Fiji is tiny cluster of islands about 3,600 km east of Australia. With a population of fewer than a million people scattered across some 300 islands, it is sometimes considered the South Pacific ideal, offering secluded beaches, crystal-clear waters and a relaxed lifestyle that beckons to visitors from around the world. In the last two weeks, that image has been shattered. Disgruntled Fijians have taken the prime minister hostage, seized the Parliament and demanded a new constitution. The president has agreed to their demands. The trouble in paradise threatens to ripple throughout the region and beyond.

The coup began May 19, when nationalists led by Mr. George Speight, took over the Parliament and the Cabinet. They demanded the resignation of Prime Minister Mahendra Chaudhry and his government, as well as a new constitution that would ensure second-class status for all nonnative Fijians. Last Saturday, after a week of haggling and gradually escalating demands, the country’s president, Ratu Sir Kamisese Mara, dismissed the government and appointed a caretaker administration. That flies in the face of condemnation by the British Commonwealth, Australia, New Zealand, Japan, the United Nations and the United States. Conceding to terrorism — for that is the only word for this act — and the willingness to institutionalize discrimination against nearly half of Fiji’s citizens are both shameful and dangerous.

Bucolic image aside, Fiji has basic problems. Ethnic Indians, many of whom were brought over as indentured servants when Fiji was a British colony, make up 44 percent of the population; they control much of the economy, however. Indigenous Fijians account for 51 percent of the population, but they feel increasingly marginalized in the economy. Mounting frustration has resulted in periodic outbreaks of violence that target the Indian business community.

Antagonism has grown in the last year, since Mr. Chaudhry was elected prime minister, making him the first ethnic Indian to hold that office. His administration has worked to end the cronyism that marked his predecessor’s government. Mr. Speight was one of the victims of the new regime: He was formerly chief executive of Fiji’s Hardwood Corporation. While there is no doubt that he claims to act on behalf of the majority Fijians, personal grievances are also involved.

Fiji has been down this road before. Thirteen years ago, a disgruntled soldier, Col. Sitiveni Rabuka, mounted a pair of coups for the same reasons as Mr. Speight. He ruled for a decade under a constitution that also institutionalized discrimination against the Indians. Mr. Rabuka was persuaded to amend the document, a process that led to the election of Mr. Chaudhry last year and all that has followed. Some reports even see Mr. Rabuka’s hand behind the scenes now.

The willingness of the president and the council of tribal chiefs — a ceremonial group with little formal power but much prestige — to bend to Mr. Speight is a disgrace. Virtually disenfranchising almost half the population is a violation of basic human rights and will hurt native Fijians far more than it could ever help.

The impact will be felt in many ways. There will be an exodus of native Indians, depriving Fiji of its most enterprising and promising citizens. After the last coups, in 1987, some 60,000 to 80,000 Indians fled. Relations with India will suffer; ties between that country and Fiji’s Indians are still strong.

India has promised to take the issue to the British Commonwealth, where it will receive support from Australia and New Zealand. Fijians know that they will pay for their action; they were also suspended from the group after the last coup, but were allowed to return later.

Australian condemnation will be especially painful. Fiji receives around $12.6 million in aid from Australia each year, and the country is the biggest market for Fijian manufactured goods. Australian tourists make up a large number of the country’s tourist visitors. And finally, Australian union leaders have already said that they are ready to boycott Fiji’s shipping, airlines, mail, banking and other services.

President Mara has accepted that the price of acquiescence to the coup makers will be high. The promise of immunity to the terrorists is especially galling, a deliberate snub of international opinion.

The economic inequality found in Fiji is deplorable. The country badly needs economic development, the fruits of which can be shared by all its citizens. But institutionalizing political discrimination is no answer. Fiji’s failures are best addressed with more democracy, not less. Paradise never looked so ugly.

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