20 November 2009
(A Transcript of the Opening Address by the Hon. 'Otenifi Afu'alo Matoto, Minister for Finance and National Planning at the 2009 Tonga Update Panel discussion in Nuku'alofa)
Thank you for the invitation and opportunity to make is address in this conference .I would particularly like to thank the Australian National University for their efforts in organizing today's Tonga Update. As in most small developing countries, there is a scarcity of high quality research on Tonga. We therefore highly value your research and clear thinking. I would also like to thank AusAID for their sponsorship that has made this event possible. Today's programme spotlights five very different, and very important, aspects of Tonga. I will however .make a prediction at the end of this address, as to what I consider will be the most important lesson out of Today. Today's topics are indeed diverse.
The first panel is considering constitutional reform.
Constitutional reform will have significant and far reaching implications. Our transition to greater democracy is inevitable and the Government is committed to achieving it within the timeframe indicated .But we are all aware that no transition is without friction. If however, fifty years from now, rising sea levels have shrunk TONGA from 170 to 30 islands .hindsight will tell us that climate change was the most important event of our time .Other presenters will point out Tonga's greatest concern may be more immediate .Tonga has weathered the world's greatest economic downturn in sixty years without entering a recession .Other presenters will point out Tonga‘s greatest concern may be more immediate. Tonga has weathered the world's greatest economic downturn in sixty years without entering a recession. Celebrating the robustness of the Tongan economy would, however, be premature. While we have survived the worst of the current crisis, the Tonga economy remains vulnerable. Put another way, there is a risk of a tragic progression of both our economy and our islands, as to which one may sink first. The impacts of absent family members will also be examined. We know that more people of Tonga origin live outside Tonga than within. We have lived with the departure of individuals and families for many years now.
In the 1970s and 1980s we had the temporary departure of family members for temporary work in New Zealand under and agreed work scheme. This has re-emerged in the seasonal work scheme. The earlier work scheme accelerated the migration of Tongans to New Zealand and later to Australia. This work scheme, if it continues long enough, could spark another wave of migration of Tongans. With Australia joining the seasonal workers scheme the number of people departing our shores is set to increase. It is therefore timely and pertinent that we understand the impact on families and communities of these absences.
I have talked now for about three minutes. By this time I expect that the consequences of one of Tonga's most successful economic reforms may also have become apparent.Sevel members of this audience will have received a phone call or text message. Hopefully you remembered to set your phone to mute. If not, now would be a good time to do so. The implication of the World Trade Organization on Tonga's telecommunication is the final session. As you may recall Tonga acceded to membership of the WTO two years ago. Over the next few years the implications, and benefits, of this move will become increasingly apparent.
While diverse, all of these sessions have one thing in common. They all show that while Tonga may be a very small place in a bery large ocean, we are irrevocably connected to the modern world. We still face the ‘tyranny of distance' when we ship exports, or attract visitors to our shores. The world is not getting smaller but it is , however , getting closer. We are now connected to the world in our daily lives. These connections are strengthened as new technology makes communicating with the world quicker and easier. These connections are also strengthened every time a Tongan moves overseas. Even stronger connections arise every time a Tongan comes back with new skills and experiences from overseas. The expansion of our collection experience and the consequent challenge to our culture is not always positive. An example is when the returning Tongan is a deportee and someone's television goes missing. But whether the connections are positive or not, they are inevitable. As we open ourselves up to the world the world will change us. This change can be welcomed. This has happened with the transition to greater democracy, and with new communications and entertainment technologies. Change can also be being. Seemingly far off events of defaulting United States household mortgages became the global economic crisis that hit Tonga with a vengeance. This is an important reminder that the tyranny of distance now at best delays the timing of events in Tonga. An inevitable conclusion must be draw from this. Tonga is now part of the modern world. We cannot avoid the global tides of change , nor should we try. This is not new. For over 150 years we have been massively changed by the outside world. Perhaps the finest example of this is the introduction of Christianity. What is new is the speed to which overseas events can impact on Tonga. This is simply a fact. It is not a threat that needs to be avoided.
Being part of the global community is massive positive development. There is much more good out there than bad. And when you consider that for every Tongan there exist sixty thousand foreigners, then internationally opportunities abound on a scale most of us scarcely dream about. We must therefore learn to see what changes are coming and learn how to moderate. Live with, or best of all, exploit these opportunities from the global economy. I would like to use and example of Helekosi, also known as the scissors or frigate bird. Our forefathers knew that the Helekosi bird returning to land was a forewarning of a cyclone or other inclement weather and a sigh not to put to sea. Now modern weather satellites provide advanced warming of cyclones .These warnings are sufficiently timely that as well as not putting to sea ,we have time to batten windows and tie down loose objects to avoid damage. Imported technology therefore allows us to improve our lives, or avoid disasters in ways which our forefathers could never have damaged. Technology and warming systems are not perfect, however. This was demonstrated clearly by the recent tsunami tragedy in Niuatoputapu. Sometimes events simply unravel too quickly or are of such a massive scale that all preparations will be overwhelmed. But knowing that some bad things cannot be avoided does not mean we should not make plans, or event be suspicious of all change and try and shut out what is happening in the world.
What I am saying is that we need in Tonga to remain attuned to what is happening internationally and domestically and adopt what is good through suitable means of adjustment. Is shutting out of ideas a problem in Tonga now? I would say yes . It occurs every time a decision is made on the basis that This is Tonga or We have never done it that way before. While many ideas will not be appropriate for Tonga proposals should not be rejected simply because they are new. One challenge we are now facing is the transition to democracy. Tonga is determined that this will happen and is committed to making this transition within defined timelines. The constitutional and electoral commission has reported back advocating changes that it considers to be required to achieve that transition to democracy. I personally consider recommendations and some compromises may have to be made. Another challenge for Tonga is to evaluate and, where appropriate, adopt new economic ideas and approaches. Our current body of economic legislation addressed a need and served us well when individual acts were introduced. Government requirements such as price control and business licensing have in the past served their roles. However, some of these legislations were first introduced in 1922. It is a good time to check whether these legislations are still effective and appropriate. The world has moved on since horse drawn carts were on our streets, therefore it is important to ensure that our business laws, and the institutions that support them, are not the legal equivalent of horse drawn carts. The same question can, and should, be asked as to whether there are any gaps in the Tongan legal and institutional framework. Such gaps can discourage businesses or make it harder for them to do business. Smiling faces, a good climate and beautiful scenery are some of the essentials we provide to attract a potential tourism operator. What potential investors also need is certainty of the tenure of their land, and the security of knowing that they can invest and repatriate profits enforce contracts and recover debts. Our ability to guarantee these things will be a key determinant of whether business comes to Tonga. We also need to adopt and attitude favoring tourism and business and encourage their developments.
Tonga's need for modern economic laws and institutions has been illustrated by the recent reminder of how exposed Tonga is to the modern global economy. In the 2008 financial year , the Tongan economy grew at 2.7 % in real terms and the outlook for sustained growth seemed promising. Tourism numbers were on the rise, foreign investment was at its highest level in many years, and government finances were healthy. Unfortunately, growth prospects were dampened in mid 2008. The sharp rise in the costs of imported food and fuel coupled with weakening global demand, adversely impacted on our economy. As the economy began to recovery from high food and oil prices, the global economic crisis was already unfolding. The economics of Tonga's main trading partners and remittance source economics- the United State, New Zealand and Australia- were either contracting or close to being so. This forced hundreds of thousands of people out of jobs. The direct of this international contraction on Tonga was thee fold. Tonga experienced a reduced inflow of remittances, lower tourism growth and weak export demand. As the governor of the Reserve Bank will remind us later, remittances are a very important source of income for Tonga. Remittances historically account for around 31 percent of GCP, and they are our largest single source of foreign exchange. By the middle of this year Tonga had experienced a decline in remittances, a slump in trade taxes and stagnant tourism revenues. Alongside this there was a consolidation in the domestic banking sector, which sharply reduced the growth of private sector credit. These effects reduced Tonga's economic growth to around 0.4% in the 2009 financial year and also suppressed the forecast for this current financial year to 0.4%. These tough economic times have also moved the government from a healthy fiscal surplus in the 2008 financial year to a likely fiscal deficit this year. This will be compounded by the recent tsunami - the initial cost of damages is approximately T$18 million. This will place additional pressure on the Government's expenditure programs. These are the combinations of events that give Finance Ministers headaches.
Fortunately for Tonga, the Government established a National Emergency Disaster fund last year and funded it funded it initially with T$15.0m. This has enabled the Government to meet the expenses of the tsunami and the sinking of the ferry Princess Ashika, without further pressure on the Government budget. We are grateful to donors, especially Australia and New Zealand for the quick response and continuing assistance. The government is responding to this crisis to address the short term economic implications of the global downturn. The Government is also tackling the long term vulnerabilities in the Tongan economy to boost short term economic activity and provide the infrastructure needed for growth, the government has introduced a fiscal stimulus package that will direct funding to roads in rural areas and outlying islands and other growth initiatives. The government is also working to remove pinch in the Tongan economy. One obvious target is our over reliance on fossil fuels. Almost 100 percent of Tonga's electricity is generated from imported fossil fuels. The oil price rises in 2008 to a 70 percent increase in our electricity tariff, with crippling effects on business and increased hardship on the general public. The Government has therefore embarked on a highly ambitious Renewable Energy Policy. This target 50 percent renewable electricity generation by 2012. Several of our donor partners have agreed to support the achievement of this target. While some of the vulnerabilities of the Tongan economy are being addressed but, as the economic survey that is being presented today shows, even with these improvements there is still much to be done. I said at the start that I would identify what I considered would be the most important lesson for the day. By the end of today I trust it will be obvious that we, in Tonga, can no longer hope or expect that events elsewhere in the world will pass us by. Instead I consider that the lesson we must learn as a nation is how to adapt to threats and opportunities, particularly global ones. I believe that only by learning to adapt and exploit changes in the global economy can we reduce the vulnerability in the Tongan economy. We must learn to live in the world rather that have events happen to us. I consider that how well we can survive a crisis is not a suitable measure of our progress. Rather , how well Tonga learns how to exploit international good times should be the indicator of our progress.
That is, Tonga will cease being vulnerable when we learn to move up with the global economy, rather than simply learning how not to follow it down.
Thank you for your attention.
Transcript by the Ministry of Communications & Information.