A 2001 report by the Australian Agency for International Development and the New Zealand Ministry for Foreign Affairs and Trade marked the beginning of efforts by both governments to increase their emphasis on aid harmonization in the Pacific. This was followed by a decision to pilot a cofunded program in the Cook Islands which is the subject of this case study. The case is presented through the eyes of Garth Henderson, the senior Cook Islands official responsible for aid management. This report describes how the Cook Islands government, through the aid harmonization process, enhanced its capacity for aid management while strengthening national ownership and forging a shared sense of direction by all stakeholders.

This collection of studies on the political economy of Pacific island countries was authored by writers from various disciplinary backgrounds. Their research confirms the results of political economy studies of economic reform in developing countries from elsewhere around the world and shines new light on the kinds of obstacles that have to be overcome for economic reform to be successful in the Pacific. This publication presents many valuable lessons for agencies assisting in the economic development of Pacific island countries.

The Cook Islands is among the best performing Pacific island economies, with many structures in place that support private sector investment, including an internationally competitive tax regime, an open trade regime, and good standards of education and health care. Future prospects are positive due to the growing tourism sector, and potential resource revenues from seabed minerals prospecting activities are another favorable development. The Government of the Cook Islands is committed to pursuing sustainable development through private-sector-led growth. Yet, the Cook Islands faces significant challenges in realizing its full potential, including a sluggish business entry process that discourages foreign investment, inadequate infrastructure that threatens to degrade the natural environment, complex land ownership and inadequate land use planning processes, and a weak collateral framework.

This report is concerned with how to assist the Pacific developing member countries (PDMCs) in moving forward with economic reforms. In particular, it looks at the factors constraining reforms in trade and investment policies, in competition policy, in the labour market, and in the provision of essential services.