World Bank gaffe or irresponsibility?
Professor Wadan Narsey

One does not expect World Bank (WB) to make an irresponsible statement or even commit a minor “gaffe” about Public Debt in a poor country like Fiji where every tax dollar misspent is important to the lives of ordinary citizens.

But it was recently reported (Fiji Times, 17 May 2017) that a new WB Resident Representative to the South Pacific (Lasse Melgaard) had pronounced that Fiji’s debt level is “manageable and reasonable” compared with other developed nations and that the WB would “raise the alarm” if it was not.

Any intelligent person hearing these words from a powerful international “expert” institution like WB would be forgiven if she thought: Fiji’s debt level is OK; tax payers’ funds including borrowings and spending, are being managed well by government, and all is hunky dory.

Melgaard also pronounced the grand truism that “public debt is not always a bad thing and it depends on what you’re borrowing for and what you are investing in”.   Absolutely correct.

But did Melgaard do any research on Fiji’s Public Debt or ask the Governor of the Reserve Bank of Fiji or ADB or even some USP economist what exactly have led to the significant increases in Fiji’s Public Debt these last thirty years?  I doubt it.

Had Melgaard done so, he would have found out that, yes, Fiji has created “Good Public Debts” in the past, such as for the Nadarivatu hydroelectric dam, the Suva-Nadi highway, the Vaturu Dam,  hospitals, schools, water and sewerage infrastructure.

But he would also have found many examples of “Bad Public Debts” some of which the public knows about; some we know virtually nothing about, because some reports on financial mismanagements have not been released to the public, and it seems that the Public Accounts Committee are not following up on some issues raised by Auditor General Reports which were not released from 2006 to 2013.

The WB Resident Representative may be reminded that the Fiji public’s ignorance about wastage of taxpayer funds is because (a) legitimate questions by Opposition parties both inside and outside of parliament are not responded to adequately (b) a large part of  the media is government owned and cannot be accused of actively being a “watchdog on government” (c) a private print media company is similarly inclined while receiving Government favours and (d) one privately owned print media (guess which?) is continuously struggling to be a “watchdog on government” despite media decrees, prosecution and negative comments by powerful Government ministers.

All these are totally against the principles of “good governance” which the World Bank started preaching around the world ten years ago, and the WB Resident Rep ought to have known that.

 WB economists and bankers

The WB was originally called the International Bank for Reconstruction and Development which rebuilt Europe after World War II.

Today, the World Bank is known throughout the developing world for financing or co-financing large public investments in infrastructure (highways, hydroelectric dams, sewerage and water systems), giving unsolicited advice to developing countries and rescuing countries AFTER they have drowned in Public Debt, like Greece (not before).

But usually WB decisions to encourage governments to borrow and spent on projects are taken after prioritization through hard rational economic analysis such as Internal Rates of Return or Benefit: Cost ratios.  Sometimes their analyses and projects are disastrously flawed.

Twenty five years ago when I worked on a massive WB analysis of education in the six largest countries in the Pacific (with Ian P. Morris) it was difficult to convince our Washington counterparts that expenditure on education at all levels in countries like Fiji and the Solomon Islands was vital for development and that the wider benefits (what economists call externalities) could not be captured by the usual rates of return analysis which focused largely on benefits for which dollar values could  be estimated.

It is only in recent years that the Fiji Government (ironically the Bainimarama Government) has implemented recommendations I made years ago on the need to free up education for the poor, including preschool.

Unfortunately, the WB is still known for encouraging massive borrowing by developing countries to invest in large projects which turn out to be environmental disasters because WB economists have not understood the real long term value of environmental costs nor appreciated the extent of their ignorance about the value (dollar value or otherwise) of biodiversity or of the lives of poor people who are displaced by their projects.

If you don’t like reading economics, read the writings of the delightful Indian writer Arundhati Roy (winner of the Booker Prize in 1997 for The God of Small Things) who fought for years against the massive Indian Narmada Valley Dam and Project which the WB originally supported with massive financing.

Fiji’s “Bad Debt” struggles

The WB Resident Rep needs to be enlightened about some elements of Fiji’s “Bad Public Debt” which by no stretch of imagination should be called “reasonable”.

Fiji’s older generation will remember that some $200 million were added to Fiji’s Public Debt because taxpayers had to pay for the National Bank of Fiji disaster caused by the Rabuka Government replacement of NBF’s management, leading to massive corruption and mismanagement.

More massive amounts of taxpayers money (increasing Public Debt) were wasted in vote buying agricultural scams of the SVT and the SDL Governments, for which a few unfortunate civil  servant scapegoats (and one canny businessman) were given free accommodation and food at Korovou and Naboro prisons.

Then a few years ago, the Bainimarama Government and PS Finance were “guided” by ANZ bankers on an Asian “roadshow jaunt” and increased Fiji’s “Bad Public Debt” by $500 million in foreign currency, costing 9% per year.

It took a rare honest and professional IMF rep based at PFTAC (Dr. Yang) in Fiji to tell a packed USP audience that “the IMF had been willing to make the necessary loans at only 2% interest rate without many conditions except for those that normally apply to such loans” (USP Newsletter). That offer was declined by the Bainimarama Government.

For that piece of “Bad Public Debt” of $500 million, Fiji taxpayers began to pay an extra $35 million dollars in interest annually ($350 million wasted over ten years).  A sad reflection of the quality of civil servants appointed by the Bainimarama Government, the same PS Finance alleged that the loan was blessed by God, while the ANZ CEO abruptly left the panel discussion “for a dinner appointment at his home”, refusing to answer why ANZ did ot lend the money itself and how much commission they had made.

Under that same PS Finance there has been a massive expenditure of more than $2.5 billion on roads and highways all over the country over a brief period of five years, i.e. in excess of $500 million per year when our Public Works Department used to get less than $60 million per year.

Of course these roads are useful but any rigorous analysis by WB (or ADB) would show that such massive expenditure over such a short period will not result in sufficient economic benefits and high enough Internal Rates of Return to justify increasing Fiji’s Public Debt by that massive amount. Any good accounting company will tell you that.

If he wants to, the WB Resident Rep can talk confidentially with the current CEO of Fiji Roads Authority and their new Board who discovered significant overcharging by one of the consulting companies, as well as the many layers of unnecessary profits for subcontractors. There were also many issues of compromised or deficient standards (an investigation into collapsed roads is ongoing), similar to the well known case of a major housing project by the Public Rental Board.

I suspect that there are also files at the WB office on loans that they have refused Fiji, but which were ultimately financed by China (hundreds of millions on roads and a dam) or India ($100 million wasted on FSC mills), without any hard rigorous analysis.

Then there are all these FNPF over-expenditures of hundreds of millions on projects at Natadola and Momi), for which the Fiji Government has contingent liability and public money has been wasted.  The WB should ask why no reports have been made public, although we know they exist.

Not a mountain out of  molehill: WB data

Some might think that this article is making a mountain out of a molehill in the form of Melgaard’s “throwaway line”. But Melgaard wrongly compares Fiji’s Public Debt to that of developed countries. He would understand Fiji’s poor economic performance and Public Debt better if he contrasted Fiji with a comparable middle-income economy like Mauritius, also a multi-racial island nation, using WB’s own data.

Students should explore a  most wonderful database treasure trove  that the World Bank contributes to world research. It is freely available on the web on a massive range of statistics that even our Bureaus of Statistics do not make available (just google “WB database”).

You will find for instance that Mauritius which had a lower GDP per capita same forty years ago is today is today more than a 100 percent higher.  The graph opposite shows the great progress of Mauritius and the lack of it by Fiji.

Melgaard might wish to learn that the cross-over point for the two graphs came at 1987 (the first coup) and that the Fiji graph has clear dips associated with the 2000 coup, the 2006 coup, and the 2009 abrogation of the 1997 Constitution.

That same WB database has reliable statistics that thaGDP pc Mau Fijt show that Fiji has spent 5.6% more of its Government Expenditure on the military over the last thirty years, than has Mauritius.  In today’s currency, that wasted expenditure amounts to around $120 million dollars per year which could have gone to education or health.  Over thirty years, that amounts to $3.6 billion dollars (that is right, $3,600,000,0000) which is around two thirds of Fiji’s current Public Debt.

[My FT article had a higher incorrect figure of extra $200 million annually and $6 billion over thirty years]

After every coup, military officers have been appointed to very senior civil service position bypassing other civil servants trained for those jobs, with unknown effect on civil service productivity, which may however be guessed at.

Fiji governments have not had enough money to increase the salaries of doctors, nurses and teachers who continue to emigrate, but given generous increases to the Ministers and the military. Is it any wonder that the impressionable duxes of some secondary schools want to become army commanders!

What should be WB role?

We all know that for any WB Resident Rep receiving income and perks in excess of a million dollars Fijian a year, a posting in the Pacific is a delightful and peaceful sinecure, when the alternative could be some poverty stricken African banana republic, where every day he would be chauffeur driven past thousands of starving children denied taxpayer funds because of corrupt governments who have burdened their people with wasteful Public Debts.

Fiji’s progressive but impoverished NGOs, political parties and citizens have struggled to pressure  governments to be honest, transparent and accountable to taxpayers in their management of taxpayers’ funds, including a Public Debt whose increasing burdens fall on current and future generations.  Sadly, these struggles have not been supported by powerful international organizations like the WB, UN and IMF.

It is understandable if for the sake of their own narrow KPIs (and delightful life in Fiji), they  refuse to condemn extreme instances of bad governance, abuses of human rights, media censorship, and corruption that have some to light.  It is understandable if they have their photos taken with military dictators and illegal coup leaders to send back to Head Office.  But one does not expect them to make local people’s struggles harder.

Far from pronouncing that Fiji’s Public Debt was “reasonable” one would have expected the WB Resident Representative to warn the Government about inefficient public expenditure and the need for Government to be accountable to the tax payers through the Auditor General and the Public Accounts Committee.

The statement by the WB Resident Representative that Fiji’s Public Debt is “manageable” may be technically correct but his pronouncement that Fiji’s Public Debt was “reasonable compared to developed countries”, is at best a “gaffe” and at worst, irresponsible.

The intelligent public and Opposition Parties will see the extent of his damage “in due course”.  [Hint to the curious: rearrange these letters:  ta eht txen tegdub hceeps].