Tuvalu News

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 Pacific.

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 swindle.

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 modest contributions.

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 Nations.

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: fininj@EastWestCenter.org

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