CENTRAL Bank governor Denton Rarawa was amongst Melanesian Spearhead Group (MSG) Governors of Central Bank intensive consultations held in Port Vila, Vanuatu, yesterday.
Vanuatu’s Minister of Finance and Economic Management Maki Simelum officially opened the meeting.
The one-day high level consultations was attended by the Governor of the Reserve Bank of Fiji, Barry Whiteside; Governor of Bank of Papua New Guinea, Loi Bakani; Governor of Central Bank of Solomon Islands, Denton Rarawa; and Governor of the Reserve Bank of Vanuatu Simeon Athy.
They met to discuss the proposed establishment of the MSG Emergency and Stabilization Fund, an initiative from the MSG 2038 Prosperity for All Plan approved by the MSG Leader’s Summit in 2013.
Minister Simelum said:
“Leaders saw the need to establish a separate stabilization fund from the traditional funds such as the IMF to assist members in balance of payments crisis situations, in particular when members encounter imminent risks of erosion of foreign exchange and the consequent inability for members to finance imports and external debt.”
He said the establishment of the MSG Emergency and Stabilization Fund is part of Objective 2 under Economic Prosperity under the MSG 2038 Prosperity for All Plan that clearly advocates for the maintenance of macro-economic stability as a fundamental pre-condition for sustained economic growth.
“We would like to see that the MSG is to be the region of opportunity; prosperity; sustained economic growth; an economic miracle; economic and structural reforms to ensure better integration into the global economy; increased wealth attainment; protection of natural resources for the present and future generations; economies of scale – greater productivity and increased demand; opportunity for economic expansion; development of supporting infrastructures; and self-reliant.
“Volatility is a source of vulnerability.
“The MSG economies remain vulnerable to commodity price volatility and terms of trade shocks, given the openness of our economies and vagaries of the external sector.
“Managing volatility will continue to remain an issue for the MSG countries,” Mr Simelum explained.
He also said: “The fundamental current account position of the balance of payment of our membership remains very fragile which is one reason why it is important in designing an Emergency Stabilization Funds that meets our expectations and context.”
Mr Simelum also reminded members that it is very important that the Fund be able to provide an emergency relief for any member country that encounters Balance of Payments problem, whilst awaiting the implementation of more elaborate reforms to address member’s macro-economic fundamentals for achieving stability and sustained growth.
He urged Governors from all MSG members to ensure that the Emergency Stabilization Fund suits our needs, and that it is practical by means of conditions and drawdown modality and a clear and sound governance structure inclusive and able to maintain its independence.
“We should learn from other global facilities and ensure that this facility once it is established should not fail,” he urged the governors.
Mr Simelum also took the opportunity on behalf of the MSG membership to sincerely acknowledge the work of the consultant, Savenaca Narube, in carrying out the feasibility study of the proposal.
He noted that Mr Narube has analyzed international best practices and proposed the best stabilization fund model for adoption by the MSG.
Minister Simelum said Mr Narube has also identified the main challenges and risks of establishing a MSG Stabilization Fund (MSF) and has been able to propose an organization structure and governance arrangements for the Fund.
He also noted that Mr Narube has identified and proposed necessary reforms and proposed the next steps on the implementation of the MSG Emergency Stabilization Fund.
Mr Simelum appealed to all members to note and recognize that a Stabilization Fund can play an increasingly important role in further deepening MSG’s financial interaction.
He added that the proposed Fund will generate interest among policy makers.
The Deputy Director General of the MSG Secretariat, Molean Kilepak on behalf of the Director General of the MSG Secretariat, Peter Forau, said the high level consultations between MSG Governors of Central Banks marks another landmark in the MSG’s pursuit for enhanced MSG sub-regional integration.
Mr Kilepak said:
“The proposed MSG Emergency and Stabilization Fund is intended to provide a short term balance of payments support in the event of economic shock, whilst recipient members embark on additional macroeconomic and structural reforms measures.”
He said the fund will be a catalyst to achieving MSG’s financial integration and will make the MSG a truly unique organisation and sub-region.