Small Is Viable
By Gerard A. Finn
Pacific Magazine, July 2002
Tuvalu, with a population 10,000, is today among the most economically and
socially stable small island states in the Pacific. And it offers a
fascinating example of how the forces of globalization may at once
strengthen and weaken vulnerable small island states.
As one of the worldís most resource-poor island chains, where subsurface
water is almost nonexistent, Tuvalu began its nationhood on October 1,
1978 with daunting challenges. Infrastructure was sorely lacking.
Government reserve funds totaled less than a A$1 million. Still, the new
government moved ahead the best it could and soon had no choice but to
approach metropolitan powers to request bilateral aid packages. But
Tuvaluís new status as a sovereign nation also brought a range of novel
opportunities. It was clear that greater self-reliance as a small island
nation required broader linkages outside Tuvalu, indeed well beyond the
One of Tuvaluís earliest attempts to establish such linkages was in the
United States, where investment and real estate schemes turned out to be a
But an endeavor to issue rare, collectable postage stamps was successful.
Collectors in the U.S. and United Kingdom were especially eager to
purchase the series featuring locomotives, even if Tuvalu has never had a
railway. To officialsí amazement, annual philatelic revenues at one point
grew to well over A$1 million. But disappointment followed after a world
slump in sales, overproduction and illicit transactions from London
resulted in a precipitous drop in earnings.
These initial endeavors underscored both the promise and pitfalls of
global undertakings. Wiser and intrepid, Tuvaluís leaders worked to make
the most of global opportunities while engaging the forces of
globalization on its own terms.
By the early 1980s the UK had grown weary of providing interminable annual
budget supplements to offset chronic deficits. Tuvalu had grown equally
disillusioned with UK officialsí presumption that they still had the right
to opine about the budgetary matters of another sovereign state. Tuvalu
officials earlier had proposed the idea of establishing a major public
trust fund to achieve greater financial autonomy. The idea had gained
momentum when Kiribati became independent in 1979 and inherited A$68
million from the Revenue Equalisation Reserve Fund that originally
capitalized from taxes on the Ocean Island phosphate mining operation.
Tuvaluís initial disappointment when independence came in 1978 and they
received no share of the RERF, did not dissuade the minister of finance
and his colleagues. They patiently continued to pursue establishment of a
trust fund with contributions from donor nations. In 1982 Tuvalu formally
proposed to the UK a once and for all contribution in lieu of ongoing
annual budget support. This met with rejection, as did overtures to
Australia and New Zealand.
But ongoing interest by the USSR in securing fishing rights also helped to
keep the discussion alive. Following submission of a formal prospectus
outlining the specific purposes and structure of the proposed fundís
management, with multiple checks and balances, New Zealand, by far the
smallest of the three major donors, stepped forward with a pledge of A$8
million, contingent upon Australiaís and the UKís participation.
On June 16, 1987, the Tuvalu Trust Fund was formally established.
Australia, New Zealand and the UK together contributed just under a A$25
million, with Tuvalu investing a A$1.6 million. Japan and Korea also made
The success of the TTF has been a major step forward in advancing Tuvaluís
sovereignty, and its long-term future. Indeed the TTF has become a model
for advancing financial sustainability that other Pacific Island nations
are now attempting to emulate. While the TTF is not the panacea some had
anticipated, it allows Tuvalu to manage its economy in a manner that
avoids major budgetary shortfalls and the debt trap enveloping some other
small island states.
The success of the trust fund is but one of Tuvaluís efforts as a
sovereign state to advance its interests globally. Perhaps the most
controversial measures to raise revenues involved leasing Tuvaluís
international telephone routing code (i.e., the country code) to
international telephone sex firms, enabling callers paying by credit card
to maintain their anonymity. This generated up to a A$2 million in
revenues per annum, and after eight years it contributed approximately 10
percent of the national budget. Tuvalu residents could not avail of the
service. Still, as news of the enterprise became more widely known, church
leaders and others increasingly protested, and by the late 1990s the
venture was abandoned.
A more successful long-term undertaking with global reach is the Tuvalu
Marine Training Institute that each year offers scores of young men
instruction in the skills necessary to staff commercial cargo ships
worldwide. The TMTI had its genesis in a special pre-independence
arrangement with German shipping firms. Each year young Tuvaluan men
compete to be part of an entering class of among the 40 to 60 cadets who
receive internationally accredited classroom and practical instruction.
Over the years TMTI has a successful history of maintaining a special
relationship with the shipping firms that employ some 450 TMTI graduates.
This high degree of satisfaction with the Tuvalu maritime workers employed
around the globe is essential given the paucity of other employment
opportunities. Tuvaluan maritime workers send home hard earned remittances
in excess of A$5 million per year.
All other sources of private-sector employment combined do not come close
to approaching either the number of maritime industry jobs or the economic
stimulus provided by these remittances. It is estimated by government
officials that one in four Tuvaluan males between the ages of 18 and 40
are employed as maritime workers. What the long-term implications may be
for young families that are separated for extended periods year after year
remains to be seen. But without this source of international employment in
the globalized movement of commercial goods, it is not difficult to
envisage a range of social pressures within Tuvalu society having no
comparable productive release.
Another important source of remittances comes from some the 500 Tuvaluans
who reside more or less permanently in Fiji, and well over 1,000 who are
based in New Zealand.
Sovereignty has been an important asset in allowing Tuvalu to structure
its international linkages. Although Tuvalu census figures indicate the
presence of less than 10 Asians, this number belies the importance of
Asia, and particularly China, to Tuvalu. With intense regional competition
between the Peopleís Republic of China and Taiwan, official recognition
encourages the bandying aid packages and foreign travel to win support.
Since establishing relations with Taiwan in 1979, Tuvalu has received
considerable assistance from Taipei for many development projects.
Taiwanese fishing vessels have, in turn, gained unhampered access to
Tuvaluís rich EEZ. Tuvaluís ability to favorably negotiate the terms of
its international relationships and importance to Taiwan increased
significantly in 2000 when Tuvalu became the 189th member of the United
Beginning in the mid 1990s, Tuvalu with little fanfare received the
international country-code Top-Level Domain name ď.tvĒ, a designation that
had obvious commercial potential in the global age of cyberspace.
Subsequently, the government received an offer of US$50 million for an
exclusive contract to lease Tuvaluís Internet address. The pressure for
Parliament to sign an offer that was well over twice the national budget
did not immediately convince public servants to consent to the proposal.
Instead, having learned from past misjudgments, officials sought legal and
technical assistance to negotiate a marketing agreement that would
strengthen the nationís future financial position.
When the original dotTV marketing plans failed to materialize, the
government negotiated a new management rights agreement. In 2000 Tuvalu
received a windfall payment of US$12.5 million. The preponderance of this
windfall was transferred into the Tuvalu Trust Fund. As a result of these
unanticipated revenues, Tuvalu last year was for the first time able to
finance from its own resources a portion of its development budget,
including the installation of its first streetlights and the inaugural
tarring of Funafutiís roadways.
Like all societies, Tuvalu confronts a range of serious problems. The
negative consequences of globalization are evident in reports of sexually
transmitted diseases being brought home by seafarers. Other serious
problems include male alcohol abuse, declining educational standards,
nonexistent sewage treatment, and more. Inefficiencies and opportunity
costs are many.
At the same time, Tuvalu is one of the very few nations in the world that
can claim a perfect human rights record, nearly universal literacy, a
dearth of violent crime, and a level of civility that is second to none.
Fair and open competitive elections are regularly held with members of
Parliament and prime ministers relinquishing their positions without legal
wrangling or extra-constitutional measures.
There has never been a serious problem with corruption, and Tuvaluís
leaders have shown little inclination toward strident nationalism.
To the extent that Tuvalu because of its size and location fails to
attract competitive global forces, it escapes many of globalizationís most
detrimental consequences. Future engagements with globalization will, no
doubt, bring to the islandsí shores the perils of transnational flotsam.
And as other nations in the Pacific and beyond have sadly proven, poor
decision making by government could easily sink Tuvalu economically well
before predicted sea-level rise swamps its shores. As Tuvalu proudly
approaches its 25th year of independence, its people know well both the
joys and woes of nationhood.
Gerard A. Finin is a Senior Fellow at the Pacific Islands Development
Program East-West Center Honolulu, HawaiĎi. He can be reached at: