Foreign aid a 'poisoned chalice' for Pacific nations

The Pacific's response to globalisation will determine its stability and prosperity. Picture / Alan Gibson

Pacific countries have been warned not to drink too deeply from the "poisoned chalice" of foreign aid and to instead embrace globalisation.

Professor Wolfgang Kasper, who teaches economics at the University of New South Wales, yesterday told an Auckland symposium on future Pacific prosperity that resistance to change had resulted in poor economic growth in the region.

Professor Kasper said accepting taking aid was a standard reaction in the Pacific. "But by now, we know that copious official aid is a poisoned chalice."

He said the biggest danger from official foreign aid was it tended to go to privileged elites, whose hold on power was strengthened by their priority access to aid.

Incentives for genuine democracy and economic freedom were reduced, he said.

"It is easier and more rewarding to be subservient to the aid-giving foreign officials."

He said exposure to the confusing challenges of globalisation often inspired fear, uncertainty and disorientation.

"How the people and their leaders react to these challenges determines their future stability, peace, security, prosperity and life opportunities."

Professor Kasper said religious and other community leaders could promote the attitudes and values on which economic freedom were based, or they could be a populist and reactionary force. "Religious leaders certainly have sometimes inculcated contempt for all material values and have reinforced resistance to change."

Professor Kasper said economic freedom included secure individual property rights, equality before the law and limited government.

The governments of small Pacific countries were too big and property rights were ill-defined and insecure.

"Economic decay and despondency are the consequence of poor property rights and meddlesome, opportunistic government."

Professor Kasper said those countries which refused to compete globally would be deserted and left behind - and the South Pacific was already lagging behind.

Samoa and Tonga had managed about 2.3 per cent a year growth in individual incomes during the past 30 years, a time when East Asians (excluding Japan) averaged about 4.25 per cent.

Other Pacific countries had performed woefully and had fast-falling average incomes.

East Timor now had the lowest recorded per capita income in the world - US$400 ($620) in 2004. Living standards had shrunk since the mid-1980s despite massive emigration, foreign aid and the potential to borrow against huge future oil and gas revenues.

"Little wonder that some places in the Indo-Pacific are now looking increasingly like Africa."

Professor Kasper said in many places, a fifth or even a third of the labour force was wasted.

Stagnation and growing unemployment led to social instability in such countries, pockets of real poverty - and conflict.