Western Samoa Wins IMF Praise

Two years ago, the tiny, isolated South Pacific nation of Western Samoa was almost bankrupt.

Oil companies had threatened to turn off fuel supplies for which they were not being paid. The New Zealand government had formally warned its companies against extending credit. And inflation was running at 22%.

Today, Western Samoa is being feted as the International Monetary Fund’s model small island economy. Since late 1982, the government headed by Prime Minister Tofilau Eti has turned his country’s fragile economy around.

Inflation has been cut by more than half. The oil companies and the traders have been paid off.

The local currency, the tala, has been devalued by 23% and Samoa’s foreign reserves have been built up to more than $14 million from just over $2 million. That is the equivalent of what the country earned last year from its coconut products, cocoa, timber and bananas.

Predictably, the IMF is pleased with Tofilau and his young finance minister, Tuilaepa Sailele. John Karlick, the IMF’s resident economy watcher, has praised the Tofilau government’s handling of the economy, and the IMF’s annual country review in February said that Samoa was “an example of what could be achieved by small island economies with correct policies.”

Tuilaepa said in an interview that his policies were in line with those recommended by the IMF but were not dictated by them.

‘Something Drastic Had to Be Done’

“The economic theories can be found in any textbook. All that is missing is the political courage to implement them,” he said. “We were already in a mess. There was a clear indication that something drastic had to be done.”

Tuilaepa and Tofilau, who initially held the finance job himself, both said the country’s 160,000 population had to pay a price for the economic reforms. Many Samoans still live largely outside the cash economy, growing most of their own food and managing without electricity and its associated consumer durables.

Prices of essentials like fuel oil and sugar have doubled since 1982 through inflation and devaluation.

“The people must offer sacrifices,” Tofilau said. “My people have done that, they have shown a remarkable response to that call.”

Samoans gave Tofilau another three-year term in a landslide election earlier this year. But there are doubts in some quarters about how much longer they will accept the sacrifices.

Said one of Samoa’s top officials: “Everybody’s saying great things about the shape of the economy, but the man in the street does not feel it yet.”

“The worrying thing is how long will they be prepared to accept statistics and promises.” he added.

Continuing Vulnerability

Despite being impressed generally, the IMF has warned of the continuing vulnerability of an economy still heavily reliant on foreign aid and the money sent home by Samoans working in New Zealand and elsewhere.

Tofilau accepts the IMF’s caution. Western Samoa is now trying to complete airport extensions aimed at enabling it to export fresh produce and develop its dormant tourist industry, he said.

It also wants a greater cushion of reserves to help it cope with any drop in commodity prices.

“We are still struggling,” the prime minister said. “But we are trying to ensure we have the right infrastructure in place to cope with the future.”

His finance minister cites other reasons for trying to hold on to what Samoa has gained.

“Politically, it has been a very tough period we had to go through,” Tuilaepa said. “I would not want to repeat the experience.”