September 28, 2005

From Peat to Petroleum, Post-War Falklands Prosper

STANLEY, Falkland Islands (Reuters) - People on the Falkland Islands used to work only until 4 p.m. so they would have enough daylight left to cut the peat needed to heat their homes and cook supper.

Few burn peat at home these days, but the 8 a.m. to 4 p.m. workday still exists and comes in very handy for the many islanders working two or three jobs to cash in on a prosperous economy underpinned by fishing, tourism and farming.

If major oil deposits are found offshore, as many predict, then there won't be enough time or people on this remote South Atlantic archipelago to keep up with the bonanza.

The Falklands today is a far cry from the freezing sheep outpost at the center of the 1982 war over the islands between Argentina and Britain. The U.S. president at the time, Ronald Reagan, called them "lumps of rock and earth so far away."

But it took the war to explore the economic potential of this land mass half the size of Wales but with less than 3,000 people.

"Pre-1982, the islands were basically impoverished," said Julian Morris of the Falkland Islands Development Corporation, noting that islanders were largely in serfdom working for the government, the islands' biggest company or 24 very large sheep farms.

When Britain forced Argentina to surrender 74 days after its invasion, London had to seal its commitment to the islands' future as a British overseas territory by laying the foundations for a modern economy.

Today, per capita income is an enviable 25,000 pounds, more than any other Latin American country and about the same as the United States. Unemployment doesn't exist.

"In an ironic way, sadly, it was fortunate for us," said Jan Cheek, one of the eight legislative councilors who govern the islands with the U.K.-appointed governor.


The real turning point came four years after the war when the government began selling fishing licenses to operate in Falkland waters, rich in the squid craved by Japan and Spain.

The squid boom filled up the Falklands' coffers and sowed the creation of a self-financed South Atlantic nanny state. Only the cost to maintain 2,000 troops, which stands at 110 million pounds annually, are picked up by the United Kingdom.

The islanders' pension system is completely funded with an 80 million pound provision. The main town Stanley has a brand new secondary school, and the government pays a generous portion of costs for students who go on to higher education abroad.

If an islander needs more medical treatment than is available at the state-of-the-art hospital, then he or she goes to Chile for top private care or to the National Health Service in Britain, leapfrogging much-hated waiting lists there.

The problem today is that catches of the lucrative illex squid are down significantly in recent years, and scientists have yet to determine if it is cyclical or permanent.

"The failure of illex in the last two seasons has made people cautious in their outlook," said Stuart Wallace, one of handful of locals who have made millions on squid.

Accordingly, the government is more austere in its spending these days and provisions are being made just in case squid never recovers.

Fishing today accounts for around half of the annual GDP of

70 million pounds, and the government is keen to diversify. It is trying to help sheep farmers rely less on the stagnant wool trade and more on meat and foster sustainable tourism for the nearly 40,000 cruise ship passengers that arrive each summer.


Striking oil is still a bit of a dream and islanders try not to get carried away after exploration plans for these rough waters flopped in 1998.

But in this second attempt to locate major finds, Canadian engineers are due to finish seismic surveys at the end of the year and drilling could begin in 2006 if a rig can be found amid heavy world demand for drilling equipment.

"There is a stronger probability of finding something in the North Falkland Basin because of the knowledge acquired about the hydrocarbon system," said local councilor Stephen Luxton.

There is also talk that the second-best oil source rock in the world has been found in this basin, but the major oil companies haven't yet shown interest.

Even if significant oil finds are made, the industry will face the so-called "Falklands factor" -- relative isolation from the rest of the world with few air and freight links.

Also, Argentina, which maintains its claim over the islands, is likely to make things difficult. Diplomatic sources say the Argentine government has already sent threatening letters to oil companies warning them not to invest there or risk losing rights in Argentina's oil industry.

But the Falklands economy continues to be a magnet for both young islanders coming back after learning trades abroad and for immigrants, mostly from Chile and remote St. Helena island, but even from Argentina.

At this stage, the Falklands could probably just coast and be content with its prosperity. But everyone knows there's much more to be done and some feel a certain duty to progress.

"We have to take what was done for us in 1982 and maximize. We shouldn't forget how we have benefited," said Wallace.