Fiji Plunged Into Political Turmoil as Government Declares State of Emergency

The Fiji Court of Appeal ruled last Wednesday (8 April) that the country’s military regime was illegally appointed after the coup in 2006. In doing so, the court overturned the verdict of the Supreme Court last year, which had rejected an application by ousted Prime Minister Laisenia Qarase to declare the military regime of Frank Bainimarama illegal. In response to the judgement, Fiji’s president Ratu Iloilo revoked the country’s constitution, fired the judiciary, set a 2014 election deadline, and re-appointed 2006 coup leader Commodore Frank Bainimarama as interim prime minister. All nine members of Bainimarama’s former interim cabinet were reinstated, giving political power back to the same politicians whose interim administration was declared invalid by the Court of Appeal last week.

After the declaration of a 30-day state of emergency, the domestic media have been forbidden to publish stories critical of the government, while police have been stationed in newsrooms to monitor for negative content. The foreign media has also taken a hit following the deportation of three overseas journalists on Monday (13 April), and the periodic interruption of radio broadcasts from the Australian Broadcasting Corporation (ABC) and Radio New Zealand International. Police have been given extra search, seizure, and detention powers.

The economy is in an as equally dire a state as the political system. Fiji’s central bank devalued its currency by 20% this week after the military-led government dismissed bank governor Savenaca Narube, who had warned that the economy was likely to contract by 0.3% this year. He was replaced by Sada Reddy, who immediately introduced tight foreign-exchange controls to prevent capital flight, as foreign reserves dropped to worryingly low levels. The economy remains hamstrung by the volatile political situation that acts as a major deterrent to tourism and foreign direct investment. It has already been undermined by the sugar industry's loss of access to significant restructuring aid from the European Union, and by devastation wrought by large-scale floods in January 2009. Although the government implemented a pro-investment budget in 2009, the capricious adjustments in tax and investment policy have fomented deep uncertainty for foreign investors.

These developments have prompted IHS Global Insight to make a number of risk rating downgrades.

President Iloilo’s Motives

Commodore Bainimarama insists that the abrogation of the constitution was the President’s decision, but there is well-founded suspicion that the ailing Iloilo has been used as a puppet by the powerful military determined to remain in power after the Court of Appeal ruling. The 88-year-old President has long been a loyal supporter of Bainimarama, making his re-appointment to office no surprise. As President, Iloilo used his reserve powers to carry out his desired changes, but with Bainimarama now back in office his role becomes largely nominal.

Bainimarama’s 2006 Coup

Bainimarama came to power in December 2006, removing what he considered to be a corrupt and discriminatory government. In his eyes, the ousted former Prime Minister Laisenia Qarase had gone too far by proposing contentious bills that would have granted amnesties to those involved in Fiji’s 2000 coup. At the same time, the Commodore could not abide by Qarase’s proposal to strengthen the coastal and land rights of the indigenous Fijian population at the expense of the ethnic Indian minority.

Fiji’s population, the majority of which reside on the two main islands of Vitu Levu and Vanua Levu, is divided between the indigenous Fijians and the Indo-Fijians, the latter being the descendants of cane workers brought to Fiji by the British colonial rulers. Historically, the country has had major difficulties in balancing the rights of the two communities. Fearing increasing Indo-Fijian economic control, the indigenous community, comprising 55% of the population, carried out two coups in 1987 and a third in 2000. Land tenure has been a particularly sensitive problem. Ethnic Fijians hold more than 80% of the land with virtually all Indo-Fijian farmers obliged to lease land from them. This has given rise to mounting frustration from the Indo-Fijian minority at what they see as discrimination. The political primacy of the indigenous Fijians has also to some extent been enshrined in the country’s constitution, which facilitates ethnic Fijian control of the now defunct parliament. Under this electoral system, citizens cast their votes along communal lines, under which 46 out of 71 seats in parliament are allocated along ethnic lines, tipping the balance firmly in favour of the ethnic Fijian population.

The People’s Charter

Bainimarama has insisted his rule is legitimate and that he will hold elections to restore democracy after he reforms Fiji’s divisive, ethnic-based politics with a more representative system. To that end, he has been working towards the adoption of a "People’s Charter" aimed at not only reforming the electoral system, but also building unity between the ethnic and Indo-Fijian communities, and bringing an end to Fiji’s destructive cycle of coups. His overarching objective, he claims, is to improve social unity through the development of a common national identity. He plans to reduce ethnic friction by changing the communal voting system to one that is more proportionally representative. But while the commodore’s motives have been welcomed by the Indo-Fijian population and several civic groups, his actions have provoked the ire of the Methodist Church, to which the majority of ethnic Fijians belong.

The Commodore’s Hollow Words

Over time, Bainimarama’s words have looked increasingly empty. He broke his pledge to hold democratic elections in March 2009 and has now announced his intention to postpone them by another five years. Critics point out that his "People’s Charter", among other things, would allow for greater military involvement in Fiji’s affairs. And while he likes to portray himself as a champion of multi-cultural values, he has excluded political opponents from discussions of constitutional reforms, having purged political challengers to boost his standing in the military. His various illiberal actions including the curtailment of media freedom have suggested that a return to democracy may not be on the cards at all.

Possible Trade and Travel Sanctions

The United Nations, the European Union, Australia, and New Zealand have all condemned Iloilo’s actions, with Australia and New Zealand refusing to rule out trade and travel sanctions. As international condemnation mounts, Fiji’s expulsion from the Pacific Islands Forum (PIF) and the Commonwealth Group of Nations over the coming months looks inevitable.

The ongoing instability in Fiji is also likely to have regional consequences, particularly for Australia’s political leadership in the region. The United States and the European Union tend to look to Canberra to solve problems in the South Pacific, expecting it to capitalise on its deep connections with the country to exert influence for change. But following the rupture in Fiji’s diplomatic relationship with New Zealand and Australia after Bainimarama’s 2006 coup, Suva has been pursuing a "look north" policy, turning to China to attract more foreign investment. Beijing has provided loans for major hydroelectric and highways projects and is perceived positively because they have not put any pressure on the interim government to hold elections. The New Zealand Prime Minister John Key is currently in Beijing and has said that he will raise the problem with Chinese Premier Wen Jiabao. But as China’s bi-lateral trade with New Zealand and Australia continues to grow, it remains to be seen whether Beijing will risk falling out with them by stepping in to fill any potential gap left by economic sanctions in Fiji.

Fiji’s Dire Economic Situation

The 20% devaluation of the Fiji dollar by the Reserve Bank of Fiji earlier this week (see Fiji: 15 April 2009: Fiji's Economy Takes a Hit amid Political Turmoil) was carried out to promote growth in Fijian tourism and merchandise exports, and has been combined with foreign-exchange controls to support the country's dwindling foreign-exchange reserves. However, this devaluation may not be enough if the international community is so discouraged by the current political situation that it withholds future non-humanitarian aid from Fiji while discouraging the import of Fijian goods and services through trade sanctions or travel warnings. Furthermore, foreign investment into Fiji could be reduced by the current political situation. Any combinations of the aforementioned possibilities imply that Fiji's external balances and growth will remain weak, particularly in the near term. If democratic elections are truly delayed until 2014, Fiji's medium-term outlook for growth and the balance of payments is bleak.

IHS Global Insight currently foresees a contraction in real GDP of 1.9% during 2009, driven by the global economic downturn which will reduce demand for Fijian goods and services exports, key drivers of growth and foreign-exchange earnings. However, the recent political developments add another layer of downside risk to Fiji's near and medium-term economic growth and sovereign debt risk outlooks.

The country's sovereign debt ratings are also coming under pressure because of Fiji's declining foreign-exchange reserves and weak import cover. The added risk from recent political instability has encouraged the ratings agency Standard & Poor's to downgrade Fiji's long-term foreign currency debt from B to B- with a negative outlook (from 55 to 60 on the IHS Global Insight scale). The ratings agency Moody's currently rates Fiji at Ba2, or 47.5 on the IHS Global Insight scale, but is currently conducting a rating review for Fiji, and will likely follow suit in downgrading. IHS Global Insight currently rates Fiji's medium-term sovereign debt at 55, or B+ on the generic scale with a negative outlook, and will be conducting a review of this rating in the coming weeks. Barring a serious improvement in the political outlook we will look to downgrade Fiji's sovereign debt rating as well owing to the aforementioned factors.

Outlook and Implications

Fiji has witnessed four political coups since 1987, underscoring the inherent fragility of its democracy. While Bainimarama has been talking about "a new political order", in reality the island has been plunged into dictatorship, which has obliterated any hopes for democratic development in the near term, damaged its already dismal economy, and further alienated Fiji from the international community.

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