[Originally published in the Vanuatu Daily Post’s Weekender Edition.]
Economic hardship is expressed in the simplest terms in Vanuatu. The price of rice, of diesel and cooking gas, the selling price of copra and kava – all of these hit closest to home. The most pressing question facing our new government is how best to insulate Vanuatu from the worst of the economic turmoil affecting the world’s economies.
The question for all ni-Vanuatu is how to hold the new government to account.
Economists describe Vanuatu’s position as that of a ‘price taker’. In layman’s terms that means we don’t get much of a say in how prices are set. OPEC members have never heard of us, and are content to keep it that way. Commodity exchanges deal in volumes that give Vanuatu no more say over prices than a corner shopkeeper.
Nonetheless, government decisions echo throughout the local economy. It’s limited in what it can do, but what it does affects us directly.
There are other players in this game. Recently, banks have shown remarkable largesse. Private sector loans increased by nearly 30% in June alone. This, along with the fact that they focus mostly on ex-pat and overseas business for their profits, limits the flexibility of the local economy.
Ironically, things look slightly better for those most at risk.
One fascinating aspect of Vanuatu’s economy is the role played by social forces. There’s an interesting relationship between commodity prices and agricultural production here in Vanuatu. When the price of local commodities rises, production goes down, not up. The reason for this is that the need for cash in rural areas is quite limited. Once a villager earns enough to pay school fees, clothing and a few staples, there’s no more need to sell their crop. So when they can earn the same amount of money for less effort, they do so.
This is one of the factors leading to a kind of economic insulation for the average ni-Vanuatu. The bottom line is that the cash economy remains small in rural Vanuatu because the cash economy is only a small part of the whole picture.
Once the inherent economic elasticity in this system is used up, however, poverty sets in. People planting cash crops in places once reserved for food crops, for example. It’s a fine line between building the cash economy and building dependence on the cash economy such that a person’s outputs can’t meet their costs.
The greatest challenge facing local economists and financial planners is developing the ability to gauge the amount of elasticity remaining in the economy. It’s commonly felt that we don’t really have a good handle on the Consumer Price Index, which measures the cost of everyday items and feeds directly into our understanding of inflation and other important metrics. Work is underway to remedy this, but it will take time to get things right.
It’s not just economists who have a hard time measuring the effects of rising prices and inflation. One forecaster asks, “Does the average consumer in Vanuatu recognize how they are affected by inflation? Bus drivers, for example, buy fuel in very small amounts like VT500 a time. Do they realize they are getting less petrol for this?”
We all have an undefined yet undeniable sense that times are getting tougher. We know that fuel and rice prices are hitting us hard. What we don’t know is how hard, and what effect that’s having. Are we eating less, or relying more on local kaekae, or both? Are price pressures affecting school registrations? Are we reducing travel or communications?
Voters have a right to expect clear answers to these questions. Without the ability to gauge where we are, we have no way of judging the performance of those whom we elected to represent our interests.
Once we have those answers, we need to hold our new government to account. We need proof – not assurances – that it’s acting responsibly.
We also need to ensure that they’re not acting out of expediency. It would be a noble thing indeed to subsidise rice, for example. But wouldn’t it be much better to investigate why prices here are out of whack with those in other countries? A solid regime of anti-trust enforcement might serve us better than more government spending.
Indeed, reducing spending is the single most effective tool the government holds to mitigate the effects of inflation. Heaven knows there’s a lot that could be done without affecting salaries or critical projects. Much as we appreciate their work, do we really need to thank outgoing ministers with cash? Surely a Presidential medal would suffice.
We’ve come a long way since the days when a foundering, inept government failed even to table a budget. Controls have improved and reporting is getting better as well. But it’s a constant battle for everyone concerned to get a really solid picture of Vanuatu’s economic health.
Translating economic data into terms – and results – that make sense to a hard-working housegirl with a family to feed is a challenge unique to Vanuatu. But that is exactly what our MPs signed up for.