Fiji has been marred in political instability as the country’s long running dispute between the native indigenous Fijians and those Fijians of ethnic Indian heritage remains unresolved. The last major coup in May 2000 which rocked the nation politically resulted in a steep decline in the economy for the next couple of years including a collapse in Fiji’s lucrative tourism industry. In 1987 alone, two major military coups alone set the stage for on-going political divisions that have yet to be resolved. The military at the time felt those Fijians of ethnic Indian ancestry were dominating the government. In 1990, a constitution amendment was made favouring for more indigenous Fijian control. This amendment accordingly resulted in the beginnings of a mass emigration of ethnic Indians and the corresponding economic malaise. In 1997, another ammendment was made to make for a more equitable political relationship of which allowed for the election of Fiji’s first Prime Minister of ethnic Indian descent, Mahendra Chaudhry. But what about that Fijian dollar during this time? With all this political drama, chaos and divisions, the Fijian dollar surprisingly has traded in a stable exchange rate valuation with the exception of the Asian Financial crisis in 1997-98 when Asian currencies experienced extreme turbulence.
POLITICS: political instability plagues Fiji, the country follows a constitutional democracy. Prime Minister Laisenia Qarase is head of government since August 2001 representing the SDL - United Fiji Party, head of a coalition government. The opposition is led by former Prime Minister Mahendra Chaudhry (Labour Party) of ethnic Indian descent who was forced out in a coup in May 2000 as some accused him of promoting pro-ethnic Indian policies. PM Chaudhry during his tenure in power ran a responsible government dividing cabinet positions evenly between the two ethnic groups. Fiji achieved independence in 1970 from the United Kingdom, this south Pacific island nation is fragmented between Fijians of ethnic Indian descent who account for 44 percent of Fiji’s 868,000 people and the indigenous native Fijians who represent 51 percent. Some analysts believe the year 2000 coup was over money and the government’s role in awarding lucrative mahogany forests timber contracts and indigenous Fijian discontent with ethnic Indian land leases. Political instability and division are rooted in Fijian society as political coups have taken place before, most notably in 1987 at which time tens of thousands of ethnic Indians fled Fiji. In 1987, ethnic Indians were in majority in Fiji but that has now changed. The emigration of ethnic Indian Fijians is one of the main factors for the decline in Fiji’s economy. Ironically, Speight who engineered the year 2000 coup is in a way realizing his ambitions in that the instability is forcing many ethnic Indian Fijians to leave as they are fed up. A new Prime Minister ‘Qarase’ of indigenous Fijian descent has since taken the over control, Speight is currently in prison serving a life term and remains very popular with the indigneous Fijian population.
Since the coup in 2000, approximatley 200,000 Fijians have applied for U.S. green cards for immigration reflecting this ethnically torn society and a Fijian economy that remains stagnated resulting in a declining standard of living. The persistent conflict between the two groups on how to manage the economy has polarized this potentially wealthy nation as race relations to appear to be even more divided.
ECONOMY: historically, Fiji has recorded a good economic record within many areas including low inflation, low levels of external debt and small fiscal deficits. However, many of these macro-ecnomic variables have deteriorated significantly over the last few years. The decline in the tourism industry after the 1997-98 Asian financial crisis and the economic shock from domestic political instability in year 2000 has impacted negatively with a lowering of capital inflows which are needed to offset Fiji’s trade shortfall although the overall balance of payments account has been quite close to balance. On the plus side, strengthening Asian economies are resulting in current higher tourism arrivals to Fiji although political instability will still deter a few.
Sugar and tourism are the major industries of the economy. Fiji by many measures is considered to be a sugar based economy and hence vulnerable to drought, particularly the drought of 1997 which was considered to be the worst in Fiji’s history, thus weakening economic growth from lower yielding sugar production. Sugar is the backbone of the Fijian economy and since 1997, sugar production has collapsed by 30 percent and possibly more trouble ahead as the industry is plagued by bad debts and preferred pricing that may end shortly with a select few trade partners. Currently, a large percentage of the Fijian population survive on subsistence for survival. Major exports for Fiji include gold, sugar, garments, fish, wood, hard-fixed vegetable fats & oils, agricultural while imports include oil, machinery, etc.
Economic Statistics
GDP as measured by purchasing power parity is at $4.7 billion USD (2002) with corresponding GDP/Capita at $5,500 USD (2002). GDP growth for 2002 came in at 4.1 percent, the peak was in 1999 at 10 percent growth after the Fijian dollar was devalued. The volatility continued in year 2000 when GDP growth fell 3 percent attributed to political instability and the fallout from the coup although it bounced back in 2001 to positive 3.1 percent. GDP growth for year 2003 projected at 5.2 percent of GDP and 2004 is estimated at 3.2 percent. GDP growth has been very volatile for comparison year 1997 fell 1.8 percent, 1998 fell 4 percent and 1996 grew at 3.4 percent. Inflation is at 3 percent for 2002 while year 2003 is forecasted at 2 percent, year 2004 projected at 2.5 percent. Inflation at 7 percent in year 1990 for comparison and peaked in 1999 at 9 percent, averaged 5 percent during the 1990’s, year 2001 inflation at 4.3 percent. Current account deficit for year 2003 is estimated at 5.5 percent after 2002 recorded a deficit of 2.9 percent, year 2001 at 3.6 percent deficit, year 2000 shortfall at 6.4 percent. Year 2001 exports valued at $442 million USD with imports at $642 million USD reflecting in a $200 million USD trade deficit. Fiscal deficit for 2002 is at 6.1 percent of GDP, year 2000 at 3.5 percent of GDP. External debt was measured at $253 million USD for 2002. Unemployment as measured in year 2000 was at 12 percent. Tourism visits is estmated at 400,000 for year 2003 which is a strong rebound from year 2000-01 levels.
POSITIVE: member of British Commonwealth, relatively little violence as for the most part Fiji is safe for tourists, beautiful scenery - tourism paradise, abundant natural resources, Fiji is an important connection for an trans-ocean undersea cable link. CONCERN: emigration of skilled workers, low levels of foreign direct investment resulting in the low GDP growth figures during the 1990’s, cyclones, rising government debt to GDP is measured in the range of 50 percent.
BANKING SYSTEM: stable for the moment. As of June 2003, foreign reserves were measured at $697 million FJD or equivalent to 2.9 months of imports. Historical low commercial interest rates at 1.25 percent for the bank’s indicator rate as of May 2003. The Reserve Bank of Fiji (RBF) has protected the value of the Fijian dollar during the political crisis during 2000 while keeping inflation under control, the FJD only fell 10 percent in relation to the USD.
REGIONAL ANALYSIS: Solomon Islands, Australia, Asia
Similar to Fiji, the Solomon Islands has been under seige as instability has taken hold only to have neighbouring Australia provide security forces in July 2003 to stablize the nation. Please read the write up SOLOMON ISLANDS in this BI.C currency index for further background information on the region. Further, it is Australia’s leadership that is seeing to it that these island nations do not collapse or become havens for terrorist cells from Asia.
KNOWLEDGE: the political divide centres around land leases which was introduced at the time of Fiji’s independence as a compromise. It was agreed then that the indigenous Fijians would receive 80 percent of the land while the ethnic Indian Fijian farmers were granted long leases. Land leases considered by some analysts to be a real disincentive for long term investment. The continuation of political instability will make it difficult for Fiji to realize the gains from capital formation which relates back to land leases. The land lease dispute must be rectified as both the native indigenous Fijians and the ethnic Indians will have to make compromises in order for Fiji to maintain stability. At present, native indigenous Fijians control 83 percent of Fiji’s land, the government controls 9 percent and the other 8 percent is up for grabs. However, the ethnic Indian Fijians control 90 percent of the businesses. The ethnic Indians were originally brought to Fiji by the British to work the land for harvests primarily in sugar cane. The agricultural nightmare began in 1997 with the beginning of expiration of these leases.
The main difficulty is the philosophical dispute between the two groups. The indigenous Fijians tend to resist change and believe the Fijian land is for the native peoples. The indigenous Fijians today are refusing to renew the land leases to the ethnic Indians at any costs which is holding back the Fijian economy. The root of the problem is ideology as the Indigenous Fijians are not as interested as the ethnic Indians in working the land for profit but rather only to live off the land for survivial following a communal system of thinking. The ethnic Indians who are the entrepreneurs and business minded individuals in Fiji who wish to create wealth and allow Fiji to prosper as measured by monetary and material wealth. Unfortunately, this crisis has resulted in many of the best educated and wealthiest Fijians emigrating to other countries with a total of 2,600 Fijians leaving in 2002.
This result provides for a mixed and cloudy economic outlook for Fiji which helps to explain why 50 percent live in poverty as measured by Western world standards.
CURRENCY: ISO Symbol ‘FJD’, Fijian dollar. At time of review on October 26, 2003, the Fijian dollar had an exchange valuation of 1.80 FJD to 1 USD equivalent to 55.55 US cents for 1 FJD and/or 2.12 FJD to 1 EUR (Euroland euro). The Fijian dollar was devalued by 20 percent on January 20, 1998 from the fallout of the Asian Financial crisis at that time and the corresponding higher inflation of 10 percent for 1998 as exchange pressure amounted due to a current account deficit hitting 30 percent of GDP. Before the 1997-98 Asian currency crisis, the FJD had an exchange valuation of 1.44 FJD to the USD. It should be noted that the Fiji dollar performed very well from 1990-97 as it appreciated in real terms against the currencies of its major trading partners. Currently, the FJD is holding its own against the USD, AUD, EUR, JPY as the real effective exchange rate has been surprisingly relatively stable and has appreciated by approximately 25 percent to the USD after the FJD hit recent lows in January 2002 of 44 US cents. As of 2002, Fiji has in place various exchange controls.
CURRENCY HISTORY: historical exchange valuations include year 1987 at 1.243 FJD to the USD, 1990 at 1.480, 1992 at 1.485, 1993 at 1.541, 1994 at 1.46, 1995 at 1.406, November 1996 at 1.371, December 1997 at 1.525, January 1998 at 1.70, February 1998 at 1.905, August 1998 at 2.071, December 1999 at 1.9835, November 2000 at 2.267, January 2002 at 2.277, January 2003 at 2.012, September 2003 at 1.865 or equivalent to 53.61 US cents for 1 FJD.
CURRENCY FORECAST: in the short term, this political crisis and division amongst all Fijian citizens may continue to disrupt economic output in areas of sugar production for export markets in order for Fiji to earn national foreign exchange revenue. The long term with continued mass emigration of skilled and educated Fijians of ethnic Indian descent does not bode well for Fiji. The nation itself may not implode, but the currency Fijian dollar may certainly implode to a much lower valuation reflecting the output of the native indigenous Fijians who are not as profit driven as the ethnic Indian Fijians. UPDATED: October 26, 2003
