scctor invcstment as a O/。
Of GDP, 1970‐1998

REDDr Thc EcononりL A Casc,NttiOnd Budget and Devdopmcnt
h F」of KeyncSan Economics,Ncolわ
erdism and Economに
Graduahsm 29

F7″α″θげα′Sι6ゎ″Reyル′′θ′

Goverrment has decided to establish a Banking Commission to mOnitor thc lcvels of
fees,charges and intcrest rates may have nOt gone、vell、vith the flnancial sector. Furthcr―

morc, a Banking Ornbudsman will also be appointed to resolve disputes beh″

een banks,

insurance companies,credit unions and Other financc sectors,and their consumers. This is
an attempt to rcgulate the flnancial inarkct after the committee of inquiry into the financial
sen/ices found that the consumers werc at a great deal of rnessy of flnancials institutions in
FJi.The COmmhcc ofinquiry into inancial seⅣ
banks,cOmbined,hold a market share of 74.20/。

iccs in FJi found that缶 /O maor foreign
2 in the deposit market and 77.00/。
in theloans market(MiniStryINISTRY Of FINANCE,1999).ThiS has lcd tO these banlcs maintaining
high lcnding ratcs,10w deposit ratcs and thus a intercst spread rate much higher then、 vhat
they make at g10bal level.

Rθ″ο
ッ
α
′6/ンし′ツθИddc′■
tt rん
4η
The budget has also proposed to remOve VAT fronl a number ofstaple food items andcducatiOnal and medical supplies3. TheSe will have numerous beneflts on poor and the
cconomy at large. Thc poor、 vill havc a dircct beneflt through the reduction of priccs ofthese goods as their consulmption basket consists of mostly basic food items.

On aneconomy、 vide levcl,tlle reduction of prices will bring do、
vn inflation,raisc dcmand andincrcases tumovcr of goods. Thcrefore thcre、 vill bc a positivc multiplier effect.Further―more,the move,cetirus peribus,should also cOntain dcmand fOr wage incrcasc,which intunl rnay spiral up inflation.

Sunll■ary and Conclusion
This paper examincs the ne、
v govcmments' policy dircction as launched during thc

tabling ofthc 2000 FJi gOvemment budgct Before cxamining the budg
the economy since 1985 is prcscnted. Kcy econonlic indicatOrs are calculated andined to see how economic growth took place in FJi during the era ofopen ma
Results Of the analysis rcvcal that the cconOnlic gro、vth was sluggish despitc sevcral key
measllres put in placc by the governincnt. Private sector investment continued to decline
relative to govemment investment and trade balancc continued tO、efforts to re―align the domestic currcncy.

vorsen dcspitc concerted

Issues that may have rcsulted in stagnant

invcstlnent wcrc the uncertaintics associated cver sincc tlle nlilitary coups and thc expiring
agricultural land lcases.A specdy resolution to the land lease problem will provide
potcntial investors clear signals as to、vhere the country is heading
Thc 2000 Fli govCrnincnt budget rcvcals govcnllnents' effort to re― deflnc thc path to2 Deposit markct ANZ,473%and Wcstpac,269%
Loans markct ANZ,509%and Westpac,261%
3 VAT rcmoved from: flour, cdiblc oil,tea, canncd flsh,ricc,powdered milk,water rates, basic cducational
matcrials,basic mcdication

South Paciftc Study Vo1 21, No l, 2000

1, thc approach may indicate a move towards Keyncsian
devclopment. In thc short tell■in the longer rlln.First,the goverlment,through its
ccononlics,and economic gradualisn■
its role in the gronth and development of the economy.
expenditttre policies isassertingrc―
This is evident from the increase in overall govemment expenditurc in particular theincreased allocation to health, education, agriculturc,micro flnancing, social welfare andpoveJy aneviatiOn, on a per capita basis,which are targeted to reach the poor and rtlralup" approach todwellers. How far it reaches the rural poor and how far is itbottotFn―adevclopment is yet to bc scen. Second,the flnancial scctor,the most important sector inany developing country,will now be regulated.In a small country like FJi,the insector plays a very crucial role in promoting investmcnt, groⅥth and dcvclopment.

Therefore,ifthe market dOesnt anow it tO mction the way it should,taking into accountthc key factors sllrrounding a developing country,then the goverlment,as it is planning todo,should redirect it. Lastly,the govemment has rolled back privatisation of kcy enter―pnses as stated in the budget addrcss.A competitivc en宙ronment needs to be created flrst

beforc p五vatisation. Privatisation wi1l only lcad to efflcient resourcc allocation if inarket
size is adequate and institutional strucmes are in place to support it.

Once these areachieved, a competitive environlnent will arise. These steps, oncc achieved, are terlned
econonlic gradualisnl''. Therefore,the Neo¨ classical theory has not failed,but rather theapproach of rapid transition towards market econOmy has failed to produce results.
References

CHAUDHRY,M.P.1999。

Republic of the FJi islands 2000 Budget address.40pp,Govem―

ment of Ftti.
JAYARAMAN T.K.1998.Private investment in Fji:1977‑1994.Did government investment
have any crowding out effect?South Paciic Study,18,57‑67.
KNAPMAN,B.1987.Fいt econOmic history,1874‑1939.153pp,Pacinc Rcscarch Mono‐graph No. 15,National Centre for Development Studies.
KoRTEN,D.C.1987.Third generation NGO strategies:A key to people‐

ccntred develop―

mento World】 Development, 15, 145‑159.

9pp,Goverrment
Ministry of Finance 1998.Investment incentivcs
review。 of FJi.
Ministry ofFinance 1999.FJi Govement 2000 Budget Supplement,70pp,Goverlment of

Ftti.
Ministry ofFinance 1999.Report ofthe collunittee of inqulFy lntO flnancial serviccs,202pp,
Parliamentary Papcr no. 19 of 1999.
REDDY,M.1997.Devaluation and economic stimulation:The FJi econOmy post―

coup.

Paciflc Econonlic Bunetin, 12,85‑93.

‑ 1 9 9 9 . Q u a r t e r l y r e v i c w , 7 6 p p , R e is .e r v c B a n k o f
R c s e r v e B a n k i o1 f9 7 F7 」

REDDY:The Economy,Natlonal Budget and Devdopmc■
m Fll A Case of Kcpcdan Econo面
cs,Ncolberalism and Economt Graduahsm 3 1

Appendix l Key econonlic indicators of thc economy, 1985‑1998.

Year

Exports lmports Nonlinal Public
TOtal
Public(FSm) (FSm) GDP/ Extcmal Govt
Dcbt
Capita
Dcbt
Dcbt Chargcs(F$) (FSm) (F$m) (F$m)

Paid
Empl

PI(FSF⇒ ViSitOr
Amvals

1985

271.4

5079

1,690.0

318.l

NA

64.8

81,082160.4 228,175

1986

312.4

4935

1,857.0

332.6

NA

74.7

79,854145.4 257,824

1987

408.6

465.1

1,844 0

437 8

NA

899

78,159

144.6

1988

531 1

658.8

1,993.0

442.6

NA

1599

77,529108.2 208,155

1989

658.6

8604

2,122.0

416.8

NA

127.2

89,8761148 250,565

1990

7318

1,112.9

2,363.0

392.8

NA

1219

92,107110.6 278,996

1991

540.8

8106

2,435.8

354.5

805.6

136.3

91,538109.5 259,350

1992

533.7

8098

2,66033244

1235

92,48083.9 278,534

1993

581.0

1,006.5

9238

1530

94,295

119.3

287,462

1994

727.0

981.8

318,874

1995

7408

1996

9113

1997
1998

8435

189,866

2,888.3

279.5

1,053.7

3,0230

235.1

144.1

95,345110.1

1,070.8

3,130.32294

1,0018169.5

97,276115.0 318,495

1,1787

3,299.1

217.8

1,13341513

110,081125.0 339,560

7608

1,182.2

3,3265225.6

1,3562

180.2

114,749

122.0 359,441

NANA

3,44262773

1,306.1

NA

l13,258

1150 371,342

Dttc source:Reservc Bank Quarterly,Rcscrve Bank of
F」
i,1980‑98

Appcndix 2.Total rcvcnuc foregone duc to conccssions, 1993‑1997.

Ycar

Total IRD Concessions($m)

Total Fiscal Duty Foregonc($m)

Total Revcnuc Forcgonc
(FSm)

1993

4.6

204

250

1994

6.4

22.4

28.8

1995

5.3

51.5

56.8

1996

71

77.0

84.1

1997

7.0

498

56.8

Total

304

221.1

251.5

Data sourcαF」i Govcmment 1999 Budgct Supplemcnt,Ministry of Finance