A Cohesive Macroeconomic Policy that will Strengthen Economic Partnership with the International Community; The Case of Vanuatu .

A Cohesive Macroeconomic Policy that will Strengthen Economic Partnership with the International Community; The Case of Vanuatu .

LEKIMA NALAUKAI

School of Economics, University of the South Pacific; Emalus Campus; Port Vila; Vanuatu

Abstract

Strengthening our partnership with international community does not happen in void, by chance or by luck. It is through trade policies and aid that we can asses how compatible we are to others. This paper explores the effectiveness of aid in Vanuatu and suggests participation between donors, Vanuatu government official and ordinary citizens by revisiting the Paris Declaration on Aid Effectiveness. Research suggests that there are no long term relationship between aid and economic growth in Vanuatu. Allowing civic participation in macroeconomic polices planning through representatives creates ownership to parties and by sharing information leads to proper implementation of assistance.

Introduction

Vanuatu is at a crossroad of moving into adulthood with 30 years into independence and expecting to graduate from the Least Developed Countries (LCD) category in a few years time. After a cycle of political instability, prosperity and then into instability again, it is in the best interest of the country that the policymakers should undertake a relevant, reliable and cohesive domestic framework that will eventually have significant implications to their partnership with the international community. Recently, it was once one of the fastest growing economies of the South Pacific; however, with the non-existence of a comprehensive macroeconomic policy framework coupled with high turnover of government officials, all those achievements are now diminishing with an increasing in inflation rate. Real GDP growth was 7.4 per cent in 2006, but now forecasted to grow at 2.2 per cent in 2010. (2010 or 2011) Due to a very narrow export based with consumption being funded externally, Dutch disease is inevitable with inflation uncontrollable (Gay 2004).

One of the prominent features of Vanuatu’s economy is the parallel existence of the modern and traditional economy (see Economic Opportunities Fact-Finding Mission, AUSAID & NZAID page 12 2006). It is now the responsibility of the current policy makers to decide whether to move to modern economy or run both economies simultaneously . Given such strong views by the Director of National Cultural Council and the current initiative by Vanuatu on the Alternative Indicators of Well-Being for Melanesians Project , the onus is now on the current generation to make a paradigm shift since our international friends who are the donors of our development funds may not recognize the traditional economy. This is not an issue of sovereignty. Circumstances now dictate the need to develop, move away from subsistence life and pursue new opportunities that life will bring for us and for our future generation.

For the last 30 years Vanuatu went through a lot in terms of economic and political changes and the independence from the condominium being the biggest break in 1980. Since then, donor countries have been assisting through capital transfer and direct funding. Millions of dollars of funding have been flowing into the economy since independence. Regretfully, 30 years down the line Vanuatu seems to have no direction in terms of private sector development, which is the engine of economic growth and donors and the government are trying hard to find if there are any long term economic effects of past years funding programs. The Pacific Institute of Public Policy (PiPP), an independent, non-partisan and not for-profit organization based in Port Vila, Vanuatu in one of their briefing papers in 2008 argued several areas that need special attention.
One of the obvious areas that the briefing paper mentioned is for specific and targeted areas that needed assistance. In addition to that a “one-size fits all” model will definitely not work in the Pacific especially Vanuatu. PiPP rightfully argued about the fundamental Keynesian economic theory which now forms the modern macroeconomic theory about the importance of fiscal stimulation to increase growth through private sector development. However, the question that we are all asking is why is it not working?

The next section reviews macroeconomics indicators of the nation and of how the economy has been performing with special attention on the effectiveness of aid. The third section outline the objective of this paper, that is to present a Macroeconomic policy participation effort together with policy alignment and the fourth and final section presents conclusions and final recommendations with suggested economic implication.

Macroeconomics Indicators

As most commentators mentioned, Vanuatu is unique in many ways. Since Independence in 1980, Vanuatu’s geographical location, economic status and political instability generally dictated its macroeconomic performance for the last 30 years. Struck by serious cash flow, loss of confidence in the domestic financial sector, serious budget deficits and social unrest (Gay 2003) left little room to the government but to accept the Asian Development Bank (ADB) sponsored Comprehensive Reform Program (CRP) in 1997 to try and salvage the economy. However, even after the CRP, government officials believed that the program now created a set of “new problems” (Gay 2004) whereas (Jayaraman & Ward 2006) believed that it could have been worse without CRP.

However, there were some improvements in the last eight years due to various reasons, but the abundant inflows of funding to Vanuatu remains the major source of sustainability. The economy improved its fiscal position from 1998 to 2002 period and recovered in 2003 due to gains in agricultural sector, increase in domestic demand, stability in the exchange rate and official international reserve and declining in trade deficit with lending drive by the commercial banks resulting in domestic credit growing by 2.8 per cent in 2004 (Sugden and Tevi 2004).

Macroeconomic stability is always a challenge for Vanuatu. However, real GDP growth is projected to grow at 3.8 per cent in 2011 after being down to 2.2 in 2010 (Refer Table 1). Total Revenue excluding grants continue to decrease through 2009 from 26.8 per cent of GDP in 2009 to 25 per cent of GDP in 2010 this shows the lack of domestic economic activity for the period. Fortunately, expenditure seems to be stabilizing due to reasons best known to government, probably effects of budgetary cuts.

It will be interesting to see the 2011 performance with the budget to be consistent with 2011 particularly the tight measures in expenditure. The circulation of foreign currency in the domestic financial system is something that need closer attention and analysis. Controlling money supply is a proactive role which needs vigilance however, it will be added responsibility if foreign currency are allowed to be traded within the financial system. This can allow money laundering and other financial malice practices. Interest rates seems to be stable whereas M2 seems to be fluctuating since 2006 with 16 per cent in 2007 now 0.5 per cent in 2009 and estimated to drop to below zero in 2010.

Foreign Reserves seems to be something that the Vanuatu government is managing well. A four to five months cover could be a good threshold as most Pacific Island Countries (PIC) are also targeting. Current account is an area that definitely needs attention. It has not shown any significant improvement for the last 5 years. A significant improvement in domestic economic activities and tightening of trade policies together with work on monetary policy should stabilize this.


Table 1 Selected Macroeconomics and Financial Indicators

Est Proj
2006 2007 2008 2009 2010 2011
Output and prices (annual percentage change)

Real GDP 7.4 6.5 6.2 3.5 2.2 3.8
Nominal GDP 12.7 11.6 11.2 4.8 5.1 7.9
Consumer prices (period average) 2 3.9 4.8 4.3 2.8 4
Consumer prices (end period) 1.9 4.1 5.8 2.3 3.4 4

Government finance (in percent of GDP)

Total revenue and grants 20.7 22.3 27.7 26.8 25 24.2
Revenue 18.9 20.4 21.1 19.5 18.1 18.1
Tax 16.8 18.2 19.1 17.2 16.5 16.5
Non-tax 2.1 2.2 2 2.3 1.7 1.7
Grants 1.8 1.8 6.6 7.3 6.8 6
Total expenditure and net lending 20.2 22 27.9 27.6 27.7 25.1
Current expenditure 17.4 19.4 18.6 18.6 19.8 19
Of which: wages and salaries 10.7 11.8 11.7 11.4 11.6 10.9
Capital expenditure 2.1 2.6 7.6 9 7.3 6.1
Overall balance 0.5 0.3 -0.2 -0.7 -2.7 -1

Money and credit (annual percentage change)

Broad money (M2) ... 7 16.1 13.2 0.5 -6 na
Net foreign assets 10.5 15 9 -18.3 -34.6 na
Domestic credit 7.2 10.6 36.7 22.1 17.4 na
Credit to private sector 9.7 12.3 43.3 19.9 11.6 na

Interest rates (in percent, end of period)

Deposit rate (vatu deposits) 1.9 2 2.7 3.2 1.8 na
Lending rate (vatu loans) 11.3 10.3 10.3 10.9 10.3 na

Balance of payments

Current account (in millions of U.S. dollars) -28.4 -36.9 -65.8 -48.5 -41 -43.7
(In percent of GDP) -6.5 -7 -11.1 -8.2 -5.9 -5.7
Of which: tourism exports (in US$ Million) 104.2 137 170.6 186.9 219.6 233.9
Merchandise exports, f.o.b. (in US$ Million) 37.7 29.7 41.7 55.2 51.4 55
(Annual percentage change) -1.3 -21.2 40.7 32.1 -6.8 7
Merchandise imports, f.o.b. (in US$ Million) 141.2 176 265.2 247 246.3 267.2
(annual percentage change) 7.6 24.6 50.6 -6.8 -0.3 8.5

Gross official reserves (end of period)

In millions of U.S. dollars 105.1 119.6 115.3 148.6 161.4 157.2
In months of corresponding imports of goods (c.i.f.) 7.5 6.8 4.4 6 6.6 5.9
In months of next year's imports of goods (c.i.f.) 6 4.5 4.7 6 6.1 5.4

External debt

External debt (in percent of GDP) 15.8 13.5 16.8 17.3 16 14.4
External debt service 1.3 1.2 1.3 1.5 1.4 1.4
(in percent of exports of goods and non-factor services)

Exchange rates (period average)

Exchange rate regime: officially pegged to an undisclosed basket of currencies
Vatu per U.S. dollar (period average) 110.6 102.4 101.3 106.7 95.5 na
Real effective exchange rate (average, 2005=100) 98.2 99.6 98.3 103 106.7 na


Nominal GDP (in billions of vatu) 48.4 54.1 60.1 63 66.2 71.5
Source: IMF 2011




Despite the population almost doubling over the last thirty years, the proportion of the population living in the rural remains stagnant. Developments were concentrated on the two major urban areas of Port Vila on the island of Efate and Luganville and on the island of Santo . The rural area and its population continued to be characterized by subsistence living.

Due to its narrow export base, Vanuatu continues to struggle with its trade shares and Budget Balances. Welfare for the rural dwellers is also a concern as though they are farmers; their production is merely subsistence in nature with a direction towards heavy commercial farming. Despite almost 75 per cent of the people live in the rural area, agriculture as a whole only produces 20 per cent of GDP. This is one of the reasons the rural areas of the country are so poor (Haywood 2003).

Due to a steady inflow of development assistance in relative to other Pacific Island Countries, questions need to be asked as to why development assistances are not filtering to the 75 per cent of the population that practically live in rural areas whose livelihood depend solely on subsistence farming. Aid per capita for Vanuatu in 2009 was US$430 which is almost the same as the Least Developed Countries GDP per capita for the same year, which is US$651 (World Bank Report 2009).







Strengthening Partnership

Revisiting Paris Declaration on Aid Effectiveness 2005

Vanuatu was one of the participating countries in the Paris Declaration on aid effectiveness in 2005. The declaration was to strengthen the commitment established in Rome in 2003 and the Marrakech Roundtable in 2004. All the commitment directing donors and partner countries to harmonize and align policies that will see the increase in the impact of aid in reducing poverty, and inequality, increasing growth, building capacity and accelerating achievement of the Millennium Development Goals (MDG). Under the Declaration, Vanuatu should by now have a domestic policy capacity to plan, implement, manage and account for all inward flow of funding. Capacity development is the responsibility of partner countries with donors playing a supporting role. It needs to not only be based on sound technical analysis, but also to be responsive to the broader social, political and economic environment, including the need to strengthen human resources (Paris Declaration on Aid Effectiveness 2005).

Reaffirming their commitment in six broad areas; the donors together with the partner countries met in Paris in 2005 and decided to work on strengthening national development strategies, increasing alignment of aid with partner countries priority, enhancing accountability, eliminating duplication reform and defining measures and standards in government policies. In Table 2, Donors and Partners committed to fifteen targets. It is apparent that trade especially export is more direct and simplified in relative to aid where the bottle neck seems to be in the government officials.

Table 2: Indication of Progress

I N D I C A T O R S T A R G E T S F O R 2010
1 Partners have operational
development strategies At least 75% of partner countries have operational development strategies.
2a Reliable public financial
Management (PFM) systems Half of partner countries move up at least one measure (i.e., 0.5 points) on the PFM/ CPIA (Country Policy and Institutional Assessment) scale of performance.
2b Reliable procurement
Systems One-third of partner countries move up at least one measure (i.e., from D to C, C to B or B to
A) on the four-point scale used to assess performance for this indicator.
3 Aid flows are aligned on
national priorities Halve the gap – halve the proportion of aid flows to government sector not reported on government’s
budget(s) (with at least 85% reported on budget).
4 Strengthen capacity by
Co-ordinated support 50% of technical co-operation flows are implemented through co-ordinated programmes consistent
with national development strategies.
5a Use of country public
financial management
systems For partner countries with a score of 5 or above on the PFM/CPIA scale of performance (see Indicator 2a). All donors use partner countries’ PFM systems;
And Reduce the gap by two-thirds – A two-thirds
reduction in the % of aid to the public sector not
using partner countries’ PFM systems.
For partner countries with a score between
3.5 and 4.5 on the PFM/CPIA scale of performance (see Indicator 2a). 90% of donors use partner countries’ PFM systems;
and
Reduce the gap by one-third – A one-third
reduction in the % of aid to the public sector not
using partner countries’ PFM systems.
5b Use of country
procurement systems For partner countries with a score of ‘A’ on
the Procurement scale of performance (see Indicator 2b) All donors use partner countries’ procurement
systems; and
Reduce the gap by two-thirds – A two-thirds
reduction in the % of aid to the public sector not
using partner countries’ procurement systems.
For partner countries with a score of ‘B’ on
the Procurement scale of performance (see
Indicator 2b). 90% of donors use partner countries’ procurement
systems; and
Reduce the gap by one-third – A one-third
reduction in the % of aid to the public sector not
using partner countries’ procurement systems.
6 Avoiding parallel PIUs Reduce by two-thirds the stock of parallel project implementation units (PIUs).
7 Aid is more predictable Halve the gap – halve the proportion of aid not disbursed within the fiscal year for which it was
scheduled.
8 Aid is untied Continued progress over time.
9 Use of common
arrangements or
procedures 66% of aid flows are provided in the context of programme-based approaches.
10a Missions to the field 40% of donor missions to the field are joint .
10b Country analytic work 66% of country analytic work is joint.
11 Results-oriented
Frameworks Reduce the gap by one-third – Reduce the proportion of countries without transparent and
monitorable performance assessment frameworks by one-third.
12 Mutual accountability All partner countries have mutual assessment reviews in place.


Using the Paris Declaration as a map to international benchmarking, it is Vanuatu’s responsibility to take ownership of making aid more effective and efficient by reducing duplication, transaction cost, misdirecting of aid and have zero tolerance of corrupt practices. This will only eventuate when the Government formulates and implements their own national development plans, using their own prioritization, planning and implementation system as soon as possible. The Priorities and Action Agenda 2006-2015 by the Ministry of Finance in 2006 is a typical example of such initiative, however, after reading the document, we now should be more result oriented and involve as many locals as possible to write such documents so that they will continue to develop the implementation , review and improvement plan. If consultants were involved, the possibility of taking the report further into implementation and review mode is doubtful. The document rightfully pointed out weaknesses and priority areas, but lack realistic implementation steps and time line.

Government priority areas as per document include:

• Private Sector Development and Job Creation
• Macroeconomic Stability and Equitable Growth
• Good Governance and Public Sector Reform
• Primary Sector Development
• Education and Human Resources Development
• Infrastructural Development and Utilities

Aid

Aid is considered to be a critical policy area that requires a high level of coordination between countries (donor and recipient country) and between government ministries and ordinary citizens. Aid or development assistance consists of financial flows, technical assistance, and goods and services (in kind) which are provided in the forms of grants and concessional loans (Radelet, 2006). The predominant sources of aid are bilateral, that is from one donor-country to another recipient-country, and multilateral, that is from regional and multilateral development agencies to recipient countries. Multilateral assistance represents the disbursement of aid resources which come, ultimately, from donor countries but are pooled and allocated through such regional and multilateral development agencies. The successfulness of these aid flows will depend on the cohesiveness of the partnership.

Aid is considered critical to the development process of many low-income countries for several reasons. For instance, it serves as an important source of finance for poor countries which are not well placed to attract from the global private capital market the financing that they may need to fund their development activities (Gupta et al., 2006). In addition to providing finance, aid can also be a vehicle for transmitting critically needed knowledge for these countries, and assist them in implementing development- enhancing reform of their policies and institutions (Gunning, 2001). Part of the self-assigned mandate of the multilateral development agencies is to use the provision of finance as a lever for transmitting knowledge and advice (regarding policy and institutional reform) to aid receiving countries. Without a well coordinated aid administration, policy gaps will widen resulting in wastage.



Macroeconomics Polices

Macroeconomics is a branch of economics which covers the national economy including consumption, government spending, investments, and trade. Encompassing these areas are money, production, employment and education. Monetary and Fiscal policy are the two main polices that govern and drive the economy. In most cases donor countries filter their funding assistance through such policies and without coordinated streamline policy, the unrepresented population continue to be deprived and mistrust continue to thrive.

A possible approach to strengthen economic partnership with international community is to asses the macroeconomic impact of development assistance. The International Monetary Fund (IMF) identified the main identities of impact via macroeconomic principle (Gupta et al 2006). These include:

• The budget deficit must be fully financed from either external or domestic sources.
• Projections for reserve money and broad money growth should be consistent with the output and inflation forecasts and based on realistic assumptions about the velocity of circulation and the money multiplier.
• Real GDP growth and trade projections should be consistent with the assumed path for both public and private investment, the real exchange rate, private credit growth, and expected developments in productivity, including those resulting from scaling up.
• Debt sustainability (both external and domestic) needs to be reassessed and maintained through a prudent debt-management strategy.

Donors are no doubt expecting Vanuatu to forge a macroeconomic policy that is sound which will enhance growth and development, eradicate poverty and corruption and assisting Vanuatu to strengthen their partnership with international community. The donor’s intention is to help the underprivileged and develop the nation; the inflows of funding normally administered through the macroeconomic mechanism. However, without a proper facilitation and insufficient capacity within the government sector to implement sponsored programs ; long-run positive economic effects are doubtful. The CRP was a practical example that international community, domestic policy makers and the people at large need to work together in order for any such intended program to work. In a few years it will be interesting to evaluate the multiplier effect of the recent US$65.7 million Millennium Challenge Corporation’s Transport Infrastructure Project.

Past studies and critics from independent commentators on the effectiveness of aid in Vanuatu were not very promising. Despite inflows of development assistance reaching the highest in 2009, there is no link in aid and growth (Jayaraman and Ward 2006). Hughes and Sodhi 2006, shared the same sentiment that upon analyzing shorter period of time, found that aid did not benefit Vanuatu’s long term economic growth. Questions need to be asked as to why receiving US$103 million in 2009 and had aid per capita of US$430, yet we still cannot have a sustainable economic growth (World Bank Report 2010).

Due to high inflows of aid, Vanuatu is vulnerable to unearned economic rents or “Dutch Disease”. The economic consequence of such is the unnecessary pressure to the unrealistic value of Vatu. It makes exports very expensive and the ordinary local Ni-Van do not benefit from their currencies, but plays an important role to foreigners and expatriates working in Port Vila by not losing much in foreign exchange when sending money back home.

Only 25 per cent of the population live in the urban area; of which more than 50 per cent live in Port Vila. Seeing very less development in the rural and given the fact that rural dwellers continue to pursue the traditional economy, aid has therefore largely benefited the urban elite. However, since the urban life does not generate that much in commodity exports, Vanuatu’s export figures continue to remain stagnant over period of time. The onus is now on the Ni-Van to draw up a framework that will see the development of the rural sector on which lies the resources of the nation that is in dire need of development.

Given such alarming discoveries, the onus is on Vanuatu to discuss with their donors about engaging into a mutual commitment towards enhanced development assistance effectiveness by promoting improvements in: i) ownership, whereby they decide their own strategies for poverty reduction, and improve their institutions and finding ways to reach the unfortunate in the rural; ii) alignment of donors behind these objectives, and use of local systems such as procurement and financial system; iii) harmonization, which entails better coordination, simplification of procedures, and sharing information by the donor countries to improve accountability; and, iv) mutual accountability, on the part of the donors and Vanuatu for development results (Paris Declaration 2005).

Vanuatu is already a member to some regional trade agreements , and part of the Pacific Forum Secretariat and currently in the process of becoming a member of the World Trade Organization. Taking into account this involvement the government should already be in a position to integrate not only politically but more so in learning from each other and building up their policy implementation towards a compatible environment. Even though there are criticism to such integration (see Pacific Network on Globalization “On 10 Reasons to challenge the PACER Plus” 2009); there are still opportunities there that we can learn from each other in terms of policy implementation and development. Global experiences are also proof that regional integration is a source of small nations’ compatibility and convergence (see Jo 2006).
Alignment of Monetary Policy

Vanuatu’s exchange rate policy; pegging that is based on secret weights could be an area to start from. Commentators who have already commented on this include (Holden, Bale & Holden 2003; Jayaraman & Ward 2006). Given the forecasted economic slow down in 2011 (IMF 2010), pressure is now on source of inflation and liquidation management. Vanuatu now should provide a monetary policy that will facilitate the economic development and growth given the large inflow of aid to the economy.

According to recent IMF consultation report (See Article IV Consolation), they noted the overvalue of the Vatu considering the absorption on the incoming inflows of funding with a very narrow export base, and unfair distribution of aid (Refer to AUSAID2009 report and other reports online). Inflation being forecasted to 4 per cent in 2011 and high liquidity in the financial system needs attention from the Reserve Bank. Regardless of the increase in lending by commercial banks, it will be interesting to note the effects of such to the livelihood of ordinary Ni Van.

Credit provision is costly and unfavorable to rural citizens. The lack of business contextualization of lending process by foreign owned banks and credit accessibility are some areas that need attention. The lack of existence of commercial banks in the rural can be due to a lot of reason but their non existence is a hindrance to development. Recognition and formalization of a widely accepted description of collateral needs to be accepted across commercial banks since most rural dwellers are in need of credit but may not be eligible for current lending conditions.

Alignment of Fiscal Policy

Tax Heaven is something that Vanuatu has boasted about for a number of years; however, government needs to analyze how much we are losing from such reputation in the long-run. Livelihoods will not be improved just by telling the world about our tax heaven facilities. Given the fact that Vanuatu has a very high public sector wage bill in relative to other PIC (IMF 2010) it is time that we gradually consider introducing income tax to strengthen our fiscal performance. While this will take off the general feasibility of the fiscal performance it is a stepping-stone for an exit strategy of Vanuatu’s heavy dependence on aid.

Secondly, with its small export base, Vanuatu continues to have trade imbalances for the last three decades. Proper facilitation of development assistance should be directed to an export oriented program that will not only reduce trade deficit but also translate sources of income and change of livelihood to ordinary citizens. Such programs should extend to commodity trade through alternative farming from the current mainstreams and upgrade small farms to a commercial level.

Third area the Government can work on is the budgetary coordination. While the target seems to be appropriate and sound in nature it is the responsibility of the government official to translate figures into productivity. Leakages in government revenue can be improved by enhancing the current VAT collection process to increase government revenue with minimal compliance cost. With the current WTO accession, the Melanesian Spearhead Trade Agreement (MSG TA) in place and other regional commitment that Vanuatu has, fiscal securitization is very important at this stage. Such commitment will only be viable if we coordinate our domestic policy to be conducive to the relationship that we have.

Participation and Policymaking by Information Sharing
It is becoming apparent that there is evidence of asymmetrical information between rural dwellers and government officials. Those who are at least being informed may not have the correct information. Subsistence (small commercial) farming in Vanuatu may have very little information about credit access and banking facilities available for them. For those that have information may have eligibility problem due to unrealistic collateral requirements from the banks. Lending rates by commercial banks need to be translated well to the production side.

When useful information passes freely in a government/citizen participation and active involvement of civil society groups; this contributes to efficiency and effectiveness of any government initiative. Both are positively influenced not just by having the appropriate information on what needs to be done, but also by building commitment between them and making the right direction to move in and the steps to take (Crosby, 2000).

Efforts by government officials and interest groups to educate and inform rural dwellers may also ease the course of reforms and translating needed assistance to priority areas (Frischtak and Atiyas 1996). Radio programs, village meetings, district meetings, cooperatives initiatives are some of the machineries that we can use to translate information to the people. While reaching them it is important that government officials gather as much information as possible from them as this will be the basis of the development plan of the government which donors will be interested in. Initiative such as the Yumi Konek by the Rural Development and Training Center’s Association of Vanuatu is a typical example of information sharing .



It is the role of government officials and policy makers to see that information from ordinary citizens are gathered and compiled. Such information always include development needs such market access, subsidies, logistics, education, health or natural resources. This is where the government builds its priority areas. It will be in the best interest of Vanuatu if donor countries study those needs first before funding program starts.

In terms of participatory, Vanuatu can learn from various experiences and practices by countries to assist in this area . Participatory reports were positive seeing policymakers and ordinary citizens moved from debates to more constructive participatory level together with Non Governmental Organizations (NGO) and donors in the advisories committees bringing in their expertise and needs.

Commentators such as (Fuhrman, IMF/World Bank 2005: 49) reflect the findings that participation (in terms of information-sharing with and consultation of civil society actors) has not extended into the macro-economic framework. Macroeconomic decisions are still made between a limited number of officials from the Ministry of Finance, Reserve Bank and donors, and information on the conditionalities and policies agreed in these discussions are not easily accessible to non-governmental representatives groups.

Participation and well coordination of participants should enhance the cohesiveness of government’s policies. Lessons should be learnt from the 1997 CRP Program on its inappropriate focus, lack of national ownership, and poor implantation (Gay 2004). These should now assist us in forming the basis of our cohesiveness.
The PAA 2006-2015 outlined the strategic development priorities. Cohesive approach shall play a role in translating such strategic plan into real development and ultimately increase livelihood of the people. When interest groups together with the Reserve Bank, Ministry of Finance officials have some level of information sharing and participation, the government can have a proper perspective of their direction. Constructive criticism from concerned groups could be daunting; however, it will confirm the relativity of government’s policy and will keep a track of performance.

Conclusion

This paper has examined participation and the harmonization of macroeconomic to ease our economic integration internationally. As with many complex encompassing economic, social and political phenomena, integration and participation is challenging. However, the macroeconomic policy involvement is the best fix.

- Sustainable and cohesive macroeconomic policy provides the best feasible solution. Particularly the monetary and fiscal policy alignment which encompasses the livelihood across sectors and the need to educate and share information about things that is relevant to their lives.
- Information sharing involves participation. To create a macroeconomic policy participation environment, it requires capacity to reach out to citizens and engage them. Building of such capacity includes providing agencies with the resources and incentives to interact with community-based groups and civil society organizations, and developing monitoring programs to assure feedback on progress and to make necessary changes. These will involve the donors, the government officials and ordinary citizens. Governments need to inform their citizens about current and planned monetary and fiscal decisions, including the rationale behind policy choices.
- Participatory of institutions such as regulatory bodies, financial institutions, legal, social, health and education are vital.
- Ownership becomes habitual once citizens understand the rationale of government’s choices.
- This will involve a two way communication and at least ease the gap between citizens, government officials and donors.

No matter what model or technical advice or assistances the funding agencies or the donors may present to Vanuatu; without citizens’ involvement and ownership all effort will be in vain.















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