Donors are always right, aren’t they?
Donor institutions and countries can be almost as schizophrenic as the developing nations they claim they want to reform. It could be that ‘good governance’ is simply in the eye of the beholder, not an agreed-to list of best practices that can be cloned in the same format by any government or, for that matter, donor partner.
It used to be Taiwan’s and China’s style of competitive diplomacy that coined the term ‘checkbook’ diplomacy, activity from the 1990s into the mid-2000s that saw a handful of nations globally, including several in the Pacific, flip-flopping to the highest bidder in this diplomatic game. The loans and aid—and all too often, bags of cash to politicians—didn’t fit with good governance standards espoused by other donors. Until China and Taiwan settled into a comfortable rapprochement about six years ago, they were frequently the focus of criticism by other donors for lavish aid with little accountability.
Today, the Asian Development Bank, World Bank, and International Monetary Fund all promote various reforms. ADB wants governments to get their—mostly poorly run—state owned enterprises to follow models of success seen in the Solomon Islands and Samoa in recent years. World Bank is promoting competition in telecommunications, a sector long monopoly managed by government telecom outfits. IMF pushes fiscal reforms, including encouraging island countries to find ways to produce budget surpluses at year’s end that can be reinvested.
But how helpful to overall government reform is the World Bank’s policy of dangling millions of dollars in front of governments if they get rid of their telecom monopoly laws? For example, the Federated States of Micronesia and the Marshall Islands were offered wildly varying grants—US$43 million and US$13 million, respectively—with no strings attached for spending. The FSM was the first to pass the legislation, but then passed additional legislation holding up implementation of these same telecom changes, leaving the law in limbo. Marshalls’ leaders have been embroiled in debate and legislation to liberalize the telecom sector has languished. Behind the scenes, the World Bank’s International Finance Corporation is financing Digicel’s expansion in the region, a fact that opponents of liberalization point out as a glaring conflict of interest. For many countries, the market is so small, there is room for only one telecom business. Should that be one financed by the World Bank, which is offering hard cash to cash-strapped governments to allow telecom competition, or of the islands’ choosing, including government-run entities? That is a subject for additional comment, but the primary point is this: if competition in telecommunications will truly benefit small islands, why does World Bank need to offer a windfall of fungible cash to governments?
A key point of the ADB report, ‘Finding Balance 2014: Benchmarking the performance of state-owned enterprises in island countries,’ is that bringing the private sector into play through privatization of government operations or joint ventures can lead to success. In light of a couple of success stories in Pacific SOEs, in might behoove donors to offer some targeted money—not a free-spending grant as mentioned above—for a package of SOE reforms given their large numbers (including telecoms), significant financial losses, and large subsidies that drain government coffers.
The reality, in the meantime, is that with a few notable exceptions, governments don’t want to let go of state-owned enterprises (SOEs) no matter how badly run they are or how much money they lose. The paradox, of course, is that government leaders repeatedly express their support for the private sector. For most businesses in small islands, they’d be happy with less rhetoric from government about the private sector and simply getting their bills paid by government on time. This would help the private sector immensely.
Australia and the European Union are pushing free trade agreements with the Pacific islands. Both Australia and EU provide technical and financial help so small islands can be at the negotiating table. This is all couched as ‘help’ for small islands—paying travel costs to ‘negotiating sessions’, hiring trade consultants to advise island governments, and so on. But, frankly, for most islands, the revenues lost in a revamp of tax laws needed to meet free trade requirements will substantially outpace the benefits of free trade with Australia, at least for the majority of smaller nations in the region. Trade ‘negotiations’ are done in a generally collegial manner, as if to say everyone is on the same team. Who’s against trade, right? But bottom line, for Australia (and New Zealand) free trade agreements are about their own national interest, just as Pacific islands should assert theirs. This has been done to a degree with the EU, as the decade long talks on an Economic Partnership Agreement broke down nearly a year ago, with government leaders walking away from the talks. Ironically, it is the Forum Secretariat—that receives large scale funding from these same donors to ‘facilitate’ trade negotiations—that has attempted to revive the talks.
With the EU, its major interest in the region is fish. Despite this, the EU hasn’t shown an inclination to accept fishing rules of the Parties to the Nauru Agreement (PNA) that many other fishing nations now accept as the new era of increasing control of the fisheries industry by Pacific islands. It should go without saying that if the EU wants access to fish in the region, it must abide by the prevailing rules, which island fisheries officials would note is simply a best-practice standard.
Interestingly, the U.S. government has ratcheted up accountability requirements for grant funding to the dismay of its long-term allies the Marshall Islands and FSM. The U.S. has taken an additional step with a new grant program for the region that avoids funding national governments altogether, a possible acknowledgment of the difficulty, from Washington, of enforcing spending rules by island governments. The Pacific American Climate Fund, launched earlier this year, states the funding is for initiatives of civil society groups and the private sector. This significant redirection of government-provided funding bears watching as it departs from the usual provision of government-to-government aid.
As the pressure for markets and resources—fish, energy, deep-sea minerals—escalates, interest in the islands will escalate. Island leaders and especially island communities need to look beyond the superficial to understand the motivation of donors. A ‘good governance checklist’ would be a great tool for evaluating incoming grants, reforms, schemes and other plans. Sadly, such a checklist is often missing on both sides of the table.
