Between tax inBetween tax incentives, friendly and hardworking people, and tropical climate, the Pacific Islands are a great place for investors around the world. In your opinion, what are the biggest assets and untapped potential that Vanuatu has to offer international investors over the rest of the Pacific Islands?
Tourism and tourist attractions: The growth trajectory of this sector over the years has been promising and is projected to continue to grow in the years ahead. This is very much linked to the unique natural attractions, friendly people and accessible volcanoes and cultural attractions that is endemic only to the island country. Besides, the current infrastructural improvements in both the seaports and the airports to cater for larger cruise ships and bigger bodied aircrafts, respectively, will pave way for increased inflow of touristsand more visitors into the country. The widespread multiplier impact that the sector has on the entire economy grants it a more appealing weight for the local authorities and international investors alike to focus more attention on the sector as the country’s most comparatively advantaged over other prevailing sectors. Needless to say, the soundness and the well capitalized nature of the country’s financial institutions render the international investors the opportunity to invest in such sectors of the economy.
Country branding is crucial in a global world and Vanuatu has been successful in projecting an image as a competitive financial services centre. However, the country recently slipped onto the OECD money laundering grey list. What are the specific actions that RBV plans to have in place in order to preserve Vanuatu’s transparency within its financial sector?
It is sad that we had to slip into the grey list. It was partly due to a number of deficiencies across the board. It also took us sometime to make changes to major legislations. The RBV has helped in consulting with its key stakeholders on the proposed legislations administered by the Bank. We are also working with some donors like World Bank and ADB to help us reviewthe proposed legislations, carry out an OFC risk assessmentstudy and a cost benefit analysis on the international financial centre status of the country, latter of which is due to be undertaken by mid-2017. As the licencing and supervisory authority responsible for the international banks, and a founding member of the National Coordinating Committee, the RBV is fully committed to ensuring Vanuatu’s financial system, including the financial centre remains strong and transparent.
The Government appointed you as Governor of the Reserve Bank of Vanuatu on October 11, 2013 for a period of five years. What would you say has been the major developments of the financial sector since then?
In my first official statement delivered on the commencement of the role of Governor, I made a commitment to “….taking central banking (RBV) to the next level….”which is but a living statement in itself and involving a number of areas, including: keeping a closer working relationship with the financial institutions, expanding the responsibilities to establishing a financial inclusion unit in the Reserve Bank and forging strong partnerships relationships with the stakeholders like government ministries -to enable the Bank to taking a leading role in financial inclusion programs. We are also working with the Ministry of Finance on a plan to come up with a Financial Sector blueprint and where we want this sector to be in the next decade.
When it comes to fostering development through the promotion of financial inclusion programs, it is not solely about the financial sector, we require strong cohesion and collaborations with the tourism and agricultural sectors through the MOUs. However, to ensure a strong and vibrant financial sector, including the offshore sector, we must first work along with the other regulatory institutions and law enforcing agencies to rectify the aforesaid deficiencies.
You have mentioned that you faced some challenges. What are those major challenges and what is your strategy to overcome them?
I would say one of the major challenges is the process in passinglegislations in Parliament. It takes a long time and is a quite lengthy process. This is a key challenge. I am referring here for instance,to the RBV’s principal Act as our key enabling law, as other priority Bills have to take precedence over them due to our current grey-list status. But having a closer working relationship with the government is crucial for a Governor of a country’s central bank. I have tried to develop a habit of confronting issues first before they become a challenge. I’ve worked for two core ministries for ten (10) consecutive years prior to my current role, and have developed a knack for being able to better understanding politicians, so I try to manage those aspects of the working relations. And it’s equally important to gain their trust, respect and support.
And perhaps the second challenge is making sure RBV continues to be profitable against a very challenging global economic and financial landscape as well as the increasing expectation for us to assume additional roles, like financial inclusion. But with the pool of skilled human resources we have in the Bank, we have been able to be fairing well.
By conducting monetary policy, the Bank aims to promote monetary stability as well as economic growth. Could you tell us what is the main strategy behind monetary policy?
Well we try to, first of all, secure stability. That is the key. Vanuatu is a very open economy in terms of the open capital account we have and also in terms of being highly import dependent. This is where the orchestrating of both the monetary policy and the exchange rate policy is crucially important. These two policies are designed to cushion the economy from external shocks like imported inflation and exchange rate fluctuations. The current level of the Vatu currency is strong; it suits the country and is appropriate, according to the latest IMF Article IV Consultation assessment report. So overall, I am comfortable with the policies that the Bank administers on behalf of the government.
The Financial Markets Department is responsible for implementing the Reserve Bank’s operations in domestic and foreign exchange markets. What are the major foreign exchange earners?
Tourism and the RSE Workers (recognized seasonal employers). Latest estimates depicted something in the amount of around 150,000,000 Vatu (USD1.5 million) is remitted back to the country each month. This is a huge amount of foreign currency for a small economy. We have roughly 3,000 people working in Australia and New Zealand. That’s a sizeable number of Ni Vanuatu, and I am of the view that the Bank should assist them to some extent. We’ve come to a stage in the life of the Bank, where we are exploring other ways of doing business, outside the normal and traditional parameters of a central bank’s business. Maybe we can carry out some awareness program to help them better understand the huge contributions of their involvements in this scheme into the local economy and their need to work together with the government to take this positive development to another level and in the whole interest of the nation. With this, I am pleased to advise that I am already conceptualizing how RBV can provide an indirect form of financial assistance to the RSE through specific financial institutions, where they can borrow and pay back as they earn their living. Most of the RSE Workers are rural based citizens. In fact, I have made mention of a possible initiative of Reserve Bank to assisting the RSE workers in my recent End of Year address in the presence of the Minister of Finance and the Bank staff.
We were talking with the Minister of Finance and also with the Commissioner of the VFSC – Vanuatu Financial Services Commission- about the new income tax. Do you think that the new income tax can stop the inflow of foreign investments?
No doubt the introduction of the income tax is going to bring additional costs on international investors, but I believe the most important element here is the level of our competitiveness and or attractiveness as against our neighbouring comparators. The other way I have been explaining it is that if the new tax regime is introduced, we need to find other ways to counteract its “negative” effects. It’s the same thing like adding more sweeteners to dilute a glass of salted water to maintain the taste. Theoretically, it becomes an uphill struggle when your comparator and neighbouring countries are also running ahead of you in terms of their reforms and other developments.
You joined the Government of Vanuatu as Director General to the Ministry of Finance and Economic Management. You were transferred on the same position to the Prime Minister’s Office in mid-2008, and held that position until your appointment to the position of Governor of the RBV. What do you think is the most important lesson that you have learnt over the years that you incorporate today into your role as Governor of the Reserve Bank of Vanuatu?
I joined the Ministry of Finance in 2003 when the country was still implementing the comprehensive reform program (CRP) and was very much involved with the strengthening of the Ministry of Finance and thus able to witness firsthand the successful fruitions that were brought about of it. Having seriously pursued the reforms for several years, Vanuatu through assessments made by the United States Millennium Challenge Corporation (MCC) was reported to be leading the rest of the Pacific Island countries in seventeen different statistical indicators covering social, political and economic areas. For that reason, the US Government constructed two major national roads free of charge of over sixty million US dollars. I was chair of the steering committee that oversaw the project, so I had a clear memory of developments then. However, it seemed we have not been able to continue to pursue the spirit of reform in the wake of the CRP. To answer the question posed: the most important lesson for me is reform, but underpinning this is continuing to reform and building the reforms on proven success stories.
Here at Reserve Bank, I am considering a corporate review of the entire structure, based on lessons learnt from the public sector.
Governor, in the future, what are the key achievements that would you like to be remembered by the Bank and Vanuatu?
I want to build up what I refer to as “knowledge memory” within the Reserve Bank based on a professional capacity development program to be introduced in 2017. It’s basically a sustainable program to make sure after my tenure, there is an equivalent pool of qualified senior personnel with the same or better savvy who can continue to sustain and run the Bank into the future. I have also raised the same concept to be included in the new Government National Sustainable Development Plan. The same idea was raised with one of the prominent aid programs to include in its next development phase in a bid to beef up the future leaders of this country. This concept is based on one of my often said anecdotes “that no one is indispensable”. Indispensability can create problems in an institution, where people tend to become too complacent, and start keeping things to themself, forgetting that it’s an institution that we’re trying to build.
Secondly and most importantly, I want to find a panacea for addressing the high cost of doing business in Vanuatu, especially from the financial sector standpoint, which I think is the high interest rate charges.
As you are well aware, the readers of HBR include many of the world’s most influential business and political leaders. What final message would you like to send them about Vanuatu?
The business environment here is good and attractive. You can open accounts in currencies of your choice, as well as many others. Large infrastructural developments are taking place now that will add a lot of flavour to ease doing business here in Vanuatu. Most of the agricultural food here is organic, not to mention the renowned Vanuatu Beef. Voted twice as the happiest place on Planet Earth, Vanuatu has a lot to offer to the Rest of the world. As we say; ‘Come and discover what matters’.