Pacific Studies Series. Cook Islands 2008 Social and Economic Report. EQUITY IN DEVELOPMENT Tango-tiama o te kimi puapinga

Transcription

1 Pacific Studies Series Cook Islands 2008 Social and Economic Report EQUITY IN DEVELOPMENT Tango-tiama o te kimi puapinga

2 Pacific Studies Series Cook Islands 2008 Social and Economic Report EQUITY IN DEVELOPMENT Tango-tiama o te kimi puapinga This publication is funded by the Asian Development Bank and the Australian Government

3 Pacific Studies Series The series is published by the Asian Development Bank to provide the governments of its Pacific developing member countries with analyses of economic and other issues. The studies are expected to shed light on the problems facing the governments and people of the Pacific Islands, and to suggest development strategies that combine both political and economic feasibility Asian Development Bank All rights reserved. Published 2008 Printed in the Philippines Cataloging-in-Publication Data Available ISBN: Publication Stock No.: The views expressed in this book are those of the authors and do not necessarily reflect the views or policies of ADB, its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The use of the term country does not imply any judgment by the authors or the ADB as to the legal or other status of any territorial entity. Translation to Maori was made by Tupuna Rakanui with the coordination of Mathilda Miria-Tairea. Photos courtesy of south-pacific.travel.

4 Contents Abbreviations... Glossary... ix Foreword... xi Executive Summary... E Akakoukouanga Tutara No Te Ripoti (Translation)... vii xiii xxix Chapter 1 Introduction... 1 Chapter 2 The Economic Setting Economic Growth Bank Lending and Foreign Investment Inflation and the Exchange Rate The Budget Balance and Debt Position The Private Sector Employment Trends Unemployment The Population Challenge Chapter 3 The Disadvantaged of the Cook Islands Introduction The Rarotonga Outer Island Divide The Significance of Gender The Elderly Disabled People Chapter 4 Delivery of Social Services Introduction Decentralizing Service Delivery Education... 51

5 iv Cook Islands 2008 Social and Economic Report Equity in Development 4.4 Vocational Training and Other Postsecondary Education Health Services Welfare Services Other Social Services Chapter 5 Private Sector Development The Enabling Environment Managing Foreign Investment Maintaining Competitiveness Factors Affecting Competitiveness Priorities and Strategies Chapter 6 Managing the Public Sector for Results Introduction A National Perspective on Service Standards Providing Public Infrastructure Raising the Quality of Public Expenditure Refining the Revenue System Maintaining Fiscal Sustainability Strengthening Public Enterprises Reforming the Political System Achieving Results Orientation Chapter 7 Conclusion Appendix 1: Participation and Consultation Appendix 2: Data Appendix 3: The Changing Population A3.1 The Size of the Population and Its Mix A3.2 Migration Patterns A3.3 The Case of Mitiaro A3.4 The Future Population Appendix 4: Outer Island Profiles A4.1 Introduction A4.2 Aitutaki

6 Contents v A4.3 Atiu A4.4 Mangaia A4.5 Manihiki A4.6 Mauke A4.7 Mitiaro A4.8 Palmerston A4.9 Penhryn (Tongareva) A4.10 Pukapuka and Nassau A4.10 Rakahanga References Figures Figure 2.1 Real GDP Growth Figure 2.2 Contribution to Real GDP Growth Figure 2.3 Bank Lending by Sector Figure 2.4 Foreign Investment Approvals and Business Lending Figure 2.5 The Budget Balance Figure 2.6 Government Debt Figure 2.7 Labor Force Activity Figure 2.8 Private and Public Sector Employment Shares Figure 2.9 Size of Public Service in the Outer Islands Figure 2.10 Sector Employment Shares by Island Figure 2.11 Change in Participation in Key Activities by Region Figure 2.12 Unemployment Rate by Region Figure Human Development Index for the Pacific Figure 3.2 Gender-Based Measures of Development in the Pacific Islands Figure 3.3 Cash Incomes by Island Group, Figure 3.4 Adults with Vocational Education by Island Group, Figure 3.5 Employment by Age and Gender, Figure 3.6 Cash Incomes by Gender,

7 vi Cook Islands 2008 Social and Economic Report Equity in Development Figure 4.1 School Enrollment by Age, Figure 4.2 School Enrollment by Age, Figure 4.3 School Enrollment by Island Group, Figure 4.4 Change in School Enrollments by Island Figure 4.5 Student Achievement by Island Group Figure 4.6 Key Causes of Death, Figure 4.7 Annual Growth in Expenditure on Welfare Figure 6.1 Size of the Civil Service Figure 6.2 Key Expenditure Shares Figure 6.3 Funding Allocation for Staff Costs by Island, FY Figure 6.4 Illustrative Debt Projections Figure 6.5 Public Enterprises Rate of Return Figure 6.6 Funding Allocation for Staff Costs by Island, FY Figure 6.7 Cost of Operating Parliament Tables Table 3.1 Female-Headed Households Table 4.1 Service-Providing Agencies and Organizations in the Cook Islands Table 4.2 New Zealand School Certificate Pass Rates for Residents Table 4.3 Distribution of Qualified Teachers by Island, Boxes Box 2.1 The Mid-1990s Financial Crisis... 9 Box 6.1 The Pillars of Public Sector Management Box 6.2 Infrastructure Needs Identified in the Infrastructure Master Plan Box 6.3 The Auditor-General s Finding on the Diplomat Project Box 6.4 The Prime Minister on the Role of the National Sustainable Development Plan Box 6.5 The Auditor-General s Report into Payments on Behalf of the Crown

8 Abbreviations ADB Asian Development Bank AusAID Australian Agency for International Development BCI Bank of the Cook Islands cc cubic centimeter CIIC Cook Islands Investment Corporation CIPC Cook Islands Property Corporation CISO Cook Islands Statistics Office DIB Development Investment Board DMC developing member country DMF decayed, missing, or filled teeth FDI foreign direct investment GDP gross domestic product HDI human development index HIES household income and expenditure survey IMP Infrastructure Master Plan kwh kilowatt hour MFEM Ministry of Finance and Economic Management MIA Ministry of Internal Affairs MOE Ministry of Education MOH Ministry of Health MOW Ministry of Works NGO nongovernment organization NSDP National Sustainable Development Plan NZ New Zealand NZAID New Zealand s International Aid and Development Agency OPM Office of the Prime Minister

9 viii Cook Islands 2008 Social and Economic Report Equity in Development PERCA Public Expenditure Review Committee and Audit (Act) PIER Pacific island economic report POBOC payments on behalf of the crown PSC Public Service Commission TCI Telecom Cook Islands UNDP United Nations Development Programme US United States VAT value-added tax

10 Glossary kikau kumara maire makatea mamio matoi motu nono raui rito rukau viti tarua a crop a root crop an agricultural export commodity coral high-quality variety of swamp taro a flowering tree islet a fruit tree traditional lagoon conservation method woven young, bleached coconut leaves Hibiscus esculentum a root crop NOTE The fiscal year (FY) of the Government and its agencies ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2001 begins on 1 July 2000 and ends on 30 June 2001.

11 165 o 50'W 159 o 50'W Penhryn Rakahanga 10 o 55'S Pukapuka Manihiki 10 o 55'S Nassau N O R T H E R N G R O U P Suwarrow COOK ISLANDS S O U T H P A C I F I C O C E A N N Kilometers Palmerston National Capital Reef/Atoll International Boundary Boundaries are not necessarily authoritative. 18 o 55'S 165 o 50'W Aitutaki 18 o 55'S 20 o 00'N Philippine Sea REPUBLIC OF PALAU 0 o 20 o 00'S INDONESIA PAPUA NEW GUINEA 150o00'E N o r t h P a c i f i c O c e a n FEDERATED STATES OF MICRONESIA C o r a l S e a MARSHALL ISLANDS NAURU SOLOMON ISLANDS VANUATU TUVALU REPUBLIC OF THE FIJI ISLANDS International Dateline SAMOA TONGA 170o00'W PACIFIC REGION K I R I B A T I COOK ISLANDS 20 o 00'N 0 o 20 o 00'S Manuae Mitiaro Takutea Atiu Mauke S O U T H E R N AVARUA RAROTONGA G R O U P Mangaia A U S T R A L I A 150o00'E S o u t h P a c i f i c O c e a n o 'W 159 o 50'W 07 COObase HR

12 Foreword The Cook Islands has one of the best performing economies in the South Pacific. Current growth of 3.5% in 2007/2008 is forecast to continue up to 2010, on the back of tourism-related services and prudent macroeconomic management. While the economy has recovered from the 2005 cyclone damage, the disaster reminded the Cook Islands authorities and their development partners of the vulnerabilities affecting the Pacific. This led to a broad-based acknowledgement of the need for climateproofing infrastructure, particularly in light of Cook Islands reliance on tourism growth for revenues. The Cook Islands exemplify the fragility of Pacific island economies. Issues relating to the ecology of the islands have climbed to the top of public consciousness. Environmental sustainability, employment creation, and basic service delivery all hinge on the reliability of infrastructure, particularly on the two main islands of Rarotonga and Aitutaki. Basic service delivery on the 13 other small volcanic islands and coral atolls spread across 1.8 million km 2 of ocean area also depends on the Government s capacity to generate revenues from the mainstream tourism business on Rarotonga and Aitutaki. Guided by its first Sustainable National Development Plan , the Cook Islands has adopted a posture of fiscal prudence and sound planning to identify and meet development priorities. This enables implementation of pro-poor income generating opportunities by ensuring a sustainable basis for continued growth.

13 xii Cook Islands 2008 Social and Economic Report Equity in Development The Pacific Island Economic Report for the Cook Islands outlines the state of economy and social development in the country and presents a road map in addressing key development challenges. It identifies the principal binding development constraints and opportunities in public sector performance, private sector and social development, and governance. The publication, a part of the Pacific Studies Series, is made possible under a Regional Technical Assistance for Strengthening Pro-Poor Policy in the Pacific, jointly funded by the Asian Development Bank (ADB) and the Australian Agency for International Development. The report was prepared by a team comprising Craig Sugden, Malcolm Bosworth, Margaret Chung, and Angeline Tuara, and benefited from peer reviews by development partners and valuable contributions by ADB staff, including Sirpa Jarvenpaa, Thomas Gloerfelt-Tarp, and Anqian Huang. Philip Erquiaga Director General Pacific Department Asian Development Bank

14 Executive Summary Purpose of this Report The Asian Development Bank (ADB) coordinates the preparation of periodic updates of economic and social conditions in its Pacific developing member countries (DMCs) as part of its Pacific Studies Series. The last update for the Cook Islands was prepared for This 2008 Social and Economic Report updates the Series as part of a broader effort by ADB in partnership with Pacific DMCs to focus on endemic constraints to improvements in public and private sector productivity in the region. This broader effort supports the in-country participatory formulation of policies and institutions that work in favor of poverty reduction, as well as the local formulation of strategies to win over any stakeholders who may not immediately accept reform. This report examines the constraints to development to guide policy formulation The purposes of this report are to (i) provide an underlying assessment of development constraints and opportunities; (ii) prepare medium-term macroeconomic management and fiscal target indicators; (iii) present a private sector assessment and advise on establishing an enabling environment for a competitive private sector; (iv) present a review of pro-poor service delivery; and (v) provide a basis for policy consultations to facilitate the achievement of pro-poor policy outcomes and to help the people and governments reach critical decisions on adopting and implementing appropriate policies. The report is intended to help guide both public policy formulation in the Cook Islands and the preparation of donor strategies, including ADB s country partnership strategy.

15 xiv Cook Islands 2008 Social and Economic Report Equity in Development Social and Economic Setting Social conditions are high by developing country standards, and there has been good economic growth Life expectancy in the Cook Islands is high at 71 years; infant mortality is low at per 1,000 live births; immunization rates reach almost 100%; secondary school enrollment rates exceed 90%; adult literacy is high; and most Millennium Development Goals have been met or will be met by These achievements reflect a long history of heavy government investment in health, education, and welfare buttressed by a good natural resource base and benefits of close integration with New Zealand. A substantial improvement in the quality of economic and public sector management since the financial crisis of the mid-1990s also underpins relatively high living standards. For understandable reasons, the Cook Islands now looks to New Zealand to set its benchmarks for service standards, opportunities, and incomes. Real gross domestic product (GDP) per head has increased by more than 3.5% per annum (p.a.) on the average since the commencement of economic reform in the mid-1990s and is now more than $10, The key drivers of growth are expanding tourism and rising household spending, which have reduced unemployment on the main island of Rarotonga to low levels. Rising numbers of foreign workers are required to meet the needs of the island s expanding private sector. The second largest island by population, Aitutaki, has also benefited from tourismled growth and is now a sustainable center of private sector activity. The fiscal position is sound Economic growth led by the private sector has boosted government revenue; this, combined with tight fiscal management, has reduced the debt of the national Government (the Government) to a low level. The 1 Gross domestic product (GDP) is the income earned in a country, some of it by nonresidents.

16 Executive Summary xv Government now has the financial capacity to fund public infrastructure projects that have been put under pressure by an expanding economy and demands for higher standards of service. Perhaps, the biggest current development challenge is the long-term decline in the population of indigenous Cook Islanders. Those holding Cook Islands residency also hold New Zealand citizenship and can freely access the New Zealand and Australian job markets and the New Zealand health, education, and social security systems. More than three times as many Cook Islanders live overseas than in the Cook Islands. The predominant migration flows have been from the outer islands to Rarotonga to New Zealand and beyond. Standards of social services, notably education, are generally believed to be important determinants of migration, and migration has also responded to changes in the economic benefits of the Cook Islands. Economic management and social service delivery therefore have important contributions to make in sustaining the population and identity of Cook Islanders. Despite its overall success, economic reform has successfully generated private sector-led growth only in Rarotonga and Aitutaki. Elsewhere, the private sector has not responded or perhaps been unable to respond to the new business environment. In general, the main impact the mid- 1990s reform had in the outer islands was an exodus of people. There was no offsetting gain in economic sustainability as the public sector continues to dominate the island economy and crowds out prospects of sustainable private sector activities. This crowding-out effect has grown, not eased, since the reform. Public sector and welfare payments funded by the Government now provide the future source of economic activities on most outer islands. Some of them will face the prospect of economic dependency, while others have already reached that point. A falling resident population is a key challenge that calls for economic growth and better services The outer islands have failed to achieve economic sustainability

17 xvi Cook Islands 2008 Social and Economic Report Equity in Development Sustaining Growth Economic reforms have been central to growth Continued gains in productivity are required Tourism will likely remain as the main driver of growth The economic reform program was very successful in creating an enabling environment required for private sector growth. This is evident in the improvements of private sector-led economic growth, falling unemployment, and the business community s reasonably favorable assessments of the operating environment. Key achievements were the (i) reduction in excess employment in the public service and an associated correction of public servant pay rates, (ii) reduced involvement of the public sector in business activities, (iii) adoption of a modern tax system centered on the value-added tax and the reform of import duties, (iv) strengthening of the financial system through reform of the state bank and improved supervision, and (v) more open stance toward foreign investment and workers. These reforms lifted the productivity of the economy s factors of production labor, capital, and land while providing for the supply of additional labor and capital from overseas. Some signs indicate that the international competitiveness of the economy may have declined recently. These signs include an apparent decline in foreign investment and a substantial drop in long-haul tourist arrivals. Sustaining growth requires ongoing vigilance to lift productivity and ensure the availability of capital and skilled labor. Such efforts will help bolster the international competitiveness of the economy and provide the capacity needed to meet rising demand for the country s goods and services. Tourism will likely remain as the driver of economic growth and will remain concentrated in Rarotonga and Aitutaki. Land suitable for agriculture exists in Rarotonga and the Southern Group of outer islands. Experience, however, suggests that the economy s strengths are elsewhere and agricultural activity will be limited to the sale of fresh fruits and vegetables to Rarotonga and Aitutaki and small niche market opportunities (e.g., sales to Honolulu of maire, from

18 Executive Summary xvii whose leaves are fashioned garlands, and coffee exports from Atiu). A key factor behind this is the regionally high cost of labor and the availability of more attractive employment alternatives (e.g., in tourism or the public sector). Pearl farming on Manihiki will remain the main private sector activity in the remote Northern Group of outer islands if issues on farm management are addressed and world prices are favorable. Other potential contributors to private sector activity in the Northern Group include offshore fishing, fish processing, and handicrafts. Nevertheless, the scale of these activities will likely remain relatively small. Public sector employment will remain the dominant source of income in the Northern Group, as in the Southern Group (excluding Aitutaki). Raising the productivity of infrastructure is an important step toward sustaining overall economic growth. The tight fiscal management necessary to correct the Cook Islands very high debt levels and the absence of a clear planning framework for infrastructure have contributed to a backlog of works. Roads, water, sewerage, electricity, and harbors and ports in Rarotonga and Aitutaki are potential constraints to growth over the medium term. Existing infrastructure tends to impose unnecessarily high costs on users and, in some cases, is unable to meet new demands at a reasonable cost or standard (e.g., water in Aitutaki or liquid waste disposal in Rarotonga). A number of structural barriers in the economy have the potential to become significant constraints to growth. Most import duties were removed with the fiscal year (FY) 2007 budget, but some were retained. Protective tariffs are provided for certain locally produced goods in an attempt to reduce the competitiveness of imports and hence support local producers, especially in agriculture and drink manufacture. The difficulty is that these protective tariffs feed into the cost structure of the tourism industry and reduce its competitiveness. Furthermore, they tend to Public infrastructure needs upgrading Structural barriers warrant review

19 xviii Cook Islands 2008 Social and Economic Report Equity in Development lock scarce local labor and capital into areas of the economy with low productivity and questionable long-term prospects. Such protective tariffs would better be phased out to allow resources to move to their most productive use. Some tariffs have been kept on inputs to production to boost revenue, such as for vehicles, and again they tend to reduce the economy s competitiveness. While price controls are generally overused, action on telecommunications would be justified An extensive regime of price controls covers most basic food items and fuel. The intention of these controls is to keep key items affordable. However, they can force prices up and indications exist that they do and tend to shift profit margins from one item to another rather than actually reducing the overall cost. From a public policy perspective, price controls can be justified only when effective competition is lacking. Few, if any, of the items currently controlled meet this criterion, at least in Rarotonga and probably also in the outer islands. A better way to keep goods affordable is to provide for a competitive business environment. Effective competition can be relied upon to minimize costs to society, but current administrative mechanisms inevitably impose additional burdens on society through market distortions and administrative costs. While there is a tendency to over-regulate prices, one key area of the economy genuinely needs better price supervision. Telecom Cook Islands has a monopoly and for many years has earned very high profits by overcharging. Such a monopolistic behavior reduces the economy s competitiveness and has adverse social effects. Legislative monopoly has recently expired, and prices for certain international services have been reduced. It is important that regulatory changes be made to lock in these benefits while facilitating the entry of new suppliers and removing any remaining overcharging. Similar changes in electricity supply are warranted, though the potential benefits are not as great as in telecommunications.

20 Executive Summary xix Education and training have important roles in maintaining growth. Local labor is in short supply, imposing a potential constraint on growth. Adult education and further improvements in educational standards have the potential to lift labor productivity to underpin a move to higher-valued activities (e.g., in tourism). Better education and training can also contribute to growth by helping keep residents in the Cook Islands so they are available to meet the needs of the labor market. Education is particularly important for the outer islanders to take advantage of the better opportunities offered by the main centers of Rarotonga and Aitutaki. Education and training have roles to play in maintaining growth Managing Foreign Involvement The makeup of the country is changing as the number of foreign workers and investors rises; people of Cook Islands descent continue to depart; and fertility rates decline. The foreign, non-tourist population was estimated at 1,000 through the 1990s. Updating the estimate of the foreign, non-tourist population is largely guesswork, but it now appears to have roughly doubled to 2,000, or 10% of the total population. Foreign involvement in the country is increasing Some community members are concerned about the flow-on effects of a rising foreign presence, including the potential erosion of the Cook Islands identity. This has a social dimension as the culture is seen to be at risk. It is also seen to have a commercial dimension, reflecting concerns that the tourism industry may suffer if the Cook Islands image is lost. Some foresee that Rarotonga and Aitutaki may evolve into high-density tourism destinations with little involvement with, or connection to, Cook Islands Maoris other than through rental payments on leased land. There is a range of potential responses to this development issue. At one extreme is a ban on further foreign involvement and at the other extreme is the free flow of foreign labor and investment. The first extreme

21 xx Cook Islands 2008 Social and Economic Report Equity in Development While tighter controls may stall growth, free entry poses dangers to national identity The current approach is a middle ground Efficiency, accountability, and transparency can be improved would probably see economic growth stall as there would be no additional labor to meet growing demand. It would also carry the risk of the Cook Islands economy losing its competitiveness and actually contracting if local labor were too forceful in taking advantage of the opportunity created to increase pay rates. The opposite extreme would minimize the economy s cost structure by keeping wages down and probably maximize economic growth. However, rising foreign investment could bring about very large changes in the nature of the Cook Islands as foreign presence grows, especially if Cook Islanders continue to leave for better wages overseas. The current approach is a middle path. Foreign workers are allowed where local skills are not available, and foreign investment is allowed under certain conditions, mostly outside of the reserved areas for local businesses. Both foreign workers and investors pay fees, which lightly control the entry. The guiding policy framework lacks clarity and coordination. This can give rise to uncertainty and inconsistencies. For example, it has been proposed that immigration fees on foreign workers be reduced, thereby facilitating access for foreign labor. At the same time, the Development Investment Board has been moving toward tighter controls on access by foreign investors. The rules adopted to guide implementation have been generally well applied, but they are open to abuse and the impacts of the current policy are not being monitored (e.g., the extent of foreign ownership cannot be measured). A more open and clearly defined system would improve efficiency, accountability, and transparency. Support for local labor and business owners to upgrade their skills so they can play a more prominent role in the economy is probably also important to finding balance on this issue. Tightening current controls on foreign involvement a proposal that is already well advanced could be achieved

22 Executive Summary xxi through various means. For example, higher fees are one option for limiting access. Quotas could be set for foreign labor or partial bans could be applied for certain skills, industries, or islands. Some options are better than others, and potential impacts should be analyzed openly and discussed. All efforts will work best if applied openly and transparently. Managing the Public Sector for Results The Government now has in place one foundation required for managing public resources effectively and efficiently. The progress made is readily evidenced by substantial improvement in the Government s financial position and in the quality of financial management across the public sector. Steady progress has also been made in raising effectiveness and efficiency through improved budgeting practices and agency planning built on the foundations provided by modernized public sector legislation. Demands on the public sector are rising, and there is a need for the public sector to respond by continuing to focus on results. The community demands higher service standards, higher incomes, and more opportunities. The aspiration appears to be to reach New Zealand standards while preserving the Cook Islands modernized lifestyle in Rarotonga and maintaining a more traditional lifestyle in the outer islands. At the same time, a declining share of government revenue to GDP requires tighter prioritization of government expenditures. For the Cook Islands, the priorities for government expenditure are likely to lie in economic infrastructure, education, and health. A backlog of infrastructure work needs to be addressed. Considerable potential exists to raise educational standards, and doing so is important to meet the needs of the economy. The health sector faces the challenge of a rising incidence of noncommunicable diseases. Gains are apparent across the public sector Community aspirations continue to rise Priorities are health, education, and infrastructure

23 xxii Cook Islands 2008 Social and Economic Report Equity in Development Public debt could rise to 35 40% of GDP by 2026 With welfare and wage payments as low priorities, agreeing on realistic service standards is important Health sector funds could be reallocated to generate better value for money, notably from curative to preventative health cares. Education also shows some potential for reallocating sector funds toward primary and secondary education. But the potential to upgrade educational standards and the economy s need is so great that the emphasis may more usefully be placed on increasing the sector s share of total expenditure. For physical infrastructure, a larger share of expenditure is required to make up for the recent low levels of funding. Infrastructure expenditure proposed under a recently prepared Infrastructure Master Plan could see net general government debt rise to more than 20% of GDP by Expenditures in low priority areas need to be trimmed. Welfare payments, which are large and poorly targeted, provide one likely opportunity for future savings. Expenditure constraint may need to go beyond the functional level to address the overall composition. In this respect, the key is to control the wage bill, allowing spending to shift to capital and maintenance sides. Improvements can also be made to the ways how government operates. For example, key issues in developing infrastructure include the procurement process, management weaknesses within agencies, low cost recovery on public services, and problems faced in devolving responsibilities to island councils. The competitive outsourcing of infrastructure works to the private sector has the potential of being an important response to these problems, requiring further rethinking of the division of responsibilities between the public and private sectors. All expenditure decisions face the need to establish realistic standards of services across the country. Improvements to services in the outer islands inevitably come at the expense of improvements in Rarotonga and Aitutaki, thereby accentuating the gap between these centers standards and those of New Zealand, to which people appear to aspire.

24 Executive Summary xxiii The bigger the gap between Cook Islands and New Zealand standards, the larger the population outflow that imposes its own costs on the country would be. Questioning the weighting of expenditure in favor of the outer islands appears to be reasonable. The average allocation for operating costs for health, education, and infrastructure in the outer islands is about double the allocation to Rarotonga on a per head basis. Moreover, it has been proposed that some 60% of infrastructure funding over the next 5 years would be for the outer islands. This allocation appears out of line with 19% of the population and 14% of formal employment located in the outer islands in 2001, both of which would since have declined. One remaining gap in public sector management is the establishment of a systematic process for assessing performance. While the budget sets out a work plan with targeted results and performance measures for the outputs of each ministry, they are not scrutinized systematically. The management system established for ministries requires the Public Service Commission to review progress in delivering these outputs regularly, but no such review is undertaken. Many performance measures are unrealistic too high to be of use in the annual review. Heads of ministries are subject to performance review, but without ministry-level information, the review can be only superficial. This means that the cycle of inputs, activities, and outputs required to feed back into reformulation in subsequent years is weak at best and, at worst, completely absent. Systematic performance assessment is needed, as is implementation of the national plan Implementing the recently finalized National Sustainable Development Plan (NSDP) would greatly assist the adoption of a performance management system. NSDP sets out the national vision and goals, as well as the direction to be followed by the lower-level plans (sector strategies, corporate plans, and the annual budget). The plan presents an important opportunity to reinvigorate the broader engagement of the community in using public sector

25 xxiv Cook Islands 2008 Social and Economic Report Equity in Development resources. Some barriers have formed to achieving a focus on results in the public sector. Opening the system to scrutiny is likely to be a part of the solution to this problem. Addressing Disadvantages Outer islands suffer lower service standards and less opportunity than Rarotonga Gender imbalances and vulnerability exist in all communities No studies of the poverty situation in the Cook Islands have been done, but it is widely accepted that the key equity issue is the disparity between Rarotonga and the outer islands. This is reflected in development indicators and a steady flow of residents to Rarotonga. Providing small, far-flung communities with a full array of social services is difficult and expensive, but the disadvantages suffered by outer island communities go beyond lower service standards. With the departure of public sector jobs in the mid-1990s, along went people and skills. Some communities now stay alive only through welfare payments and accepting responsibility for grandchildren. A widely held aspiration is to achieve more evenly spread economic growth and social development across all islands. Beyond this general pattern of outer island disadvantage, vulnerable members of the community include people who are least able to help themselves, whose issues go unheard, and who often have special needs and require extra help. The causes of vulnerability include the breakdown in the traditional family support systems, emigration of caregivers, rising cost of living, and ruinous social and community obligations. The vulnerable are elderly, unemployed, single parents, children, and physically challenged, as well as smaller numbers of squatters and crime victims. Another general pattern of disadvantage is by gender. By regional standards, the women of the Cook Islands rank well. Their main disadvantages are their relatively restricted opportunities for economic and political participation, generally lower earning capacity, and remaining subtle forms of gender bias.

26 Executive Summary xxv The Government s response to the disadvantaged rests on providing services to the outer islands and welfare payments. It will be difficult to make further substantial progress toward addressing the present imbalance in living standards through funding alone. Funding already favors the outer islands to the point of overfunding in some cases. However, some progress could be made by setting and meeting minimum standards of services, addressing inequities among islands in funding for key services, and finding a more workable approach to decentralization that gives local communities a greater role in decisions affecting the outer islands. Welfare payments are high, and this appears to be a key reason for the Cook Islands lack of any sizable group of very poor people. However, much more could be done to focus the system on supporting the disadvantaged. Almost all payments are made without any means testing (i.e., without determining need), and it is perhaps a misnomer to describe it as a welfare system. For example, payments are made for 1,464 elderly and 4,943 children with the only criteria being age and residency, while only 227 people receive payments for infirmities and 43 for destitution. In addition, even funding for these small groups is not according to strict needs-based definitions. For example, tiny but food-rich Mauke is home to 18% of destitute cases while generally poorer Pukapuka and Penhryn, together with Manihiki, account for only 2%. The outer islands could be granted more voice Welfare payments could be better targeted Improving Governance The quality of governance remains one main risk to continued development and an area warranting renewed efforts. A key consideration is the absence of action to advance constitutional reform. A review of the constitution was released in 1998, but few recommendations were implemented. Frequent changes of government and the associated political instability have probably undermined the quality of government with follow-on effects on emigration Constitutional reform is an outstanding issue, as is devolution, which has been largely reversed

27 xxvi Cook Islands 2008 Social and Economic Report Equity in Development and economic growth. Political patronage remains an ongoing risk that has been exaggerated by the (i) weaknesses in the parliamentary system, (ii) ability for ministers of the crown to act outside the accountability framework, (iii) absence of a clear planning framework to guide the use of public funds, and (iv) gaps in performance management under the budget process. A key component of reforms in the mid-1990s was the transfer of formal authority to decide and implement decisions from the center to the periphery. At the time and several years thereafter, this transfer was considered critical for the sustainability of the country. Specifically, the Government was to devolve some key resource management and public administrative control to island councils, and to provide a fully functional and effective form of selfgovernment for each island, provided with clear and open lines of responsibility and communications with the restructured central Government in Rarotonga. The actual extent of devolution fell short of this intention. Lacking the support of a clear policy framework, devolution outpaced the development of local capacity from a low state, with the result that the devolution that did occur has largely been reversed. The balance of power between central and island governments probably has a significant effect on the quality of island services. Although devolution is a difficult area for making progress, there is value in revisiting these issues and seeking a sustainable approach. Other measures that could support accountability and transparency include (i) making budget documents more readable; (ii) publicly releasing the reports of the independent budget committee; (iii) reducing the use of payments on behalf of the Crown; (iv) adopting codes of conduct for members of Parliament, civil servants, and officers of public enterprises; and (v) imposing tighter controls on public enterprises and appointing ministry heads to curb a tendency toward politicization.

28 Executive Summary xxvii Summary of Key Findings Living standards are generally high. Private sectorled growth has been achieved, driven by tourism. Economic reforms and improved public sector management have been critical to achieving a turnaround along the Cook Islands development path. The need to pursue international competitiveness is ongoing. Structural reforms are warranted, notably to the protective tariff regime and to promote competition in key industries (e.g., telecommunications). Infrastructure investment in the main centers of Rarotonga and Aitutaki is also needed. Foreign investment and workers will continue to be required to meet economic needs and to replace departing Cook Islanders. An intended tightening of access rules is likely to put growth at risk. The important national goal of preserving the identity of the Cook Islands must be balanced with the needs of the economy. Economic prospects are poor in most outer islands, where living standards are lower than those in the main centers. The outer islands already generally receive a lot of public funding, and further increases are unlikely to prevent their long-term population decline. Yet funds could be distributed more equitably, and more control in the use of public funds could be provided to communities. Education plays an important role in building the skills needed for the economy, particularly through expanded vocational training. Ongoing efforts are still required to improve the quality of lower schooling.

29 xxviii Cook Islands 2008 Social and Economic Report Equity in Development More demands are likely to be placed on the health sector with the rise in lifestyle diseases. Much stronger preventative action is important for controlling this trend. The nation s fiscal position is sound; the machinery of government is relatively sophisticated; and the Government is well placed to fund development. Infrastructure, education, and health are the expenditure priorities. The disadvantaged deserve more support. Considerable public resources exist that could be used to help the disadvantaged, notably through the better targeting of the welfare system. There is an underlying need to maintain the large gains made in governance. Some signs indicate that the damaging attitudes of the 1990s remain, and a tightening of safeguards is prudent. Maintaining strong economic indicators can benefit from a multi-year fiscal framework. The adoption of prudent targets for benchmark indicators would help guide policy planners to achieve sustained robust macroeconomic performance.

30 E Akakoukouanga Tutara No Te Ripoti (Translation) Akakoroanga o teia Ripoti Kua riro te Pangika Kimi Puapinga o Ātia ei tapapa i te akateateamamao anga no te au akapapaanga ta-tuatau no te turanga kimi puapinga e te pirianga o te iti tangata i roto i te au patireia turanga paruparu i te pae kimi puapinga o te Pativika tei riro ratou ei tuanga no te au tapapaanga no te tuanga Apii Pavika. Ko te ripoti openga no te Kuki Airani kua rave ia te reira i te mataiti Ka riro teia Ripoti Pirianga o te Iti Tangata e te Pae Kimi Puapinga 2008 ei apai mai i te turanga akaope ki teia tuatau e ka riro teia ei tuanga no te angaanga a te Pangika Kimi Puapinga o Ātia ma te taokotai katoa atu ki te au patireia paruparu e, e au mema ratou i roto i te pae kimi puapinga o te Pativika. Te akakoro ia nei kia akatinamou ia te akakoroanga no te akamatutu i te turanga ngatā ma te rave meitaki anga i te angaanga e totoa nei ki roto i te pae angaanga a te katoatoa e tae ua atu ki te pae paraiveti i roto i te Pativika. Te riro katoa nei teia ei turu i te au angaanga e rave ia nei i roto i te au patireia no te atu anga i te au poritī ma te akatinamou i te au taokotaianga e kimi ravenga nei no te akaiti mai i te oraanga putaua. Kia atu katoa ia etai au kaveinga no te iti tangata te ka riro ei uuti mai i te ngakau o tetai au tangata tei kore i ariki - kia turu ratou i teia au akakoroanga. Te i oi o nei teia Ripoti ki roto i te au ngai tūkaui i te au ravenga kimi puapinga

31 xxx Cook Islands 2008 Social and Economic Report Equity in Development Ko te au akakoroanga o teia Ripoti nei koia oki: (i) kia akapapa ia te au turanga ngatā i roto i te pae kimi puapinga ma te akara katoa i te au ravenga no te kimi puapinga, (ii) kia akateateamamao ia tetai au porokaramu akatereanga mamaata no te tuatau rotopu (medium-term) ma te akataka i te turanga o te puapinga tei tapapa ia e kia rauka mai, (iii) tuku atu anga i tetai i oi o marie anga ma te au akamatakiteanga mei roto atu i te pae paraiveti no te akatupu i tetai turanga ei papa ngaueue kore no te au angaanga a te pae paraiveti, (iv) oronga atu anga i tetai uriuri akaou anga no te au tuanga tukaui i te rave anga i te angaanga, (v) atu anga i tetai tango uiui mārama ei turu i te akameitaki anga i te au poriti e au akairo kino te kitea mai nei, ma te tauturu atu i te iti tangata e te Kavamani kia tuku i tetai au tika kia akamana ia ma te ta-angaanga i te au poriti memeitaki. Kua akakoro ia teia Ripoti ei kaveinga no te atu anga i te au poriti o te iti tangata Kuki Airani e pera katoa no te akateateamamao anga i te au takainga te ka anoano ia no te patireia, me kore, no te au taokotaianga oronga tauturu ki te Kuki Airani. Ka ō katoa mai ki roto te Ātuianga-Pirianga Taokotai no te Kaveinga O te Patireia Mataiti a te Pangika Kimi Puapinga o Atia. Oraanga o te iti Tangata e te Tango o te Pae Kimi Puapinga Me akaaite ia atu ki te turanga o te au patireia paruparu, ko te pirianga o te iti tangata, e meitaki tikai te reira e kua kitea katoa ia mai Matutu tikai te oraanga meitaki o te iti tangata Kuki Airani, koia oki e 71 mataiti te roa i te oraanga. Ko te turanga o te au tamariki e mamate nei, akaaka rava te reira, koia oki e 15 ki te 20 i roto i te au tauatini tamariki rikiriki e ora mai nei i te tuatau i anau ia ei. Ko te paruru i te iti tangata mei te au maki totoa kua vaitata e tae ki te 100 patene. I roto i te apii tua rua kua vaitata ki te 90 patene o te au tamariki tei retita ia. Ko te karape i te tatau e te tata i roto i te au uki mamaata, e turanga teitei tei rauka. Ko te maata anga i te au Papauanga Kimi Puapinga no te Tau Mano Rua, kua tupu ke ana me kore ka rauka i te akatupu me ope te mataiti

32 E Akakoukouanga Tutara No Te Ripoti xxxi Kua riro teia au takainga tei rauka ei akakite mai i te roa o te tuatau i to te Kavamani patu anga ma te akamatutu i te Pae Rapakau, Pae Apii e pera katoa te oraanga meitaki o te iti tangata. Kua riro katoa te inuinu o te pae natura ei tauturu i te oraanga o te iti tangata. Kua turu katoa ia teia au mea na roto i te puapinga tei rauka mei roto i te pirianga o te patireia Kuki Airani kia Nu Tireni. I teia nei kua rauka tetai papa rangarangatu i roto i te pae kimi puapinga e tae rava atu ki te pae o te akateretereanga kavamani me akaaite ia atu ki te manamanata maata o te moni kore ta te patireia i tomo na roto i te mataiti 1990 e topa ua mai ki te au mataiti i rotopu. No tetai au tumu pīāpa ua, te akara tinamou atu nei i reira te patireia no te akanoo i te kaveinga o te Kuki Airani ki runga i te turanga teitei ta Nu Tireni i akanoo nona uaorai, i roto tikai i te raveraveanga o te au angaanga no te iti tangata, te akatupuanga i te au ravenga tukeke no te iti tangata, e tae ua atu ki te akamatutuanga i te puapinga o te moni te ka rauka mai nei. te matutu i te tupuanga o te pae kimi puapinga. Ko te katoatoa anga o te puapinga o te patireia me tu a ia na runga i te upoko tangata, kua tere atu te reira mei tetai 3.5 patene i te mataiti. E tuke maata teia mei te tuatau i aka-ou ma te akamatutu ia mai ei te turanga o te pae Kimi Puapinga i te mataiti 1990 e tae ua mai ki te au mataiti i rotopu. I teia nei kua taena ia ki te $10,000 Marike i te tutaki i te tangata okotai i te mataiti. Ko te taviri no te opara i te tupuanga o te pae kimi puapinga mari ra kia akamatutu ia te Pae Turoto ma te akamaata atu i te akapouanga mei roto i te au ngutuare tangata. Kua riro te reira i te akaiti mai i te numero tangata kare a ratou ngai angaanga moni tinamou i runga ia Rarotonga. Te maata aere ua atu nei te au tangata porena e anoano ia nei ei rave i te angaanga no te mea te maata ua atu nei te anoano o te pae paraiveti kia tarau ia mai tetai au tangata angaanga. Ko te rua o te enua e maata te tangata i runga iaia, mari ra ko Aitutaki. Kua puapinga katoa teia enua na roto i te akatupuanga ma te turuturu i te angaanga Turoto. I teia nei kua riro teia enua ei punanga ketaketa no te kimi puapinga i roto i te pae paraiveti.

33 xxxii Cook Islands 2008 Social and Economic Report Equity in Development E turanga mātutu to te moni Kua riro te topa maata o te numero tangata noo tinamou ki te Kuki Airani nei ei turanga ngatā no te Kavamani i roto i te akamatutu anga i te pae kimi puapinga, ma te akameitaki atu i te rave anga i te angaanga Kua riro te tupuanga matutu o te pae Kimi Puapinga o te pae paraiveti ei akapapu i te maata o te moni ta te Kavamani e rauka mai nei. Kapiti atu ki te reira, kua akamatutu katoa ia te akateretereanga o te moni, ma te akaiti mai i te teimā o te au moni akakaiou anga a te Kavamani ki tetai turanga akaaka rava. I teia nei kua rauka i te Kavamani i te akapapu e kua matutu te turanga o te moni e ka rauka rai iaia i te tutaki i te au akapouanga no te akameitaki akaou i te au Toko Tauturu i te Oraanga o te Iti Tangata. Kua kopae ia ana oki teia au tuanga no te tukaui i te tupuanga o te pae kimi puapinga. E maata katoa te moni tei anoano ia ei akameitaki atu i te raveraveanga i te au angaanga a te Kavamani no te iti tangata, e pera katoa te akamatutu anga i te au ravenga kimi puapinga. Penei ko te angaanga maata ta te Kavamani e tapapa nei te ka arapaki ki te patireia no tetai roa anga tuatau, koia oki ko te numero o te iti tangata Kuki Airani e topa aere ua atura ki raro. Ko tetai ua atu tangata e tikaanga Kuki Airani tona i te noo tinamou mai ki roto i te patireia, te mou katoa ra ratou i tetai tikaanga iti tangata Nu Tireni e ka tika katoa ia ratou kia tomo ki Nu Tireni e pera katoa ki Autireria mei te mea atu rai e e iti tangata Kuki Airani tikai ratou. Ka rauka katoa ia ratou i te kimi angaanga moni, te ta-angaanga i te pae rapakau maki, te pae apii e pera katoa te au ravenga paruru i te oraanga tangata i Nu Tireni e Autireria mei te mea atu rai e e iti tangata Kuki Airani tumu tikai ratou. Tere atu i te toru taime i te maata i te iti tangata Kuki Airani tei noo tinamou ki vao mai i te patireia me akaaite ia atu ki te Kuki Airani tikai e noo nei ki roto i te patireia. Ko te maata anga o te iti tangata e akaruke nei, mari ra mei te au enua i tai mai e tere mai nei ki Rarotonga e tae ua atu ki Nu Tireni. Koia katoa to Rarotonga e tere nei ki Nu Tireni e tae ua atu ki tetai au enua ke atu. Kua irinaki katoa ia e te riro nei te turanga o te au ravenga tauturu i te iti tangata ei opara i te iti tangata kia akaruke - i roto tikai i te turanga o te apii. Kua arapaki katoa te neke anga o te iti tangata ki vao mai ki runga i te turanga o te puapinga ki