16 October 2015: Hon Prof Biman Prasad – Closing Remarks at the Pacific Credit Union Technical
Closing Remarks by Professor Biman Prasad, the Leader of the National Federation Party and Shadow Minister of Finance, National Planning and Statistics at the Pacific Credit Union Technical Congress 2015 at the Novotel Hotel, Lami, Suva; from 14-16 October, 2015 [Please Check Against Delivery]
The President of the Fiji Savings and Credit Union League, Mr. Sanaila Kafuti, organisers of the Pacific Credit Union Technical Congress, ladies and gentlemen. Thank you for the invitation to speak at your closing session. I am greatly honoured. I know that you have had three days of fruitful discussions, and I do not wish to prolong this session anymore, so I shall be brief. I know that credit unions have played a critical role in ensuring financial inclusion of workers, especially those on lower incomes.
We all know that Pacific Island economies are, in relative terms, low wage economies. Access to finance and formal financial services for low and middle income people is vital for reducing poverty, promoting small businesses and achieving inclusive growth. While there is a lot of work being done by various agencies and governments to promote financial inclusion, Pacific countries still lag behind in delivering banking and financial services to its people.
The world is once again charting towards adopting the new 17 Sustainable development goals. But many of these goals will remain as lofty goals if financial inclusion and financial services are not available to the poor. Given the rapid innovations in the delivery of financial products and technology, it is vital that financial institutions like credit unions keep abreast of these new innovations and adopt them to remain relevant and useful to their members.
Those taking credit inevitably incur debt and that has to be paid back with interest. While borrowing is not necessarily bad, it always has a cost, that someone has to pay for. There is no such thing as a ‘free lunch’. That is why it is absolutely vital to ensure not only prudent borrowing, but also prudent use of the borrowed funds. This is where the need for absolute care and strict governance structures and compliance is needed. As credit unions, it is prudent that you manage your organisations with utmost transparency and accountability so that your members get the best value for their money.
Lack of good governance, corruption and mismanagement of public funds in many Pacific Island countries and institutions has long been a cause for concern. Those in power begin to think that somehow they are entitled to determine how transparent and accountable they should be, and often we see rules and law being flouted as a result. In fact, in many countries, we are now witnessing a period of elective dictatorship where those in government use their parliamentary majority to ride roughshod over people’s concern about transparency and accountability.
Corruption is a global tyrant which robs resources from citizens and undermines their welfare in the long-term. Estimates by the World Bank show that US$1 trillion is paid in bribes every year, most of which are to obtain state contracts and monopolies. The estimates by UNDOC shows that multinational criminality moves US$2.1 trillion per year across borders. This happens through the active collusion or passive ignorance of regulators and legislators. Another estimate by the Tax Justice Network shows that governments lose US$3.1 trillion per year because of tax evasion, disproportionately by the rich who are able to influence policy makers, politicians and public servants. These vast sums, lost in corruption, will be enough to reduce global poverty and other forms of human misery in a big way.
Some of the Pacific countries have adopted international best practices through their parliament and some are in the process of creating anti-corruption bodies. However, just because countries have ratified the United Convention Against Corruption (UNCAC), it does not mean that they are dealing with corruption in an effective manner. Fiji ratified UNCAC in 2008. However, the Fiji Independent Commission Against Corruption since its formation has not been able to appoint a Commissioner. Governments have to ensure that anti-corruption institutions and parliamentary oversight bodies and committees are adequately resourced so that they can do their job effectively. Also, governments should never interfere in the Commission’s work or try to influence it any way. For instance, appointing political lackeys to head such institutions will render the institutions useless and lack the credibility that these institutions need to instill public confidence in the sincerity of a nation’s intention to weed out corruption.
The responsibility of ensuring that anti-corruption institutions and oversight bodies are transparent, open and accountable to the people rests with the politicians as lawmakers. When politicians and those in power shy away from ensuring transparency and accountability in the governance of anti-corruption institutions then the efforts to fight corruption will be doomed. The Fiji disease of destruction of democratic and governance institutions since 1987 seems to be spreading in the Pacific where politicians take it upon themselves to make and apply laws that suit them and also break them as it suits them. The recent case of Vanuatu where politicians have pardoned themselves from acts of bribery and corruption may an example of the disease spreading in the region.
Credit unions, banks and lending institutions must guard against irresponsible lending. In fact, the genesis of the global financial crisis came from not only irresponsible borrowing but equally from irresponsible lending. The Consumer Council of Fiji must be commended for bringing this issue to light in Fiji. In fact, the call by the Consumer Council of Fiji to change the Consumer Credit Act is a timely one to bring about more transparency and accountability in the lending and borrowing practices in Fiji. I am sure that irresponsible lending takes place in other Pacific Island countries as well and appropriate legislation and regulatory oversight needed as well.
Globally, there has been a surge in the level of debt. Usually there is debate on government debt. However, there are different types of debt and these include household debt, corporate debt, government debt and financial debt. In fact there has been a rise globally in all forms of debt.
More importantly household debt globally has also surged from 19% in 2000 to about 40% of world GDP in 2014. This is not surprising as many economies, after the global financial crisis, suffered massive declines in household income and rising debts. In the Pacific, households also suffered declining income levels and mounting debt.
In Fiji, since 2007, it is very clear that households, especially those with lower incomes and wages, have seen declining household incomes. This is because of our poor economic performance immediately after the coup of 2006, which has raised the cost of living, and failed to create meaningful employment in the economy. We don’t have a national study on household debt, and perhaps this needs to be done urgently to understand the extent of household indebtedness and its impact on the quality of life. Any study is likely to show increasing household debt. Such a study could be extended to all the Pacific Islands.
Most credit unions in the Pacific are run and managed by trade unions. Trade unions themselves have changed in that they are more understanding of the need to negotiate in the spirit of cooperation and dialogue. In fact trade unions in the Pacific have worked in a tripartite manner and this has served the countries well.
It is, however, unfortunate that the current Fiji government has chosen an ill-conceived path to dealing with trade unions. The political parties decree and the essential national industries employment decree are examples of draconian legislation which erode the rights of not only trade unions leaders, but also the workers to negotiate meaningfully with their employers.
The enactment of the Employment Relations Promulgation (Amendment) Act took place despite Government signing an Agreement to make necessary changes to the now repealed ENI Decree in conformity to ILO’s conventions. This is nothing but a recipe for economic disaster. The sad reality is that we now have a Commission of Inquiry looming in the near future – a decision on this will be made in November. This could have serious implications for trade and our international relations, and its impact could also be felt by economies in the Pacific. I sincerely hope that good sense will prevail and an ILO inquiry averted.
Let me conclude by saying that credit unions like yourselves play an important role in enhancing financial inclusion of the lower and middle income groups in the Pacific and this is a critical role. The prudent management of member’s funds as well as prudent lending will help consolidate your position in the financial markets. Barriers to access to finance for small medium enterprises and those on lower incomes continue to persist in the form of high fees and charges and multi-layered regulatory requirements. Central Banks in the Pacific region have not been able to influence big commercial banks to ensure that consumers are protected at all times and reasonable fees and charges are implemented. Therefore financial institutions such as credit unions will continue to be relevant and provide much needed lending services to the lower income groups and workers. Perhaps in time we can even hope to see worker owned and organised innovation where credit unions can provide loans to start and or expand worker-owned, democratically run co-operatives such as that which Oakland, USA is experiencing in a big way.
I wish you well and for those outside of Fiji I wish you travelling mercies back home.