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Vanuatu's privileged political elite get another aid lifeline

By Helen Hughes - posted Thursday, 6 April 2006

Vanuatu (population 200,000) has been generously supported by aid in cash and technical assistance since its independence in 1980 by the International Monetary Fund, the World Bank and the Asian Development Bank, as well as bilateral donors, including the European Union and Japan. In 2005-6 total aid flows are estimated to be $34 million, with $24 million coming from Australia, Vanuatu's principal source of support. Aid flows are equivalent to about a third of Vanuatu's annual public revenues.

In spite of, or because of, such assistance, per capita income in Vanuatu has barely risen since independence in 1980, being $1,600 per capita in 2005. Vanuatu is one of the Pacific countries that have stagnated since independence. Vanuatu is well-known for its off-shore banking laundry that has serviced such eminent clients as Russian mafiosos. Its off-shore banking activities have been seen as problematic by the IMF and the OECD.

Off-shore banking only has about 200 ni-Vanuatu employees, but it is a major source of income for the small political and bureaucratic elite that runs the country and has also appropriated the benefits of aid inflows and such growth as has taken place. Not surprisingly Vanuatu, as of this month, has not signed the UN Convention against Transnational Organised Crime or the UN Convention against Corruption.


Despite the Vanuatu islands' wonderful natural attractions, the tourist industry is tiny. The richness of agricultural land has not led to cash cropping and exports on a significant scale. Most ni-Vanuatu are dependent on traditional subsistence agriculture.

In spite of a very rapid population growth, hunger is not a problem, but health, particularly maternal, infant and child health, has improved little if at all since independence. In some areas it has deteriorated with population pressures on water and sanitation. Education is largely limited to the children of the elite.

Reliable statistics on economic and social sectors are so limited that the IMF, the World Bank, the Asian Development Bank and AusAID have all had enormous difficulties in assessing the state of the economy, let alone the well-being of the population.

The IMF (2002) and the Asian Development Bank (2003), nevertheless, produced well-researched reasons for Vanuatu's lack of growth and development, with options for development. The latter, particularly, focused on the formidable barriers to the freedom of doing private-sector business in Vanuatu. Millions of aid dollars going to Vanuatu have been sunk into "governance" and "capacity building" in Villa with no discernible result. The Australian Government has struggled to no avail to have Vanuatu use aid to stimulate growth so that standards of living would improve.

Vanuatu governments have taken no steps to implement recommendations that would have led to growth and improved the shocking health and education conditions in the countryside. They have refused to participate in a meaningful dialogue with the Australian Government. Instead, they approached the US Millenium Challenge Corporation for aid.

Astonishingly, given that corporation's criteria for eligibility are "ruling justly, encouraging economic freedom and investing in people", Vanuatu has been selected as the one Pacific recipient of the corporation's largesse: $US65.69 million ($A89 million) has been allocated to Vanuatu for the next five years. This $20 million annually matches Australian annual aid flow. The corporation's aid is to be front-loaded, so that in the future it will exceed Australia's aid.


Vanuatu will therefore not only receive a substantial annual aid addition, but much more important, it will be able to continue to ignore the advice of Australia and other long-term donors on how to improve living standards. In an example of the data that forms the basis of its aid, the corporation claims Vanuatu's urban unemployment is 6.6 per cent and a rural unemployment is 0.6 per cent. Lucky ni-Vanuatu! This compares with serious estimates of about 24,000 formally employed and unemployment and underemployment of more than 35,000, or almost half the working-age population of Vanuatu.

The Millennium Corporation's funding is to be largely spent on the maintenance and improvement of roads, wharfs, an airstrip and warehouses to which aid funds were allocated - but on which they were not spent - in the past. A second component is for "institutional strengthening" of Vanuatu's Public Works Department that has already proved to be a sink for aid funds for "capacity building".

The advantage of engaging a new donor is that no new submissions are needed. Old proposals already worked up by competent consultants paid for by previous aid donors have been recycled.

In the Port Villa Presse, January 1, 2006, commentator John Salong wrote:

Vanuatu is not going to use the MCA funds to govern justly ... the eight infrastructure projects that have been submitted for funding have been chosen for political imperatives.

The MCA was politicised by Sope, Vohor and Carcassess. At the last election in 2004, each of the above claimed falsely that each was the one responsible for persuading President George Bush of the USA to give the money to Vanuatu. Each of the above knows there will be another general election in 2008. If the MCA funds are not secured by then, there will be much to explain. So, for political expediency, the MCA process has been fast-tracked to omit the necessary consultation with CSOs and the population at large.

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First published in the Canberra Times March 7, 2006 and available on the Centre for Independent Studies website.

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About the Author

Professor Helen Hughes AO is a senior fellow of the Centre for Independent Studies.

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