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MFEM Legacy Series – Episode 6: The 1996/97 Economic Crisis

In the mid-90s, the Cook Islands faced one of its biggest economic wake-up calls.
Government debt had spiralled to NZ$120 million, spending was out of control, and the public sector was unsustainable.
By early 1996, the warning signs were clear—if nothing changed, the government wouldn’t be able to pay its bills by June.

What happened?
The government was too big—over 3,000 public servants made up 60% of the workforce.
Costly projects, like the failed Sheraton Hotel, created a big debt and loan repayments were due.
Experts from New Zealand and the Asian Development Bank confirmed financial collapse was going to happen.

Lloyd Powell was then brought in to make drastic changes:
Government jobs were slashed by half.
Public servants took 50% pay cuts—some didn’t get paid at all.
Ministries were axed and those that were left, restructured, and new tax laws were introduced to stabilise the economy.

For many Cook Islanders, this wasn’t just an economic crisis—it was a personal one.
Minister Ama shared how he just had his home loan approved right before the crisis and wages dropped down to $30 a fortnight so he turned to exporting pawpaw to support his family.
Public servants in the Pa Enua suddenly had no jobs.
Families worried about how they’d get by.
Thousands left for New Zealand and Australia, reshaping our population for years.

The crisis led to the creation of MFEM, ensuring financial stability so we’d never face the same situation again.
Watch Episode 6 of the MFEM Legacy Series as we reflect on how the Cook Islands overcame this defining moment in our history.
What are your memories of the 1996/97 crisis? Let us know in the comments!

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