Westpac recently made a decision to withdraw banking facilities from SI's logging companies, which follows a similar move from ANZ* against this industry years ago. The inconvenience is significant as the logging companies are estimated to be responsible for some 75% of the country's total export revenues.
The timing of the decision is nothing short of amazing.
According to the SI government the country's log exports last year hit a record 1.99 million cubic metres and was worth $SI1.74 billion following a 40% increase in volume and a 63% increase in export value.
Log export duties paid to the SI government last year totalled $407 million out of total Customs and Inland Revenue collection of $2.28 billion.
Due to supply constraints the SI Treasury forecasts that log exports are anticipated to fall by about 8% annually over the next few years after two record years of production and exports.
Westpac has seemingly given scant regard to sovereignty issues, having failed to provide official advice or warning of its impending actions against the nation's controversial but significant export industry.
The action is understood to have been taken in line with worldwide governance concerns, spearheaded by the World Bank and other organisations, regarding illegal logging activities in developing countries.
Ironically, in 2006 the Australian government used RAMSI as a vehicle to fund and provide technical assistance to enable the Solomon Islands Central Bank to set up a financial intelligence unit, with the specific aim of monitoring potential money laundering activities.
Even prior to the setting up of the unit the SI government already had in place control mechanisms to enable it to monitor export activities of logging companies, which are mostly Malaysia-owned.
The Central Bank's exchange control regulations require companies to obtain a special authority to export round logs.
It required a letter of credit with a commercial bank operating in SI before such a permit could be granted, which companies will now not be able to obtain.
Log exporters also require a certified copy of prices for log species from the SI Commissioner of Forests, which does not appear to be a rubber stamping exercise.
In 2012 the commissioner received 890 applications but 24 were rejected for failing to meet exchange control regulations.
Despite the big help on the law and order front provided by RAMSI and Australian government assistance to resolve fiscal issues, RAMSI has left the SI economy in at least as parlous a condition as when the soldiers from Australia, Papua New Guinea and some other Pacific Island nations arrived there.
SI is a relatively small nation - it is the second-largest Pacific Island country after PNG - with a population of around 600,000 people, or about equivalent to the total population of Port Moresby.
In a variant to the so-called "boomerang aid" Australia has been providing PNG the RAMSI task force had virtually all its supplies flown in directly from Australia - and this is understood to have included everything from toothbrushes and toilet paper to bottled water and beef.
The kind of national content that Australian states look to for major investment projects and, indeed, which all resource companies in PNG have to put high on their "to do" lists was totally absent in RAMSI's case in SI.
In spite of that oversight, the SI economy - which has experienced some diversification during the RAMSI period through the reopening of the country's only gold mine and its PNG-run palm oil plantation - will take a significant hit from the reduction in spending by RAMSI and its international task force.
It is currently transitioning to a police force with a mainly capacity building role.
The SI government has not appeared to have reacted to Westpac's recent withdrawal of its banking services from its log exporters, or what could be consequentially be perceived as its lacking ability to regulate them.
Nothing public on this score has emanated from the World Bank, whose so-called log experts in the past have promised to shut down Malaysia-owned operations in PNG, which will be cheering from the sidelines, along with some of its first world allies.
ANZ and Westpac had implemented a similar policy several years ago in PNG without a whimper from the PNG government or its Central Bank, the Bank of Papua New Guinea. PNG's log exporters licked their wounds and made alternate arrangements.
ANZ - which once wooed Malaysian logging companies in PNG with corporate loans - and Westpac are understood to have made an exception of PNG-based companies that export sawn timber and other processed products.
One would be hard placed to ponder whether the "odour" of kwila or kamerere logs could be inextricably changed just because they had been put through a sawmill prior to export.
The decision of Westpac to further isolate Malaysian companies in SI appears to have had the endorsement of the new bully on the block, PNG's Bank of South Pacific, according to the Central Bank of Solomon Islands.
It would be pretty easy for logging companies in SI to direct their export revenues to new foreign accounts or to their traditional banks in Malaysia or Singapore but many observers say it would still be close to impossible to operate out of Honiara without the ability to pay workers and contractors in SI dollars or cheques that are issued by the three commercial banks in that country.
With such a tiny population spread across numerous islands, most Asian banks would be reluctant to set up operations in Honiara but one thing is clear with RAMSI out and big banks withdrawing - SI's economic prospects are beginning to look even more bleak.
While most foreign investors will be wary of investing in SI it is unlikely that such fears will be felt by PNG-owned companies, which have been the biggest group of foreign investors in that country in recent years.
The situation could become extremely interesting if some PNG corporation managed to buy out one or more of the SI loggers, possibly at bargain basement prices, because then BSP would certainly be unlikely to block such a corporation from having a BSP bank account.
* Earlier reports had included ANZ in this action but it is clear ANZ had withdrawn its banking services to loggers in Solomon Islands some years ago.
In response to Wantok's story, ANZ issued the following response:
- ANZ takes its responsibility to the communities in which we operate very seriously. As a responsible global business, we continuously work to ensure that sustainable development is a key driver in our decision-making.
- We have a number of sensitive sector policies that help guide our decision-making in transactions across a range of industry sectors, including forestry.
- In line with our sustainable development agenda and our ‘global forestry and forests policy', ANZ made the decision a number of years ago to no longer directly finance forestry operations in the Solomon Islands. This was done in consultation with government, regulators and customers.
- In recognition of the substantial social and economic impact that the forestry industry has in the Solomon Islands, ANZ has supported the government to bring in a new bank specifically designed to support this sector.