The global financial crisis is nothing less than a financial misfortune. Most parts of the world, the recession brought new challenges and inevitably bucketful of policies to contain its impact on livelihood of people. The contagious effects forced governments to push for contentious proposals to overhaul their regulatory frameworks but in most cases taxpayers were responsible for the mess. The global focus now is on the ability of governments and regulators to make concerted efforts to defuse and rebuild the world's tattered financial system. While bailouts and infusion of stimulus packages has become a common dose in US, Germany, Britain, Australia, Canada, and some countries in Eastern Europe, it is necessary that focus should now shift to overhauling the regulations. However, the economic and social effects of the crisis on some countries had become so devastating that some people's lives had changed from bad to worst.

The crisis is a lesson for developing countries in the Pacific to learn one of the worst financial wrecks in history since the Great Depression in the 1930's. Although the Asia-Pacific region is not what University of South Pacific's Economist, Associate Professor Jayaraman, refereed to as the "epicenter of the crisis, if the current situation worsens, people will be vulnerable because the developing countries lacked social benefits and heavy reliance and dependence on primary products market and donor support". For Solomon Islands, with only logging as its major export earner, a downturn in Asia would see foreign reserves down as a result of decrease in log export revenues.

The crisis brought down international companies, forced liquidation and restructure for some and unwarranted mergers and takeovers for others. In some least developed countries, especially in Africa, food shortage has become a problem and mass migration a common sight. For Pacific Island countries, participation in the global economy has made them vulnerable to the crisis as slow growth in China directly affects exports of countries like Papua New Guinea and Solomon Islands while Fiji, Samoa, Vanuatu and Cook Islands will be hit by a decline in tourism. Other countries like Nauru and Kiribati already suffered from capital losses to trust funds exposing their tinny economies to budget shortfalls with direct impact on sustenance and delivery of essential services.

The crisis also forced most of the world's most re-known corporate outfits to suffer dwindling profits forcing the financial burden on tax payers. Even some power house conglomerates were forced to cut back on costs which resulted in unemployment. To date, US heads the unemployment table with an unprecedented high of 8.9% with around 6 million jobs disappearing since December 2007. Globally, the Asian Development Bank recently reported that about 100 million people in developing countries will remain poor because of the world economic slowdown, adding to the 130-150 million people already forced into poverty by the food and fuel price increases in 2008.
The crisis also contributed to reduce many of the gains made in reducing poverty in developing countries. World Bank estimates that 40% of the world's 107 developing countries are "highly exposed" to the crisis. It is likely to keep 46 million more people below the absolute poverty line of $1.25 per day, and another seven million under $2 per day, compared to previous World Bank forecasts for 2009. As suggested by the Bank's President, Robert Zoellick, "the global crisis threatens to become a human crisis in many developing countries unless they can take targeted measures to protect vulnerable people". He further reiterated that while much of the world focused on bank rescues and stimulus packages, they should not forget that poor people are much more exposed if their economies falter. These problems will undermine the plans agreed by the UN to reach the world poverty targets agreed in the Millennium Development Goals by 2015.

The hasty approval of the stimulus package of US$787 billion by the Senate seemed like a mere rush of blood by the Obama administration to stop what could become a bail-out bombshell. Many experts called on the Presidents administration to focus on three fundamental things: fixing the economy's slide, fastening its consequent rebound and fixing the banking system. A lot of countries are also providing stimulus packages to boost their economiies and minimize adverse effects on people.
Others queuing up for their share of the pie are the big boys of the European club, BRICs, few Asian tigers and Australia and New Zealand. Even the Great Wall was tested forcing China and its BRIC counterparts to call for sidelining the US currency as the world's reserve currency. Apart from assistance to Eastern European countries, the world will also need to seek alternatives to support 53 African states, 15 members of Pacific Islands Forum (PIF) countries currently under threat of global warning and fragile Latin American countries. The announcement by G20 to double IMFs spending budget to USD500 billion brings a shy of relief on the face of third world countries that are prone to the crisis. Developing countries now have access to a total of USD1.1 trillion sourced from the IMF, ADB and World Bank.

Solomon Islands face problems similar to its other Pacific Island neighbours. Apart from the threat of global warming, the country relies heavily on weak or almost non-existent secondary market and volatile primary market with few export commodities mostly to Asia. As Asian countries were affected by the crisis, a decline in exports will result in decline in export revenue and remittances and low level of foreign investment would have impact on revenues affecting the ability of the Government to meet the cost of providing essential services like education, health and other social goals and responsibilities.

Solomon Islands reliance on log export is a threat to its ability to withstand the crisis. As reported by the Central Bank in their February 2009 report, although there was increase in volume of exports there was low shipment as international log prices was down. This decrease reflected the effect of the crisis on China as the major buyer of Solomon Islands logs. The reserves reduced drastically by 6.9% from $704.9 million in December 2008 to only $666.7 million in January 2009. It further declined by 2.7% to $648.5 million, equivalence of 2.6 months import cover and lower than the desired level of 3 months anticipated by Central Bank. In terms of money supply, while excess liquidity provides opportunities for credit to private sector, puts more pressure on the Central Bank to try and control money supply and inflation which currently stands at 18% from average of 10% in previous years. As highlighted by Central Bank, the small size and nature of the market for government securities, prohibits the use of open market operations to influence liquidity levels. Excess liquidity discouraged commercial banks to borrow from the Central Bank making discount rate as a viable monetary policy tool redundant.

From observations, there seemed to be no tangible fiscal and monetary policies to minimize the effect of the crisis, especially the need to sustain appropriate import-levels as a result of a fall in foreign reserves. The initiative to control government expenditure should be supported by an effective financial system with access to capital for productive investment. While devaluation of the Solomon dollar might be an option, it would only add to the current problem of rising unemployment, plunging business activities and escalating rises in prices, putting business and banks under pressure.

While the country might think that the effect of the crisis will be minimal, let's not get carried away because we still have not avoided the shrapnel. Solomon Islands heavy dependence on donor funding exposes the country to risk of contraction of the economy which could result in huge trade imbalance and run on the country's reserves. Although, the effect of the crisis is not severe, the country needs to establish practical measures to minimize its effects on the economy and people.

The biggest question, of course, is how bad the crisis is going to get. Even the US is unable to provide any clear explanations. Although some countries have seen some form of growth, the WTO warned that it was difficult to predict the depth of the global recession. While some countries have seen indications of recovery, new and additional problems are looming on others something that continues to weigh down recovery of the global financial system.

For Solomon Islands, the crisis should be a cause of concern for the Government to respond positively for the need to have more fiscal responsibility and not irresponsibility. The country has long been mired by political irresponsibility, stupidity and greed. What is required is for leaders to initiate and promote prudent budget management and control practices especially wise spending of donor funding for productive investment. The Government needs to have a land reform program and registration process that allows investment in the agriculture sector to boost farm production and income. Agriculture yields surpluses could then be exported for foreign exchange. Foreign exchange earned from such exports can then be used to buy raw materials, machinery and equipment for the industrial sector purposely to build the export sector.

Another move is to enhance the current business and economic environment with appropriate incentives to attract prospective investors. The Government Foreign Investment Board (FIB) needs to further support investors that aimed at sustainable use and development of the country's resources including providing training and development for local Solomon Islanders. This should be supported by a comprehensive tax system that provides incentives for exporters on the one hand, and effective tax collection system (revenue) on the other. Adequate control, monitoring and supervision of Government's revenue collections system and process should be a priority to minimse losses as a result of misuse and fraud.

There is need to work on utilizing the excess liquidity in the banking system as a source for productive investment in the private sector. This should be supported by a guarantee scheme from the Government and Central Bank. The aim is to provide a means where local businesses can access capital. This included the need for the Government to identify markets to for local businesses to sell their products overseas.

One important aspect of fiscal responsibility is to have a 'Responsible Government'. While the above are conditions essential for economic development, without good government the criteria for development are still incomplete. Solomon Islands currently has problem with its politicians. While socio-economic problems can occur in any country the lack of discipline in the use of donor funding for productive investment contribute to political instability and wastage. Legislative politics in Solomon Islands seemed to protect interest of Politicians and not of economic building.

Solomon Islands had walked down the aisle of democracy as an independent country some thirty three years ago. Although in most instances it got tripped over itself, perhaps she has learnt that one has to suffer when she walks down the road of democracy in pursuit of economic independence, economic growth and development and improving the livelihood of all Solomon Islanders. What the country need now is to work toward advancement in terms of economic development and a well-established democracy supported by a government with a clear designated role to help minimize the effect of the global financial crisis, prepare for the threat of climate change and ensure all citizens are able to benefit from all essential basic services. This is what most people in Solomon Islanders refer to as: "Government of the People, By the People and For the People"