Sunday, February 13, 2011

[pima.nius] French Polynesia's economic woes continue

10:00 AM |

French Polynesia's economic woes continue.

Updated February 11, 2011 17:38:40

In French Polynesia, as the economy enters its third year of recession - an ongoing budget crisis is further stifling growth and investments.

The economic woes are also feeding a long-standing political crisis.

French Polynesia has had twelve governments since 2004.

The current President, Gaston Tong Sang - while still in power - has recently lost the support of his government on key economic plans.

In the current climate, maintaining political stability and stimulating economic growth appears difficult to achieve.

Vincent Dropsy is an Associate Professor of Economics at the University of French Polynesia.

He says that French Polynesia now needs a new economic model.

Presenter: Janak Rogers
Speaker: Vincent Dropsy, Associate Professor of Economics at the University of French Polynesia

DROPSY: We are living in a severe economic crisis in French Polynesia, a structural crisis as well as a consensual crisis. That means that the world economic crisis over the last couple of years has had a very negative impact of course on the local economy. But it is also a long term crisis. So at this time we can say that the budget crisis is also reflection of this general economic crisis.

But on the other hand, the political instability that we have been living here for about six years makes things even worse. It seems that the incapacity of the current French Polynesian Assembly to find consensus around the budget is more political than economic.

ROGERS: We have of course a new High Commissioner that has taken over in French Polynesia, Mr Richard Didier. What role do you think he can play in resolving the current crisis?

DROPSY: Well actually, the assembly cannot seem to find a consensus to decide on a budget and if that is still the case by March 31st, then the High Commissioner will have to take over his budget. However, his hands are kind of tied, because he can only balance the budget. He cannot really make any investment decisions for the future of French Polynesia - so that would be of course a terrible situation for investment and for the economy overall.

ROGERS: You're saying that the economy is in crisis. Do you think as well that the long term political instability is harming the investment climate at the moment in French Polynesia?

DROPSY: Definitely. We have been trying to solve this economic crisis for the last couple of years - three years of recession roughly. However, the political instability dates from 2004 - six years ago. A dozen governments! So investors have a difficult time to figure out if this or that government will accept the project and particularly in telecommunication right now. There is law that has been passed about seven years ago that is supposed to free competition in the telecommunication sector. However, there is still a monopoly. That shows approximately how difficult it is for investors to make decision here, given the political instability.

ROGERS: And you say that the French Polynesian economy is in recession at the moment, but you do also receive a lot of money from Metropolitan France? What's the relationship there between France and French Polynesia in terms of the economy?

DROPSY: Well, it's true that the French state sends about a quarter of GDP, a quarter of the revenue of French Polynesia are transferred - mostly education, law and order and that kind of spending. So it's quite important. It helps the local economy here in French Polynesia survive. However, in terms of decisions, public investment for instance - public investment decisions - it's up to the local authority to the government and the assembly to decide about those investments.

The French transfer can help the local economy up to a certain point. It seems - actually we can be sure - that we have to change the economic model that so far French Polynesia has been running on. Actually there is an agency, Standard and Poors, which came last year in 2010 in French Polynesia. They said that the current economic model based on French state transfers and consumption is over and we have to change this model. Actually everybody agrees with that. We know that we have to turn to a new economic base on exports, especially tourism. However, the number of tourists has been declining 30 per cent over the last two or three years - so it's quite catastrophic. Given the political instability it is very difficult for the private sector to make decisions to boost economic growth and try to get around this recession.

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