Small States: Special Challenges, Special Innovation Opportunities

	World Bank Resources Small States Website Map showing all small states

October 11, 2005—Leaders of the world's smallest countries held the yearly Small States Forum during the World Bank/IMF Annual Meetings. These states are sometimes an overlooked group but they face challenges and opportunities that often find an echo in larger countries.

Addressing the 2005 Small States Forum amid what he called “the rather crazy schedule associated with Annual Meetings,” World Bank President Paul Wolfowitz recalled his experience living in a small village in Suriname in 1976.

“I know that it’s a special challenge to get people to pay attention to small states,” Wolfowitz said.

“Small states have a special innovation opportunity — maybe in just such an environment, we can do development better and set an example for larger countries,” he added.

2005 Small States Forum Chairman Denzil Douglas with World Bank President Paul Wolfowitz.

The Forum centered on a report assessing the relevance of the small states agenda which was outlined in the groundbreaking April 2000 Commonwealth/World Bank Joint Task Force Report on Small States.

Vulnerability remains their central reality, underscored by the events of the past year. Almost exactly a year ago, Hurricane Ivan left 90 percent of Grenada’s housing stock in shambles. Last December's tsunami in the Indian Ocean shattered the economy of the Maldives. The recent historic flood devastated Guyana.

Small states representatives alluded to Hurricane Katrina to make a point that if even the world’s leading power can find it difficult to deal with natural disasters, the difficulty for small states is much greater. Small states are more frequently victims of natural disasters.

Bermuda’s Governor, Sir John Vereker, highlighted the value of preparedness and mitigation measures and the utility of disaster insurance, referring to his country's experience of confronting the category-4 Hurricane Fabian.

However, Prime Minister Arthur of Barbados succinctly summarized the forum's larger context. "We’re not so much interested in projects as we are in further building a productive relationship with the World Bank, ” he said. Arthur was a driving force of the 2000 report and the chair of the inaugural Small States Forum.

Other challenges and enduring strengths of small states

Special vulnerabilities of small states extend far beyond natural disasters as the Forum’s chair Prime Minister Douglas of St. Kitts & Nevis noted. These include faster than anticipated erosion of trade preferences, which are severely impacting several small states; the continuing costs of post-9/11 as regards lost tourism revenues (and associated compensatory borrowing) and the costs of complying with more stringent financial services regulations; and the underlying problem of small domestic markets aggravated by geographical dispersion. This leads to high per unit costs, precludes economies of scale, raises transportation costs, and undercuts efforts to foster regional integration.

	At the 2005 Small States Forum (l. to r): Sir John Vereker from Bermuda, Olga Jonas (Economic Adviser, World Bank), Denzil Douglas from St Kitts and Nevis, and World Bank President Paul Wolfowitz.

On a more optimistic note, small states representatives highlighted their enduring strengths and potential, presaging Wolfowitz’s view of opportunities at hand. From governance through education, small states do at least as well as, and frequently better than, their larger developing country comparators; their service sectors are vibrant; and many have seized niche opportunities. Fiji, for example, has exploited a source of exceptionally pure water, revenues which may soon exceed those from gold production, fisheries, and the sugar industry.

More important than weighing the balance of challenges and opportunities, the Forum participants focused on the way forward. Following the lead of Malta’s Parliamentary Secretary, Ministry of Finance, Tony Fenech, participants discussed possible mechanisms for sharing small states’ policymaking and regulatory expertise, securing better access to relevant technical assistance, strengthening their voice in international organizations, and for stimulating stronger engagement by regional and international organizations. All this  would require greater policy innovation and experimentation and learning from the adaptation experiences of small states, as several speakers noted.

	World Bank President Paul Wolfowitz with 2006 Small States Forum Chairman Moana Carcasses.

Going forward also prominently includes the 2006 Small States Forum which will take place during the next Bank-IMF Annual Meetings in Singapore. The chair for 2006 and 2007 rotates to the Pacific region and to Vanuatu’s Minister of Finance and Economic Management, Moana Carcasses, who concluded this year’s session by reminding his colleagues that “political will and bold leadership are the key driving forces to pave the way for advancing our agenda.”

Origins of the Small States Forum

In 1998-2000 a Commonwealth/World Bank Joint Task Force analyzed the development challenges of "small states"-which, for purposes of the Task Force's work, were developing and transition countries with populations of less than 1.5 million. The final report, which was welcomed by the Development Committee in April 2000, identified four main areas of work for small states and development partner institutions-(a) tackling volatility, vulnerability, and natural disasters; (b) strengthening capacity and improving donor coordination; (c) meeting the challenges and opportunities of globalization; and (d) adapting to the changing global trade regime.

In follow-up to the report, the World Bank committed to host a Small States Forum each year in tandem with the Annual Meetings. This is an opportunity for delegations from 45 small states to meet and, along with the main Task Force partner institutions (Commonwealth Secretariat, EU, IMF, UNCTAD, World Bank, and WTO), discuss issues facing small states and exchange ideas and experiences. Representatives of regional organizations and bilateral and multilateral agencies active in assisting small states attend the Forum as observers.

Click here to see the list of 45 Small States Forum countries, which are home to almost 30 million people and account for nearly one-third of the World Bank's client countries. For more information, go to www.worldbank.org/smallstates .