By ROSI DOVIVERATA
Stronger growth within the Pacific region will need to come from within, says the Coordinator for the Pacific Financial Technical Assistance Centre, Scott Roger.
In a paper presented during the Economics Association Seminar on the Global Economic and Financial Outlook and Implications for Pacific Island Economies, he said there is a need to put in place policies and reforms that will bolster growth over medium term.
Sound macro policies
Mr Roger said there is evidence that points to the importance of sound macro policies, privately financed investments, trade openness, financial access, political stability and education.
He referred to three recent papers prepared by the International Monetary Fund, which pointed to the kind of policies and reforms needed in the Pacific Islands.
“The global economic environment is looking more supportive, but this will not lift growth significantly in Pacific Island countries.”
Mr Roger drew from the experience in other low-income-countries and more specifically in similar small states.
Key areas for promoting growth
He highlighted that the key policy areas for promoting growth were:
n Reducing the isolation handicap. Better, lower cost transport infrastructure; better access to major external markets; regional trade integration.
n Investment - Promote private investment, especially, through reduced regulatory impediments, tax and other distortions favoring debt vs. equity investment; facilitate business startups; change unhelpful labour and land use laws.
n Exports - promote development of export industries, through trade policies, infrastructure assistance, and investment policies, education and training
n Macroeconomic policies - adopt sound, transparent fiscal and monetary policy frameworks and strategies that will stabilize expectations and promote investor confidence. Fiscal policy should help promote high private savings and investment rates, complemented with public infrastructure investment, and spending on education and training. Monetary and central banking policies focused on low inflation, external competitiveness and a sound, efficient banking system.
n Social infrastructure. Strengthen democratic institutions and the rule of law. Adopt policies to promote a productive, flexible labor force, through education, health care, and equity of opportunity.
Contradicting views
Mr Roger noted that these views were contradictory to the recent United Nations Economic and Social Commision for Asia and the Pacific (ESCAP) report.
“The view and evidence I presented were that growth is helped by sound monetary and fiscal policy. That means low public debt/GDP, and low inflation.
“But that seems to contradict the view expressed in the ESCAP report, which called for a new macroeconomic ‘paradigm’, putting less emphasis on fiscal soundness and less emphasis on keeping inflation low. In my view, that is wrong, and I believe it shows some confusion between the short-term and long-term effects of macroeconomic policies.”
Mr Roger added that tightening fiscal or monetary policy in the short term – over 6 months to a year or so, will usually dampen growth.
“So in the short term there is a trade-off between growth and fiscal or monetary restraint. But over the longer-term (2-5 years or more), low inflation and low government debt, support growth.
“In my view, the ESCAP analysis did not adequately distinguish between the short-term and long-term effects of macroeconomic policies.”
