In bringing down its 2007 budget, the interim government announced that it was either a ‘swim or sink’ situation for the country. The interim minister for finance announced his intention of ‘belt-tightening’, particularly with respect to recurrent outlays. Without a strong rebound in the economy, debt levels are unlikely to return to 45 per cent of GDP over the medium term as targeted in the budget; indeed in 2007 they amounted to 49.1 per cent.

Foreign reserves have been falling since 2002 and are unlikely to rebound soon given prevailing policies. Efforts by the RBF to protect reserves using tightened capital controls, and the introduction of a credit ceiling on commercial banks, will raise the cost of credit, making economic recovery all the more difficult. The RBF, in all likelihood, has got itself tangled up in rationing foreign exchange, while the nominal (and the real) exchange rate(s) have appreciated sharply since September 2006. The loss of foreign reserves, due to the worsening of the trade balance could, therefore, be of its own making. As mentioned above, on one measure, that of the difference in the value of Fiji’s sovereign bond with the official exchange rate, the FJD was over-valued by 12 per cent as of 16 April 2007.^[28]

Macroeconomic stability requires a return to fiscal sustainability and external balance. In relation to the former, new revenue-raising measures need to be considered; in relation to the latter, the RBF may ultimately be persuaded to devalue the dollar. The longer the RBF holds out against devaluing the dollar, the larger the correction that will be necessary when its hand is forced. The only saviour would be large capital inflows and/or substantially increased exports, which are unlikely without a substantial boost in investor confidence.

For the economy, the position is neither one of sinking nor swimming – it is more akin to floating. Continuing with the water metaphor, the economy had been taking in water well before the December 2006 coup. Total investment as a share of GDP had reached a low of 11.3 per cent by 1996, with each of the coups pushing the economy back by an average of three years in terms of per capita income. The challenge for policy-makers wanting to raise growth is both to improve the immediate conditions for investment and to put in place measures to prevent future coups.

As regards the prospects for an early economic revival, tourism offers the best potential. Gold and garments have both made their retreat in terms of foreign exchange earnings and their contribution to employment generation. The international conditions for sugar are rapidly changing, and hope of revival in Fiji’s sugar industry could be misplaced. Furthermore, the problems within the garment and sugar industries are the cumulative effects of long-standing and unattended local problems. The increased pace of liberalization of global trade over the recent past has only exacerbated the pressures for change.

Information and communications technology activities form a small, albeit growing, sector. Its expansion, as for other sectors, will depend on political stability, maintenance of law and order, and the presence of competitive communications and transport infrastructure. The interim administration has committed itself to cleaning up corruption and walking away from race-based politics, while supplying the environment for growth of private enterprise. It has also announced that merit will henceforth be the sole criterion for appointment to public office. The intentions are laudable and, if actioned, will deliver the ‘goods’. Time, however, will be the ultimate judge.