Conflict to crisis in recent

The recent crisis in Solomon Islands is as much political as economic. The economy contracted by 15 percent in 2000 and is estimated to have recorded another contraction in 2001. These contractions follow the ethnic tensions, much of which had been present for the last decade but escalated into fighting since 1999. This paper presents a simple model to better understand the mechanics of the conflict so as to enable design of more effective policy interventions. Introduction Solomon Island is not only facing a political crisis but also an economic crisis, the effects of the latter may linger well beyond the resolution of the former following the elections of December 2001. The economy recorded a contraction in gross domestic product (GDP) of 15 percent in 2000 (Hou 2001). This is indeed a very sharp contraction given that similar declines for five consecutive years could see per capita income halve from the current level of approximately $US712. By developing country standards, Solomon Islands is not a desperately poor country. An adult literacy rate of 62 percent, an infant mortality at 22 for every 1,000 live births, and life expectancy of 71 years are reasonably favourable and reflect the rich resource base, the fertile land in particular. While the level of income and other indicators of development do not suggest mass poverty, the trends in income and population do not suggest future economic prosperity. Compounding the above are the recent social problems and the failure of the state to contain the deteriorating law and order problems. The recent fighting has seriously eroded investor confidence in the economy. Several companies have closed and a number of foreign investors have departed. This no doubt has adversely affected production, but the problems of social unrest have been longstanding. Its eruption into a full-blown crisis took some by surprise, but in hindsight this should not have been the case. Unfortunately, the state and its disciplinary forces were unable to contain, and some would claim exacerbated, the civil unrest. The challenge for the newly elected leaders is to return the state to normalcy, a difficult task given the extent of damage already done to institutions of civil society. In ensuring that resources are conserved and mistakes minimised, a good understanding of the ‘mechanics of the conflict’ has to be gained. This is the primary objective of the paper. Following the presentation of a highly stylised model of the source and dynamics of the conflict in Solomon Islands, some policy recommendations are made. The rest of the paper is organised as follows. First the state of the economy is presented to set the scene for subsequent analysis. Second, a highly stylised model of the economy is presented. This static model is then ‘cranked’ to generate the dynamics; many of which reflect the current observed realities in the Solomon Islands. Third, 1 Helpful comments from Ron Duncan and Vivek Suri are gratefully acknowledged with the usual caveat. 2 Current economic statistics on Solomon Islands is both limited and of poor quality, hence care has to be taken in interpreting these figures.